CBO

A

S T U D Y

The Past and Future of

U.S. Passenger Rail Service

September 2003

The Congress of the United States # Congressional Budget Office 
Notes

Numbers in the text and tables of this study may not add up to totals because of rounding.

The cover image, showing an Amtrak train (foreground) and a Washington Metrorail train

(background) in Alexandria, Va., is based on a photograph that is ©Bill Hough (www.auction

transportation.com).
PREFACE

The National Railroad Passenger Corporation (also known as Amtrak) has been in a

shaky financial condition ever since it was created by the federal government more than 30

years ago. Although Amtrak was established as a private, for-profit company, it has needed

—and received—federal subsidies every year since it began providing service in 1971. Those

subsidies totaled over $1 billion for 2003. However, according to Amtrak executives and independent analysts, that amount is insufficient for the railroad to sustain its current service safely

and reliably over the long run. 

Amtrak’s authorization expired in 2002. In considering legislation to reauthorize federal

funding of the railroad, the Congress will again face the issue—as it has throughout Amtrak’s

history—of what the goal should be for an intercity passenger rail program. Should service be

operated only where it can make a profit (or at least cover operating expenses)? Or should the

federal government also commit to subsidizing money-losing trains to meet a perceived need

for public transportation? Given that some service is unlikely ever to be able to cover its operating costs, are there other organizational or institutional arrangements that could offer service

at a lower cost to taxpayers?

This Congressional Budget Office (CBO) study—prepared at the request of the Senate Budget

Committee—reviews past policies toward Amtrak and the fundamental economics of passenger rail service. The review suggests that there are only limited conditions under which passenger rail service in the United States could be economically viable without subsidies. This study

also explores the implications of four options for future federal support of passenger rail,

ranging from eliminating federal subsidies to funding a massive expansion of rail service. In

keeping with CBO’s mandate to provide objective, impartial analysis, the study makes no

recommendations.

Elizabeth Pinkston of CBO’s Microeconomic and Financial Studies Division wrote the study

under the supervision of David Moore and Roger Hitchner. Many people reviewed drafts of

the study and provided useful comments, including Francis Mulvey and Glenn Scammel of

the House Committee on Transportation and Infrastructure; Mary Phillips of the Senate

Committee on Commerce, Science, and Transportation; Louis Thompson, formerly of the

World Bank; José A. Gómez-Ibáñez of Harvard University; Anthony Perl of the University of

Calgary; Marcus Mason of Amtrak; Neil Moyer and Conan Magee of the Federal Railroad

Administration; Jack Bennett, Thomas Marchessault, Jeanne O’Leary, Sherry Riklin, and

Edward Weiner of the Office of the Secretary of Transportation; John Fischer and Randy

Peterman of the Congressional Research Service; James Ratzenberger of the General Accounting Office; Paul Dickens; and Peter Fontaine, Rachel Milberg, and Carla Tighe Murray of

CBO.
iv THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

Christian Spoor edited the study, and Leah Mazade proofread it. Angela McCollough prepared the tables. Maureen Costantino designed the cover and produced the figures. Lenny

Skutnik printed the initial copies of the report, and Annette Kalicki prepared the electronic

versions for CBO’s Web site (www.cbo.gov).

Douglas Holtz-Eakin

Director

September 2003
1

2

3

4

CONTENTS

Summary ix

Introduction: Amtrak’s Current Situation 1

A Mandate to Achieve Self-Sufficiency 2

Recent Administration and Congressional Plans 3

A Brief History of Amtrak 5

Financial Difficulties Leading to the Creation

of Amtrak 5

Amtrak from 1970 to 1997 8

The Amtrak Reform and Accountability Act:

1997 to 2002 12

Amtrak’s Role in Intercity Passenger Transportation 17

Recent Trends in Amtrak’s Ridership 17

Amtrak’s Role Nationwide 17

Regional Differences in Amtrak’s Role 18

The Basic Economics of Passenger Rail 21

The Demand for Passenger Rail Service 21

The Supply of Passenger Rail Service 24

Externalities and Economic Efficiency 27

Rail’s Comparative Strength: Densely

Populated Corridors 27

Rail’s Comparative Weakness: Long-Distance

Service 29
vi THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

5 Policy Options for the Future of Passenger Rail 31

Option I: Eliminate Federal Subsidies and Provide

for an Orderly Shutdown of Service 33

Option II: Reorganize to Build on Passenger

Rail’s Comparative Strengths 34

Option III: Upgrade the Corridors and Keep

the Existing National Network 35

Option IV: Substantially Upgrade Both the Corridors

and Long-Distance Service 36

Conclusions 37

Appendix

Amtrak’s Interconnections with Freight and

Commuter Railroads 39
CONTENTS vii

Tables

1. Domestic Intercity Travel by Rail, Air, and Bus,

Selected Years, 1960 to 2000 7

2. Amtrak’s Revenues and Expenses, 1971 to 2001 13

3. Elasticities of Demand for Intercity Passenger Service 23

Figures

1. Federal Funding of Amtrak, 1971 to 2002 2

2. Sources of Amtrak’s Operating Revenues, Including

Federal Payments, 2002 3

3. Intercity Railroad Passenger-Miles, 1926 to 2002 6

4. Number of Amtrak Passengers, 1971 to 2002 18

Boxes

1. Externalities 27

2. Can the United States Learn from Other Countries’

Experience with Passenger Rail? 28

3. Should Amtrak Be On-Budget? 32

Summary

More than three decades after the Congress and

the President created the National Railroad Passenger

Corporation (known as Amtrak), federal policies toward

intercity passenger rail service remain unsettled. Policymakers have not been able to agree about whether the

company should be a private, for-profit enterprise (like

airlines and intercity bus companies) or a public service

(like urban mass transit) that would use government

subsidies to achieve social objectives. 

Amtrak was originally intended to be a for-profit company that would be free of federal subsidies within a few

years. But policymakers continued to provide subsidies

to keep trains running even when those trains could not

cover their costs. Until 1997, the Congress imposed conditions—such as requiring the operation of a national

network—that kept Amtrak from acting like a for-profit

enterprise. Even after the Amtrak Reform and Accountability Act of 1997 freed the company from most

constraints, Amtrak continued to operate routes and

maintain policies that were uneconomic but helpful in

securing federal subsidies. As a result, Amtrak has needed

federal support every year of its 33-year history. Recently,

those subsidies have accounted for about one-third of the

company’s total revenues.

