For Amtrak, profits never arrived

THE BALTIMORE SUN

Amtrak was created in 1971 with a $40 million start-up loan from the federal government that was due in three years. By then, lawmakers assumed, the railroad would begin turning a profit and they would get their money back.

They are still waiting.

Amtrak has never made money. But it has often talked about making money. The government has given the railroad $22 billion since its creation, much of it with the promise from Amtrak leaders that they would soon become self-sufficient - even though they knew it was nearly impossible.

"It was the kind of thing that for political purposes had to be said," said longtime Amtrak spokesman Cliff Black. He can say that now because the new Amtrak president, David L. Gunn, told Congress this year that Amtrak never has and never will make money. And then he asked for $1.8 billion.

Gunn may have finally put to bed the long-standing myth that Amtrak could be profitable. But the railroad has paid a heavy price for allowing the myth to live for so long. Damaged cars piled up in rail yards, with no money to fix them. Bridges and tracks deteriorated. The railroad had to borrow money to meet payroll.

Credibility in tatters

The greatest stab at self-sufficiency began in 1997, when Congress agreed to give Amtrak $2.2 billion with the requirement that it be financially independent by 2002. While that goal was never reached, just trying to get there hurt the railroad.

In testimony before Congress this spring, Gunn described the effects of that policy: "The physical plant had been allowed to deteriorate. Heavy maintenance of cars and infrastructure had ceased several years ago - over 100 cars were wrecked or damaged and out of service. ... The budget process was ineffective, and there was no control over staffing. Our credibility as an organization was in tatters."

Gunn developed a five-year plan to undo the damage, and that's where the $1.8 billion comes in. That's just for 2004. Another $6 billion or so is needed for the next four years. But after that, Amtrak may not be around to reap the benefits.

The Bush administration sent a bill to Congress late last month that would break Amtrak into three separate companies and end its federal subsidy in three years. Instead, states would get grants to spend on passenger railroads as they wish, including hiring private contractors. States would be expected to pay half the cost of service.

Bush's bill comes as Amtrak is enjoying its first summer in years without a financial crisis, and as Americans are taking to the rails in record numbers. Amtrak carried 2.2 million passengers in July - its busiest month ever. And while the railroad has lost back to the airlines some of the passengers it picked up in the Northeast Corridor after the Sept. 11 attacks, ridership remains higher than it was before the attacks, at about 35,000 people daily.

But Amtrak is still far from making money. And while the Bush plan seems to recognize that the myth of profitability was just that, it appears ready to move much of the responsibility for funding passenger railroads from the federal government to the states. Some in Congress and the administration said they were just getting tired of Amtrak's begging for money every year.

"Congress has been reluctant to give Amtrak any more money," said Rep. John L. Mica, a Florida Republican and senior member of the House Transportation Committee. "Would you give someone who's failed miserably billions more to take on other projects?"

A patchwork creation

The Bush plan has its roots in the creation of Amtrak 32 years ago, some of the railroad's supporters say, when the railroad was patched together out of unprofitable private passenger rail lines. The private rail lines didn't receive federal subsidies, so it has been hard to convince Congress that passenger rail now deserves financial support.

"As you're born, so you live," said Thomas M. Downs, who was Amtrak president from 1993 to 1997. "It was born to be a profit-making company. The history of the unique circumstances of its birth and the way it was characterized mean that it's a classic case, in a conservative's mind, of failed socialism."

Congress passed the bill creating Amtrak in 1970 in the midst of a crisis in passenger rail. For years, the service had been provided by freight railroads, whose franchise to operate required them to run passenger trains. The passenger service was subsidized by the freight service, but it was clear by the 1950s that it couldn't be sustained.

In 1958, when the Interstate Commerce Commission released a report on passenger rail, it stated that no railroad in the country was making money transporting passengers. The Baltimore & Ohio, for instance, lost $25 million in 1958 on its passenger trains.

People had deserted trains for the convenience of the automobile and the speed of the airliner. From 1959 to 1970, the commerce commission allowed 768 money-losing passenger trains to be discontinued - and still railroads were declaring bankruptcy at alarming rates. Twenty percent of the nation's private railroads were bankrupt in 1970, with many more teetering.

Both houses of Congress passed the Rail Passenger Service Act of 1970 on Oct. 14 that year, and President Richard M. Nixon, who didn't want to be known as the man who killed passenger trains and who had more pressing matters on his mind, signed the bill two weeks later. Amtrak began running trains on May 1, 1971. The transportation secretary promised profitability in three years' time.

"Anybody who knew anything about transportation economics knew that was a lie. It was a bald-faced lie," said Black, the Amtrak spokesman. "It was to make it palatable to the administration and to Congress. You were sweeping a bunch of terribly unprofitable passenger trains into one heap and calling it profitable."

Why has it been so hard to persuade Congress to fund passenger rail even a fraction as generously as it funds highways and airlines? Michael S. Dukakis, a former president of Amtrak's board and the Democratic nominee for president in 1988, said it may be that members of Congress don't understand the vital role trains play in the transportation network - and in relieving congestion.

"One of the things with our politicians, as they move up [in office], we drive them all over the place," Dukakis said. "Most of them are not sitting on the expressway at 5:15 in the afternoon taking hours and hours out of their lives to go from home to work and back again."

Changing attitudes

Dukakis sees evidence that the tide is finally turning in Amtrak's favor. He points out that 221 members of the House - a bare majority - signed letters supporting Gunn's request for $1.8 billion next year. And four Republican senators released statements criticizing Bush's plan to break up Amtrak.

"One of [Gunn's] great strengths is that he says, 'Let's not indulge in this fantasy of self-sufficiency. This is a public service. Let's get on with it,' " Dukakis said. "Gunn has clearly explained that you've got a right to expect top-notch management and a highly productive work force and the most efficient system we can give you, but don't expect profits."

Even the Northeast Corridor, which has suffered from an even greater myth of profitability, has never made money. The main reasons are that Amtrak owns 505 miles of rail in the Northeast that must be maintained at enormous cost, and it has spent millions establishing high-speed rail service.

The railroad spent $800 million buying 20 Acela trains. But they have been hobbled by mechanical problems. Only 13 of the trains are in use at any given time, with the rest in the shop for repairs or inspections, and others are held back as emergency replacements.

Gunn said he will not be buying any new high-speed trains until the basics are fixed. That's why Amtrak is spending millions fixing rails and ties throughout the Northeast that will last 50 years, even if Amtrak's not around to use them.

"Whatever they end up doing [with Bush's plan], you're going to need that tie and you're going to need that rail," Gunn said. "If not for us, then for someone else."

Downs, the former Amtrak president, agrees that the railroad is at a crossroads. For years, he said, Amtrak leaders did all they could to keep the railroad alive. And that was especially important in the 1980s, when every year President Ronald Reagan's budget recommended zero dollars for Amtrak.

'Essential need'

The Amtrak president during that period, W. Graham Claytor Jr., gave Downs one piece of advice when he started:

"He said, 'I've come to the conclusion that the job of the railroad and particularly the job of the president and CEO is not to let anybody kill it because re-creating this railroad would be impossible, and some generation of Americans will discover that this is an absolutely essential need.'"

Downs says the railroad is in worse financial shape now than when he ran it in the mid-1990s, noting Amtrak's $3.8 billion debt.

"You've got to either fund it or kill it," he said. "The history so far has not been the courage to do either. The railroad is still there. It's still struggling. That's why Dave [Gunn] is right to say, 'Fund it, or we'll close it for you.'"

Copyright © 2020, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad
70°