IB97030: Amtrak: Background and Selected Public Policy Issues

Stephen J Thompson
Economics Division

Updated March 2, 1999

CONTENTS

• SUMMARY
• MOST RECENT DEVELOPMENTS
• BACKGROUND AND ANALYSIS
• Financial and Ridership Experience
• Federal Aid, Past and Prospective
• Pro and Con Rationales For Federal Aid to Amtrak
• Rationales for Continuing Federal Aid to Amtrak
• Rationales for Discontinuing Federal Aid to Amtrak
• Possible Legislative Issues
• Continuation of Service if Amtrak Enters Bankruptcy
• Federal Outlays if Amtrak Enters Bankruptcy
• Alternatives for Intercity Rail Passenger Service
• Procedures for Resolving Amtrak Labor Disputes
• Collective Bargaining Agreements
• LEGISLATION
• CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
• FOR ADDITIONAL READING
• CRS Reports

SUMMARY

The Administration and Amtrak request a capital grant of $571 million for Amtrak for FY2000. The Administration has stated that it will propose giving Amtrak the capital grant flexibility that transit has.

Congress, the Administration, and Amtrak agree that Amtrak will receive no federal financial operating assistance after FY2002. But, in February 1999, the Inspector General of the U.S. Department of Transportation (DOT), and the U.S. General Accounting Office (GAO), testified before Congress that Amtrak is likely to need continued federal financial operating assistance after FY2002.

The Amtrak Reform and Accountability Act of 1997 ("the ARAA Act", P.L. 105-134) provides that if Amtrak does need such aid after FY2002, the Amtrak Reform Council ("Council"), created by that Act, will submit to Congress an Amtrak restructuring plan and Amtrak will submit to Congress an Amtrak liquidation plan. The requirement to produce these plans could be triggered by the Council at any time after December 2, 1999, if it concludes that Amtrak will not survive without federal operating assistance after FY2002.

The ARAA Act made Amtrak operating reforms, including authority (§101) to shed unprofitable routes without preserving a national system. Every Amtrak route loses money. Metroliner Service between Boston and Washington, DC, makes a profit of about $5 per passenger (GAO/RCED-98-151), while other trains on that route lose money. If Amtrak shed all its unprofitable routes, it would keep only its Metroliner Service. Amtrak does not plan to discontinue any routes. Rather, it plans to make enough profit on express freight and faster trains to cover the losses from passenger service on all routes.

Amtrak's Strategic Business Plan for FY1999-2002, approved by the Amtrak Board in October 1998, does not provide financial projections for FY2003. It states Amtrak's intention to "borrow" federal capital improvement funds in FY1999 and FY2000 to cover operating losses, and to repay them in FY2001, when Amtrak expects increased express freight and faster trains to boost revenues. DOT and GAO reported to Congress in February 1999 that increased express freight and faster trains likely will not make Amtrak independent of federal financial operating assistance.

Amtrak reported an operating loss of $350 million in FY1998 and $760 million in FY1997, before considering the cost of equipment and facilities. DOT estimated in February 1999 that Amtrak will require between $2.7 billion and $4.7 billion in federal financial assistance for equipment and facilities for the period FY1999 through FY2003.

In the absence of Amtrak, others might provide rail passenger service several times a day between Washington, DC, and New York City, without federal operating assistance, just as buses and airlines do now. A few other routes might also continue, such as in California and Oregon. Rail land cruise service might become available on some routes. The financial climate for such services, and for Amtrak profitability, probably would be improved if the services could be provided under laws as favorable as those for bus lines and most other non-rail companies.

MOST RECENT DEVELOPMENTS

The Clinton Administration requests $571 million for Amtrak for FY2000. In February 1999, the U.S. Department of Transportation (DOT) and the U.S. General Accounting Office (GAO) testified before Congress that Amtrak will continue to need federal financial operating assistance after FY2002. Congress appropriated $609 million to Amtrak for FY1999, prohibited the Amtrak Reform Council ("the Council") from using federal funds for outside consulting services, and removed the requirement that had been proposed to have Amtrak tickets state that general taxpayers subsidize Amtrak tickets (P.L. 105-277). The FY1999 Amtrak appropriation allows Amtrak to decide how much of the total appropriation will be spent for improvements to the Northeast Corridor, and for maintenance of roadbed and equipment. The FY1999 Amtrak appropriation provides $5 million for the Rhode Island rail development project that is associated with building a rail freight line so that rail passenger service will not have to share rail track with freight trains.