Although Amtrak continues to receive annual appropriations, its authorization expired in 2002. As lawmakers

consider legislation to reauthorize federal funding of

Amtrak, they are wrestling with the question of what to

do about U.S. passenger rail in general and Amtrak in

particular. 

This study reviews Amtrak’s history and the economics

of passenger rail. It also examines four options for the

future of intercity passenger rail:

# Eliminating federal subsidies and shutting down

service;

# Ending national service and focusing instead on passenger rail’s strongest areas (relatively short, densely

populated corridors, such as the Northeast and parts

of California);

# Keeping national long-distance service as it is today

but upgrading the corridors; and 

# Substantially improving Amtrak’s entire network

through a major increase in funding, with a view to

giving rail a much bigger role in transportation between U.S. cities. 

Those four options are by no means the only ones available, but they represent the broad range of policy choices

that lawmakers face.

The Recent Worsening of Amtrak’s

Financial Condition

The 1997 Reform Act set a goal for Amtrak to run without federal operating subsidies by December 2002. Ironically, Amtrak’s attempt to achieve that goal appears to

have contributed to a profound worsening of the company’s financial situation. In the years after the law was
x THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

enacted, Amtrak incurred increasing amounts of debt as

it expanded business in the hope that rising revenues

would outpace the accompanying rise in costs. (That debt

was incurred even though Amtrak received $2.2 billion

in funds from the Taxpayer Relief Act of 1997 for capital

improvements, in addition to its annual federal operating

subsidy.) Amtrak’s leadership repeatedly asserted that the

company was on a “glide path” to meeting the goal of

operating self-sufficiency by December 2002. Increases

in debt and creative accounting helped give the appearance—at least to casual observers—that Amtrak was

indeed on track to meet that objective.1

 However, warning signals were issued by both the General Accounting

Office and the Inspector General of the Department of

Transportation that all was not well. Nevertheless, Amtrak was able to lumber on until early in fiscal year 2002.

Several events brought Amtrak’s financial crisis to a head.

In November 2001, the Amtrak Reform Council, an

independent panel created by the 1997 Reform Act to

oversee Amtrak’s progress toward operational self-sufficiency, issued a formal finding that the company would

not be able to meet that goal. Amtrak was spending

money faster than it was taking money in, making financing critically important. In May 2002, new managers

were brought in, who publicly acknowledged the company’s dire financial condition. They announced in June

that Amtrak had exhausted its federal subsidy of $521

million for fiscal year 2002 and would cease operations

around the Fourth of July if it did not receive additional

federal aid. To avert a shutdown during the holiday period, when the Congress was not in session to appropriate

more funding, the Bush Administration gave Amtrak a

loan of $100 million. When the Congress reconvened

after the holiday, it provided a supplemental appropriation of $205 million. For 2003 , the Congress approved

$1.05 billion for Amtrak and deferred repayment of the

loan.2

According to Amtrak officials, that amount of money is

not large enough for the company both to sustain its

current operations and to address a backlog of capital

needs over the long term. Consequently, Amtrak is seeking $1.8 billion in federal subsidies for 2004, twice the

$900 million that the President requested in his budget

submission. 

Some policymakers think that virtually any additional

federal funding for Amtrak will go to waste unless policies

toward passenger rail are fundamentally overhauled.

Others say that although Amtrak may not have used its

resources as wisely as possible, it never had enough money

to make the investments needed for high-quality service.

However, even reliable, comfortable trains might not be

able to attract enough passengers to turn a profit, except

on a few routes. Over Amtrak’s history, it has proved impossible to bridge the chasm between policymakers who

favor private enterprise with a minimum of government

intervention (and subsidizing) and those who believe that

the federal government should provide enough financial

assistance to ensure the existence of a first-class national

passenger rail system.

Past Policies Toward Amtrak

Given the lack of consensus about the role that passenger

rail service should play in the nation’s transportation system—and the role the federal government should play

in fostering that service—it is not surprising that federal

policies governing Amtrak have varied over the years and

that legislation has often contained internal inconsistencies. Policymakers who favored the for-profit-enterprise

approach wrote legislative provisions that set goals of selfsufficiency, required Amtrak to make detailed reports

about the profitability of each train, and ordered the

company to develop plans for dropping money-losing

service. Policymakers who viewed Amtrak as a public service wrote legislative provisions that created a politically

appointed board of directors, emphasized a nationwide

rail system, preserved expensive compensation provisions

for laid-off workers, and forced Amtrak to provide discounted fares for people with disabilities. 

Such competing requirements could often be found in

the same legislation. As a result, Amtrak legislation has

often had unintended consequences. That fact, and the

1. See “TW Exclusive Interview: Amtrak President & CEO David

Gunn,” Transportation Weekly, Legislative Services Group, vol. 3,

no. 43 (September 3, 2002), p. 5, in which Amtrak’s new president

refers to “an attempt [before he arrived] to prop up the income

statement by playing around with capital and operating” expenses.

2. Because of an across-the-board reduction of 0.65 percent in discretionary programs for 2003, Amtrak actually received $1.043

billion.
SUMMARY xi

company’s present untenable condition, indicate the importance of several steps:

# Reaching a consensus about the appropriate role of

the federal government in intercity passenger rail

service,

# Setting realistic and achievable goals for that service,

# Evaluating progress toward attaining those goals,

# Making midcourse corrections if necessary, and

# Requiring greater transparency and accountability of

Amtrak’s finances.

The Economics of Passenger Rail

Until Amtrak was created, passenger rail service in the

United States was provided by privately owned railroad

companies whose main business in most parts of the

country was transporting freight. Both passenger and

freight rail experienced a significant decline in market

share by the middle of the 20th century as travelers and

shippers turned increasingly to airlines, trucks, and automobiles to meet their transportation needs. Railroads in

the Northeast faced particularly acute financial problems,

and by the late 1960s, most of the rail operations in that

region were either bankrupt or on the brink. In response,

the federal government took various policy actions,

including creating Amtrak and spinning off to it the

passenger operations of the freight railroads.3

 The idea

was that if the railroads could get rid of their unprofitable

passenger service, they would stand a better chance of

recovering financially—which they eventually did. In

retrospect, it should not be surprising that the unprofitable part of the rail business—passenger operations—

would continue to lose money when operating as a separate entity. Policymakers who expected it to become profitable may have anticipated that Amtrak would shed its

money-losing routes and focus on the most promising

ones.

