The Heritage Foundation

Backgrounder #1179 on Regulation

May 15, 1998

May 15, 1998 | Backgrounder on Regulation

Congress Should Accept Industry Offers to Buy Amtrak

Despite 27 years of federal subsidies amounting to more than $30 billion (in 1998 dollars), Amtrak's financial condition today is as bad as it ever has been. Its track record is so poor that recent reports from the U.S. General Accounting Office (GAO) question whether Amtrak will be able to survive in the future without receiving substantially greater federal subsidies. Fortunately for U.S. taxpayers and rail passengers, innovative opportunities for fundamental reform of the Amtrak system are emerging. Several private investors and transportation companies are offering to acquire some or all of Amtrak's rail system and make its operation profitable, as other countries have done successfully around the world.

Numerous recommendations to privatize Amtrak have been proposed in the past. In fact, privatization proposals were a regular feature in President Ronald Reagan's budget submissions during the 1980s. The President's Commission on Privatization in 1988 endorsed the privatization of Amtrak in its published report one year after President Reagan successfully privatized Conrail, the government-owned freight rail system serving northeastern and mid-Atlantic states. Despite the government's success with Conrail, however, Congress rejected proposals to privatize Amtrak. In the late 1980s, proponents of the status quo correctly argued that passenger rail service was an unprofitable government monopoly throughout the world, and that no investors had expressed interest in acquiring the Amtrak rail system.

In the past ten years, however, the passenger rail business has changed significantly both in the United States and abroad. Such countries as Argentina, Great Britain, Japan, and New Zealand have privatized passenger rail service successfully through a variety of creative mechanisms. There has been no shortage of investors and qualified businesses eager to acquire their failing systems and invest tens of billions of dollars to modernize them. Their successes have encouraged efforts to replicate them in a growing list of countries, which includes Australia, Germany, Sweden, and Taiwan, whose governments concluded that socialized rail service is a thing of the past.

Congress and the White House recently enacted a series of initiatives to improve Amtrak, but their plans rely on increased government spending and additional layers of bureaucracy. Their approaches represent nothing more than costly, but temporary, life support--not the fundamental reform that Amtrak needs in order to become financially self-sufficient. These recent legislated changes also will not make Amtrak competitive with more attractive forms of intercity transportation, such as private automobiles, or with buslines and airlines that have benefited from professional management and entrepreneurial zeal.

Despite the recent and rapid deterioration of every facet of Amtrak's business, including its financial integrity, several investors and transportation companies have contacted the U.S. Department of Transportation formally to request that discussions and negotiations to acquire the rail system be opened. To date, the government has not responded to these requests, and it continues to ignore the opportunity that these requests provide. Congress should use this opportunity to rectify nearly three decades of counterproductive policies by reopening the Amtrak issue and by giving the privatization option the same serious consideration now commonplace in other countries. Indeed, Members of the House already have introduced legislation to privatize Amtrak, and hearings on the Amtrak Privatization Act (H.R. 1666) offer Congress an excellent opportunity to evaluate the proposals of investors who hope to acquire some or all of Amtrak's system.

Congress should require the Clinton Administration to engage immediately in good-faith negotiations with these and any other prospective buyers, and to set a date by which the transaction should be completed. Accepting even one of the offers would allow the United States to join with countries like Argentina, Great Britain, Japan, and New Zealand that successfully privatized some or all of their passenger rail systems. Transferring ownership and management of the Amtrak rail system to private investors would bring an end to an era of poor service and costly subsidies that now exceed $1 billion per year.

About the Author

Ronald D. Utt, Ph.D. Herbert and Joyce Morgan Senior Research Fellow