November 3, 2005 | WebMemo on Federal Budget
Following a successful vote in favor of Rep. Don Young's $320 million "Bridge to Nowhere" in Alaska, Sen. Trent Lott has shown that he too can waste taxpayers' money on underutilized transportation projects. Today Sen. Lott plans to offer an amendment (derived from S.1516) to the Senate's reconciliation bill (S. 1932) that would commit the federal government to providing an additional $12.2 billion to Amtrak. As rewritten for the amendment, Senator Lott's proposal would spend $12.2 billion over the next six years on Amtrak. At a time of fiscal crisis, boosting federal subsidies to money-losing and mediocre Amtrak makes no sense.
Under the Lott amendment, new Amtrak spending would top $2.0 billion per year, on average-a 67 percent increase over this year's federal subsidy for Amtrak. At that rate of increase, Amtrak spending would likely be the fastest growing component of the federal budget, an odd tribute to a money-losing entity providing mediocre service to the half of one percent of intercity travelers who choose passenger rail as their travel mode of choice.
Relative to his earlier bill, Sen. Lott's amendment at least shows some fiscal restraint by excluding a provision (Title V) that would authorize the issuance of $13 billion in federal "tax credit" bonds in increments of $1.3 billion per year over the next ten years. These tax credit bonds would have been issued at a zero percent interest rate for the borrower (Amtrak), while holders of the bonds would receive "interest payments" by way of an equivalent tax credit taken against their annual federal tax liability. In effect, the federal taxpayer would directly subsidize Amtrak's borrowing costs. These bonds would cause federal tax receipts to fall by $650 million per year due to the tax credits, assuming the bonds earn an equivalent of five percent per annum.
Sen. Lott's effort to waste more taxpayer money on Amtrak comes on the heels of the Senator's earlier successful amendment to free Amtrak of to the constraint of having to operate in a cost-effective manner. In late October, Senators Lott and Joe Lieberman offered an amendment to the Senate's transportation appropriation bill to strike provisions that would require Amtrak to break even on food service and first-class sleeper car service. As the Government Accountability Office and the Amtrak Inspector General (IG) reported in June 2005, Amtrak loses $150 million per year in providing food and beverage service. In a separate report, the U.S. Department of Transportation Inspector General reported in July 2005 that "eliminating sleeper cars, dining cars, entertainment, lounge seating, checked baggage service, and food and beverage service on Amtrak's long-distance routes could save between $375 million and $790 million in operating savings and $395 million in avoidable planned capital expenditures over 5 years."
These potential savings would come close to covering Amtrak's annual cash operating losses and could free Amtrak of the need for any federal subsidy at all. Boosting Amtrak's subsidies would be a step away from that reform process and a bad step for fiscal restraint.
Ronald D. Utt, Ph.D., is Herbert and Joyce Morgan Senior Research Fellow in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.