By 1970, the year Amtrak was authorized, the number

of intercity passenger-miles traveled by rail had plummeted to 6.2 billion from a high of 67 billion during

World War II.4

 In comparison, travel by air carrier accounted for more than 100 billion passenger-miles that

year, and intercity travel by bus topped 25 billion passenger-miles.5

 Since then, intercity rail travel has generally

remained around 5 billion to 6 billion passenger-miles

annually, and bus travel has stayed at about 25 billion.

Air travel has continued to grow, however, reaching 515

billion passenger-miles in 2000.

Amtrak has achieved its greatest success in terms of

market share in the Northeast Corridor, which links Boston, New York City, Washington, D.C., and intermediate points. The Northeast provides closely spaced clusters

of high population density—conditions under which rail

has the best chance of competing with other modes of

transportation. The distances between many cities are

short enough that train travel is as fast as air travel, and

both the highway and aviation systems are sufficiently

congested that travel by car, bus, and airplane is frequently subject to delays.

In the large sections of the country that lie outside a

handful of densely populated corridors, however, passenger rail faces enormous competition from airlines and

automobiles. Time-sensitive travelers—particularly business travelers—generally find it too costly in terms of

time to take long-distance trips by train. For trips longer

than 300 miles, air travel almost always wins out, unless

a family is traveling together, in which case the automobile is likely to be less expensive, even when the value

of time is included in the cost. For trips of 100 to 300

miles, the cost calculation depends on how many people

are traveling together, how congested highways and airports are, and how long it takes to get to train stations or 3. Preserving freight rail service in the Northeast also involved creating

the government-owned Conrail out of the remains of bankrupt

railroads in the Northeast and Midwest, abandoning thousands

of miles of unprofitable track, and giving freight railroads much

greater flexibility to change their rates and service than they had

had during the first three-quarters of the 20th century, when they

were under strict regulation by the Interstate Commerce Commission.

4. A passenger-mile is the movement of one passenger the distance

of one mile.

5. The data for intercity bus travel are problematic. The numbers

presented here include charter-bus travel as well as scheduled

regular-route travel. 
xii THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

airports from a traveler’s origin and destination. One

reason for rail’s economic advantage in the Northeast is

that train stations are located in central business districts,

from which many trips begin and to which there is convenient access by mass transit.

Policy Options for the Future

of Passenger Rail

This study analyzes four broad policy options that represent different visions of a passenger rail system and

national rail policy. Option I would end all federal subsidies for Amtrak—either immediately or during a phaseout process that would provide time for states or other

entities to step in. Unless state or local governments offered financial assistance, this option would probably

result in the termination of most, if not all, intercity passenger rail service. (Commuter rail service, which operates

within a given metropolitan area, would most likely continue.) People traveling between cities would have to turn

to airplanes, buses, or automobiles. This option could

have adverse consequences not only for Amtrak’s passengers and workers but also for freight railroads and

their employees because it could financially weaken the

Railroad Retirement System.

Option II would build on passenger rail’s comparative

strengths: service between densely populated communities that are located close enough to each other to enable

trip times of three hours or less. Federal financial assistance could be redirected from the current general subsidies for a nationwide system to corridors where the

demand for passenger rail is high enough to cover operating expenses. The loss of subsidies for long-distance

service would most likely mean the shutdown of most or

all of those routes, unless state governments were willing

to subsidize them. That closure would lead travelers to

shift to more cost-effective modes for such travel. This

option could have adverse effects on railroad workers,

although reductions in long-distance service would be

offset in whole or in part by new corridor services.

Option III would increase federal subsidies to upgrade

the corridors where rail has the best chance of providing

economic service. At the same time, it would preserve the

existing nationwide passenger rail network. A decision to

keep subsidizing nationwide service that cannot be economic implies a social vision in which the United States

must remain connected in a rail network and its residents

are entitled to a choice of modes. In other words, even

if they have access to airports and highways, they should

also have access to trains. Besides appealing to advocates

of equal access, this option would appeal to people who

favor redundancy in transportation options in case of a

national emergency. However, there is currently little

excess capacity in the rail system to handle a surge of passengers in an emergency. This option would have a cost

in terms of economic efficiency because continuing to

subsidize long-distance service would use resources that

could be employed to improve more cost-effective modes

of transportation.

Option IV envisions a passenger rail system that would

play a far greater role in the nation’s transportation system than it does at present. This option would aim to

make rail the mode of choice for trips of up to several

hundred miles. Doing that would require massively increasing investment in tracks and equipment to enable

trains to operate safely at much higher speeds. Unless new

breakthroughs in rail technology significantly changed

the basic economics, however, this option would reduce

productivity by diverting federal assistance from more

cost-effective modes to rail. It would require many billions of dollars that in the end would probably have to

come from increases in taxes or cuts in spending for other

federal programs.
1

Introduction:

Amtrak’s Current Situation

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

1. Besides suspending Amtrak’s intercity passenger operations, a

shutdown could also have jeopardized local commuter rail services

that use Amtrak lines or that Amtrak runs under contract to

commuter agencies.

2. Those provisions were enacted on February 20, 2003, in the Consolidated Appropriations Resolution, 2003 (Public Law 108-7).

Because that legislation also contained an across-the-board cut of

0.65 percent in discretionary programs, Amtrak actually received

$1.043 billion for 2003. From October 1, 2002, until that law

was enacted, Amtrak had been receiving a federal subsidy at an

annual rate of about $1 billion under a continuing resolution.

3. “TW Exclusive Interview: Amtrak President & CEO David Gunn,”

Transportation Weekly, Legislative Services Group, vol. 3, no. 43

(September 3, 2002), p. 4. Nondefeased debt is debt for which

the borrower has not set aside in a trust account a sufficient amount

of risk-free securities (such as Treasury bonds) that would provide

cash to repay the debt when it comes due.

4. “Gunn: Amtrak Needs Up to $2 Billion Yearly to Repair Tracks

and Bridges,” AASHTO Journal, American Association of State

Highway and Transportation Officials (January 24, 2003), p. 5.

CHAPTER
2 THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

Figure 1.

