By Noel T. Braymer
I was thinking about this famous quote recently which I knew was from a 19th century railroad baron. With help from Wikipedia I discovered it was a quote from the Chicago Daily News in 1883 from an interview by reporter John Dickerson Sherman with the then president of the New York Central Railroad William Henry Vanderbilt. The question to Mr. Vanderbilt was “Do your limited express trains pay or do you run them for the accommodation of the public?”. Vanderbilt replied, “Accommodation of the public? The public be damned! We run them because we have to. They do not pay. We have tried again and again to get the different roads to give them up; but they will run them and, of course, as long as they run them we must do the same.” Well this was an honest answer but in today’s parlance a PR disaster. But this was true in the “golden days” of American rail passenger service and is still true today with American railroads. The American railroads have long had to subsidized rail passenger service and they didn’t like it. As Mr Vanderbilt said in a follow up interview to the Chicago Daily News in an attempt to repair the damage from the first interview: “Railroads are not run for the public benefit, but to pay. Incidentally, we may benefit humanity, but the aim is to earn a dividend.” This is still the philosophy of most corporate executives today.
What got me thinking about this is a recent phone interview I had with a reporter from the NBC station in New York City. I was contacted due to articles about Amtrak I had published online. The reporter was clearly covering the ongoing story of effects of years of deferred maintenance at Penn Station in New York and the effect it has on local commuter rail service. I covered for the reporter the early history of Amtrak and the fact that it was a result of the bankruptcy of the PennCentral in 1970. Amtrak was created in 1971. I pointed out in the book “The Wreck of the PennCentral ” wrote of the pressure on the then Nixon administration to do something from major share holders of the PennCentral after the bankruptcy. I was asked by the reporter: who owns Amtrak? I replied that the railroads in theory did. The railroads could get out of the intercity passenger business by joining Amtrak and were given shares in Amtrak. The original plan was for Amtrak to have little overhead and few employees. Amtrak was given rolling stock from the member railroads, but was to lease track time, stations, locomotives and road crews from the member railroads over their routes. Amtrak was forbidden from running commuter service. This was in realization that commuter rail service rarely cover their operating costs. The best hope for Amtrak to thrive was to operate at a profit and avoid major overhead costs. At the start up of Amtrak roughly half of all its trains ran on the PennCentral.
One point I made in the interview is the difference in the railroad industry between above the rail costs and below the rail costs. Above the rail costs are the operating costs of running a train. Most intercity rail passenger services operate at a profit.They generally make more money the longer distances they travel and more markets they serve. Passenger trains that generally don’t operate at a profit are urban commuter services and branch line services usually in rural areas with low population densities. Below the rail costs are the killers. This includes all the overhead costs including the biggest one: infrastructure costs of the railroad. The problem Amtrak has, isn’t that it has trains that don’t operate at a profit, but that it doesn’t have enough trains operating at a profit to cover its overhead costs. Most of the losses claimed on specific trains is based over the overhead Amtrak charges to each of its trains. But the reality is each time Amtrak has eliminated trains, its losses increased. This is because revenue was lost after the trains were discontinued, but there was no reduction in Amtrak’s overhead costs. Amtrak is admitting now that if it loses the long distance trains with the reduced subsidy funding proposed in next fiscal year’s Federal budget, it won’t be able to spend any money repairing the NEC. This is because most of the subsidy money for next fiscal year would have to go to cover the overhead spending now paid from the Long Distance trains. Where is most of Amtrak’s overhead?: the NEC.
By 1976 the Federal Railroad Administration (FRA) was planning the reorganization of the PennCentral to get it out of bankruptcy and off the government dole. It was finally decided that the only chance to make Conrail, the name for the reorganized PennCentral profitable was to take out the high overhead costs of its railroad between Washington and Boston. This was an admission that the Northeast Corridor, the NEC was a White Elephant. It was something very valuable but very expensive to own and take care of. But who to give this white elephant too? The government dumped it on Amtrak.
Around the time it got the NEC in 1976, Amtrak deficits which were modest at the start: exploded. By 1979 during the Carter Administration it was losing around a billion dollars a year. The Carter Administration demanded that Amtrak cut its losses by getting rid of its “money losing trains”. Finally 5 trains were cut and Amtrak’s deficit went up slightly not down. The reason for this was no overhead costs had been cut, but revenues streams were lost from those trains that were eliminated . A major fixation on the NEC was that High Speed Rail would save it. This started before Amtrak in the mid 1960’s with the creation of the Pennsylvania Railroad’s Metroliner. In 1964 with the opening of the Tokyo Olympics, Japan’s National Railroad introduced the first modern High Speed Train coined the bullet train by western journalist. It had the blazing at that time top speed of 125 miles per hour. It also operated on a new dedicated right of way without mixed traffic from commuter or freight trains. The response to the “Bullet Train” by the United States was the Metroliner going 160 miles per hour between Washington and New York.This was under the Johnson Administration and the beginning of government involvement for rail passenger service. By the time Metroliners first ran in 1969 it was operated by the PennCentral. It did increase ridership on the NEC, but didn’t save the PennCentral. It had many problems including rough track which made high speed operation difficult. Another major problem that slowed it down was track congestion running in mixed traffic from a few freight trains and plenty of commuter trains on the NEC.
