The Amtrak Funding Debate:

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Regarding the 2005 debate on congressional funding of Amtrak. Created 2/22/2006

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The Amtrak Funding Debate:

  1. 1. The Amtrak Funding Debate: Why Amtrak Should Continue To Receive Federal Subsidies Adam R. Schott BUS 378.01
  2. 2. Amtrak Funding Debate 2 In February 2005, President George W. Bush announced that his Fiscal Year 2006 Budget for the United States would include no funding for Amtrak - the only intercity passenger railroad in the nation. This paper will analyze the implications of eliminating federal subsidization of Amtrak from the perspective of the business-government-society relationship. Background Amtrak’s official name is the National Railroad Passenger Corporation; it was created by Congress in 1970 “to take over the money-losing passenger rail service previously operated by private freight railroad companies” (Amtrak Website, 2005). The idea was that “it would rapidly become a for-profit, self-sustaining entity” (“No Way to Run a Railroad”, 2005). In its thirty-year life, Amtrak has received over $30 billion in federal subsidies, compared to $1.89 trillion to air and highway modes. Amtrak is dependent on these subsidies and “is constantly threatened by under-investment, lack of a clearly articulated federal rail policy, and an uncertain future” (Amtrak Website, 2005). Business – Government Relationship No intercity passenger rail system in the world operates without some form of government subsidization (Amtrak Website, 2005). European passenger rail systems, though much smaller, receive much more government support. The British government invests over $14.5 billion in the British Rail System (“The Amtrak Funding Scandal”, 2005). The most Amtrak has ever received from the government is $1.6 billion in fiscal years 1998 through 2000 (“No Way to Run a Railroad”, 2005). See Appendix A
  3. 3. Amtrak Funding Debate 3 Congress created the National Railroad Passenger Corporation to ensure that there would be an intercity passenger railroad; yet it does not commit the necessary resources to allow it to succeed. Now the President wants t intentionally send it into bankruptcy. o As Sarkar states, “federal subsidies account for $1.2 billion of Amtrak’s overall budget of $3 billion this fiscal year. Without it, the company – already saddled with $3.8 billion in debt – would be forced into bankruptcy, leaving courts to decide how to restructure it” (2005). President Bush and Norman Y. Mineta, the United States Secretary of Transportation, allege that Amtrak has not made significant progress towards financial independence and stability and has not kept up with the times (Mineta, 2005). In Railway Age, Mineta is quoted as calling the zero-funding proposal “a wake-up call” for Congress to address a system that “cannot even support the existing service, much less expand in the way that it needs to.” He also said that Amtrak is “dying, and everyone knows it” (“Amtrak under siege”, 2005). In his February 2005 Annual Report to Congress, David M. Laney, the Chairman of the Board of Directors of the National Railroad Passenger Corporation, rebuts that Amtrak has made significant progress in recent years. Under the leadership of David Gunn, Amtrak is finally headed toward greater financial independence and profitability. Since May 2002, when he took over as President and CEO of Amtrak, Gunn has made the following changes:  The development of accounting and financial reporting systems  A reduction in personnel by almost 5,000  The development of a detailed and prioritized five-year capital plan focused on restoring the Northeast Corridor to necessary levels of reliability and safety, and on restoration of an aging fleet of rolling stock used throughout the system  Termination of the mail and express operatio n  Elimination or truncation of three long-distance routes
  4. 4. Amtrak Funding Debate 4  No new borrowings, and the scheduled repayment of the $100 million Department of Transportation loan over a five year period begun in 2004  Increased ridership from 22.5 million in 2000 to 25.1 million in 2004  Containment of the cash operating requirement at or below $570 million (Laney, 2005) Laney also points out that sending Amtrak into bankruptcy will have the exact opposite effect that Bush and Mineta desire. He states: Needed reforms will likely result in higher front-end restructuring costs. (Route elimination, for instance, will often incur substantially greater labor- related costs in the early years than would route continuation; but such costs can be carefully phased and managed.) And for passenger rail to have any chance of succeeding under Amtrak’s auspices or in others’ hands, legislative action is essential to remove constraints that will otherwise permanently undercut its performance in an increasingly competitive environment. (2005) Progress at Amtrak The five-year capital investment program has been instrumental in reducing operating costs and making Amtrak more efficient and is the key to Amtrak’s future progress; but it cannot continue without adequate funding. The following excerpts from David L. Gunn’s memo to David M. Laney highlight how the plan has Amtrak heading on the track to success: The capital program is grounded in a “production line” approach to ensure plant and equipment are rebuilt making the most efficient use of labor and materials, rather than the previous approach of repairing assets as they fail. In spite of the challenges inherent in ramping up such a program from essentially nothing and with less federal funding than needed to meet the plan, we have made steady progress in rebuilding plant and equipment … …Amtrak has contained its operating costs and operating cash subsidy requirements for two straight years – in spite of inflationary pressures in health care, fuel prices and other areas. In fact, our core operating expenses were slightly lower in FY04 than they were in FY00. We have done this while covering over $250 million per year in debt service from earlier borrowing and without assuming any new debt… Amtrak’s decision to exit the mail and express business … removed a number of road locomotives and switch engines from service, thus lowering maintenance costs. (2005)
