May 15, 2002

May 15, 2002 | News Releases on Regulation

Amtrak Must Privatize to Survive, Analyst Says

WASHINGTON, May 15, 2002-A financially strapped Amtrak is warning Congress that it will cut as many as 18 routes by October unless lawmakers double its annual subsidy to more than $1 billion. But it's time America ended the "30-year attempt to apply socialism" to the nation's passenger rail service, a new Heritage Foundation paper says.

"Amtrak isn't even close to meeting its own goal of being financially self-sufficient by the next fiscal year," says Ronald Utt, the Morgan senior research fellow at Heritage, who served as privatization "czar" in the Reagan administration. It lost a record-breaking $1.1 billion last year, he notes, and likely will be insolvent by this summer or by fall unless it either "dramatically cuts its costs or secures higher subsidies."

But, the analyst says, introducing competition or outright privatization-as has been done in Europe and Asia-could reduce costs, improve service and might even lead to profits. Sen. John McCain, R-Ariz., and Rep. John Mica, R-Fla., for example, have introduced legislation that would apply to Amtrak the private-sector reforms that have helped passenger rail systems in Japan, New Zealand, Argentina, Great Britain, Australia and Sweden become cost-effective and sometimes profitable. And the Amtrak Reform Council (ARC) has proposed a complete overhaul, starting with pilot projects to test greater private-sector participation.

Rep. Mica proposes separating the barely profitable East Coast routes from the rest of Amtrak and would offer the more scenic cross-country routes to tour operators and the rest to the states they serve or to private operators. Sen. McCain would have the Transportation Department establish an office specifically to pursue privatization, set up an Amtrak control board and allow states to help determine routes. Under his plan, Amtrak would be privatized within four years.

All three proposals deserve serious consideration, Utt says, but whatever emerges, one thing is clear: The status quo is unacceptable. Amtrak executives promised Congress in 1997 that the system would be financially self-sufficient by 2003. Yet, despite annual subsidies of more than $500 million, plus a special "tax refund" of $2.3 billion in 1998 and 1999, Amtrak's finances have deteriorated in the last five years.

Amtrak lost $763 million in 1997, $994 million in 2000 and more than $1 billion last year. Ridership has risen just 1.4 percent since 1990-nearly all on the East and West coasts. Meanwhile, airline ridership has climbed 38.5 percent.

Only one of Amtrak's 40 principle city-to-city routes-the Metroliner, which once ran from Washington, D.C., through New York to Boston-showed a small profit, Utt says. Some lose as much as $3 per $1 received in ticket revenue. And because of its prohibitively high ticket prices-fares now approach 150 percent the cost of air travel-Amtrak failed to make inroads against air or bus traffic even after Sept. 11, and thus controls less than 1 percent of the intercity travel market.

It's a different story in Japan, New Zealand and Australia, whose entire systems have become profitable since being sold off to private operators, Utt says. In Britain and Argentina, where subsidies have been cut, the governments maintain an ownership interest but sell operating rights to private operators. In Britain, where a non-profit firm now owns the infrastructure, infrastructure investment will increase from $3 billion per year to more than $8 billion per year over the next 10 years. Ridership also is expected to approach record levels.

"Given the successes all over the world in turning money-losing, publicly owned rail systems into profitable private-sector entities, it's time we ended our 30-year attempt to apply socialism to rail travel and do what it takes to make Amtrak viable and profitable," Utt says.

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