The first substantial reduction in Amtrak’s deficit happened during the Reagan and George H.W. Bush administrations. The FRA administer under Reagan was John Riley, a fairly young lawyer from Minnesota who had a passion for trains, including passenger trains. He actively lobbied to get the job of FRA administer, then heavily recruited recently retired Southern Railway President W. Graham Claytor as Amtrak President in 1982. Claytor at first really didn’t want the job at Amtrak. Between these 2 men Amtrak went to recovering 80% of Amtrak’s cost from revenue by the time Claytor retired in 1993 a year before died. As long as Amtrak’s deficits went down the Reagan Administration was happy. Claytor predicted when he retired that Amtrak would break even by 2000 if his policies were kept. Riley and Claytor did it in part by leaving the NEC alone. That would have been walking into a political mine field to try to cut costs and service on the NEC. The main focus during the Claytor presidency was on incremental improvements mostly on the long distance trains. These included extending the Palmetto from Savannah, Georgia to Jacksonville Florida. Extending the Sunset east of New Orleans along the Gulf Coast to Orlando, Florida plus buying the Auto Train service between Virginia and Florida. Claytor with help from John Riley was able to get support to order new low level sleeping cars for the eastern long distance trains and additional Superliner cars for the western long distance trains to get more revenue for Amtrak.
By 2002, during the George W. Bush administration Amtrak instead of not needing a subsidy almost went out of business and needed billions of dollars in bailouts. Claytor’s successors had bet the farm on the Acela being the glide path to profitability. Acela was the new high speed train equipment to replace the Metroliners combined with many millions more for track improvements on the NEC to reduce running times. It was in 2000 that electrification was finished north of New Haven to Boston for the Acela service. There were problems and cost overruns with the Acela project. Amtrak sought to save money and increase income. This included cutting the Palmetto back from Jacksonville to Savannah, eliminating the Desert Wind train from Los Angeles and Pioneer train from Seattle that both connected with the California Zephyr at Salt Lake City. At this time Amtrak reformulated the way it charged states for subsidy to local state supported trains. For example take the then San Diegan trains between San Diego/Los Angeles with a few extended to Santa Barbara. Since about 1989 these trains according to Amtrak recovered just a little over their operating costs. In the late 90’s the San Diegans were under the new formula recovering no more than 60% or so of costs.
This article covers in more depth than what I was able to discuss in my interview with the local New York NBC reporter about Amtrak and the NEC. The last questions he asked me were about the future of Amtrak and what would be needed to improve rail service on the NEC. He also asked why was rail passenger service was so good in most developed countries and so bad here. One reason was these other railroads were often publicly owned. I pointed out that the problem in the past was American railroads were forced to subsidize the infrastructure used to operate passenger trains with their profits from freight. In the case of both the New York Central and Pennsylvania Railroads, as well other railroads on the Northeast and Midwest railroads, profits dried up after World War II in part from the drop in demand for coal being replaced with fuel oil and natural gas. The current problems around Penn Station in New York have their roots to deferred maintenance starting in the 1950’s. In the United States railroads are the only transportation service which is expected to pay the full costs of its infrastructure. Ports,waterways,Coast Guard, airports, air traffic control and roads are services or infrastructure which is paid in large part by taxpayers. Trucking companies, airlines and ship lines pay taxes and fees, but they don’t pay the full cost of the infrastructure they use that the railroads have done here since the 19th century. The railroads are thriving now in large part because since 1980 with railroad deregulation they have been able to abandon thousands of miles of lightly used secondary and branch lines. They did this to save billions over the years in reduced costs in property taxes and costs to keep and maintain rail lines that didn’t earn enough revenue to make money.
The reporter asked in effect if the Northeast would be better off without Amtrak owning the NEC. I pointed out in many places in the world the railroad infrastructure now is either owned by the government, or a non-profit company owned by the government.The train operators in Europe now are mostly for profit companies. In Europe there are efforts to encourage more competition and expanded rail passenger and freight service between European countries. An example of this are plans by German based railroad Deutsche Bahn to extend direct service to Paris and London. The best way to pay for track infrastructure is to have as many paying trains as possible to use it. A busy mainline railroad in this country or any country is profitable railroad infrastructure. I pointed out to the reporter that California publicly owns miles of railroad. I gave as an example the fact that most of the railroad between Los Angeles and San Diego is publicly owned. What I didn’t share with the reporter were my views of the chances that local government might take over ownership of the NEC. This would save Amtrak a great deal of money since they would only be paying for the infrastructure they use, not all of it. Despite this Amtrak is opposed to losing the NEC. One reason might be that a lot of Amtrak jobs and Amtrak managers work on the NEC. Where there could be even greater opposition would be from the commuter railroads once they find out how much more they would have to pay to use NEC tracks without the Federal subsidy Amtrak gets to fix and maintain it.