Passenger rail service in the United States is at a critical juncture. More than 30 years ago, the federal government created the National Railroad Passenger Corporation, known as Amtrak, by spinning off freight railroads' ailing passenger services. Although Amtrak was supposed to become self-sufficient by the end of last year, it remains heavily in debt and continues to receive large federal subsidies. Now, as it awaits reauthorization by lawmakers, Amtrak is the subject of numerous proposals that range from eliminating federal funding for the company to increasing funding dramatically.

In recent years, Amtrak has lurched from one fiscal crisis to the next. Early in the summer of 2002, it exhausted the federal subsidy of $521 million that had been appropriated for fiscal year 2002 and had been intended to last through September. Threatening to shut down operations around the time of the July Fourth holiday, when the Congress was not in session, Amtrak sought and received a federal loan of $100 million.⁽¹⁾ When the Congress reconvened, it passed $205 million in supplemental appropriations to get Amtrak through the rest of 2002. For 2003, the Congress approved $1.05 billion in appropriations for Amtrak and deferred repayment of the company's loan.⁽²⁾

In addition to the financial crisis, 2002 saw a change in leadership at Amtrak. A few months after David Gunn became president and chief executive officer in May 2002, he described the condition of his company as "nearly insolvent, [with] equipment in terrible condition, [and] $3 billion worth of non-defeased debt."⁽³⁾ Not long afterward, he announced that Amtrak would need up to $2 billion a year for track, bridge, and train repairs--nearly double the current federal subsidy.⁽⁴⁾

Although Amtrak received appropriations for 2003, its authorization for federal funding expired at the end of September 2002. As lawmakers consider reauthorization, they are wrestling with the question of what to do about passenger rail service in general and Amtrak in particular.

In the three decades since Amtrak's creation, lawmakers have tried numerous policy approaches to the company but have not yet been able to achieve consensus on a long-term goal. The chief point of contention has been whether passenger rail should be a national system that receives federal subsidies for routes where it cannot cover its costs or whether it should be an enterprise that offers service only where profitable. In point of fact, Amtrak has received federal subsidies every year since it began providing service in 1971 (see Figure 1). Those subsidies represent a substantial share of the company's revenues: about 21 percent in 2001 and 32 percent in 2002 (see Figure 2).⁽⁵⁾
 

Figure 1.

Federal Funding of Amtrak, 1971 to 2002

(Billions of dollars)

Source: Congressional Budget Office based on data from the Department of Transportation.

 

Figure 2.

Sources of Amtrak's Operating Revenues, Including Federal Payments, 2002

(Percent)

Source: Congressional Budget Office based on data from Amtrak's 2002 audited consolidated financial statements.

Note: Passenger-related revenues result from ticket sales to Amtrak passengers, food sales on board trains, and so forth. Commuter revenues result from contractual payments by commuter railroads, state agencies, and local commuter authorities to Amtrak for use of its tracks or facilities and for Amtrak's handling of switching and other operations.

The question of whether Amtrak should operate as a business or as a public service is a matter for the political process to decide and thus is outside the scope of this study. Instead, this analysis looks at how passenger rail reached its current predicament and discusses the implications of alternative policy directions. To that end, the study examines the history and economics of passenger rail service in the United States and analyzes several fundamentally different options for the future of passenger rail that the Congress may consider in the coming months--options that range from ending federal support to boosting it enough to upgrade the nation's entire passenger rail network.
 

A Mandate to Achieve Self-Sufficiency

In 1997, the Congress passed the Amtrak Reform and Accountability Act, which authorized funding for Amtrak through 2002 and directed the company to take the necessary business measures to run without federal operating subsidies by December 2002. That law (the Reform Act) authorized about $1 billion a year in appropriations from the Treasury's general fund for Amtrak for the 1998-2002 period.

Until early in 2002, Amtrak's management assured the Congress that the company was on a "glide path" to operating self-sufficiency in conformity with the Reform Act.⁽⁶⁾ In recent years, however, Amtrak has sunk deeper in debt as it borrowed heavily to finance its current operations. In the summer of 2001, Amtrak borrowed $300 million against one of its most valuable assets, Penn Station in New York City, to cover operating costs. In all, its debt has increased by about $3 billion over the past five years, and its interest costs have soared.

In November 2001, the Amtrak Reform Council, a panel established by the Reform Act to monitor Amtrak's finances, made a formal finding that Amtrak would not be able to achieve operating self-sufficiency by the December 2002 deadline. That finding, along with Amtrak's worsening financial situation, precipitated a number of proposals for reform--ranging from letting Amtrak go bankrupt to boosting annual federal funding for passenger rail nearly tenfold. Some proposals would keep Amtrak's corporate structure essentially intact, whereas others would break the company into separate components. The reform council's own proposal was to split Amtrak into two companies (one to own and maintain tracks and facilities in the Northeast and the other to run trains) and to create a new organization that would oversee planning and financing for passenger rail.
 

Recent Administration and Congressional Plans

In July 2003, the Bush Administration proposed legislation that followed the general lines of the reform council's recommendation. That legislation (the Passenger Rail Investment Reform Act, S. 1501) would establish three entities over several years: a private company that would operate trains under contract to states and multistate compacts, a private company that would maintain and operate the infrastructure on the Northeast Corridor under contract to a multistate Northeast Corridor Compact, and an entity that would retain Amtrak's name and rights to use the tracks of freight railroads.⁽⁷⁾

The Administration's plan would phase out direct subsidies to Amtrak and replace them with federal matching grants to states for capital investments in passenger rail. Eventually, the states would be able to contract for train operations with a private company or public transit agency.

Two days after the Administration unveiled its bill, several senators countered with a proposal to substantially increase funding for the national passenger rail system. That plan (the American Rail Equity Act, S. 1505) would authorize $2 billion a year for Amtrak's operating expenses and create a Rail Infrastructure Finance Corporation that would issue up to $48 billion in tax-credit bonds over six years to benefit passenger rail.

In June, the House Committee on Transportation and Infrastructure approved the Amtrak Reauthorization Act of 2003 (H.R. 2572), which would authorize annual funding of $2 billion over the next three years for Amtrak. The committee also approved legislation that would provide $60 billion over 10 years for high-speed rail.⁽⁸⁾ That funding would not be limited to Amtrak.

In July, the Subcommittee on Transportation, Treasury, and Independent Agencies of the House Committee on Appropriations approved $580 million for Amtrak for 2004. The full committee later boosted Amtrak's appropriation to $900 million, the amount requested by the Bush Administration.⁽⁹⁾ That figure is about half of Amtrak's own request.