Federal Funding of Amtrak, 1971 to 2002

(Billions of dollars)

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

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 longterm 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

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 5. In its accounting, Amtrak does not include federal subsidies as

revenues.

1971 1976 1981 1986 1991 1996 2001

0

1

2

3

Funding in

2002 Dollars

Funding in

Current-Year Dollars
CHAPTER ONE INTRODUCTION: AMTRAK’S CURRENT SITUATION 3

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

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.

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 6. See, for example, the statement of Tommy Thompson, Chairman,

Amtrak Reform Board, before the Subcommittee on Surface

Transportation and Merchant Marine of the Senate Committee

on Commerce, February 23, 2000. Those assurances came under

the leadership of Amtrak President and Chief Executive Officer

George Warrington, who headed the company from December

1997 to April 2002.

7. The Northeast Corridor includes the rail lines linking Boston, New

York City, Washington, D.C., and intermediate points.

Passenger-Related

 (45%)

Commuter (9%)

Other (14%)

Federal

Payments

 (32%)
4 THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

(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.

8. The Railroad Infrastructure Development and Expansion Act for

the 21st Century (“RIDE-21”), H.R. 2571.

9. The Transportation, Treasury, and Independent Agencies Appropriations Act, 2004, H.R. 2989.
2

A Brief History of Amtrak

Intercity passenger rail service has long faced significant challenges in its efforts to compete with other modes

of transportation. Between the 1920s and the beginning

of World War II, train ridership (measured in annual passenger-miles) declined markedly as automobiles proliferated.1

 During the war, rail travel surged as government

rationing of fuel and other materials critical for the war

effort curtailed automobile use.2

 At that time, the number

of miles traveled by passengers on intercity railroads soared

to an average of nearly 67 billion per year, compared with

an annual average of 19 billion in the previous five-year

period (1936-1940). After the war, however, the number

of passenger-miles traveled by rail subsided again and

began a long decline (see Figure 3).

In 1971, the year Amtrak began service, the number of

intercity rail passenger-miles traveled was down to a mere

4.4 billion. Since then, it has fluctuated within the range

of about 4.2 billion to 6.4 billion passenger-miles per year.

The total number of intercity rail passengers—a less revealing measure since it ignores the distance traveled—

has ranged from 17 million in the early 1970s to 23.5 million in 2001.

Financial Difficulties Leading 

to the Creation of Amtrak

In the two decades that preceded the establishment of

Amtrak, the railroad industry—which at that time provided both freight and passenger service—faced mounting

financial problems. The expansion of alternative travel

options diminished the demand for passenger rail service.

In addition, the railroads’ bread-and-butter freight service

suffered as the railroads were caught with high fixed costs

from which they could not easily escape in the face of new

competition from truckers. Rigid regulation of both

passenger and freight service by the Interstate Commerce

Commission (ICC) compounded the railroads’ problems

by virtually eliminating their ability to adapt to changing

market conditions.

Alternative Travel Options 

The confluence of several events contributed to the decline

in railroad ridership in the 1950s and 1960s. Returning

war veterans took advantage of subsidized mortgage programs to buy homes for their young and growing families.

Suburbs sprouted, often located far from central-city train

stations and lacking convenient public transportation—a

development that both necessitated automobile ownership

and was enabled by it. 

1. One rail expert has suggested that passenger rail probably reached

its peak in terms of intercity travel in the mid-1890s, when its share

of the market was estimated to be about 95 percent. See George

W. Hilton, Amtrak: The National Railroad Passenger Corporation

(Washington, D.C.: American Enterprise Institute, 1980), p. 2.

A passenger-mile is the movement of one passenger the distance

of one mile.

2. In this study, “travel” refers to intercity (between metropolitan

areas) travel unless otherwise noted. “Transit” refers to local travel

(within a metropolitan area).

CHAPTER
6 THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

Figure 3.

Intercity Railroad Passenger-Miles, 1926 to 2002

(Billions)

Source: Congressional Budget Office based on data from the Association of American Railroads, the Eno Transportation Foundation, Amtrak, and the National Association

of Railroad Passengers.

a. The first five bars in the table show five-year annual averages (1926-1930, 1931-1935, 1936-1940, 1941-1945, and 1946-1950); the subsequent bars show annual

totals, beginning in 1951 and running through 2002.

At the same time, improved highways facilitated travel

by car and bus. The massive federal program to build the

Interstate Highway System began in 1956 and during the

next two decades completed more than 42,000 miles of

high-quality, multiple-lane, limited-access superhighways.3

That road network helped make car trips faster, cheaper,

and more convenient than train travel.

In addition, business travelers turned increasingly to

airlines for long-distance trips in the postwar period. By

1960, air carriers provided 31 billion passenger-miles of

travel, compared with 17 billion passenger-miles for rail

(see Table 1). A decade later, air carriers accounted for 108

billion passenger-miles, and rail carriers accounted for just

6 billion. In the years that followed, air travel continued

to soar while rail travel stagnated. Like the Interstate Highway System, the aviation system benefited from federal

spending (in this case, on airports, the air traffic control

system, and other investments).4

Policymakers made several attempts to address the declining financial condition of the railroad industry in

general and of passenger service in particular. Yet even 40

years ago, some analysts had deduced that fundamental

economic factors were making that decline inevitable and

irreversible. For example, in 1961, a commission estab3. Department of Transportation, Federal Highway Administration,

Highway Statistics 1976, Table INT-11, p. 141. By 2000, the system stretched more than 46,000 miles.

4. Federal spending on highways and aviation has been financed in

large part from taxes imposed on users of those systems, whereas

subsidies for intercity passenger rail have come primarily from the

general fund of the Treasury. Local commuter rail service receives

subsidies from the transit account of the Highway Trust Fund,

which is financed from taxes on highway users.

1926-

1930a

1941-

1945a

1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000

0

10

20

30

40

50

60

70
CHAPTER TWO A BRIEF HISTORY OF AMTRAK 7

Table 1.