The Amtrak Board, during the week of October 19, 1998, approved a 4-year business plan. The plan does not provide financial numbers for FY2003, the first year that Amtrak is required by law to operate without federal funds to cover operating losses.

The Amtrak Reform Council in its meeting on November 24, 1998, acknowledged that Congress has given it several reporting requirements, and agreed to begin to comply with those requirements. It did not discuss how or when it would begin that process. One of those reporting requirements is to determine, after December 2, 1999, whether Amtrak will likely meet the congressional requirement to operate without federal operating funds after September 30, 2002.

BACKGROUND AND ANALYSIS

Financial and Ridership Experience

Amtrak began operations in 1971, as authorized by the Rail Passenger Service Act of 1970 (codified beginning at 49 U.S.C. § 24301). The Act established Amtrak as a corporation, not a federal agency, incorporated and operated under the laws of the District of Columbia. The U.S. Secretary of Transportation is by statute a member of the Amtrak board of directors (49 U.S.C. § 24302). The U.S. Department of Transportation (DOT) is the only holder of Amtrak preferred stock (49 U.S.C. § 24304), the only voting stock of the corporation. This stock gives the federal government a preferred position over holders of common stock in claims on any Amtrak assets in the event of a liquidation. Amtrak is required by law to issue preferred stock to the Secretary of Transportation each year in the amount of the federal equipment and operating financial assistance to Amtrak. Total preferred stock is currently about $10 billion. (Opening statement of Representative Molinari, chair of the Subcommittee on Railroads, House Committee on Transportation and Infrastructure, at hearings on Amtrak before that subcommittee on March 12, 1997, at page 2 of her prepared statement.)

The Act allowed freight railroads to get out of the intercity rail passenger business, by paying Amtrak half of their 1969 operating loss in cash, equipment or services. This was a double penalty on freight railroads in 1969, since they had incurred the operating loss and subsequently were required to made a donation of cash, equipment or services equivalent to half of that operating loss. In exchange, these freight railroads had the option of receiving shares of common stock of Amtrak. Four railroads did so. These shares, carried on Amtrak's books at about $94 million, are now generally considered to have no market value. (Opening statement of Representative Molinari, chair of the Subcommittee on Railroads, House Committee on Transportation and Infrastructure, at hearings on Amtrak before that subcommittee on March 12, 1997, at page 2 of her prepared statement.)

Amtrak used the proceeds to obtain the best of the freight railroad passenger equipment. The proceeds also had the effect of reducing Amtrak's early need for federal financial aid.

Freight railroads welcomed the opportunity to discontinue a service that had been unprofitable for most of them each year since 1930, except during World War II. Such service was profitable during World War II as a result of troop movements by train coupled with increased civilian train travel resulting from rationing and reduced consumer access to gasoline, auto parts, tires, and autos. But, by the late 1950s, the Interstate Commerce Commission estimated that the private railroads were losing a combined $750 million annually on passenger service in 1958 dollars. At the time Amtrak was created, most of the railroad industry was in a state of financial distress and most of the northeastern rail network was in bankruptcy. (Opening statement of Representative Molinari, chair of the Subcommittee on Railroads, House Committee on Transportation and Infrastructure, at hearings on Amtrak before that subcommittee on March 12, 1997, at page 1 of her prepared statement.)

Currently, Amtrak provides 20 million intercity rail passenger trips per year over a network including 500 destinations in 44 states. Amtrak does not serve Maine, Oklahoma, South Dakota, Colorado, Alaska, or Hawaii. Amtrak provides about 0.3% of annual intercity passenger trips in the United States. Other major categories of intercity passenger travel are: autos, 80.8%; commercial air, 16.8%; intercity bus, 1.1%; and private aircraft, 0.6%.

About half of the 20 million trips per year by Amtrak occur along the 450-mile route between Boston, MA, and Washington, DC, called the Northeast Corridor. Amtrak owns and maintains most of the Northeast Corridor. New York, Connecticut, and Massachusetts own and maintain the remaining portions of the Northeast Corridor. A few freight trains and many commuter trains use the Northeast Corridor and pay Amtrak for the use of the track and signal equipment.

About 100 Amtrak trains, 1,100 commuter trains, and a few freight trains use the Northeast Corridor each day. About 3% of total train-miles are by freight trains. Measured by trains, rather than by train-miles, about 91% of the trains are commuter trains, and about 9% are Amtrak trains. (GAO Report No. GAO/RCED-96-144, at p. 2.)

