Amtrak Profitability: An Analysis of Congressional Expectations at Amtrak's Creation
Report for Congress
Amtrak Profitability: An Analysis of
Congressional Expectations at
Amtrak’s Creation
June 26, 2002
D. Randall Peterman
Analyst in Transportation
Resources, Science and Industry Division
Congressional Research Service ˜ The Library of Congress
Amtrak Profitability: An Analysis of Congressional
Expectations at Amtrak’s Creation
Summary
Most discussions of Amtrak refer to Amtrak’s status as a for-profit company,
and have noted that Amtrak was intended by Congress to be a profit-making
enterprise. Despite these references, Amtrak is not now a for-profit company; it was
originally created as such, but that status was changed by the Amtrak Improvement
Act of 1978 (P.L. 95-421); the Conference report noted that the bill removed
Amtrak’s for-profit status but required that the corporation be “operated and managed
as” a for-profit corporation (H.C.R. 95-1478).
Amtrak was created by the Rail Passenger Service Act of 1970 (P.L. 91-518),
which was implemented by the Department of Transportation. John Volpe, then-
Secretary of Transportation, asserted during Amtrak’s creation that it could
eventually be profitable; on some occasions, he said it could achieve profitability
after three years.1 However, in these statements he attached two conditions to that
prediction: that the Federal government provide significant capital funding to
produce high-speed trains in short-haul corridors where profitability was possible, as
well as providing other improvements in service; and that the size of the passenger
network would be cut back to the point that the profits from the successful corridors
would be sufficient to subsidize the remaining routes.
Intercity passenger rail service was running a deficit before Amtrak was created,
and there were doubts expressed in Congress (and elsewhere) that Amtrak would
ever be profitable. The Rail Passenger Service Act of 1970 created Amtrak as a for-
profit corporation, but in Section 101, the Congressional Findings and Statement of
Purpose, it found “... that Federal financial assistance as well as investment capital
from the private sector of the economy is needed [to provide modern, efficient
intercity rail passenger service] ...”. In their floor statements about this legislation,
several Members of Congress either expressed skepticism that Amtrak would ever
be profitable, or echoed Volpe’s conditions: that Amtrak would have to provide high-
speed trains, or cut back its route mileage significantly, to achieve profitability.
Otherwise, one Member, all Congress would have accomplished by creating Amtrak
would be to change the name on the annual debt incurred by providing passenger rail
service (and make the federal government responsible for it).
Amtrak’s fastest train in 2002, the Acela, averages 85 mph between
Washington, D.C. and New York City, compared to the Metroliner which averaged
80 mph over the same route before Amtrak was created. Amtrak’s route mileage in
2000 was 23,000 miles; its route mileage in 1971 was 23,000 miles. Thus, neither
of the two conditions specified by those who initially predicted profitability for
Amtrak has been achieved.
1Volpe: Amtrak will break even in 3 years and be profitable thereafter (Railway Age,
February 8, 1971, p. 12.
Contents
Passenger Rail Service Deficits Prior to Amtrak......................1
Original Expectations for Amtrak: Administration....................3
Early Returns on Amtrak’s Progress Toward Profitability..............5
Have the Original Pre-Conditions for Amtrak Profitability Been Met?....7
List of Tables
Table 1: Passenger Deficits of U.S. Class 1 Railroads.....................2
Amtrak Profitability: An Analysis of
Congressional Expectations
at Amtrak’s Creation
Most discussions of Amtrak refer to Amtrak’s status as a for-profit company,
and have noted that Amtrak was intended by Congress to be a profit-making
enterprise. In fact, Amtrak is not now a for-profit company. It was originally created
as such, but in the Amtrak Improvement Act of 1978 (P.L 95-421), Amtrak’s
authorizing statute was amended to read “Amtrak shall be operated and managed as
a for-profit company” (49 U.S.C. 24301(a)(2)). The Conference report noted that the
bill removed Amtrak’s for-profit status but required that the corporation be “operated
and managed as” a for-profit corporation (H.C.R. 95-1478). Nevertheless, Amtrak’s
continuing need for Federal financial assistance is seen by some as evidence that
Amtrak has failed to live up to Congress’ expectations for the organization. This
report examines the statements of Congressional and Nixon administration leaders
at the time of Amtrak’s creation regarding the financial prospects of Amtrak.
