if they are making money, then why did all those plans for new amtrak routes get scrapped ?
Probably because passenger service as a whole has not even covered its solely related costs since 1953 or so, which is why Amtrak and the various urban transit authorities exist.
After the Post Office demonstrated that you cannot make a profit delivering letters, but you can make big money delivering packages, UPS was born. No letters, just packages.
After the Railroads demonstrated that you can not make a profit hauling passengers, but you can make big money delivering freight, they wanted to drop passenger service. The government recognized that, while not profitable, passenger service has an important place in a balanced transportation network and Amtrak was born.
Unfortunately, Amtrak is trying to do too much with too little and is, therefore, it’s own worst enemy. Amtrak needs either much more equipment or many fewer destinations so that the corridors it serves can be serviced properly. …fast, frequent, and on time.
There was an intersting paper released by a Washington Think Tank yesterday explaining that public monies pay for over 50% of the cost of driving an automobile on highways and streets. This is a cost similar to public (tax, government, whatever your want to call it) subsidies for air and rail travel. To pick at Amtrak is only a third of the transportation subsidy picture in attribution and much less in actual dollars. Yes, some rail routes cover costs, Acela and NE Corridor, some of the California Corridors, for instance. But the real question we should be asking is if there is any stretch of the Interstate Highway system that has a 100% or better return on investment. Same with any airport or airlane. Then compare it with rail passenger services.
Amtrak loses money anyway you’d like to count it. They only cover about 60% of their operating costs from fares. This excludes any money spent on capital items like ties for the NEC or new baggage cars or complete overhauls of existing equipment (capital rebuilds).
Some services do cover their operating costs. Acela, for example. Some others come close. NEC regional trains and AutoTrain for example. The big losers are the long distance trains.
The major reason Ohio and Wisconsin gave back the money for new routes was they didn’t want to be on the hook for the ongoing operating subsidy. The money came with atring attached that said the states had to pay for any operating losses and were required to operate the trains for a certain period (probably a decade - I’m not sure)
It appears that if you can implement new service that covers it’s operating costs, there’s little resistance from either party, or the people in general, to coming up with the capital to build it. Fair or not, this is how the political landscape appears.
I’ve got to finish reading it, but at first glace that paper is as full of gobble-dee-gook as Wendel Cox’s stuff, just in the other direction.
In FY09 Amtrak required federal and state subsidies of $1.8 billion to cover its operating losses and capital expenditures. The operating loss was approximately $1.3 billion. In FY10 the preliminary operating loss subject to audit was also $1.3 billion rounded. In addition, in FY10 Amtrak received $1.3 billion in ARRA funds. These are the direct subsidies. In addition, Amtrak pays no federal, state, or local taxes. It does not even pay fuel taxes. Moreover, it receives a variety of other subsidies, i.e. assumption of station costs by local communities.
In FY09 the average federal and state subsidy per passenger mile was 21.15 cents, compared to 18.39 cents per passenger mile in FY08. By comparison the average federal subsidy for commercial airlines and motorists is less than a penny per passenger mile or vehicle mile traveled.
In FY09 only the Acela’s and the Washington - Newport News trains had an operating profit. The NEC regional trains failed to cover their operating costs, but the Acela’s profit gave the NEC is slim operating profit. However, after factoring in interest and depreciation, the NEC lost money. In FY10 only the Acela’s and Washington to Lynchburg trains covered their operating costs. Again, the NEC regional trains failed to cover their operating costs, but the Acela’s profit gave the NEC a slim operating profit. But interest and depreciation, if it was allocated by routes, would have pushed these trains into the red.
The Pacific Surfliners, The Capitols, and the San Joaquin’s lost 14.0, 26.3, and 3.8 cents per passenger mile in FY09. In FY10 they lost 14.3, 15.9 and 8.1 cents per passenger mile.
At the end of the day motorists cover the cost of driving, although they don’t see the full cost in the fuel taxes levied at the pump or in the fees they pay. Most motorists pay federal income taxes, state income taxes, property taxes, sales taxes, etc. They also pay
If these sort of bus services will cut into all but higher speed rail?
It’s extremely hard to get at the amount of public contribution to any form of transportation. The private contribution is somewhat easier to calculate. On a per-passenger basis, or per vehicle-mile basis, the information I have suggests that the total cost per mile – adding together both public and private inputs – is surprisingly similar between all modes. For example, if you were to look at how much it costs to operate a passenger auto on a federally supported highway, you might look at the following:
- private owner’s fuel cost (which includes gas tax), vehicle maintenance cost, insurance cost, vehicle capital costs
- private owner’s travel time opportunity cost
- emissions cost absorbed by the public
- safety costs absorbed by the public (e.g…, uninsured motorists)
- state sales tax exemption on the gas
- federal and state contribution to highway maintenance and construction not paid by the gas tax
- opportunity cost of land diverted from private to public realm to hold highways
- local connector street maintenance, capital, avoided property tax.
There’s no law that requires anyone to include any of these costs in a benefit-cost calculation, but it’s something to think about.