Domestic Intercity Travel by Rail, Air, and Bus, Selected Years, 1960 to 2000

(Billions of passenger-miles)

1960 1970 1980 1990 2000

Percentage of

2000 Total

Air Carriers 31.1 108.4 204.4 345.9 516.1 92.2

Railroads 17.1 6.2 4.5 6.1 5.5 1.0

Buses 19.3 25.3 27.4 23.0 37.9 6.8

Total 67.5 139.9 236.3 375.0 559.5 100.0

Source: Congressional Budget Office based on rail and air carrier data from Department of Transportation, Bureau of Transportation Statistics, National Transportation

Statistics 2002, Table 1-34, and bus data from Rosalyn A. Wilson, Transportation in America, 2001, 19th ed. (Washington, D.C.: Eno Transportation Foundation,

2002), p. 45. CBO used the Eno Foundation report for bus data because the Bureau of Transportation Statistics data include transit (intrametropolitan) passengers

as well as intercity bus passengers. The Eno numbers include charter-bus passengers as well as those on scheduled intercity buses. The largest intercity bus

company, Greyhound Lines, accounted for about 8 billion passenger-miles of scheduled service in 2000. Even if that number was used as a lower bound,

Amtrak would still account for only 1 percent of passenger-miles.

lished by the Senate Commerce Committee to study national transportation policy concluded:

Railroad intercity passenger service meets no

important needs that cannot be provided for by

other carriers and possesses no uniquely necessary

service advantages. It serves no locations which

cannot be adequately served by air and highway.5

The Financial Decline of Rail Service

During the 1950s and 1960s, railroads experienced increasing difficulty with their freight business as well as

with their passenger service. Just as the Interstate Highway

System made travel by private automobile increasingly

attractive, it also improved the viability of long-distance

trucking. At the same time, strict regulation by the Interstate Commerce Commission of rail rates, routes, and

service hampered the railroads’ ability to respond nimbly

to competition from other modes of transportation.

Railroad officials argued that their passenger service was

a primary contributor to their financial woes and that if

they could eliminate such service, they would become

profitable again. Some economists disputed that contention, but the fact that a railroad’s passenger and freight

service shared common costs made it difficult to see

exactly where the railroad was losing money.6

 Regardless

of whether passenger service was actually a money loser,

the beleaguered railroads thought it was and made improving it a low priority.7

 As a result, the quality of passenger service generally declined. 

If the railroads had been earning large profits on their

freight traffic, they might have been able to afford to

continue offering passenger service. But by the 1960s,

railroads were finding it increasingly difficult to compete

with trucks—especially in the Northeast, where manufacturing activity was strong. To keep from losing business

to truckers, they needed to be able to reduce the rates they

charged on high-value shipments, such as manufactured

5. U.S. Congress, Special Study Group on Transportation Policies,

The Doyle Report: National Transportation Policy (June 1961), p.

322.

6. See Donald M. Itzkoff, Off the Track: The Decline of the Intercity

Passenger Train in the United States (Westport, Conn.: Greenwood

Press, 1985), p. 53. The same problem that made it hard to distinguish between the costs of freight and passenger service before

1970 applies today in attempting to allocate the costs of passenger

service among different routes. 

7. During the 1950s and early 1960s, some railroads did invest in

new passenger cars. For example, the Santa Fe Railway bought cars

for its premier Super Chief service, and those cars became an important part of Amtrak’s long-distance fleet in the 1970s and 1980s.
8 THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

goods, a market in which trucking was making inroads.8

The ICC prevented the railroads from doing that, however, and instead tried to maintain a regulated rate structure in which revenues from high rates on high-value

shipments cross-subsidized shipments that had low value

per ton, such as coal and agricultural goods. That system

of cross-subsidization eventually proved unsustainable

because shippers facing high rail rates could use trucks

instead of trains.

Some observers thought the solution to the freight railroads’ financial problems was for them to merge into

larger, stronger entities. By eliminating competition and

duplication of business activities, that argument ran, the

railroads could cut costs.9

In 1957, the two largest railroads in the country, the Pennsylvania Railroad and the New York Central, announced

that they were considering a merger. Their leaders thought

that merging could improve the railroads’ efficiency, especially if it allowed them to eliminate excess capacity in

their region caused by stiff competition from truckers.

The merger was finally approved by the boards and stockholders of both companies in 1962, but it took another

six years of ICC proceedings—and maneuvering to respond to opposition by labor unions, state and local governments, and other opponents—before the two railroads

could complete their deal, forming the Penn Central in

1968. Contrary to expectations, the merger did not shore

up the financial condition of the railroads. The Penn Central struggled to meld two very different corporate cultures

in an already difficult economic environment, and in 1970

it filed for bankruptcy—at the time, the largest corporate

bankruptcy in U.S. history.10

Fearful that losses from passenger service would contribute

to the weakening of other railroads, policymakers looked

for a way to relieve the freight railroads of that burden.

The result was the passage of the Rail Passenger Service

Act of 1970, which created Amtrak. The company began

operating on May 1, 1971.

Amtrak from 1970 to 1997

When Amtrak was formed, its creators said they expected

the company to become self-sufficient and operate as a

private entity without subsidies within a few years. The

Secretary of Transportation, John Volpe, was quoted as

saying that Amtrak “could be profitable within perhaps

three years.”11 Whether its supporters really thought that

Amtrak could achieve self-sufficiency or whether the claim

was a tactic used by people wanting to preserve passenger

service or by freight railroads wanting to get rid of their

unprofitable passenger operations is a question for historians. At the time, however, the Office of Management

and Budget argued against the federal takeover of passenger rail service on the grounds that it could not become

profitable and would continue to need federal subsidies.

Despite that objection, Amtrak was capitalized with a

federal grant of $40 million, federal loan guarantees of

$100 million, and contributions from the railroads of

equipment and $197 million in cash.12

The 1970s and 1980s were characterized by ambivalence

among policymakers and observers about appropriate

federal policies toward Amtrak. One scholar described the

ambivalence as follows:

8. The problem in the Northeast also reflected the nature of transportation in that region. For short hauls, trucks tend to have an

economic advantage over rail.

9. The ICC appeared even more reluctant to let railroads discontinue

freight service and abandon tracks than it was to allow flexibility

in rates. As a result, not until some northeastern railroads went

bankrupt in the 1970s were policymakers convinced that requiring

railroads to provide uneconomic service would ultimately lead to

no service at all.

10. For a full and entertaining account of the creation and dissolution

of the Penn Central, see Joseph R. Daughen and Peter Binzen, The

Wreck of the Penn Central (Washington, D.C.: Beard Books, 1999),

p. 18. (The book was originally published by Little, Brown; Boston,

1971.)

