Carte Blanche: Get Government Out Of The Rail Business

Thomas Winz

Joe Biden, or “Amtrak Joe” as media has called him for years, has certainly earned this nickname. While he might take it as a compliment, thinking it’s better than “Sleepy Joe”, I’d argue that being affiliated with the failed corporate bailout program that is Amtrak isn’t something to be proud of.

Amtrak is the quintessential example of what goes wrong when the government interjects itself into the free market. When commercial air travel and interstate highways emerged the 1950’s, the once-dominant passenger rail industry naturally suffered from the new competition. Operators were forced to disband money-losing passenger lines in order to save freight lines, and 9,000 daily passenger trains per day in 1920 dwindled to 3,000 by 1958. By 1971, passenger rail was facing total collapse, so the federal government decided to take over what was left of the industry and created Amtrak.

Amtrak, a government-run for-profit corporation, turned 50 years old last week and has yet to turn a profit. In 2020, it lost $2.17 billion and cost taxpayers an estimated $4.1 billion. Over its history, it has cost taxpayers approximately $100 billion. The average person travels just 20 miles per year on Amtrak, compared to roughly 2,000 miles by plane and 15,000 miles by car. And while the average Amtrak passenger’s annual household income is $170,000, we still subsidize $60 of each ticket.

To be clear, the idea of federalized rail was pitched as a profitable endeavor, not a money-losing government program. Secretary of Transportation John Volpe ensured Congress in 1971 that Amtrak would be profitable within three years and it just needed temporary subsidies for capital investments that would turn it around. Amtrak’s current Chairman Anthony Coscia had a different take in a 2020 op-ed in which he begged for more funding:

“Let me start with the notion of making Amtrak “profitable.” Profitability is not Amtrak’s mission… As our governing statute has recognized since the 1970s, Amtrak will never generate enough revenue to be profitable from an accounting perspective.”

This suggests that Volpe was lying to Congress about Amtrak’s potential. According to the Eno Center for Transportation, Volpe’s Department of Transportation (DOT) concocted far-fetched estimations that were actually challenged by President Nixon’s Office of Management and Budget (OMB). DOT predicted a $24 million profit by 1975, while OMB was skeptical and asserted it could actually lose $11 million by then. DOT’s fanciful plan was chosen, while OMB’s dire predictions came true. This imprudent attitude towards fiscal responsibility still plagues the program, which still doctors the numbers and calls itself a for-profit corporation (despite Coscia’s attitude) in order to justify its existence.

As CATO Institute’s Randal O’Toole uncovered, Amtrak uses deceptive accounting practices to mislead the public about its poor financial performance. Specifically, it leaves out depreciation as an expense and includes subsidies as “passenger revenues” in its financial statements. Rail Passengers Association, a pro-passenger rail advocacy organization that calls itself “a voice for Amtrak”, described this accounting as “fatally flawed, misleading, and wrong.” It even prompted a bi-partisan Senatorial inquiry in 2019. If Amtrak were a private corporation, it could face criminal charges for deceptive accounting. Given that Americans are involuntary stakeholders and have no choice but to subsidize Amtrak, unethical accounting practices have much steeper consequences for more victims than they do in private industry.

“Amtrak Joe”, who started his Senate career the year after Amtrak launched, has had a front-row seat for its entire existence. He was a daily Amtrak commuter as a Senator, and once stated, “Amtrak is like a second family to me”. This self-described incestuous relationship motivated him to allocate $80 billion of his recently proposed $2.2 trillion infrastructure bill to it. He clearly sees its expansion as necessary to the country’s infrastructure, despite its astronomical cost to Americans, exclusionary ticket prices, and deferred maintenance backlog that includes two new tunnels – one for New York and the other for Baltimore – with an estimated replacement cost of $24 billion. In 1986, Biden told Amtrak skeptics, “I look forward as much as anyone to the day when Amtrak states that it no longer needs any assistance.” That was 35 years ago, but apparently the key to achieving profitability is a capital injection larger than the annual GDP of most countries.

One of Biden’s most important allies is the Federal Railroad Administration (FRA), whose existence largely depends on Amtrak, and advocates for expanding lines to small cities like Montgomery, Alabama. The issue with their studies, however, is that cost-benefit analyses are never part of them. For example, since 2001, the FRA has been pushing a 8,500 mile national high-speed rail (HSR) network that it dubbed as “Interstate 2.0”, as a comparison to President Eisenhower’s successful interstate highway initiative (which ironically put private passenger rail out of business). In 2009, President Obama came through for the FRA and allocated $8 billion upfront, plus $1 billion per year to build “Interstate 2.0”. The problem was that the system was a “trillion-dollar funding proposition”, as industry leaders testified, so the $13 billion Obama pledged was about 1% of the funding needed to achieve the FRA’s vision of cross-country HSR.

More than a decade later, “Amtrak Joe” and his Secretary of Transportation, Pete Buttigieg, are trying to revive the HSR dream. This time around, they’ve focused on marketing the endeavor as necessary to compete with countries like China. Buttigieg recently told MSNBC:

“I just don't know why people in other countries ought to have better train service and more investment in high-speed train service than Americans."  

First, as I’ve argued regarding Trump’s trade war, it’s foolish for our government to try to compete with China – leave that to the private sector. Second, the routes in most other countries are much shorter than what is being proposed by the FRA, which even admits that HSR is only competitive with planes and automobiles for routes between 100-600 miles. Third, China is honing in its HSR program because it’s quickly approaching $1 trillion in debt.

Fortunately, we don’t even have to look at other countries anymore to see how disastrous a national HSR project would be. In 2010, California gladly accepted Obama’s funding for the nation’s first HSR project. It was supposed to transport passengers from San Francisco to Los Angeles in under 2.5 hours. The total construction cost was projected at $33 billion, taking about ten years and opening in 2021. The reality has played out much differently (noticing a theme here?). After the projected cost ballooned to $100 billion with the completion year of 2033, the state’s progressive Governor Gavin Newsom, in his first State of the State address, pleaded, “let’s get real” and trimmed down the project to a 171-mile segment between Merced and Bakersfield, slated to open in 2027. For context, Merced is 130 miles southwest of San Francisco, while Bakersfield is 111 miles northwest of Los Angeles. It is truly a train to nowhere that will have taken 17 years to construct if things go well.

While government-operated passenger rail shouldn’t have a place in this country, the private sector has the potential to provide it where it makes sense. Fortress Investment Group is currently developing the first privately-owned passenger railroad in the U.S. since 1970. Named Brightline, the first leg (Miami to West Palm Beach) opened in 2018 and the second leg (West Palm Beach to Orlando) will open in 2022. It’s too early to tell how successful it will be, but at least taxpayers won’t be left footing the bill if it fails. The investors made an educated and voluntary bet on its success, while also providing jobs and investing in real estate surrounding the route. The firm is already in the process of building another HSR line from Los Angeles to Las Vegas, and another investment firm, Texas Central, is currently building one linking Dallas and Houston.

One thing that private investors won’t touch is Amtrak – mostly due to the colossal deferred maintenance costs. Besides, the government has no interest in selling it because any private company would need to disband all lines outside of the Northeast Corridor in order to avoid bankruptcy. Congresspeople on both sides are content with letting their constituents foot the bill, as long as they can say Amtrak comes to their state. These are the types of incentives that keep non-sensical government programs alive, and another reason why decentralizing our federal government should be a priority for all Americans.