RWM
Exactly. A person believes that he buys a $30,000 car and looks only at the cost of of gas when figuring the cost of a trip of any kind. The cost of gas, servicing, housing-parking, mainetnance, insurance, highway taxes and bonding; rarely if ever considered. Similarly one does’nt normally think beyhond the cost of a plane or bus ticket without considering how that is weighed against government subsidy. But a train ticket is always weighed against the subsidy when the anti rail-pro highway-pro airline lobbies start talking.
This is a worthy question, but may I ask:### Does the Defense Dep’t make money, or is it still subsidized?### Does the EPA make money, or is it subsidized?### Does Federal air traffic control make money, or it is subsidized?### Is the FDA making a profit, or is it subsidized?### Is the Interstate Highway network profitable, or it is subsidized?### Does the Intra-Coastal Waterway make money, or is it subsidized?### Does the Small Business Administration make money, or is it subsidized?###
Governments aren’t in business to make money. Amtrak is, to my mind, something this country needs and I, for one, am GLAD to subsidize it, no matter the cost. One last thing, ever figure out what per cent of the Federal budget or deficit is caused by Amtrak? Then look at the items above. Tax me more, but give me an even better Amtrak. But another war, or Wall Street bailout? No thanks.
None of the aforementioned governmental activities are commercial activities. They don’t make money because they were never intended to make money. Defense, for example, is a pure governmental activity. Accordingly, to say they are subsidized is inappropriate. However, several of them, e.g. FAA, Interstate Highway System, etc. are designed to recover their costs through user fees, which they do for the most part.
Some of the users of the airways, highways, waterways, etc. are commercial enterprises. They are expected to earn a profit for their shareholders. If they don’t, they go out of business. Witness all the airlines that have gone belly up. The majority of the users of the airways, highways, etc. are not commercial enterprises. They are private individuals who pay for a portion of the infrastructure through a variety of user fees. Whether they pay th
What about the Tennessee Valley Authority? Does the Federal government have any business in the commercial activity of making electricity?
I didn’t see the particular “think tank” paper you are referring to. But I have seen other studies showing that “highway users” as a whole (not just automobile users) don’t pay all of the highway related costs, and therefore are being subsidized.
The trouble with studies like this is that they don’t distinguish between auto users and heavy trucks. There are other studies that show that heavy trucks impose exponentially greater costs on highways than autos. In other words, the costs don’t go up pound for pound as weight increases, they go up exponentially. In fact, I recall that someone on another thread cited a study (possibly by AASHTO, an association of state highway officials) showing that one heavy truck equals 6,000 cars from the standpoint of highway damage. And, of course, a highway that handles heavy trucks is much more expensive to build than a highway designed to carry just passenger autos and light trucks. The relevance of this to the current debate is that auto users (ie., the highway users who are potential Amtrak customers) could very well be paying the full highway costs they impose, and also be partially subsidizing truck costs.
By the way, to my knowlege, there is no Amtrak service that covers its costs. There may be a few that cover “operating costs”. But they don’t come anywhere near covering the full costs of the service, particularly on something like the Northeast Corridor, where the capital costs are very high. “Operating costs” vs “capital costs” may be of interest to accountants, but a dollar is a dollar, regardless what bucket you throw it into. Take away the public subsidies, and the dollars coming in to Amtrak would be less than the dollars going out on every service they offer.
Now, this doesn’t answer the question of whether paying subsidies for passenger service is
Tell multimillionaires like Erik Prince that Defense is never intended to make money. A large number of people have become wealthy beyond the dreams of avarice in the business of defense.
Blackwater USA is a private military company and security firm founded in 1997 by Erik Prince and Al Clark. It is based in the U.S. state of North Carolina, where it operates a tactical training facility that it claims is the world’s largest. The company trains more than 40,000 people a year, from all the military services and a variety of other agencies. The company markets itself as being “The most comprehensive professional military, law enforcement, security, peacekeeping, and stability operations company in the world”. At least 90% of its revenue comes from government contracts, two-thirds of which are no-bid contracts.
Whether or not something is subsidized is beside the point. It is a red herring. The one pertinent point is whether or not the users pay. When you compare private automobiles on public highways to public passenger rail, the highway traveler is far closer to paying their fair share than the rail traveler.
As you say, it isn’t subsidized if all operating expenses are covered by users. And that is the key. If general tax dollars are used to make up the difference between op. exp. and fares, as it is unlikely that many of those taxpayers even have access to Amtrak, much less actually ever use it, it follows that those who do use Amtrak are being subsidized by the general tax revenues. Not that there is anything wrong with that, IMO!!
I’m curious why you’re limiting the definition of subsidy to O&M costs. Wouldn’t any externalized cost be considered a subsidy? For example, if the operation of a copper smelter causes emission of sulfur dioxide that damages fruit trees in orchards that reduces the harvest that reduces income to the orchard owners, are not the orchard owners effectively subsidizing the cost of the matte copper from the smelter?
RWM
Practically every government department engages consultants, contractors, etc. to help achieve its objectives. They consultants and contractors are in business to make money. But the departments, unless they have been set-up as enterprise funds, e.g. Amtrak, TVA, FDIC, do not generate service based revenues to cover their costs.&nb
I limited my example to O&M because those costs are pretty clear. Of course there are many other costs that are shifted to others, either in the short term, or more likely long term, but they are somewhat more murky and debatable, at least in the current climate.