11. Robert Lindsay, “Nixon Drafts Bill for Body to Run Passenger

Trains,” New York Times, January 19, 1970, p. 43, as quoted in

Itzkoff, Off the Track, p. 94. That assertion may have been premised

on the assumption that Amtrak would shed most of its unprofitable

routes and maintain service in only a few densely traveled corridors.

12. Hilton, Amtrak, p. 17. Section 401(a)(2) of the Rail Passenger

Service Act of 1970 required the railroads to contribute cash or

equipment in return for being relieved of the obligation to provide

passenger service. The contributions occurred over a three-year

period.
CHAPTER TWO A BRIEF HISTORY OF AMTRAK 9

The Nixon administration reluctantly supported

the creation of Amtrak and Conrail because it

believed that “quasi-private” corporations offered

the minimum financial involvement that would

be politically viable, while providing sufficient

executive control to minimize future demands.

Congressional opponents of cutbacks in service,

on the other hand, saw “quasi-public” corporations as a means of ensuring that rail policy

would not be dominated by a budget-conscious

executive.13

It soon became evident that Amtrak would be guided by

politics as much as by business decisions. The differences

in views and the complexity of the issues involved made

a workable compromise between politics and business

elusive. As a result, many issues that went unresolved in

the 1970s remain unresolved. Indeed, the current debate

about the future of passenger rail is remarkably reminiscent of the policy disputes of the 1970s. The issues

surrounding the appropriate federal role in passenger rail

—such as the size of subsidies and whether to attach

strings to ensure that federal aid goes toward achieving

federal goals—are still being debated today.

Early Legislation

The early 1970s saw enactment of nearly annual legislation

to address problems that arose in the establishment, operation, and funding of the national passenger rail system.

The first law to amend the 1970 statute that created Amtrak was enacted in June 1972, less than 14 months after

the company began service. Among other things, it required Amtrak to make monthly reports to the Congress

on the revenues and expenses of each train, each route,

and the entire system, as well as on their number of passengers and on-time performance record. The 1972 law

also authorized an additional $265 million in appropriations and another $200 million in loan guarantees and

made Amtrak subject to the Freedom of Information

Act.14 The legislation reflected the fact that Amtrak was

not faring as well as had been hoped and that more federal

support would be necessary to keep it running.

Legislation enacted the following year, the Amtrak Improvement Act of 1973, authorized an additional federal

subsidy of $334.3 million.15 It also increased the authorized amount of outstanding loan guarantees to $500 million. At the same time that the Congress was considering

that legislation, it was also wrestling with the problems

of freight railroads. The Regional Rail Reorganization Act

of 1973 (known as the 3R Act) established the Consolidated Rail Corporation (Conrail) to assume the assets,

routes, and service of the Penn Central and other bankrupt

railroads in the Northeast. The 3R Act set the stage for

Amtrak to take over the rights of way, tracks, and facilities

between Boston and Washington, D.C.—an area called

the Northeast Corridor. That takeover was subsequently

accomplished through passage of the Railroad Revitalization and Regulatory Reform Act of 1976 (the 4R Act).16

Among other things, the 4R Act provided about $85.2

million for Amtrak to acquire the Northeast Corridor

property. Legislation enacted eight months later (the Amtrak Improvement Act of 1976) raised that amount to

$120 million and authorized the Secretary of Transportation to enter into a mortgage agreement with Amtrak.17

In light of current proposals to separate infrastructure in

the corridor from operations, it is worthwhile to note that

Amtrak did not own any of its track until that transfer.

That fact suggests that separating infrastructure from pas13. R. Kent Weaver, The Politics of Industrial Change: Railway Policy

in North America (Washington, D.C.: Brookings Institution, 1985),

p. 88. Conrail (officially the Consolidated Rail Corporation) was

created from the remains of bankrupt railroads in the Northeast.

14. More specifically, that law, the Amendments of June 22, 1972,

to the Rail Passenger Service Act of 1970, provided an additional

$40 million for fiscal year 1971 and $225 million for subsequent

years, to be available until spent. It authorized the Secretary of

Transportation to guarantee loans not to exceed $150 million outstanding before July 31, 1973, and not to exceed $200 million outstanding after that date.

15. Those funds were to be available until spent.

16. Section 701(b) of the 4R Act (90 Stat. 121) provided for the sale

or lease to Amtrak of all rail properties designated as part of the

“final system plan” for the Northeast Corridor under the 3R Act.

17. Section 217 of that legislation (90 Stat. 2627) contains the provision about the purchase of the Northeast Corridor property,

which was to occur over eight years, and the mortgage on it.
10 THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

senger operations would be feasible in the Northeast Corridor—as it is in the rest of the country—although it does

not indicate what the optimal configuration would be.

The following year, 1977, saw a break in the pattern of

annual legislation that from 1972 to 1976 had provided

more federal funding for Amtrak and made various

changes to its structure and operations. But that temporary

lull was followed by important changes in the period from

1978 through 1981.

Amtrak Improvement Act of 1978 

By 1978, the Congress had apparently given up on the

notion that Amtrak could become profitable and free of

federal subsidies. The Amtrak Improvement Act of 1978

amended Amtrak’s statute to provide that the company

be “operated and managed as a for-profit corporation”

instead of the original “shall be a for-profit corporation.”18

But the Congress had not lost hope in Amtrak’s ability

to improve service: it set a goal for the railroad to provide

service between Boston and New York City in 3 hours

and 40 minutes and between New York and Washington,

D.C., in 2 hours and 40 minutes.19 Amtrak substantially

achieved that goal two decades later with the introduction

of its Acela Express trains.

