Amtrak heading toward a trainwreck

This time the national passenger rail system, Amtrak, really is heading for a train wreck. So badly in debt is the public corporation that the General Accounting Office (GAO) and a host of other observers see it as functionally bankrupt. Congress and the Clinton Administration have been warned repeatedly of the need to plan ahead for the kind of privatization that is being tried in various other parts of the world. But they have opted instead for inertia, politicization of routes and short term financial fixes. Amtrak has a sincere and able President, Tom Downs, but he has an impossible job.

Annual subsidies are running about $1 billion, yet Amtrak is so loaded with losses and debt service that at least one expert, Glenn Scammel, on the staff of the House of Representatives Rail Subcommittee, thinks the system may run out of cash by fall. Earlier this week, in a case before the federal Surface Transportation Board, the Boston and Maine railroad filed papers to stop Amtrak plans to run a new service into Maine. The Boston and Maine contends that Amtrak’s promise of indemnification in case of accidents on the freight’s tracks cannot be trusted, since Amtrak is effectively insolvent.

That is the sort of story that is bound to attract the interest of Amtrak’s many creditors, and also of the other private freight railroads around the country that are obliged by law to carry Amtrak passenger trains over their tracks. It already apparently has begun to dawn on the freights that their current mandatory subsidies to Amtrak in the rent of tracks and the provision of cut-rate priority service, could be vastly increased in some Amtrak rescue effort ahead. Suddenly, the skepticism (bordering on disdain) that most of the freights feel toward inter-city rail in general is becoming something closer to worry that they will be targeted to bear much of the cost of a bailout.

The obvious and overt option to Amtrak’s going bankrupt and stopping service is the current proposal by the Administration to assign one-half cent of the gas tax to a fund for inter-city rail support. But even if that legislative action is taken–and it’s not at all certain–bankruptcy may be forestalled by only a few more months. That’s where the hidden taxes on freight railroads comes in.

Indeed, former New Jersey Governor James J. Florio and Carl E. Van Horn of Rutger’s University are urging a new blue ribbon Congressional advisory committee to create additional subsidies of Amtrak from the private freight railroads and the electric utilities.

In a recent memorandum, Florio and Van Horn suggest that Amtrak be allowed to go into the freight business itself, using its government-backed authority to win concessions from the freight lines that a normal competitor could not obtain. They also suggest that Amtrak be allowed to sell electricity, and effectively compete with electric utilities. Normally, such ideas would be considered outrageous, but in a Capital that fears voter wrath from either more direct taxes or expanded budget deficits, the plan may attract support, especially as the Amtrak crisis worsens.

What is not proposed by Florio and Van Horn is any curbing of the labor laws that burden Amtrak financially and account for many of its problems. For example, if an Amtrak worker is declared surplus or is assigned to a job more than 60 miles from his home, he is awarded a separation payment equal to six years of full pay and benefits. Taxpayer groups are bound to wonder how Congress can continue wringing its hands over inefficiencies in Amtrak management when Congress itself–including some supposed conservatives–refuse to reform such ancient featherbedding practices.

Paradoxically, it is exactly the expensive labor provisions of the law governing Amtrak that will make it hard for the government finally to let Amtrak cease operations. The tab for layoffs would amount to $5 billion, and while the government technically could not be held responsible, there would be tremendous pressure to step in when Amtrak defaulted. A bailout that permitted continued operations would be far less costly.

But the least costly option may be the one the government so far has avoided: privatization. Alternative approaches include opening the service to bidders, with a built-in subsidy for a period of transition, or restructuring the current Amtrak into a private company–freeing it from antiquated labor requirements and political meddling over routes, but also liberating the freight railroads from hidden subsidies of Amtrak. Management and workers would be given stock in the new company–and with it, the motivation as well as the means to economize. States, as now, could help maintain marginal routes over their territory, but only if the private railroad found it feasible to make a profit there.

Why is it that government so often refuses to consider the free market answer until all others are found defective? Today, the issue is inter-city passenger rail, a means of transportation in our increasingly urban country that should have a promising future as well as a glorious past.

But it seems a crisis will be necessary to force consideration of a private system attuned to our times and economy. For better, or worse, that crisis in on its way.

Bruce Chapman

Cofounder and Chairman of the Board of Discovery Institute
Bruce Chapman has had a long career in American politics and public policy at the city, state, national, and international levels. Elected to the Seattle City Council and as Washington State's Secretary of State, he also served in several leadership posts in the Reagan administration, including ambassador. In 1991, he founded the public policy think tank Discovery Institute, where he currently serves as Chairman of the Board and director of the Chapman Center on Citizen Leadership.