Amtrak is a public-private partnership, but at the inverse of its competition

Amtrak-F35

Courtesy AP-Politics

 

In the days following the tragic crash of Amtrak train #188 in Philadelphia, the public profile of Amtrak’s infrastructure issues were raised significantly. We at All Aboard Ohio abhor the tragedy but encourage conversation about how to prevent such tragedies in the future by providing this nation with a First World transportation system. Instead, America’s level of public investment in rail is dwarfed by other civilized nations as is our public investment in competing highway and aviation systems.

Unfortunately, there seems to be a fundamental misunderstanding regarding the basics of transportation which makes it difficult to assign responsibilities for implementing solutions. This goes to the heart of who owns what and who pays for what when it comes to passenger rail, highways and aviation. While all are public-private partnerships, understanding the stark differences in these ownership models is crucial to addressing the shortcomings of America’s passenger rail system.

All modes of transportation have two basic cost components: fixed and variable. Any business would want to minimize the fixed costs and thus reduce the risk to shareholders and cut costs for customers. Thus the majority of remaining costs are variable as they rise or fall with changes in business activity. In the transportation world, these two cost components can be categorized as infrastructure (fixed) and operations (variable). And anything you can do to externalize the fixed costs of infrastructure onto other parties — namely taxpayers who absorb those costs — to artificially reduce the cost to customers is preferable.

For road/aviation/water transportation, its public-private partnership has the infrastructure publicly owned and financed while the vehicles/operations are privately owned.

In the past 44 years of American passenger rail, its public-private partnership has the infrastructure privately owned and the vehicles/operations are publicly owned. Prior to 1971, passenger rail was entirely a private enterprise. It will never be entirely a private enterprise again unless the infrastructure and operations of its competition become entirely private too.

The reason for this inverse fixed/variable, infrastructure/operations policy approach is due to the differing political eras in which each mode came of age. Railroads grew up in the 19th century era of Laissez-faire. Roads and aviation grew up in the mid-20th century New Deal/Great Society eras. Yet too many don’t recognize the public-private paradigm for each today.

Railroads and their shareholders traditionally owned or are otherwise responsible for everything from right of way property (only 18,700 route miles or 7% of the nation’s total were provided to the railroads by federal land grant), to the tracks, to the trains, to property security, the insurance, financing, to the dispatching/traffic control systems, to the communication systems. All are privately owned and financed through private debt markets that charge higher rates and profit margins on their debt than does government debt.

Given these ownership constraints, you can’t just go out and get a locomotive engineer’s license and show up with a train to use a railroad line (even today where a new but still small percentage of railroad corridors are publicly owned). Until the 1970s, the public sector owned virtually no rail infrastructure, so when there was an economic downtown, we ended up with many miles of track getting ripped up, never to return. Fewer than 1,000 miles of Amtrak’s 21,300-mile national system are owned by the public sector. In the Northeast Corridor, Amtrak is responsible for owning and maintaining all but 95 miles of track, bridges, electrical systems, stations, dispatching, policing and more.

By contrast, highways, aviation and waterways all have their rights of way publicly provided by government agencies and financed through government held-trust funds which substantially reduces risk and interest costs. They pay no property taxes on their rights of way, nor liability insurance on the infrastructure. Security on the roads is provided by local or state enforcement. A decade ago, the Ohio State Patrol was funded out of the gas tax but is instead funded by general taxpayers. More than two-thirds of airport security costs are funded by general funds, not user fees. Air traffic control is funded 20% by general taxpayers. Airport improvements and expansions are funded by tax-exempt bonds. When airlines fly the coop as happened in Pittsburgh, St. Louis, Cincinnati, Cleveland and other cities, taxpayers are left holding the bag.

Road/air/water fixed costs of infrastructure are externalized on to taxpayers so they are far less for users of road/air/water than for the railroads. Motorists pay only half of the cost of using roads, with general taxpayers providing the rest. All of these subsidies artificially reduces the cost of driving and flying and distorts the transportation market in their favor.