Amtrak (originally called the National Railroad Passenger Corporation) was
created by the Rail Passenger Service Act of 1970 (P.L. 91-518) and began operation
on May 1, 1971. It was created because the railroad companies, which had long
subsidized their money-losing passenger service with profits from their freight
service, were now losing money overall and wanted to be free of the responsibility
(and cost) to provide passenger service. At that time, railroads were required to
provide passenger service in return for the opportunity to haul freight, although they
could petition the Interstate Commerce Commission (ICC) to drop individual money-
losing passenger routes. Congress had noted the financial difficulties of private
sector passenger rail service since at least 1958, when it had passed legislation
allowing railroads to petition the ICC to discontinue individual routes. Each year
after that, the ICC heard appeals from railroad companies petitioning to discontinue
passenger routes, and was granting these requests, resulting in a rapid decline of the
availability of passenger rail service. The impending failure in 1970 of the Penn
Central Railroad, the largest railroad in the country and the largest single provider of
passenger rail service, focused Congress’ attention on the immediate threat to
passenger rail service. Congress believed that, if something were not done, passenger
rail service would disappear as railroad companies either went bankrupt or divested
all of their passenger service.
Passenger Rail Service Deficits Prior to Amtrak
Passenger rail service had been unprofitable for many years before 1970. Just
how long and how unprofitable depended on how one measured the costs of
providing passenger service. Passenger trains and freight trains were operated by the
same companies, ran over the same rail networks, and were guided, serviced and
repaired by many of the same employees; this made the task of separating the costs
of passenger service from freight service difficult. There were two basic ways of
measuring the cost: (1) assuming that a railroad company would continue to operate
freight trains even in the absence of passenger service, so attribute most of the
company’s overhead costs to freight and measure only the additional costs incurred
by the company to operate passenger trains, or (2) dividing all the costs of the
company proportionally between passenger and freight service. The first approach,
known as “solely related passenger costs,” was considered by the ICC as the more
realistic measure of the cost of providing passenger service, and was used in
evaluating requests to discontinue money-losing passenger trains; it produced a lower
expense figure for passenger service. The second approach, known as “full passenger
cost,” was used by the railroads in protesting the costs imposed on them by having
to provide passenger service; it produced a higher expense figure for passenger
service.
The differences produced by these two methods can be seen in Table 1. In 1941
and 1950, railroads made a profit on passenger service according to the solely related
cost measure, while they lost hundreds of millions of dollars according to the full
cost measure. During WWII, with gasoline rationing, passenger railroad ridership
was artificially increased to its highest level since 1929; in 1945 even the full cost
measure produced a profit. But by 1955, even the solely related cost measure showed
passenger service to be a money-losing operation. The railroad companies reduced
this deficit by discontinuing many passenger routes after 1958, but it rose again
toward the end of the 1960s.
Table 1: Passenger Deficits of U.S. Class 1 Railroads
($millions)
YearSolely relatedFull cost passenger
passenger profit/(deficit)
profit/(deficit)
1945942230
Source: Exhibit IV-E(3), Intercity Domestic Transportation System for
Passengers and Freight, study prepared for the Senate Committee on
Commerce, Science and Transportation, GPO, 1977, p. 311.
By 1970 it was generally accepted that railroad companies were losing money
on passenger service. Why this was so was a subject of debate; opinion divided
generally into two camps. The discouragement hypothesis held that the railroad
companies wanted to drop passenger service in favor of the more profitable freight
service, so they deliberately undermined their passenger business by offering poor
service, little marketing, and decrepit trains. According to this view, if the railroad
companies had truly been committed to making passenger rail service a success, it
would have been profitable. The other hypothesis, which might be called the
transportation efficiency view, argued that passenger rail service had gotten a fair
market test and failed: that as a greater proportion of the population was able to
afford private cars, people preferred the convenience of their cars for shorter trips;
and for longer trips, the airplane was so much faster than the train that it attracted
those who could afford to pay high rates for travel. In this view, passenger rail
service was a state-of-the-art transportation technology in the early 20th century, but
it had been superseded by the superior speed of aviation and the superior flexibility
of the automobile.
There was a subgroup of the economic efficiency group who argued that
passenger service had not gotten a fair test economically, because the market was
tilted against passenger rail service by the federal government, which subsidized the
building of highways throughout the nation (which made the car more attractive for
would-be passengers, and also gave a boost to the trucking firms which competed
with the railroads for freight service) and subsidized the construction of airports and
air traffic control systems, as well as aviation research.2 Some in this group argued
that if the federal government assisted passenger rail service, as it did auto travel and
aviation, the passenger rail market would be healthy.
