Congressional Republicans were elected on a platform of cutting spending, but taxpayers will continue to pay for Amtrak’s losses for at least 5 more years if a bill that just passed the House becomes law. Can’t Congress do better?
Amtrak has cost the government over $45 billion in subsidies over the last 44 years, allowing it to finance the upkeep of unprofitable routes, overstaffed trains, and the mismanagement of its food services.
The bipartisan Passenger Rail Reform and Investment Act of 2015 would subsidize Amtrak by an estimated $7 billion from 2016 to 2020. It passed the House by 316 votes to 101 votes on Wednesday and is now headed to the Senate and, presumably, President Obama’s signature. Amtrak has been operating without official funding authorization since the previous bill expired in October 2013.
Despite generous taxpayer subsidies, Amtrak has run operating losses every year since it began operating in 1971. Although these losses are declining, in 2014, the railroad reported what it described as a “strong” result, with an operating loss of only $227 million.
The operating loss is unlikely to continue to decline due to the losses in Amtrak’s long-distance routes, which bleed about $600 million annually. After factoring in depreciation and other expenses, Amtrak lost a total of $1.1 billion in 2014.
The railroad’s food and beverage service has been singled out in recent years by both government watchdogs and Congress for its wasteful use of government subsidies. Amtrak lost over $900 million from 2003 to 2013 on food services alone.
In a 2012 congressional hearing, Rep. John Mica (R-FL) noted that a $9 cheeseburger sold on an Amtrak train actually costs $16 after factoring in the services’ operating expenses, and the $7 shortfall is subsidized taxpayers. A 2013 Inspector General report found that employee-pass riders who are offered free trips on Amtrak also received complimentary meals, resulting in a $240,000 loss for the railroad in 2012.
A provision in the 2015 bill requires Amtrak to develop and implement a plan to eliminate the losses from its food and beverage in five years, but a similar rule passed decades ago failed to achieve savings. Amtrak was required by Congress to turn a profit from its food and beverage service in 1981, but the railroad never complied. A 1997 law went a step further by requiring Amtrak to operate subsidy-free by 2002, but losses continued, along with government subsidies.
The 2015 bill lacks an effective mechanism to force Amtrak’s food service to become solvent in an enforceable timeframe, thus allowing Amtrak to continue losing money without fear of losing its subsidies. The millions lost from its food services are dwarfed by the billions spent on labor costs and mismanagement of funds, and will continue as long as subsidies prevent accountability for the losses.
The $1 billion in annual subsidies have not covered all of Amtrak’s expenses, and the company has incurred an estimated $1 billion in non-federal debt. The 2015 bill authorizes $625 million in federal funds to pre-pay Amtrak’s non-federal debt as the railroad has been unable to renegotiate favorable terms to result in savings.
Amtrak’s largest expense is labor, salary, and benefits, which cost over $2 billion in 2014. Maintaining fully-staffed trains on infrequently-traveled routes has contributed to high labor costs, but the pay rate of Amtrak’s employees raise its costs substantially. The average onboard employee made $41.19 an hour on Amtrak in 2012, while railroads that contracted out services to private companies paid their employees $7.75 to $13.00 an hour.
Base pay may already be substantial, but regulations and poor oversight allowed employees to pocket $185 million in overtime pay in 2013. The management allowed employee misconduct and wasteful business practices to thrive, even as at the same time it hindered plans to make train stations accessible to the disabled to comply with the Americans with Disability Program.
Amtrak’s did not meet ADA’s goals due to lack of structure and a strategy, according to a 2014 IG report. Management activities took up 46% of the $100 million budget, $6.5 million was spent on unrelated projects, and an undetermined amount was shipped out of state on non-ADA projects.
The ADA program’s failure was rooted in a lack of vision, goals and objectives, and was compounded by a lack of accountability and decision making authority. The IG’s summation of the ADA program reflects problems inherent to Amtrak’s culture. Its promises of reform have never fully materialized into solvency, and its failure to follow congressional mandates never resulted in penalties. Amtrak has never made a profit because it doesn’t need to.
Privatizing Amtrak is the only option certain to prevent billions of taxpayer dollars from being wasted while providing the benefits that accompany competitive services. Congress should develop a plan to privatize the railroad and allow for private companies to compete for routes.
America has successfully privatized rail before, as freight railroads were once unprofitable enterprises subsidized by the federal government until the industry was deregulated and sold to private investors in the 1980s. The industry has thrived since routes were opened up to competition.
Amtrak has had 44 years to become solvent without success. Reducing labor costs can be an effective interim measure, but deregulating the passenger rail system is the best way to ensure improved service and lower fares for consumers. Cutting Amtrak's subsidies and ending its monopoly is a responsible alternative to passing inneffective reforms.
Matthew Sabas is a research associate at Economics21 at the Manhattan Institute for Policy Research.
Interested in real economic insights? Want to stay ahead of the competition? Each weekday morning, e21 delivers a short email that includes e21 exclusive commentaries and the latest market news and updates from Washington. Sign up for the e21 Morning eBrief.