  5. 5. Amtrak Funding Debate 5 National Outcry: The Government – Society Relationship The Bush Administration plans on reintroducing the Passenger Rail Investment Reform Act, which Congress voted down in 2003 (“Amtrak under siege”, 2005). This act transfers Amtrak funding from the federal government to the states. Under the plan, the federal government would help out state governments – up to 50% of the funding – but only to states that come up with their share (“Amtrak under siege”, 2005). Senators from all over the nation are outraged at the Bush Administration’s Amtrak plans. Senator Dick Durbin of Illinois told the Chicago Tribune “The most basic inquiry would have told the Administration that the State of Illinois is not in a position to pickup the subsidy of Amtrak: (“Amtrak under siege”, 2005). New Jersey Senator Frank Lautenberg decried “President Bush is willing to spend billions to send a couple of people to Mars, but not one dime for Amtrak’s 25 million annual travelers, who want better rail service to destinations on this planet” (“Amtrak under siege”, 2005). Minnesota Representative Jim Oberstar said of the budget: “Never have I seen one so harsh or crass as this…It would cause widespread disruption and hardship” (“US House”, 2005). Senators Robert Byrd, Hillary Clinton, Edward M. Kennedy, and John F. Kennedy co-sponsored an amendment to the 2006 budget bill that would provide Amtrak with $1.4 billion to save it from bankruptcy (“Senator Clinton”, 2005 / Wirzbicki, 2005). Unfortunately the amendment failed in a 52-46 vote (Bush, 2005). It is now up to the House of Representatives to restore this crucial funding.
  6. 6. Amtrak Funding Debate 6 Business – Society Relationship Amtrak provides a valuable service to many states and communities. The railroad provides jobs and tourist revenue to the cities it serves. It also allows citizens to travel from city-to-city for much less than an airline and in less time than a bus service. Over twenty-five million passengers rode on Amtrak in 2003 and 2004. Approximately sixty-eight thousand passengers travel on Amtrak daily (Amtrak Website). Appendix B shows how many people used the twenty busiest Amtrak stations in fiscal year 2004. Senator Hillary Clinton points out that losing Amtrak would have a devastating effect on New York. “Amtrak is an essential component of our transportation network that provides irreplaceable capacity and mobility to New York and the nation. / Slashing Amtrak’s federal funding would eliminate critical rail service to millions of New Yorkers and others who ride our rails. It would throw our commuter rail lines into chaos and would have catastrophic economic consequences for the state and the region” (“Senator Clinton”, 2005). Massachusetts residents are also concerned about the fate of Amtrak - they depend on the high-speed Acella Express for travel to New York and Washington (Ross, 2005). As Ross states: “Despite troubles with delays, millions of people use the services every year and would be forced to rely on increasingly crowded buses and air travel” (2005). Losing Amtrak in California would undermine the economies that have been built around the stations that serve 9.3 million passengers a year (Sarkar, 2005). Amtrak’s growth is not just in the major cities “but also on long-distance trains that serve hundreds of cities and rural communities” (Parcells, 2005)
  7. 7. Amtrak Funding Debate 7 According to the Louisiana Association of Railroad Passengers, “Amtrak employed a total of 363 Louisiana residents and 102 Mississippi residents over the course of the year, with a payroll of $18,804,934, while spending a total of $5 million for Louisiana and Mississippi goods and services” (“La. rail passenger group”, 2005). If Amtrak is forced into bankruptcy these jobs, and the revenue generated as a result of rail travel in Mississippi and Louisiana will likely be lost. Eliminating federal funding for Amtrak would severely hurt communities in Arkansas, Louisiana, and Mississippi. Arkansas Representative Marion Berry states that “Infrastructure is the lifeblood of rural America. We cannot expect to eliminate transportation options for growing areas of this country and expect their economies to continue to expand” (“Proposed Cut”, 2005). The job of the federal government is “to promote the general Welfare” (Constitution of the United States of America, Preamble, 1787) – that is, to ensure that the needs of its citizens are met. In the case of intercity rail transit this is done through the National Railroad Passenger Corporation, a government agency that took over for private railroads that were losing money. Congress had hoped that Amtrak could be completely privatized but this is not the case: It depends on government subsidies to continue operations. The job of private business is to make a profit, to increase shareholder wealth, and to act in the best interest of stakeholders. There is no privately owned intercity passenger railroad system any more because none could be operated profitably. It is very clear that this country needs a national intercity rail system. If the federal government does cut all funding for Amtrak, it will not be serving the best interests of its citizens and will jeopardize the welfare of many communities and regions.
  8. 8. Amtrak Funding Debate 8 As Liz Boyd, spokeswoman for Michigan Governor Jennifer Granholm, states “our hope is that Congress would also recognize the economic and quality-of-life value of interstate rail” (Heming, 2005). It is very doubtful that a private business will take over intercity passenger rail service should Amtrak disappear. Congress must commit to funding Amtrak – it is the socially responsible thing to do.
