House Subcommittee Grills Amtrak over Federal Subsidies and Operating Losses

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The House Subcommittee on Railroads, Pipelines, and Hazardous Materials heard testimony on Tuesday from witnesses regarding federal subsidies for passenger rail service provided by Amtrak. Over the past few years, Amtrak’s ridership has increased dramatically, increasing the revenue stream, and reducing reliance on federal subsidies. Despite these improvements coming from the Passenger Rail Investment and Improvement Act (PRIIA), Amtrak was $600 million in the red this past year, and the losses incurred by long-distance rail routes actually increased by 11%.

Joseph Boardman, CEO of Amtrak, in detailing some of the major cost drivers for Amtrak, pointed to rising labor costs as a primary factor in Amtrak’s costs. According to his testimony to the Subcommittee, between 50% and 66% of all Amtrak’s costs come from the payment of wages and benefits. These costs are going to continue to increase as Amtrak is currently in negotiation with the unions to provide a 15% pay increase to crewmembers over the next five years.

However, revenue is on the uptick for Amtrak. Under PRIIA, the federal government mandated that states would be required to contribute to funding for Amtrak, relieving some of the burden from the federal government. In 2013, states contributed just under $200 million. That amount is projected to increase to over $300 million in 2014. Mr. Boardman heavily emphasized the importance of maintaining funding for long-distance railroads, pointing out that in almost half of the system—223 of the 500 stations and 23 of the 46 states — long-distance railroads are the only rail service provided. Because these routes cross state boundaries and are essential to the cohesion of the whole rail system, Mr. Boardman declared that maintaining them was “clearly a federal responsibility.” Ross Capon, CEO of the National Association of Railroad Passengers, also emphasized the importance of federal subsidies. He pointed out that, even though the Northeast Corridor is one of the only profitable sections of Amtrak, it is at or near capacity, and without government dollars, he predicted a rapid “death spiral” for it were those funds to be removed.

Pointed questions came from many members of the committee, including former Transportation and Infrastructure Chairman John Mica. Calling Amtrak a “Soviet style rail system,” Mica suggested that as long as it continued in this fashion, Amtrak would never be able to show a profit. He then pointed out that in many sections of the system, the loss per person to the federal government had actually increased between 2011 and 2012. Representative Hanna followed by asking why if ridership was increasing and demand was inflexible with regards to price, there remained a preference to rely on federal subsidies to maintain low fares instead of raising prices. Ross Capon and Joseph Boardman agreed that prices were high enough currently that any further increase in price would drive passengers away. While challenges remain, the hearing showed that by controlling for its main cost drivers, perhaps Amtrak can keep showing progress towards breaking even.

 

Photo courtesy: http://netrightdaily.com/2011/01/dont-subsidize-amtrak-just-let-the-free-market-work/

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