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Executive Summary #2072 on Federal Budget

September 20, 2007

September 20, 2007 | Executive Summary on Federal Budget

Executive Summary: Congress Should Link Amtrak's Generous Subsidyto Improved Performance

This fall, Congress will have two opportunities to put Amtrak on the path to fiscal independence and free the taxpayer of the obligation to provide the troubled passenger train system with its annual fed­eral bailout, which has risen to almost $1.3 billion per year. One opportunity will be the annual appro­priations process in which Congress can link spend­ing to performance, and the other is the opportunity to thwart an effort by several Senators (through S. 294, the Passenger Rail Investment and Improve­ment Act of 2007) to undermine what little reform is taking place in the system.

Since Amtrak's inception in 1970, the annual business-as-usual bailout has allowed it to squander $30 billion in taxpayers' money for the benefit of a tiny fraction of the traveling public and its overpaid workforce. Despite this massive subsidy and end­less promises of improvement by a series of recent managers, Amtrak is no closer to service sustain­ability today than it was in 1971 when the system began service.

New Excuses. This year, confronting sluggish growth in passenger boardings despite a taxpayer subsidy matching the ticket price almost dollar for dollar, Amtrak switched its promotional focus from transportation to its potential to increase energy independence and reduce greenhouse gas emis­sions. However, the facts indicate that no such opportunities exist.

Data provided by several independent sources of expertise in energy use and greenhouse gas emis­sions indicate that greenhouse gas emissions and energy use attributable to rail passengers could be reduced by two-thirds if all intercity rail passengers were shifted from Amtrak to buses. Indeed, U.S. Department of Energy data show that even sched­uled airline service has become more energy-effi­cient and is now only 17 percent less energy-efficient than Amtrak. This is a reasonable trade-off since time has value and a trip from Washington, D.C., to Chicago takes only two hours by air com­pared to 19 hours on Amtrak.

While neither Congress nor the White House will likely agree to shutting down Amtrak and encouraging its passengers to shift to buses and hybrid automobiles, they might seriously consider a plan to cap and then reduce Amtrak's burden on the taxpayer in a process that would also significantly improve performance. To do this, Congress needs to link Amtrak's subsidy to performance, and the most cost-effective performance measure would be Amtrak's ability to increase its load factor (the per­centage of seats occupied).

For fiscal year (FY) 2006, Amtrak's load factor reached 47.6 percent compared to 47.2 percent in FY 2005. During the first nine months of FY 2007, its load factor was 47.2 percent, compared to 46.2 percent for the same period in FY 2006. The absence of passengers is a system-wide problem, even in the Northeast Corridor, where Amtrak has invested heavily in Acela to provide quality and timely service. The FY 2006 load factor was only 45 percent in the Northeast Corridor, below the 47.6 percent system-wide average. It was also well below the 76.8 percent load factor for scheduled airlines during the same period.

Improving Amtrak. Given Amtrak's exception­ally poor ridership metrics, Congress should con­sider linking the generous federal subsidy to improvements in its load factor. For example, Con­gress could give Amtrak the same subsidy in FY 2008 as it received in FY 2007 but condition future subsidies on Amtrak's increasing its load factor for FY 2008 to 50 percent. If Amtrak does not meet this target, the FY 2009 subsidy would be reduced by $100 million for every 1 percentage point the FY 2008 load factor is below 50 percent. Furthermore, the target for each subsequent year would be increased by 5 percentage points until Amtrak matches airline performance. Setting such reason­able goals would force Amtrak managers to shift their focus from congressional lobbying and train schedules steeped in nostalgia to passenger satisfac­tion and the basics of modern transportation.

What Congress Should Do. Toput Amtrak on the path to fiscal independence and to begin freeing the taxpayer of the burden of subsidizing Amtrak's poor performance, Congress should:

  • Request that the Congressional Research Ser­vice and the Government Accountability Office update their studies on per passenger subsidies and energy efficiency to assist Congress in making rational choices among competing policies and special interests seeking transporta­tion subsidies;
  • Reject any attempt to increase the federal sub­sidy of Amtrak; and
  • Cap the Amtrak subsidy at $900 million and condition future subsidies on Amtrak's steadily increasing its passenger load factor to match airline performance. Congress should also steadily reduce the Amtrak subsidy from each year to the next.

Conclusion. The loss of life stemming from the tragic collapse of the I-34 bridge in Minneapolis focused the nation's attention on the number of structurally deficient bridges throughout the coun­try and the high cost of remedying the problem. Despite progress in reducing the number of prob­lem bridges in recent years, 72,033 bridges (12 per­cent of all bridges) are currently rated as "structurally deficient." And despite the safety risks that these problem bridges pose to the American motorist, Congress has consistently diverted federal transportation money to wasteful and/or low-prior­ity projects, including thousands of earmarks in recent highway bills and the costly subsidies required to keep Amtrak afloat.

With all of these issues still subject to legislative action during the last few months of this legislative session, the wiser course would be to hold the line on Amtrak subsidies and devote the money saved to essential bridge repair.

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.

About the Author

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

Related Issues: Federal Budget