The 1978 law required the Secretary of Transportation

to develop recommendations for “an optimal intercity

railroad passenger system, based upon current and future

market and population requirements.”20 In studying the

system, the Department of Transportation (DOT) was

to compute, among other things, “the costs in loss or

profit per passenger mile” and “an estimate of operating

and capital appropriations required to operate the system

for fiscal years 1980 through 1984,” indicating the Congress’s expectation that Amtrak would continue to need

federal subsidies. In addition, the 1978 law required DOT

to evaluate and recommend to the Congress whether Amtrak’s common stock should be retained, retired, or converted.21

Amtrak Reorganization Act of 1979

Legislation enacted in 1979 foreshadows the themes of

the Amtrak Reform and Accountability Act of 1997 and

exemplifies the ambivalence of policymakers toward Amtrak. Suggesting a need to provide better incentives for

the company’s board, management, and workers and for

the states, the Congress concluded that:

# “Inadequately defined goals for the Corporation [Amtrak] have denied its board of directors an effective

role in guiding the Corporation or in promoting and

increasing the number of intercity rail passengers”;

# “Uncertain goals and financial commitment have

discouraged the development of effective corporate

management”;

# “Uncertainty arising from the lack of specific goals

has made the achievement of high employee morale

difficult”; and

# “State participation in subsidizing interstate rail passenger service has, for the most part, been unworkable.”22

Among the goals set forth in the 1979 law were improving

on-time performance, implementing schedules that would

provide a systemwide average speed of at least 55 miles

per hour, and generating enough revenues to cover at least

18. Section 11 of the Amtrak Improvement Act of 1978 (92 Stat. 928).

19. That goal had initially been set in section 703 of the 4R Act and

was to be achieved within five years of that law’s passage in 1976.

The 1978 law made $27 million of the amount authorized under

the 4R Act available for electrification of the Northeast Corridor.

Over the years, the federal government provided about $4 billion

to accommodate faster trains in the corridor.

20. Section 4 of the Amtrak Improvement Act of 1978 (92 Stat. 924).

21. Amtrak’s common stock was—and still is—held by four railroads

(or their successors) that contributed assets during the formation

of the company. Railroads contributing assets to Amtrak were given

a choice between writing the contributions off as a business expense

on their income tax returns or receiving common stock. Four

railroads were in such bad financial condition that the tax write-off

would not have had any value, so they took the common stock

instead. Section 415 of the 1997 Reform Act required Amtrak to

redeem all of its common stock at fair market value by October

1, 2002, but that has not yet happened.

22. Section 102 of the Amtrak Reorganization Act of 1979 (93 Stat.

537).
CHAPTER TWO A BRIEF HISTORY OF AMTRAK 11

50 percent of operating expenses, excluding depreciation,

within six years (and at least 44 percent within three years).

But in the tradition of ambivalence about Amtrak’s role,

at the same time that the Congress set the goal of increasing the ratio of revenues to expenses, it also required Amtrak to establish a reduced-fare program for elderly and

handicapped passengers. In short, Amtrak was supposed

to act like both a business and a public-service agency.

The 1979 legislation also directed Amtrak to develop and

submit to the Congress and the President an “operational

improvement program,” which was to include:

# “A zero-based assessment of all operating practices

and implementation of changes to achieve the minimum use of employees consistent with safe operations

and adequate service”;

# “A systematic program for optimizing the train size

to passenger demand”; and

# “Adjustment of purchasing and pricing of food and

beverages to achieve . . . a continuing reduction in

losses associated with food and beverage services with

a goal of ultimate profitability.”23

In addition, Amtrak was required to establish a “performance evaluation center” and to make various reports on

service, maintenance, and other matters. For example, the

company was ordered to submit annual reviews of each

long-distance route to the Congress.

Some observers would say that such specificity constituted

micromanagement that would interfere with Amtrak’s

ability to make market-based business decisions. Other

people would argue that in view of the sizable federal

subsidies paid in the past and expected for the foreseeable

future, the Congress and the President were only acting

prudently in trying to protect the federal government’s

investment in Amtrak.

The 1979 law authorized appropriations of $630.9 million

for 1980 and $674.9 million for 1981 for operating expenses and $203 million for 1980, $244 million for 1981,

and $254 million for 1982 for capital expenses. In addition, it authorized nearly $220 million over the 1980-1982

period for commuter service, for workers who lost their

jobs or were reassigned to lower-paying jobs, and for payment of the principal of obligations guaranteed by the

federal government.

Amtrak Improvement Act of 1981 

By 1981, it was clear that large federal subsidies would

be needed for improvements along the Northeast Corridor

as well as for operations throughout Amtrak’s system. In

return for federal financial assistance, Amtrak was directed

in the Amtrak Improvement Act of 1981 to issue preferred

stock to the Secretary of Transportation.24 That issuance

gave the federal government an ownership stake in Amtrak

for the first time, although the company had been treated

as a hybrid quasi-public corporation since its inception.

The 1981 law also made changes to Amtrak’s board of

directors. It reduced the size to nine members and modified the composition to consist of the Secretary of Transportation (acting ex officio); the president of Amtrak; three

members appointed by the President and confirmed by

the Senate, who were to be selected from lists generated

by railway labor, state governors, and business, respectively; two members selected by commuter authorities;

and two members selected by preferred stockholders.25

Throughout Amtrak’s history, the accommodation of

political interests has been a more important factor than

business experience in the selection of board members.

During the 1980s and early 1990s, the Congress continued to provide annual subsidies for Amtrak but did not

make major changes in policy. As Amtrak’s ridership

stabilized at about 5 billion to 6 billion passenger-miles

and 20 million passengers annually, so did its financial

condition. However, both opponents of federal subsidies

23. Section 106 of the Amtrak Reorganization Act of 1979 (93 Stat.

539).

24. That act was subtitle F of the Omnibus Budget Reconciliation Act

of 1981.

25. With that change, the holders of Amtrak’s common stock lost their

seats on the board and their voting rights. Although 17 directors

had been authorized by earlier legislation, the board had never had

more than 13 voting members.
12 THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

and supporters of increased investment in passenger rail

continued to press their cases.

In 1997, the deputy federal railroad administrator told

a conference on the future of passenger rail that “in 1994,

the Department of Transportation and Amtrak’s Board

of Governors committed to the goal of eliminating Amtrak’s dependence on Federal operating subsidies, while

improving service and preserving a national system. The

Administration has led with substantial capital requests

for Amtrak, and over the past four years the total Federal

capital investment in Amtrak has exceeded that for the

previous decade combined.”26 He went on to say, however,

that “there should be no expectation that Amtrak can be

viable with a one-time, five-year infusion of capital. . . .

The capital commitment must be stable and ongoing.”27

The Amtrak Reform and 

Accountability Act: 1997 to 2002

In 1997, the Congress and the President enacted a law

requiring Amtrak to run without federal operating subsidies by December 2002. To help the company achieve

that goal (referred to as operating self-sufficiency), the

Amtrak Reform and Accountability Act gave Amtrak

greater freedom to make business decisions than it had

previously had. For example, the law repealed a requirement that had locked Amtrak into a route structure established in 1971 and allowed Amtrak to eliminate routes

after providing 180 days’ notice. That change was intended to let the railroad cut money-losing routes that

were draining its resources.