The barriers for competitors to enter the market is much less for road/air/water modes. All you need is an operator’s license, some business savvy and a vehicle to use those rights of way which enhances innovation and price competition, but can cause safety issues. And when there are economic downturns, taxpayers bear the risk burden of sustaining or otherwise mothballing those facilities until good times return. That helps them gain market share from railroads whenever a recession ends.

Taxpayers provide direct subsidies for all modes. The highway trust fund has been bailed out countless times by the general treasury since 2008 with more than $50 billion in general funds — not gas taxes thereby keeping the cost of driving artificially low. We don’t increase the cost of using roads at peak travel times and instead provide an extra lane or two to busy highways which isn’t economically justified the other 20 hours of the day. And don’t anyone say that a road across unpopulated areas like Wyoming or Montana pays its own way. Many busy urban highways fail tax-gap analyses too.

Yet the biggest victim of this common misunderstanding of who pays for what in this inverted world of infrastructure/operation ownership paradigms is the truth. It results in a double-standard held against passenger rail which is urged to become a private operation while its competition is not. But half of Amtrak’s infrastructure/operation ownership paradigm is already privatized — the infrastructure half. Meanwhile half of its highway/aviation competition is private too — vehicles/operations. They are mirror images of each other; only the dollar amounts invested in infrastructure truly separate them. How big is the separation?

The discrepancy in historical federal investment between highways, aviation, and intercity passenger rail is staggering. Between 1958 and 2008, nearly $1.3 trillion has been invested in our nation’s highways and over $473 billion in aviation. Federal investment in passenger rail began in 1971 with the creation of the National Railroad Passenger Corporation (Amtrak). Between 1971 and 2008, only $53 billion dollars have been invested in passenger rail.

Either apply the Laissez-faire policy to all modes or recognize that the every mode is subsidized albeit in different ways. And if we want a First World passenger rail system, we’re actually going to have to pay for it. There is no train fairy waiting to leave a Shinkansen or TGV under all of our pillows.

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2 Comments to "Amtrak is a public-private partnership, but at the inverse of its competition"

  1. Eric Talbot's Gravatar Eric Talbot
    May 18, 2015 - 10:44 PM | Permalink

    The American Public – by and large – seems to be quite happily contented with the transportation status-quo. Most Americans would not notice any difference in their lives if all passenger rail service in the United States were to disappear tomorrow (with the exception of the Northeast Corridor from Washington, D.C., to Boston, MA.).

    If the conservatives in the Republican Party gain decisive control of both houses of Congress AND the White House, which could happen in 2016, we can expect Amtrak would be completely eliminated from the federal budget (a Republican from California tried to add an amendment to 2016’s federal budget to “zero out” Amtrak’s funding – but there were still enough votes on both sides of the aisle to kill that amendment(.

    After the 2016 national election we may not be so fortunate the next time a congressman proposes defunding Amtrak.

    There are three very interesting articles which came out over this past week in response to the Amtrak tragedy in Philadelphia. The first is titled “Our Trouble with Trains,” which appeared in Monday’s New York Times newspaper (http://www.nytimes.com/2015/05/18/opinion/our-trouble-with-trains.html?partner=rssnyt&emc=rss&_r=0).

    The second appeared in this week’s edition of New Yorker Magazine, entitled ‘The Plot against Trains’ (http://www.newyorker.com/news/daily-comment/the-plot-against-trains) – a most interesting take on the current rail funding issue.

    Lastly came the third, equally relevant article, this time in The Daily Kos, an online blog, entitled, “Why do Republicans really oppose infrastructure spending?” (http://www.dailykos.com/story/2015/05/15/1383149/-Why-do-Republicans-really-oppose-infrastructure-spending).

    These articles give us plenty of “food for thought”. I highly recommend all three.

    • Eric Talbot's Gravatar Eric Talbot
      May 22, 2015 - 11:28 PM | Permalink

      I’m surprised, actually, that no one else has seen fit to comment on this important article. My impression is that “All Aboard Ohio” is not having any significant impact on Ohioans!

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