Business Ethos Blog

Amtrak: The Human and Political Tragedy

Dr. David Mielke, Retired Dean of the College of Business at Eastern Michigan University

Dr. David MielkeA couple weeks ago there was a terrible Amtrak derailment that left 8 people dead and hundreds injured.  The train hit a curve at twice the 50mph speed limit and of course this tragedy has become political.  There was an immediate call for more infrastructure spending and blame focused on the Republicans for cutting appropriations for transportation funding.  Is funding for Amtrak the reason for the accident?  Is Amtrak well managed?  Should basic changes be made to Amtrak operations?  Should Congress increase funding for Amtrak?  What is the “Right Thing to do?”  Let’s look at some issues:

1. The day after the derailment, the House Republicans in the Appropriations Committee passed a Transportation funding measure that allocated Amtrak $289 million for operations and $850 million in capital grants, about $260 million less than its normal annual appropriation.

2. Amtrak has spent $2.6 billion on the 456 mile track called the northeast corridor, where the accident occurred, over the last decade.  The 8 states on the route that connects Boston to Washington DC through New York and Philadelphia provided another $2.4 billion, plus a one-time $1 billion from the 2009 stimulus.

3. Amtrak pays above union salaries and benefits amounting to 49% of 2014 expenses and provides a losing food and beverage service.

4. Despite $3.2 billion in revenue in 2014, Amtrak required $227 million from taxpayers or 7% of its operating budget.  After depreciation and other expenses, it reported a net loss of $1.1 billion.

5. President Nixon nationalized passenger rail in 1971, preferred stock was issued, all of which is owned by the government, and Amtrak was to operate as a for profit corporation.  Amtrak has run deficits, subsidized by the government every year since.

6. The Republicans in the House claimed they were trying to control Amtrak costs by cutting the budget.  Liberals claimed that had there been sufficient funding, Amtrak could have installed a signaling technology, called positive train control, that might have slowed down the train.  However, Amtrak’s inspector general reported in 2012 that the rollout of this technology was dogged by poor internal planning, budget overruns and unreliable engineering and that Amtrak had never included the total cost in its financial plan or congressional budget requests.

7. In a 2014 audit, the Amtrak Inspector General observed that management thought so many legislatively mandated tasks and responsibilities had accumulated over time that it was unclear what to focus on.  This was evident in their 2011 strategic plan, which had 5 strategic themes, 7 strategies, numerous initiatives and dozens of performance measures.

8. Amtrak’s northeast corridor was profitable in 2014, earning $497 million, up from $390 in 2013, but most of the surplus was used to cross subsidize unprofitable regional and long distance service everywhere else.

9. The transfer supports overstaffed, unpopular routes that serve 523 stations in 46 states.  In 2012, the last year data is available, according to the Transportation Department, Amtrak fares averaged 34 cents per mile, versus 15 cents for domestic flights and about 25 cents for cars.

10. There are 987 residents for every square mile along the northeast corridor and only 98 on average in the rest of the country.

Is Amtrak underfunded or mismanaged, or both?  Is the current funding poorly targeted?  Should Amtrak spin off the profitable northeast corridor?  Is the call for increased transportation infrastructure spending misallocated to bike paths, nature trails and trolley cars? Does spending on high speed rail make sense when we have existing infrastructure that needs to be repaired?  What is the “Right Thing to do?”  It is time to do an overhaul of Amtrak management and operations.  Continuing to fund mismanagement makes no sense.  We need infrastructure spending, but Congress needs to provide priorities to assure taxpayers that their tax dollars are well spent.  Unfortunately, without change, the Amtrak political tragedy will continue.