Original Expectations for Amtrak: Administration
In a speech in December 1970, Secretary of Transportation Volpe, asserted that
Amtrak would be profitable.3 In February of 1971, he elaborated on that assertion,
saying that Amtrak would break even within three years and be profitable thereafter.4
However, this expectation was based on two assumptions: (1) that Amtrak would
provide better service; and (2) that it would operate a reduced number of routes.
Volpe claimed that “fast, clean, economical and safe trains” could attract enough
riders to make a profit5; at the same time, he was drawing up a route system for
Amtrak that was a great reduction from the extent of service being provided by
railroad companies. But when he declared that Amtrak’s profitability would depend
in part on a reduced number of routes, he did not mean simply Amtrak’s original
route network; he said that, after Amtrak had been in operation for a few years, the
unprofitable routes would be cut back to the point that their losses could be covered
by the money earned on the profitable routes.
2Since the beginning of the Interstate Highway Program in 1956, a significant portion of
federal spending on highways has come from the Federal excise tax on gasoline; in light of
this, many argue that Federal highway spending should not be viewed as subsidizing
highways, but rather as a self-financed program based on user fees.
3Traffic World, December 14, 1970, p. 77.
4Railway Age, February 8, 1971, p. 12.
5Traffic World, December 14, 1970, p. 77.
Some have asserted that there was another perspective in the Nixon
Administration’s expectations for Amtrak: while some sincerely wanted Amtrak to
succeed, others in the Administration expected Amtrak to disappear after a few years.
The New York Times quoted an unnamed high official in the Department of
Transportation:
The purpose of this bill [creating Amtrak] is to get passenger service off the
backs of the railroads, run the wheels off the existing equipment, and then put an6
end to passenger trains in this country.
Original Expectations for Amtrak: Congressional
A. Daniel O’Neal, majority counsel for the Senate Transportation Subcommittee
during the time that the Amtrak legislation was drafted, recalled
We added the for-profit clause because we thought this new entity should have
high aspirations. It would be wonderful if such service could be self-sustaining,
but nowhere in the world has any nation been able to avoid subsidizing rail7
passengers.
Remarks on the Rail Passenger Service Act of 1970 in the Congressional
Record and newspaper accounts during its consideration shed light on the view that
Amtrak was expected to be a profit-making enterprise. The remarks in the
Congressional Record indicate hope that Amtrak might be profitable; this hope was
based on Secretary Volpe’s predictions of how passenger rail service would change
under Amtrak’s leadership: that there would be significant (government) investment
in improving service, including the development of high-speed rail lines, and that
unprofitable routes would be pruned. For example, the comments of Representative
Harley Staggers (West Virginia), chairman of the Committee on Interstate and
Foreign Commerce (which was the authorizing committee for railroads), reflect the
“improved service” assumption:
The bill will create a corporation which will be a private for-profit corporation,
and we hope that it will be a profitable organization, and I believe that it will in
the long run ... We know that in starting off they are going to have some trouble,
but I expect that after a very few years it will be a prosperous organization,
because we have begun to develop high speed trains, better railroad cars, with
more commodious service that people will use, as has been exemplified by the8
Metroliner that runs between Washington and New York now.
Representative J. J. Pickle, of Florida, a member of the Subcommittee on
Transportation and Aeronautics (the authorizing subcommittee), reiterated the
promise of new high-speed train technologies, citing experiments with linear
6“Sunset for Railpax,”New York Times, January 26, 1971, p. A32.
7Cited in Frank Wilner, The Amtrak Story, Simmons-Boardman Books: Omaha,Nebraska,
8Congressional Record, v. 116 (1970), October 13, p. 36594.
induction motors, magnetic levitation, and jet turbine engines; he argued that the
legislation was necessary to preserve the rights-of-way now until these new
technologies could be implemented.9 He was followed by Representative Dan
Kuykendall of Tennessee, another member of the Subcommittee on Transportation
and Aeronautics:
... if anyone asks, “Do you think that with the present equipment can this
passenger corporation be profitable?” the answer is “absolutely not.” It cannot
be profitable with the present equipment. But by starting with equipment like the
Metroliner and going rapidly ahead into the really sophisticated equipment of the10
future, it can be and will be a profitable operation.
Representative Richard Ottinger of New York summed things up:
[the corporation] will hopefully make a profit through its operations.
Nevertheless, the corporation will be required to run passenger trains over some
unprofitable routes when necessary in the public interest, so it is possible that
this new program will have to be funded by the Congress on an annual basis ...
Hopefully new developments in high speed rail technology will enable the11
National Railroad Passenger Corporation to eventually become solvent ...
