Tuesday, March 18, 2014

Amtrak refuses to subsidize the long distance trains any longer

In today’s release of Amtrak’s grant request for Fiscal Year 2015, President Joseph Boardman notes that, if Amtrak were to continue using revenues from the Northeast Corridor to subsidize the rest of the national train system, the resultant operating grant would be only $333 million, the lowest operating subsidy for Amtrak, in real dollars, since 1973. Yet this is not to be. In a major departure from previous practice, Amtrak is reinvesting the operating profits of the Northeast Corridor back into itself as capital investment and demanding that Congress foot the whole bill for the remainder of the national train system, a bill which is almost entirely composed of the long distance train system.

In terms of numbers, there’s little to no real difference as to whether Amtrak is requesting funds as part of an operating grant or as a capital grant; either way the total request for FY15 comes out to $1,620 million dollars. However, it marks a major difference in Amtrak’s political priorities and its strength versus Congress. Previously, Amtrak has always sought to minimize its operating loss, both for practical and political reasons. Maintenance can be deferred for decades, as the Northeast Corridor bears witness, while operational spending cannot; when funding is on the line, it is the immediate needs of operations which needs to come first. Furthermore, it may be a good deal simpler to pass a capital grant, which may slide under the radar so to speak, than it would be to pass what would otherwise be a larger operational grant.

That Amtrak is now willing to demand that Congress fund the entire cost of the national train system, rather than use revenues from the Northeast Corridor to cross-subsidize it, indicates that they are no longer operating under circumstances where they fear having to fight for every single operational dollar. Improvements in the Northeast Corridor, especially the Acela trains, and legislation which moved the burden of funding short distance routes to the host states, have greatly reduced Amtrak’s financial risk outside of the long distance train network. Indeed, the perennial argument by rail advocates that the long distance trains are necessary in order to maintain political patronage in Congress is no longer valid. If the long distance trains are a sop to Congress, then, in the apparent opinion of Amtrak, it is Congress’ responsibility to provide for them, for it no longer requires them to drum up support to continue Amtrak’s survival. It would be a grim sort of survival, with a continued lack of necessary investment in the Northeast Corridor, but even a completely hostile Congress and Presidency can no longer kill Amtrak; they can only kill the long distance trains.

It is also a recognition that Amtrak must come to grips with the investment needs of the Northeast Corridor sooner, rather than later, and that it cannot rely on a major investment by the Federal government to do so. The operational revenues of the Northeast Corridor, if nothing else, represent a somewhat steady source of income for capital investment. As we’ve seen for the past several years, Congress most certainly does not represent anything that might be described as “steady” nor has it been willing to make the large investments necessary to restore the Northeast Corridor to a state of good repair. Make no mistake, those are massive investments that Amtrak will be making. While the FY15 grant request is only for a total of $735 million in capital spending in the Northeast Corridor ($290 million of which will come from operational profits from the Northeast Corridor), Amtrak forecasts an investment of $1,573 million the next year, $1,692 million in Fiscal Year 2017, and $1,650 in Fiscal Year 2018. For comparison, this is larger than the capital investments of Canadian Pacific, Canadian National, and Kansas City Southern.

It is highly likely, however, that the Federal government will balk at clearly subsidizing the long distance trains. With a combined annual operational and capital subsidy just over $900 million, the demand by Amtrak that Congress clearly pay for the long distance trains will encounter a severe amount of resistance, especially with a Tea Party dominated Republican Party remaining in control of the House through the end of the year and probably past the election as well. Even if funding is granted, it will probably be at a reduced level and we may see route eliminations by legislative fiat. This is not altogether a bad thing; the equipment used on an eliminated route may be spread to other routes where it will perform better and reduce the overall operating deficit of the long distance train network.

To this natural resistance must be added the resistance from lobbying by the various rail advocacy organizations. Especially in states where the rail advocates have not had any success in increasing state funded rail service, I would anticipate a vociferous response against Amtrak’s proposal. Yet it is precisely the irrelevance of these organizations and their grandiose, yet completely impractical, “visions for the future” which will allow Amtrak to prevail on the merits of their plan. I do not think that it is altogether coincidental that it is by approximately nine hundred million dollars that Amtrak proposes to increase capital spending on the Northeast Corridor; they do not need to explicitly state where it is that funds may be found by a parsimonious Congress for increased investment in the Northeast Corridor.

I do not think it likely that the entire long distance train network will be dismantled. Certain routes will and some of them, such as the Sunset Limited, truly deserve a cheerful “Good riddance!” should they be so eliminated. Others, however, will continue to have sufficient patronage as to ensure Federal political support or even some state support. The Coast Starlight, for instance, would probably find itself kept, perhaps in an altered form, by the West Coast. Similarly, the Silver Service trains can probably find themselves assured of continued Federal largesse, possibly with some level of state matching funds.

However, it is quite clear that Amtrak will no longer subsidize these trains on its own and that the provision of long distance intercity rail service, if it is to be a Federal goal, must be a mandate entirely funded by the Federal government. For all the complaints that certain rail advocates may make, Amtrak cannot ignore its responsibilities as owner of the Northeast Corridor. Meanwhile, though Amtrak is a national train service, there is nothing that requires that it provide continuous rail service across the entire nation or, at its own expense, to provide rural transportation for disadvantaged communities. The gauntlet has been thrown down and we shall see if Congress truly believes that the long distance train network is worth the expense that it has laid upon Amtrak.

2 comments:

  1. I think the country wants long distance trains and is prepared to pay for them.

    I also think ordering more equipment would improve their financial performance (by increasing revenue) and running more trains would lower the per-passenger cost by further increasing revenue faster than costs and bringing new riders from new points onto existing trains.

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    1. Wants long distance trains, sure, but I'm not sure that the American public is willing to spend $900 million annually on long distance trains as a line item subsidy. They're willing to spend significantly more on Amtrak, but I think there's a major distinction in the public mind.

      As for ordering more equipment and running more trains: the deficit by long distance trains is far too large to overcome in such a manner. Even if they were guaranteed to decrease the operating deficit (which they aren't; the Cardinal PIP showed a greater loss for a daily Cardinal than the triweekly schedule), the capital costs would be tremendous. A far greater gain would be achieved by spending the money instead on the Northeast Corridor.

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