When Conrail was formed in 1976 from 6 bankrupt railroads serving the northeastern quadrant of the United States, Congress required Conrail to transfer the Northeast Corridor to Amtrak (except the portions owned by the states of New York, Connecticut, and Massachusetts). That line had been the property of the Penn Central Railroad. Amtrak paid Conrail $120 million in federal funds for the Northeast Corridor. Also transferred to Amtrak at the time Conrail was formed were the 103-mile line between Philadelphia and Harrisburg, the 83-mile line from Kalamazoo to Michigan City, the 62-mile line from New Haven, CT, to Springfield, MA, and 12 miles of track near Albany. The only segments of the Northeast Corridor not owned by Amtrak are from New Rochelle to New Haven (owned by New York and Connecticut), and from the Rhode Island border to Boston (owned by Massachusetts). The Department of Transportation holds a 999-year mortgage and lien on the Northeast Corridor. The cost of maintaining the Northeast Corridor infrastructure has been estimated at over $200 million annually. (Pages 2 and 3 of the opening statement of the chair of the Subcommittee on Railroads, House Committee on Transportation and Infrastructure cited above.)

The Northeast Corridor upgrade, mostly between Washington, DC, and New York City, cost approximately $2.5 billion in federal funds from 1971 through 1993. Amtrak provides an estimated 43% of the Amtrak-air carrier market between Washington, DC, and New York City. (Pages 2 and 3 of the opening statement of the chair of the Subcommittee on Railroads, House Committee on Transportation and Infrastructure cited above.)

Some say commuter operations do not pay their proportionate share of the cost of providing the track and signals owned by Amtrak, and that Amtrak consequently requires more federal financial assistance than it otherwise would. The highest proportion of Amtrak's Northeast Corridor intercity rail passenger service is between Philadelphia and New York City. The next highest proportion is between Washington, DC, and New York City that includes the Philadelphia to New York City segment. The segment from Boston to New York City has the lowest proportion of travel on the Northeast Corridor.

In addition to providing intercity rail passenger service, Amtrak provides about 35 million commuter trips per year under contract to transit authorities in 7 major metropolitan areas. Except for some questions about whether some commuter trains pay the full cost of maintaining the track and signal system that is owned and maintained by Amtrak in the Northeast Corridor, Amtrak commuter service is generally regarded as not contributing to Amtrak's financial difficulties. Commuter rail service could be provided by the public transit agencies themselves in the absence of Amtrak.

During the last 10 years, Amtrak's revenue from intercity passenger service, after adjustment for inflation, was flat, and Amtrak ridership declined about 10%, from 5.9 billion passenger-miles to 5.3 billion passenger-miles.

No Amtrak route is profitable when the cost of equipment and facilities are included. (GAO Report No. GAO/RCED-98-151, pp. 6-7.) One type of service on one route is marginally profitable: Metroliners (Boston to Washington, DC) make $5 profit per passenger. (GAO Report No. GAO/RCED-98-151, p. 30.) "Amtrak's revenues have never covered all the costs for providing intercity rail passenger service on any route." (GAO Report No. GAO/RCED-95-71, p. 64.)

Northeast Corridor routes cover about 65% of their operating and equipment costs combined, and other routes cover about 50% of such costs. (GAO Report No. GAO/RCED-95-71, p. 8.)

Federal Aid, Past and Prospective

A comparison of intercity passenger costs paid by users of various modes is shown in Table 1 below. Costs not paid by users are paid by taxpayers. The level of federal financial assistance to Amtrak for selected years is shown in Table 2. As can be seen from Table 2, federal financial support to Amtrak has varied significantly from year to year, as has the amount for operating assistance. Funding levels for FY1999 are shown in Table 3.

Amtrak faces intense price and service competition from airlines and intercity buses, particularly along the Northeast Corridor, where, for example, bus service is about half the price of some Amtrak tickets.

GAO estimates that "Amtrak will continue to require federal capital and operating support in 2002 and well into the future." (GAO Report No. GAO/T-RCED-98-151, pp. 2-

3.) GAO estimates that Amtrak will require billions of dollars of federal financial assistance for equipment and facilities. (GAO Report No. GAO/T-RCED-97-80, p. 2.) Amtrak anticipates federal assistance of about $750 million to $800 million annually for equipment and facilities, in comparison to FY1997, when Amtrak received federal funding of $478 million for equipment and facilities. (GAO Report No. GAO/T-RCED- 97-80, pp. 10-11.)