By Noel T. Braymer
Amtrak has played a dangerous political game with rail passenger service since the 1970’s. Amtrak, which was created as part of the bailout of the bankrupt PennCentral Railroad wouldn’t have had the political support needed for its creation unless it served the entire country. In 1970 the PennCentral was America’s largest rail passenger carrier and served the Northeast and Midwest. The bulk of its ridership was along the Northeast Coast. Without broad based support, there wouldn’t have been the votes in Congress to create Amtrak to bailout the PennCentral if it only served one region of the country. The game Amtrak management has played since the mid 1970’s has been to blame the Long Distance Trains for its budget deficits, while spending most of its Federal Subsidy in the Northeast.
From the mid 1970’s Amtrak’s deficits seemingly exploded overnight. Much political hot air has been made of Amtrak’s failing to make money. What most critics ignored was the rising costs for Amtrak happened at the same time that it was given most of the PennCentral railroad between Washington and Boston. The original plan for Amtrak to become profitable was based on having low overhead. That meant Amtrak was suppose to own almost nothing, It would own passenger cars, but contract the locomotives and trains crews from the railroads, It wouldn’t own stations, only lease them, It was barred from running commuter trains because they are highly unprofitable. And there were no plans for it to own or operated tracks which have the highest overhead costs of a railroad. When Congress dumped on Amtrak most of the unwanted passenger train related assets of the PennCentral, particularly the tracks on the northeast, Amtrak’s costs soared.
This graph from the 1982 study Amtrak 90:A Route to Success shows the dramatic increase of Amtrak’s costs after it was given assets from the PennCentral and that it didn’t reduce its deficit when it eliminated trains in 1980.
One thing about a bureaucracy, once it owns something, it doesn’t like to lose it. In order to distract its critics of the costs of the massive overhead it got from the PennCentral, Amtrak’s accounting charged much of its costs from it to the Long Distance Trains. Since Amtrak often charges train costs on a per rail mile basis, and Long Distance Trains travel long distances, all of a sudden the Long Distance Trains were the cause of Amtrak’s deficits.
This was odd historically since the railroads in the most trouble after World War II were the ones with the most rail passenger service, particularly commuter and short distance rail service.This particularly meant the Pennsylvanian and New York Central railroads. Most of the other railroads ran mostly Long Distance Passenger Rail service on their mainlines. In general these trains didn’t make money, But they didn’t lose much money either. In creating Amtrak, many of the railroads outside of the Northeast weren’t eager to have this new railroad on their tracks. When Amtrak first started in 1971, not all the railroads gave up their Long Distance Rail Passenger service, wishing instead to avoid dealing with Amtrak.
In the face of pressure by the Carter Administration to reduce costs and.save money, Amtrak had to do something. After much strum und drang Amtrak cut 5 passenger train lines. Four of these were Long Distance Trains. All of these trains were considered the worst of the worse for losing money. The end result was Amtrak’s deficits went up not down. The reason for this was almost no overhead costs were cut. But revenues from these trains disappeared, leaving Amtrak worst off.
A study in 1982 by Dr. Ronald C. Sheck an Associate Professor of Geography and Planning at New Mexico State University Las Cruces, New Mexico called Amtrak 90:A Route to Success explained what really happened. What Dr. Scheck found was“ In FY 1980 Amtrak incurred total expenses of $1.1 billion, yet the actual cost of direct operating expenses (moving the trains over the tracks-labor, fuel, expendables, etc.) was only $272 million, or about 25 percent of the total. Indirect expenses (stations, yards, shops, maintenance of locomotives, cars, and the small amount of track owned by the corporation) totaled $644 million, or 56 percent of expenses. Revenues generated from ticket sales, food and beverage sales, and the movement of mail and express in the year ending September 30, 1980, totaled just over $410 million. On a direct-cost basis Amtrak’s trains earned more than the cost to operate them by some $127 million.(emphasis added) The high infrastructure costs are clearly a major problem and reflect serious diseconomies of scale.”
While this was going on the management of Amtrak became excited about the rapid ridership growth on the State supported rail service between Los Angeles and San Diego. Amtrak thought this would be the perfect market for a “Bullet Train”. Some financial support for this project was promised by a Japanese Billionaire and legislation in Sacramento was passed for the State to issue bonds for this project. Some of Amtrak’s top management left to start their own company to built this bullet train. The project died because it was deeply flawed. Los Angeles to San Diego is too short a route for High Speed Rail by itself to serve enough markets and generate the passenger miles to pay for itself. Building a new railroad in a dense urban area like Southern California would be very expensive and it soon hit solid opposition from local residents which killed this ill conceived project.
By the end of the 1980’s the Southern Pacific finally relented to allowed a train from San Diego to go north of Los Angeles to Santa Barbara. This one train created a major jump in revenues for the trains then called the San Diegan. This is because by extending this train using existing overhead, it generated additional revenue from serving new markets and with longer trips increased its passenger miles which translated into higher passenger revenues.
High Speed Rail gets the most bang for the buck built in open land over long distances which impacts the fewest people and where it is cheapest to build. High Speed Rail is profitable with lots of passengers going fairly far to generate maximum passenger miles. Many High Speed Rail services use existing infrastructure in urban area and do most of their high speed running in the country where the trains can produce the most passenger miles.
