Three Ways to Get Amtrak Back on the Rails

Evan Soltas is a contributor to Bloomberg View.
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The U.S. Postal Service, an independent federal agency, announced plans this month to end Saturday mail delivery to cut costs. Amtrak, the nation's passenger-train service and a supposedly private company, might like to cut services, too, but it can't. In practice, it's tightly controlled. Strangely enough, it has less managerial discretion than an actual branch of the government.

One way or another, fixing Amtrak will require congressional action. Republicans like to talk about "privatizing" it, even though it's already private. What they mean is that it gets too many orders and too much cash from Washington.

Democrats tend to represent the districts that benefit the most from Amtrak: metropolitan areas and, in particular, the Northeast Corridor. They last talked seriously about reforming it in 1997, when President Bill Clinton signed a reform plan into law. It failed to make the railroad self-sufficient. Today, Democrats are more likely to propose expansions of rail service and subsidies, as in the 2009 stimulus law and the American Jobs Act.

Republicans have in mind a smaller role for rail transit, and Democrats a larger one, but they ought to be able to agree on ways to make Amtrak work better, whatever its size. Three suggestions:

1. Convert lump-sum payments into an ad-valorem subsidy.

The more Amtrak loses, the more federal aid it gets. There's no incentive to improve efficiency. The goal of profitability may be absurd, but that's no reason to reward failure. Change Amtrak's public subsidy from a lump-sum bailout into an ad-valorem subsidy of equivalent value. Amtrak would get some number of cents from federal taxpayers for every dollar in ticket sales. Tying Amtrak's aid to its service would restore the efficiency incentive and make it a better steward of public funds.

2. Fix Amtrak's labor agreements.

Better incentives won't work unless the corporation has flexibility to respond. Amtrak doesn't. It lacks control over routes and labor costs. Congress should change railroad bankruptcy law to let Amtrak renegotiate its labor agreements. The average Amtrak infrastructure worker made more than $90,000 in 2006, including benefits, according to the rail service's inspector general. That's more than $40 an hour. It's also 2.3 times more than a comparable European railroad worker makes.

Amtrak can't shut down loss-making routes outside of the Northeast -- partly because of costly labor agreements that require as much as five years' pay and benefits as severance whenever service is discontinued. A meddling Congress is also to blame. It expects Amtrak to turn a profit, yet blocks the shutdown of money-losing routes.

3. Ask states to supplement with a local per-dollar subsidy.

Amtrak's benefits are concentrated near areas of service. Therefore, ask the states in question to supplement the new federal subsidy. States already cover some Amtrak costs to ensure local service. But as the federal government reorganizes its support of rail services, states could pledge additional per-dollar ticket subsidies. This would let lower levels of government decide whether the service was worth the cost. Amtrak would continue service on routes that broke even after the combined federal and local subsidies.

All three options leave most of the decisions to Amtrak and states, rather than the federal government. The Freakonomics blog also presented several other options in a post last year.

The Postal Service is trying to save itself. Congress ought to let Amtrak do the same.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Evan Soltas at