The “pruned service” assumption was reflected in the remarks of Representative
William Springer of Illinois, the ranking member of the Committee on Interstate and
Foreign Commerce:
It has become apparent that saving the entire nationwide network of passenger
trains ... is impossible. Federal subsidies of astronomical proportions would be
necessary to keep all those empty, long-haul trains operating ... There do remain
areas of the country where rail service should be useful and economically sound
at the same time. The example which usually comes to mind is the Northeast
Corridor, but it is not the only place ... This will not, as I have already intimated,
be a nationwide network as we have known it in the past. It will necessarily
concentrate upon corridors of high density travel ... Although it is intended to be
a corporation run for profit, the harsh realities indicate a massive infusion of12
money from the Government to make it go.
Early Returns on Amtrak’s Progress Toward Profitability
Amtrak’s initial funding was $40 million for operations, with a $100 million
loan guarantee for new equipment and improved roadbeds. It also received about
$195 million in cash or equipment from the railroads who turned over their passenger
service responsibilities to Amtrak. Congressional leaders objected that this would
not be enough money to sustain Amtrak, but Administration officials declined to ask
9Ibid, October 13, 36596.
10Ibid, October 13, 36597.
11Ibid, October 14, 36658.
12Ibid, October 13, 35695.
for more – at first. But after six months of operation, with Amtrak running much
larger deficits than the Administration had predicted, Administration officials were
forced to return to Congress to ask for more money.
A New York Times article noted that
Key Congressional figures are disappointed but not greatly surprised by
Amtrak’s request for a $170-million operating subsidy for the next two years.
Hearings on Amtrak’s unexpectedly large deficit will give House and Senate
members a forum for their questions and complaints about service to their
districts. But even those who have been complaining the loudest ... have long
considered Amtrak’s losses inevitable and expect to approve the new13
appropriation.
By the one-year mark, the optimists’ hopes for Amtrak’s profitability were
dimming:
In its first year, Amtrak lost [50 percent more money] than its founders predicted
... the vision of its fathers in the Nixon administration of Amtrak operating as a
“for-profit” company has all but evaporated. Many people close to Amtrak
believe that it has little chance of survival without huge, and probably endless
and ever increasing Federal subsidies–or, as an alternative, a radical cutback ...14
in the amount of service it provides.
That article quoted a Senate Commerce Committee staffer who noted that
Amtrak was getting “killed” because its corridor trains were too slow to compete
with cars and planes. “The Metroliner15 – the fastest train we’ve got – only averages
80 [mph], and it was built to do 150. Until we get the equipment and the roadbed to
compete with buses, cars and planes in the corridors, we won’t know if Amtrak can
compete."16 Thirty years later, Amtrak’s new Acela trains, built to do 165, still only
average 85 miles per hour over the same route, because the roadbed still cannot
support high speeds over its entire length, and no other corridors have ever been
upgraded even to the level of the Northeast Corridor.
The remarks of Senator Lowell Weicker of Connecticut, at the opening of the
Senate Subcommittee on Surface Transportation’s hearing on the Administration’s
first request for additional funding for Amtrak (October 26, 1971), highlighted many
of the themes which have run through Congressional debate over Amtrak since its
creation. He excoriated the Department of Transportation for understating how much
money Amtrak needed to improve passenger rail service, and requested that the
Committee either greatly increase the authorization for Amtrak beyond what the
13“Amtrak Plea is No Surprise,” New York Times, October 24, 1971, p. S27.
14Robert Lindsey, New York Times, April 30, 1972, p. 1, 64
15 The Metroliner was running between New York City and Washington, D.C., the southern
portion of the Northeast Corridor.
16Ibid, p. 64.
Administration was requesting, or cut off support altogether. Otherwise, he said,
Amtrak would not have enough money to make the significant improvements needed
to make passenger rail service economically viable, all that would have been
accomplished would be to have changed the name on the passenger rail deficit, and
“Congress will take on the role of making up the difference [between Amtrak’s
revenues and expenditures] as an annual exercise.”17
Have the Original Pre-Conditions for Amtrak Profitability
Been Met?
At the time of its creation, those Congressional and Administration leaders who
forecasted Amtrak achieving profitability based that forecast on two pre-conditions:
Federal investment to produce fast, safe trains and a cutback of the rail network so
that the losses from unprofitable routes would be covered by the profits of profitable
routes. Those arguing that these pre-conditions were never met point out that
Amtrak’s train speeds and route mileage are virtually the same now as when it was
created.
