Whether the federal government should be in the electric energy business is a policy choice.
The federal government, as well as many local governments and governmental authorities, perform commercial functions that are similar to those performed by private sector companies. The TVA is one example. Others at the federal level include the Federal Deposit Insurance Company, the Pension Benefits Guarantee Corporation, Ginne Mae, etc.
At the local level most airports, as an example, are designed to operate as independent enterprises. That is to say, their activities are separate from general government activities, e.g. defense, police, fire protection, etc. They are expected to cover their expenses and costs through user fees.
The TVA, for example, generates sufficient revenues through the sale of wholesale power to cover its costs. Accordingly, it does not require a direct subsidy from the general fund.
With all respect, Sam 1, I find this tortured reasoning. The differences cited here regarding Amtrak and the TVA are, in my opinion, so picayune as to render them negligible.#### TVA’s birth in the 1930s was greeted with the exact same kind of reaction from the free market purists. It was opposed for many of the same reasons. Now, however, it “generates sufficient revenues” as to make it OK with this crowd. It didn’t make money from the start…it needed a start and assistance from the Federal government when private enterprise didn’t, couldn’t, and wouldn’t serve the people of the Tennessee Valley with electricity, etc.
How about this: What if Amtrak were given the resources and commitment by the Federal government on the scale given to TVA to fulfill its mandate? Do you think in 75 years it might be “generating sufficient revenue to pay for itself” like TVA?#### To me, this is not a merely academic discussion of political principles. It’s a question of what the country needs, and how we are going to compete with the rest of the world, where such questions as small-potatoes subsidies to national transportation networks were resolved decades ago.#### DeWitt Clinton is lucky to have lived when he did. The small-and-starved-government crowd would never have let him build the Erie Canal. Ditto FDR and his TVA. Gotta starve and beat the Government, you know; gotta stand up for Principle when it comes to Amtrak. Not the other stuff, though.
No. My evidence for this? The Vision Report estimating a 10-fold expanded Amtrak, from a tenth of a percent of passenger miles to 1 percent of passenger miles, as costing half a trillion based mainly on the costs of rail in Europe.
Did you ever hear me advance the agenda of the “small-and-starved-government” crowd? No, I don’t think so. I have never opposed subsidy for Amtrak based on idealogical positions. I just think it is a fair question to ask about the amount of Amtrak subsidy required for a given level of work product.
Sure there was opposition to TVA, but over time it indeed had paid for itself. Sure hybrid car subsidies are as much a government handout as Amtrak subsidy, but the hybrid car subsidies get phased out as hybrid car models gain market share. Amtrak has been around for a long time too, but the mere suggestion that it be held to the same standard is met with derision and scorn as being “anti train.”
The claim was made by whoever did the studies. that the Midwest Regional Rail Initiative would have cost some 5 billion in capital expenditure to produce half-an-Amtrak in passenger miles, and the claim was that there would be no requirement for operating subsidies. So in constant-dollar terms, over the life of Amtrak, you could have taken the same government dollars, had 8 MWRRI’s over time and been carrying the passenger load of 4 Amtrak’s for the same money that had been dribbled away in Amtrak subsidy, and you would have had 8 regional rail networks across this land, meeting their above the contact patch operating costs just as airlines or bus companies do.
And while assessing blame for the failures of Amtrak (which is a self-evident truth) perhaps the burden of a long distance passenger rail network designed by politicians and the burden of carrying non-competitive labor charges (especially for pensions) should also be examined.
The reality is the no money is EVER spent effectively when view by someone other than the person whose responsibility it is to spend it. The money I spend in my personal life is not viewed as being spent effectively when viewed by my Ex. When it comes to spending money, everyone believes they have a better more effective idea of how to do it than those that are charged with the responsibility. Everyone has their own personal axe to grind at the expense of the axe. Amtrak was created as a life support operation and the politics to Amtrak will only permit it to be a life support operation…not a life fulfilling operation.
There is a friend-of-the-family whom I used to do some consulting work for on product development, and I had occasion to spend some time as a house guest on trips out to California to do this. This man had divorced his wife and mom to his two kids – I met his wife before they parted ways. His ex-wife was a nice enough person, and you never know from the outside looking in why people divorce, but I picked up the vibe from the husband in the relationship that perhaps the ex-wife was somewhat critical of his ways.
Some time after the divorce my friend had finally found his soulmate, a woman who had kids of her own, and my friend was in the middle of a household where teen to young-adult kids came and went. I was single at the time, and my friend tried to recruit some sympathy regarding his new-found life situation. He was happy yes, but money was going in various directions.
“Paul, you being single and not having ‘all of this’ (the yours-and-mine grown kids), you probably have a lot more disposable income than I do.” I think what he was trying to tell me was that as president of this small company I probably thought he was wealthier than I was, but he didn’t have much money to his name, what with alimony he may have had to pay out along with financial support for two sets of college-age kids.
I probably did have more choice in how I spent my money and my friend, but I guess I dished back what I was supposed to take, "Gee, I know what you mean about the disposable income thing. But look at the car I drive. I have one of those Chevy Nova-Toyota clones, and by now the Blue Book on that thing is down to about $3000. Thing is, I heard you talking
Absolutely correct. If you are trying to determine whether passenger rail service (or anything else) is being subsidized, you have to look at ALL of the costs, not just operations and maintenance. As I said in a previous post, a dollar is a dollar. If the number of dollars Amtrak is taking in from its users is less than the dollars it is paying out, it doesn’t make any difference what bucket the outgoing dollars are dropped into. The government must still make up the difference, and that amount is a subsidy.
