July 31 (Bloomberg) -- Amtrak, the corporation created by Congress when private industry abandoned U.S. passenger rail, is trying to overcome its chronic lack of money with a new strategy -- thinking far beyond its means.
In the past three weeks, Amtrak proposed a renovation of Washington’s Union Station that would cost at least $6.5 billion and published a $151 billion, three-decade plan for bringing 220-miles-per-hour service to its busiest route, between Washington and Boston. It’s working toward a future with bullet trains, though Congress killed President Barack Obama’s high-speed rail funding proposal last year and Republicans in the House of Representatives want to do it again this year.
Amtrak, which got a $1.4 billion federal subsidy this year and needs congressional reauthorization to continue operations past September 2013, has decided it’s better to be ambitious than to continually beg for enough money to keep trains rolling.
“It’s an aggressive strategy to put themselves in a better negotiating position,” said Joshua Schank, president and chief executive officer of the Eno Center for Transportation, a Washington research group. “Rather than playing defense and asking for a little bit of money so they just don’t die, they’re saying, ‘Here’s what we could accomplish if we really get some money.’”
Washington-based Amtrak’s plan for Union Station calls for new rail beds to double train capacity, with spots for bullet trains that don’t yet exist, and an expansion to handle three times the number of passengers. The railroad said the project would spur development, such as a 3 million-square-foot commercial and residential project the Washington developer Akridge proposes to build on top of tracks leading into the station.
“If you don’t have a vision or a plan for where you’re going, you’re not going to get anything funded,” said Joe Boardman, Amtrak’s president and chief executive officer.
For detractors like the Heritage Foundation’s Emily Goff, Amtrak’s proposal, building on a structure that requires government subsidies, amounts to throwing good money after bad.
“I don’t think it’s realistic to expect taxpayers to be willing to keep funding these programs, when Amtrak serves such a small sliver of the traveling public,” Goff said.
A better solution would open up Amtrak routes to competitive bidding to lower costs, Goff said.
The National Railroad Passenger Rail Corp.’s founding in 1970 enabled 20 railroads, including Penn Central, Burlington Northern and Union Pacific Corp., to get out of the money-losing passenger rail business. The U.S. government owns all of Amtrak’s preferred stock, making Congress its ultimate boss.
Union Station is the southern terminus of Amtrak’s Northeast Corridor, where ridership on regional and Acela trains grew 30 percent to 10.9 million in fiscal 2011 from 8.4 million in fiscal 2000, according to the railroad.
The Northeast Corridor is the only place Amtrak gets enough revenue to cover its operating costs. In its plan to upgrade the corridor, Amtrak said ridership may grow to 43.5 million people annually with ticket revenue of $4.86 billion by 2040 -- roughly four times last year’s ridership and about five times the ticket sales of $983.5 million.
“The plan is completely unrealistic and Amtrak wasted its money developing it,” said Randal O’Toole, a researcher with the Cato Institute, which advocates for free markets and limited government. “There is no way that Amtrak can get the private sector to fund more than a trivial amount.”
Boardman said earlier this month that Amtrak will need significant government support “at some level or all levels” to start its $151 billion upgrade plan before attracting outside investment for a public-private partnership.
House Transportation and Infrastructure Committee Chairman John Mica has called for greater private-sector investment in passenger rail projects and private competition for rail service, to the point he briefly proposed a bill last year to remove Amtrak from managing the Northeast Corridor. The Florida Republican, who has described Amtrak’s operations as “Soviet style,” has scheduled an Aug. 2 hearing on its losses running food and beverage services.
Funding for the railroad has varied. The House passed an appropriations bill for fiscal 2013 with $1.8 billion, which is more than this year’s $1.4 billion and less than the $2.5 billion sought in Obama’s budget. Only about a third of Amtrak’s U.S. support goes for operations; this year, it got $466 million for operations and $952 million for capital and debt service.
The surface transportation policy bill Congress passed on June 29 didn’t include a separate section on passenger rail, as it typically does. Because Amtrak’s current authorizing legislation expires at the end of fiscal 2013, that ensures there will be renewed debate next year about Amtrak and how to expand passenger rail service in the Northeast.
Money questions have crimped overhauls of Amtrak stations. Amtrak has said it can’t afford a proposal to move from New York’s Penn Station, which it owns, unless it can get effectively rent-free use of a new facility planned for the James A. Farley Post Office.
The railroad will pay for part of the Union Station plan with ticket revenue, Boardman told reporters July 25, without saying how much.
Over Amtrak’s entire system, passenger tickets pay for 76 percent of operating costs, according to an Amtrak fact sheet. Ridership is on pace to break the 2011 record of 30.2 million passengers, up from 20.9 million in 2000.
If Amtrak were an airline, it would be able to charge its passengers a separate fee to finance construction projects. That’s not built into U.S. rail law, said Ross Capon, president and chief executive officer of the National Association of Railroad Passengers. Amtrak may already be charging what the market will bear for tickets, he said.
Amtrak’s ambitious proposals may be a smart way to attract investors, said Robert Puentes, an expert in infrastructure financing at the Brookings Institution, a Washington-based research organization.
Sovereign wealth funds are increasingly looking for ways to invest in U.S. transportation projects, he said, citing a $2 billion infusion from China into a California project.
“There’s going to be a big conversation about Amtrak next year,” Puentes said. “ There’s an aspirational piece to this. They need to think about the future, about what passenger rail is going to look like in this country.”
To contact the reporter on this story: Jeff Plungis in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Bernard Kohn at email@example.com