Financial Funding System for Amtrak Doesn\'t Work

¶ … financial funding system for Amtrak doesn't work and what can be done about it.

Review current materials on the issue.

Amtrak is doomed to failure, even with government subsidies if it does not improve service, become more efficient and find ways to increase revenue not just rider-ship.

[Amtrak]

Congress initially created Amtrak in 1970 as a for-profit organization, offering national rail service. It was signed into existence in 1971 and to date has never produced a profit. In 1997, Congress's Amtrak Reform and Accountability Act stipulated that the rail system had to achieve operational sufficiency by the end of 2002 and prohibits Amtrak from using any federal funds for operating expenses after fiscal 2002.

Rail travel has a lot of benefits to offer passengers who do not want to endure the hassles of flying or some of the negative effects of long flights. Rail travel is more comfortable and provides more amenities than flying. So why isn't Amtrak more successful?

One of the most significant problems faced by Amtrak is that it is underdeveloped and not marketed as successfully as the airlines. Amtrak need to build its short-distance services between cities, much the way buses do. Each day, only 64,000 passengers take Amtrak service. On the same day, 15 times more people (984,000) use inter-city busses, and a massive 1.8 million are forced to endure airplane flights. Amtrak need to grow to reach critical mass and drive success.

After 9/11, Amtrak experienced a surge in passenger travel. Because of increased security checks at airports and the resulting delays, Amtrak achieved a small competitive advantage. Of course, Amtrak now also requires passengers to show valid photos Ids and will most likely implement some type of baggage checking.

Most recently, Amtrak has asked for $3.2 billion in what it terms "disaster aid." But Amtrak really isn't facing disaster because it did profit from people's reluctance to fly after 9/11 and became one of the more common alternate methods of travel. Amtrak's request for additional funding far exceeds what the airlines industry grants were based on the number of passengers using the service. The airlines average 1.8 million passengers a day and received $5 billion in grants and $10 billion in loan guarantees. Amtrak carries about 60,000 passengers a day and up to 80,000 at the peak of the airline diversion and they want $3.2 billion in grants.

But these financial facts also raise a question. Why should the airlines get funding and Amtrak not? The airlines are historically, one of the strongest lobbying groups and got the money they needed following the 9/11 attacks -- even the profitable ones who did not need the funding.

But is loaning more money to Amtrak the answer? Probably not. Like most rail systems, Amtrak probably will continue to be unprofitable as easier and more efficient ways to travel reduce passenger use. Amtrak needs more than loans. It needs an operational overall so that instead of running itself into the ground, year after year, it is capable of making money and providing value-added service to potential passengers.

Looking back, there have been several financial factors that contributed to Amtrak's predicament. Amtrak would normally have access to private capital markets but its auditor, KPMG did not classify the company as a "going concern," making it ineligible for this type of funding. This was further compounded when Congress reported that Amtrak would not reach self-sufficient Operating performance by the end of 2002.

Add to that, the fact that the Administration allotted only $521 million in the budget and that fell far short of the $1.2 billion Amtrak requested as a minimum to continue with national rail service.

However, this does not minimize Amtrak's own responsibility on what has happened. Giveaway fares have not made good business sense for Amtrak. It is a costly practice, particularly when they offer them at peak travel times, when they could be realizing a profit. They may build rider-ship but that's at the cost of creating revenue. The Inspector General of the Department of Transportation (March 2001) warned:

Amtrak's overall financial results have been improved significantly since 1999.

Our assessment of Amtrak's 2000 business plan identified a number of elements that Are unlikely to perform as Amtrak had expected. If no short action were taken to compensate for them, Amtrak's cash loss would be almost $1.4 billion more than it projected over the four-year period 2001 through 2004."

So what can be done and why? It's important to remember single that rail service is still a strong mode of transportation in this country. According to Senator Patrick Leahy, "The administration fails to recognize the reason Amtrak was formed in the first place: to fill a void for national passenger rail transportation left because a variety of private railroad companies went bankrupt in the middle of the last century." It is also a known fact that there isn't a national passenger rails service that operates without subsidy funding. The airline, highway and other transit systems also require government funding and Amtrak needs to continue to receive that long-term financial commitment.

Some critics suggest privatizing Amtrak but others voice their concern for that solution based on Britain's failure to make that a success. Accidents, chronic delays and system failures resulted in the great breakdown of Great Britain's passenger rail system. Congress and the President reject proposals that would turn back the clock to an era in America when rail service was on the brink of total collapse and eventual elimination.

Rail service should be supported and encouraged. As a country that is still facing terrorist threats, having a defunct rail system would leave the United States in a precarious position.

Rail service is safer and often easier. It can be quicker than air, bus and car travel for some routes. The government needs to partner with Amtrak officials and find a way to turn the tide and create a revenue-producing company.. Congress needs to conduct a review of Amtrak. What worked and what didn't and why.

Several initiatives can be implemented that would help foster potential revenue growth for Amtrak and not just boost rider-ship. First, improvements need to be made. High-speed service must become a reality. New passenger cars must be added to the fleet and older ones retired. Amtrak needs to add new routes and create city-to-city routes that would make them competitive with bus companies and airlines. Finally, Amtrak needs to look at expand it's business offerings, by adding and express package service or food shipping services. The key is to make the public aware of what rail service can mean to them personally and possibly to their business.