It’s particularly important with Amtrak not to evaluate the relative financial performance of particular services based on O&M cost covereage. The reason is that many of Amtrak’s infrastructure expenditures on the lines Amtrak owns (such as the NE corridor) are considered "c
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
Absolutely correct. If you are trying to determine whether passenger rail service (or anything else) is being subsidized, you have to look at ALL of the costs, not just operations and maintenance. As I said in a previous post, a dollar is a dollar. If the number of dollars Amtrak is taking in from its users is less than the dollars it is paying out, it doesn’t make any difference what bucket the outgoing dollars are dropped into. The government must still make up the difference, and that amount is a subsidy.
It’s particularly important with Amtrak not to evaluate the relative financial performance of particular services based on O&M cost cover
Looking at both capital and operating costs I don’t think there is any passenger railroad in the world that makes a profit. If I am mistaken I trust that the members of this forum will enlighten me.
If we add externalized costs to the capital and O&M, and look at the total private+public outlay for the transportation service delivered, most intercity rail passenger services should have a positive ROI, whereas highways cannot because they are so land-intensive, emissions-intensive, time-intensive and rather unsafe. Air service don’t externalize costs to the same extent because their land use is much smaller, their safety very high, and their value-of-time very high.
I haven’t yet seen anyone credible tackle this calculation. It is a very difficult calculation as one has to consider the opportunity costs of real estate, air emissions, property taxes, and many shared costs and benefits that are not easily allocated.
The original question was whether Amtrak makes a profit or is subsidiized, The answer to that question is that the revenue Amtrak derives from its users is less than the amount it spends to provide its service. The difference is make up by the government. That means that (i) Amtrak is not “profitable”, and (ii) Amtak depends on public subisdies for its survival.
The issue of whether there are “externalized” costs isn’t relevant to the question of whether Amtrak is “profitable” or whether it is subsidized . It goes to the issue of whether it makes economic sense for the government to SUBSIDIZE some Amtrak services. I agree there is a case to be made that&nbs
I agree, without question Amtrak farebox revenue does not cover operating, maintenance, and capital costs, much less return a profit. But to determine whether a subsidy exists, I think I want to look at whether there are avoided government expenditures. Certainly you would agree if there were off-book costs, we’d want to include those? If so, should we also look at off-book credits?
I think it would be interesting to consider all of the off-book or externalized costs and credits that can be found. But we need a definition of subsidy. Making a profit or receiving a subsidy are not the only two outcomes possible. For example, if Amtrak did not make a profit, but did cover its costs through fares and taxes provided only by the riders, it would not be receiving a subsidy.
So the question posed in the title of this thread is not an either / or question.
You would think that Amtrak would be on this like stink on a skunk! What better to secure your future than to show a positive net benefit. Make me think that there is a) something wrong with Amtrak, or b) the answer doesn’t come out very favorable. (or both?)
Defining “making a profit” and “receiving a subsidy” is pretty simple, and can be done without all the fancy economic jargon. Amtrak is “making a profit” if the bag of gold AMTRAK GETS from those who use its services (primarily passengers) and those who contract for its services (states, etc.) is larger than the bag of gold AMTRAK SPENDS to provide
Another question raised in defense of Amtrak: does Congress hold the Air Traffic Control System, the Inland Waterways (Army Corps of Engineers), the Interstate HIghway System (and the policing of it), the Coast Guard or other military services, the USPS, or any other of the goverment agencies, departments, or programs, to be able to prove itself by making a profit for the government? That is not just a rhetorica question but also a question of philosophy which must be met by our government in order for it to continue its spending schemes.
I know that highway project do not have to undergo any kind of rigorous cost/benefit analysis like transit project do. It’s a big hole in the boat. A local suburban interstate interchange was recently rebuilt at a cost of $250 million over 2 years and it did little to relieve traffic congestion. When asked, the DOT replied it was primarily a safety improvement project to eliminated left hand mergers. There had not been a fatality at the previous interchange in it’s 30 year history.
Also, attempts to finance some highway projects that the local DOT wanted to build, but couldn’t fund, as PPP toll roads all folded as the best possible projected revenue couldn’t come close to covering the construction costs.
The ACE has long been known as a prime “sty” of pork. At least they have to calculate an ROI, but there have been some “tail wagging the dog” analyses done.
USPS? They are required to NOT make money - or lose any. Postage is supposed to cover costs - although they look like they are on the wrong side of the slope these days as increased first class postage chases away more volume than it does to increase revenue. (I don’t need 6 day a week mail. Three days a week would be plenty.)
I think it would be interesting to consider all of the off-book or externalized costs and credits that can be found. But we need a definition of subsidy. Making a profit or receiving a subsidy are not the only two outcomes possible. For example, if Amtrak did not make a profit, but did cover its costs through fares and taxes provided only by the riders, it would not be receiving a subsidy.
So the question posed in the title of this thread is not an either / or question.
Defining “making a profit” and “receiving a subsidy” is pretty simple, and can be done without all the fancy economic jargon. Amtrak is “making a profit” if the bag of gold AMTRAK GETS from those who use its ser
Whether or not taxpayers use a service directly is irrelevant. You are comparing apples and oranges. Some services are totally government funded because they are a part of the government, while some, like Amtrak, are public corporations, in which all the stock is held by the federal government. The difference between total expenses and revenues from the fare box = the subsidy from the US Treasury, which in the case of Amtrak long distance routes is pretty high.