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Press Release

    Policy Derailment

    06/25/2002

    This week, Congress is expected to give Amtrak an emergency $210 million loan to keep the floundering passenger rail monopoly out of bankruptcy. Although unfortunate for both taxpayers and intercity rail passengers, this expected development is illustrative of not only how indiscriminately policymakers spend tax dollars, but also how short-term solutions aimed at protecting special interests take precedence over comprehensive policy initiatives.

    In testimony before the Senate transportation appropriations subcommittee, Senator Richard Durbin (D-Ill.) asked the Transportation Department's chief financial officer, Donna McLean, if she understood “the gravity of ceasing Amtrak operations.” Before McLean could tepidly reply, “I certainly do,” Durbin launched into a harangue about how taxpayers must bailout Amtrak so as not to limit travel options for Illinois residents or imperil the jobs of the 23,000 Amtrak employees.

    If this is what Sen. Durbin means by “grave” consequences, the case for bailout is nothing more than mere chicanery. Amtrak accounts for 0.3 percent of all intercity transportation, does nothing to reduce traffic congestion, has seen its ridership stagnate for the past 25 years, and serves predominately upper-middle class travelers. Let’s just say that, despite Sen. Durbin’s concerns, if Amtrak ceased operations the world wouldn’t exactly spin off of its axis.

    Since its founding in 1971, Amtrak has cost U.S. taxpayers $24.2 billion (nearly $30 billion in 1998 dollars) and has failed to turn a profit in each of its 31 years despite persistent calls for it to do so. Last year, Amtrak took out a 16-year mortgage on Penn Station in midtown Manhattan, an act described by the White House Office of Management and Budget (OMB) as “a fiscal absurdity equivalent to a family taking out a second mortgage to pay its grocery bills.” Of the 41 routes that Amtrak ran in 2001, 14 lost more than $110 per passenger and six lost more than $220 per passenger, while only 2 routes were profitable.

    George P. Schulz, OMB Director at the time of Amtrak’s creation, did not expect anyone to ride the trains and thought the system would shutdown in 2 years. Every budget director who has followed Schulz has either publicly or privately called for Amtrak’s liquidation. The problem has been, and continues to be, an obdurate Congress captured by special interests (most notably the rail workers’ unions and rural residents) that is happy to appropriate a couple billion here and there to allow operations to continue, but unwilling to devise, or even contemplate, a coherent policy.

    The Sen. Durbins of the world may be compassionate people genuinely concerned about the families of the Amtrak employees, and not simply interested in protecting the dues revenue (and political activities) of the AFL-CIO's Transportation Trades Department, but it is difficult to understand how any self-respecting legislator could denounce Enron and corporate accounting practices, while defending Amtrak at the same time.

    It took Amtrak’s new CEO, David Gunn, three weeks of sorting through Amtrak’s finances and an independent audit by KPMG to have any clue what Amtrak’s financial picture really looked like. Amtrak routinely double-counts passengers, vastly underestimates capital subsidies, and ignores day-to-day operational cost overruns that cumulatively total in the billions.

    Yet Sen. Durbin not only derogates private corporate accounting while supporting Amtrak, but also chides his colleagues for not taking action. “After all of the sound and fury of these investigations,” Sen. Durbin said on the Senate floor earlier this year, “the bottom-line questions are: Is Congress willing to amend the law to rein in the greed of the next Enron? Are we willing to concede that the genius of capitalism can result in ruthless behavior without our oversight and the protection of the law?” Of course, Amtrak is not the next Enron: as a publicly subsidized corporation with no need to attract capital from investors it is far worse.

    In all likelihood, Congress will approve a $210 million loan to keep Amtrak running through the summer. At that time – or before – it will likely approve an additional billion to keep it running until the next crisis hits. With any luck, Congress will get lots of empty promises for its indiscriminate use of taxpayer dollars.

    After all, for the 1997 restructuring bill that “required” Amtrak to turn a profit, its CEO at the time, Thomas M. Downs, promised that the $2.3 billion bounty “would not only bring Amtrak back from the brink of bankruptcy but would also ensure a future of modernized trains, high-speed rail and revitalized train stations.”

    Right. In the past three years, Amtrak has under-invested in the capital maintenance of the Northeast corridor by an estimated $729 million. Service continues to suffer as a result. Anyone even remotely interested in a better passenger rail system – particularly for the Boston-Washington corridor, Los Angeles-San Francisco, and other highly traveled routes where alternatives to airline shuttles are financially tenable – would demand an end to the abject failure that is the Amtrak passenger rail monopoly.

    The Amtrak Reform Council and Transportation Secretary Norman Minetta have made some worthwhile proposals to move away from the current system. While neither goes far enough, they provide a roadmap out of the current dilemma by calling for competition, state responsibility, and an end to federal taxpayer subsidies. The aftermath of September11th has provided Amtrak’s apologists with one last counterargument to these reforms, but before worrying about “what we would do if we didn’t have passenger rail” these opportunists should explain why Amtrak’s September 2001 ridership was down 6 percent from the previous year.

    As Council member Wendell Cox has said, “The point is that the rail fans need to begin to understand that the biggest obstacle to improving passenger rail in the United States is Amtrak.” Until Congress realizes this fact and works to develop a coherent strategy to further the interests of rail passengers and taxpayers instead of railroad employees’ unions, the next “final” Amtrak bailout will only be a fiscal year away.