During the Reagan Administer of the 1980’s the then FRA’s administrator, John Reilly recruited retired Southern Railroad President W. Graham Claytor to become Amtrak President. The fact that Mr. Claytor was a prominent Democrat helped to gain board support for his nomination. Together they to improved Amtrak’s finances and reduce its deficits. This made the Reagan Administration happy and kept Amtrak’s critics at bay. Central to doing this is they expanded Long Distance Train service. By doing so Claytor used the revenues from the Long Distance Trains to pay for more of Amtrak’s overhead than they already were. This benefited the North East. Here are quotes from Mr. Claytor of the thinking behind this.
“That is one of the ways we hope to reach it (reduce Amtrak’s deficit) and to get additional equipment in order to increase our revenues faster than our costs. That spread is what counts. With the new order for locomotives already in, and with the orders for new Superliner cars we hope to make this year, these would give us the additional capacity to increase our revenues. We are up against the stops on many ways, because many times of the year we can’t carry more people. We have more people wanting to go than we can carry, because we do not have the capacity. The first priority is to get more capacity on the routes we serve. The second priority will be to start new routes that we think have a good possibility of working.” – Interview with Graham Claytor, Trains magazine, June 1991
After Mr. Claytor’s retirement from Amtrak, his successors cut back Long Distance service and put almost all of Amtrak’s capital in creating and improving the Acela trains on the East Coast. Former Amtrak President Warrington around the time of the start up of Acela service talked about Amtrak being on the “glide path to profitability”. Shortly after this Amtrak had it worst financial crisis in its history from the costs of starting up the Acela. It was not an overnight success. The result was billions of dollars were needed to bail Amtrak out.
Across the country we are seeing growth on the local level for rail passenger service. Dallas now has an impressive light rail service and some commuter rail service. Miami has had commuter rail service for some time. Soon there will be intercity rail passenger service, privately own and operated between Miami and Orlando. This new service will connect with both commuter rail service in Miami and Orlando. Denver has built a major Light Rail service and is now building a commuter rail service which uses its historic Union Station. Phoenix has light rail and there is interest in Arizona for creating rail service between Phoenix and Tucson. Their is strong interest to bring back rail passenger service along the Gulf Coast between Louisiana and Florida. The States of Oklahoma and Kansas want the Heartland Flyer extended to Kansas City. The States of New Mexico, Colorado and Kansas worked to prevent the reroute of the Southwest Chief and raised money needed to rebuild the rundown tracks on the route through these States. The city of Pueblo, Colorado was a leader in this project, even though the Chief doesn’t go there, but they are fighting to also extend the train to their town. North Dakota and Minnesota did much the same to prevent the reroute of the Empire Building from the existing route which was prone to flooding.To keep it they help raise money to raise the tracks.
Communities around the country realize that their economy depends on good transportation and that rail passenger service is a major asset to communities that have it. Increasingly more local communities are demanding more rail passenger service from their representatives in Congress.
The secret of good politics is to make as many friends and as few enemies as possible to get things done. You can’t do anything without making some enemies. But you can’t get things done if you make too many enemies. Amtrak has been able to continue to get funding by threatening to make major cutbacks to Long Distance service if it didn’t get the money it asked for. This usually got a strong response from voters in the areas affected and tons of mail to elected officials. But while Long Distance Trains have been “saved” time after time, there has been little money invested since Claytor for Long Distance Trains to improve their economic performance.
Instead most of Amtrak’s Federal funding is spent on the infrastructure of the the former right of way of the PennCentral between Washington and Boston. The Amtrak trains on this route make money. But not enough to pay the full costs of Amtrak’s overhead. That includes the costs of running the many commuter trains and the revenue from the commuter trains which fail to fully cover costs. If Amtrak continues to blame the Long Distance Trains for its deficits, they will sooner or later have a financial collapse if they keep cutting back Long Distance service.
As Dr. Sheck showed in 1982, the best way for Amtrak to improve its balance sheet is to expand service of its Long Distance Trains. This was proven by W. Graham Claytor as President of Amtrak when he increased Amtrak revenues and reduced its deficits when he expanded Long Distance service. Amtrak Management for most of its history have suffered under the delusion that high speed rail service on the Northeast is the “glide path” to profitability. Part of the problem is the old PennCentral right of way is primarily built for commuter service and it is still not in great shape. The other is it is an old railroad, to raise speeds above 160 miles per hour will cost hundreds of billions of dollars. But the main problem with trying to make money on the East Coast with High Speed Rail is it doesn’t serve many of the travel markets on the East Coast.
Airlines seek to serve as many markets as possible with the least amount of service. Airlines do this by having connections to as many places as possible. This why Long Distance Trains do so well. While not all passenger on a train between say Los Angeles and Chicago will travel end point to end point, passengers will get on and off of the many stations in between. The Long Distance Trains on a train basis carry more passengers and produce more passenger train miles than Amtrak’s short distance trains, including those on the East Coast.
Much of North America in the east is not well served by passenger rail service. Amtrak would do better to expand service and connections between Washington and Boston to Long Island and upstate New York. Cities and the areas in between along the east should also have more service to Montreal, Toronto, Cleveland, Columbus, Cincinnati, Richmond and Charlotte from the cities along the East Coast. This will have much greater impact on ridership and revenues at less cost than building a new 200 plus miles per hour railroad to go from Washington to Boston.