Amtrak has received $24.2 billion in support from the Federal government since18
its creation in 1971. This is a significant sum of money; it is also, to put it in one
perspective, less than the Federal government spent on highways in FY2001. Should
Amtrak have been able to develop fast, safe trains with that amount of funding? To
determine that, one would need to know how much Amtrak would require just to
maintain its overall status quo, since making significant improvements would require
enough money to first maintain its existing capital and then finance improvements.
Amtrak has received, on average, $760 million a year in Federal assistance. Of
that amount, $330 million a year was for capital improvements (a total of $9.9 billion
over Amtrak’s life). That average conceals some wide swings in actual annual
funding, swings which complicated the implementation of capital improvement
programs, which by their nature are dependent on predictable levels of funding over
a period of several years.
In 2001, Amtrak estimated that it would need about $750 million a year in
capital spending just to maintain its current services.19 That is over twice the $330
million average annual funding Amtrak has received for capital investment. Amtrak
had to borrow money to finance the purchase of its Acela trains, and thus increased
its long-term debt, because it did not have enough capital funding to purchase them
outright.
17U.S. Congress. Senate. Administration’s Request for Additional Funding for Amtrak.
Subcommittee on Surface Transportation of the Committee on Commerce. Hearings. 92ndst
Congress, 1 Session. October 26, 1971. (92-29). Statement of Senator Lowell P. Weicker,
Jr.(CT), p. 3-4.
18The Budget of the United States Government, Fiscal Year 2003, GPO: 2002, p. 260.
19Amtrak, 2001 Strategic Business Plan, p. 35, Figure III-4.
Estimates of the cost of developing high-speed rail corridors in the U.S. range
from $70-$100 billion. That is 7-10 times greater than the total amount of capital
funding Amtrak has been provided since its inception. It may also seem an
unrealistic amount. For perspective, one can look at Western Europe, which over the
past three decades has significantly upgraded its level of train service by creating true
high-speed trains on dedicated tracks. In just the 10-year period of 1980-1989,
Western European governments provided $101 billion in assistance to their
railways–four times the amount that the Federal government provided to Amtrak
between 1971-2002.20 For comparison, Western Europe has about 90 million more
people than the U.S. (380 million to 287 million in the U.S.) on much less than half
the land area (1.4 million square miles to 3.7 million square miles in the U.S.).
Passenger train ridership in Europe, while higher than in the U.S., has also been
declining in recent decades, except where high-speed routes have been created.
As for the second pre-condition, that Amtrak’s route mileage would be cut back
to the level that could be supported by Amtrak’s profitable trains, it has been argued
that since Amtrak did not receive the investment to produce faster, more profitable
trains, it would not have been fair to passengers to cut back the mileage to what could
be supported by the system as it existed at Amtrak’s creation. Since Amtrak had a
statutory mandate to provide a national network of passenger service from its
founding until the Amtrak Reform and Accountability Act of 1997, Amtrak
supporters assert that it was virtually required to operate a number of routes around
the nation which are not profitable. Moreover, it is not clear how the Department of
Transportation or Amtrak would have responded to the idea of eliminating a
significant number of routes. Amtrak has been dependent on the Federal government
for its survival since its creation. Congress, which provides the appropriations to
maintain Amtrak’s existence, has Members who have argued since Amtrak’s
founding that their constituents deserve rail service, even if they are in areas where
demand for rail service is relatively low, and that if Amtrak did not provide service
to their constituents they did not see how they could support funding for Amtrak.
Since its inception, Amtrak has cut some routes and added others, but its overall
route mileage has not varied a great deal; it was 23,000 miles in 1971 and 23,000
miles in 2000.21
Critics of Amtrak’s performance assert that Amtrak was intended by Congress
to be a profit-making enterprise, and therefore its need for Federal assistance each
year is evidence of its failure to meet the expectations Congress had of it. But there
is little evidence to support that contention in the legislative history of Amtrak’s
creation. Expectations of Amtrak profitability, such as they were, appear to have
been premised on significant Federal support for the development of faster trains and
20Report from the International Railway Association, presented to U.S. Congress, House
Subcommittee on Railroads of the Committee on Transportation and Infrastructure,thst
Amtrak’s Current Situation, 104 Congress, 1 Session, February 13, 1995, p. 218-222 (104-
211971 route mileage figure in Frank N. Wilner’s Amtrak Story (Omaha, NE: Simmons-
Boardman Books), p. 43; 2000 route mileage figure from Amtrak’s FY2000 Annual Report,
p. 24.
cutbacks in the route mileage served. Since neither of those conditions were met,
Amtrak supporters argue that Amtrak’s lack of profitability is no surprise.