  9. 9. Amtrak Funding Debate 9 APPENDIX A (Graph taken from “No Way To Run A Railroad)
  10. 10. Amtrak Funding Debate 10 APPENDIX B Top Twenty Busiest Amtrak Stations, 2004 Rank Code City/Station Boardings Alightings Total 1 NYP New York, NY 4,367,553 4,356,679 8,724,232 2 WAS Washington, DC 1,888,459 1,856,251 3,744,710 3 PHL Philadelphia, PA 1,844,887 1,845,733 3,690,620 4 CHI Chicago, IL 1,179,955 1,166,793 2,346,748 5 NWK Newark, NJ 684,050 693,004 1,377,054 6 LAX Los Angeles, CA 644,845 641,077 1,285,922 7 TRE Trenton, NJ 499,399 519,388 1,108,787 8 BOS Boston, MA 488,912 498,000 986,912 9 PJC Princeton Jct., NJ 449,608 482,653 932,261 10 BAL Baltimore, MD 455,059 463,565 918,624 11 SAC Sacramento, CA 443,827 427,571 871,398 12 SAN San Diego, CA 398,720 381,575 780,295 13 WIL Wilmington, DE 372,104 376,275 748,379 14 ALB Albany-Rensselaer, NY 323,160 325,579 648,739 15 NHV New Haven, CT 309,268 308,370 617,638 16 BWI BWI Airport, MD 296,466 293,854 590,610 17 SEA Seattle, WA 299,466 290,575 590,610 18 PVD Providence, RI 239,209 245,305 484,514 19 IRV Irvine, CA 236,090 238,035 474,125 20 EMY Emeryville, CA 237,766 233,545 471,311 (Source: Amtrak Website)
  11. 11. Amtrak Funding Debate 11 WORKS CITED “Amtrak: Background & Facts.” Amtrak Website. Accessed 28 March, 2005. <http://www.amtrak.com> “Amtrak Facts.” Amtrak Website. <http://www.amtrak.com> Accessed 28 March, 2005. “The Amtrak Funding Scandal.” The Travel Insider. <http://www.thetravelinsider.info/2002/0628.htm> Accessed 6 April, 2005 “Amtrak Under Siege – Again.” Railway Age. March 2005, 19. Bush, Rudolf. “Senate Blocks $1 Billion To Fund Amtrak.” Chicago Tribune. 17 Mar. 2005 <http://www.chicagotribune.com/news/nationworld/>. Accessed 4/9/2005. Heming, Julia. “Bush wants to shift Amtrak funding to states.” The Michigan Daily. 22 Feb. 2005. <http://www.michigandaily.com> Accessed 25 Mar. 2005. “La. rail passenger group aims to halt Amtrak cuts.” BizNewOrleans:News. <http://bizneworleans.com/109+M5 b0cc37a0dd.html> Accessed 8 April 2005. Laney, David M. “Annual Report to Congress”. 17 Feb. 2005. <http://www.amtrak.com/pdf/AnnualReportCongres s021705.pdf> Mineta, Norman Y. “Starving Amtrak to Save It.” The New York Times. 23 Feb. 2005. <http://www.nytimes.com/2005/02/23/23mineta.html> “No Way to Run a Railroad” The Wall Street Journal. 10 Feb. 2005. A12 “Unfairly, Amtrak Is Held to a Different Standard.” The Wall Street Journal. 23 Feb. 2005. A17 “Proposed Cut In US Funding For Amtrak Draws Arkansas Ire.” The Wall Street Journal Online. 8 Feb. 2005. <http://online.wsj.com/artcle_print/0,,BT_CO_20050208_009 588,00.html>. Accessed 25 Feb. 2005 Ross, Casey. “Bush plan off track: Cuts may derail Amtrak.” BostonHerald.com. 24 Feb. 2005. <http://news.bostonherald.com/politics/view.bg?articleid=70104&format=text> Accessed 25 Feb. 2005. Sarkar, Pia. “Riding the rails: Amtrak has its fans, but Bush wants to cut the budget again.” San Francisco Chronicle. 25 Feb. 2005. <http://www.sfgate.com/cgi- bin/article.cgi?f=/c/a/2005/02/05/BUGJUBGM861.DTL> Accessed 25 Feb. 2005. “Senator Clinton Co-Sponsors Legislation to Help Save Amtrak.” Senator Hillary Rodham Clinton Website. <http://clinton.senate.gov/~clinton/news/2005/2005315C10.html> Accessed 7 April 2005 “US House Democrats Vow Fight To Protect Amtrak Funding.” The Wall Street Journal Online. 8 Feb. 2005. <http://online.wsj.com/article_print/0,,BT_CO_20050208_009994,00.html> Accessed 25 Feb. 2005. Wirzbicki, Alan. “Democrats’ bid to save Amtrak funding loses steam in Senate: Effort to restore federal dollars fails by close vote:” The Boston Globe. <http://www.boston.com/news/nation/washington/articles/2005/03/17/democrats_b id_to_save_amtrak_funding_loses_steam_in_senate/> Accessed 6 Apr. 2005.

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