The 1997 Reform Act also gave Amtrak flexibility to make

other cost-cutting changes. It repealed statutory laborprotection provisions that had required Amtrak to provide

up to six years’ pay and benefits to employees who lost

their jobs when Amtrak discontinued service (or cut it to

fewer than three trains a week) on a route.28 It also repealed a statutory provision that had prohibited Amtrak

from contracting for any work other than food and beverage service if such contracting would result in the layoff

of even a single employee in a bargaining unit. Labor protection and contracting out became matters for collective

bargaining.

In addition to provisions that laid the groundwork for

Amtrak to operate on a more businesslike basis, the Reform Act authorized appropriations totaling about $5.2

billion for 1998 through 2002. Enactment of the law also

triggered access to about $2 billion in funds from the

Taxpayer Relief Act of 1997.29 Those funds were expected

to help Amtrak make the investments needed to get on

a solid financial footing.

Amtrak’s Response to the Reform Act

Amtrak’s leadership found it difficult, however, to adopt

the cost-saving measures that were authorized in the

Reform Act. When the chief executive officer, Thomas

Downs, attempted to negotiate new labor agreements that

would give the company greater flexibility in reducing

costs, Amtrak’s board reportedly forced him out of office.30

His successor, George Warrington, left the company’s

26. Donald M. Itzkoff, “Perspective of the Federal Railroad Administration” (comments made at the June 1997 National Conference

on Critical Issues for the Future of Passenger Rail), published in

Transportation Research Board, National Conference on Critical

Issues for the Future of Intercity Passenger Rail, Transportation

Research Circular No. 484 (Washington, D.C.: National Research

Council, March 1998), p. 60.

27. Ibid., p. 61. Itzkoff reported that Amtrak had cut its reliance on

federal subsidies from nearly $400 million to $222 million in just

two years and added, “We believe that the goal of a zero operating

subsidy is important, because it has already driven Amtrak to

expand its entrepreneurial initiatives through the strategic business

units.”

28. Specifically, Amtrak had been required to give one year of pay for

each year of service to any employee whose job was terminated

because a route was eliminated or because service on the route

dropped below three trains a week. Those provisions were known

as the C-2 provisions, the number of the appendix to Amtrak’s

1973 labor agreement. That agreement was entered into under

a statutory mandate that became codified as 49 U.S.C. 24706(c).

Section 142 of the Reform Act repealed 49 U.S.C. 24706(c).

29. Section 977(f) of the Taxpayer Relief Act of 1997 prohibited the

Secretary of the Treasury from paying any tax refunds allowed by

the act until legislation authorizing reforms of Amtrak had been

enacted.

30. James A. Dunn Jr., Driving Forces: The Automobile, Its Enemies,

and the Politics of Mobility (Washington, D.C.: Brookings Institution, 1998), p. 123.
CHAPTER TWO A BRIEF HISTORY OF AMTRAK 13

Table 2.

Amtrak’s Revenues and Expenses, 1997 to 2001 

(Millions of dollars)

Change, 1997 to 2001

1997 1998 1999 2000 2001

Millions of

Dollars Percent 

Revenuesa 1,669 2,244 2,011 2,111 2,109 440 26.4

Expenses 2,359 2,548 2,660 2,876 3,288 929 39.4

Operating Loss 690 304 649 765 1,179 489 70.9

Source: Congressional Budget Office based on data from Amtrak’s annual reports.

a. Excluding federal subsidies.

difficult labor issues to be resolved by an arbitrator, who

ultimately prescribed only slightly less onerous labor

protection than before: maximum pay protection of five

years instead of six and a more gradual scale relating years

of service to pay protection.31 In the absence of greater

flexibility in labor-protection provisions, it remained costly

for Amtrak to discontinue service (or cut back to fewer

than three trains a week) on a money-losing route, thereby

reducing the company’s ability to take business actions

that could decrease its losses. In addition, Amtrak did not

take advantage of the removal of the statutory prohibition

on contracting out work to other businesses that might

have been able to operate more efficiently.

In other areas, Amtrak took a more aggressive approach

to meeting the goal of self-sufficiency. In retrospect, some

of those actions were ill-advised, however. To reduce

losses, the company needed to increase revenues, decrease

expenses, or both. Amtrak’s leaders decided to focus on

the revenue side, hoping that growth in revenues would

exceed growth in expenses by enough that the railroad

could show self-sufficiency on an operating basis.32

Amtrak’s annual revenues rose by $440 million between

1997 and 2001, but its costs rose by far more, $929

million, thus increasing the company’s operating loss (see

Table 2).

To make rail service more attractive to travelers in the

potentially lucrative Boston-New York-Washington, D.C.,

market, Amtrak invested about $3 billion in rail service

in the Northeast Corridor. It ordered new high-speed

trains, which it called Acela Express, and it electrified the

right of way between New Haven and Boston to cut travel

time between Boston and New York. Both projects experienced schedule delays and cost overruns, but the Acela

trains are now operating.33

In its quest to increase revenues, Amtrak also explored

business lines other than passenger service. It substantially

expanded mail and express service, and revenues from

those activities grew from $70 million in 1997 to $117

million in 2001.34 However, the costs of transporting

express shipments (generally, small packages that need to

get to their destination quickly) were significant, in part

because that service required special freight cars. Amtrak’s

foray into freight transportation had additional disad31. The minimum-service trigger of three trains a week was retained.

32. “Operating self-sufficiency” was not defined in the Reform Act.

The definition that came to be agreed on used a cash basis in which

depreciation was not counted as an expense.

33. In August 2002, Acela trains were taken out of service to fix cracks

in the brackets that hold their yaw dampers in place. (The dampers

keep trains from swaying.) As the problems were addressed, Amtrak

put the Acela trains back into service. More recently, in March

2003, Amtrak again pulled a number of Acela trains out of service

because of maintenance problems.

34. Statement of Kenneth M. Mead, Department of Transportation

Inspector General, “Amtrak’s Performance, Budget, and Passenger

Rail Service Issues,” before the Subcommittee on Transportation

and Related Agencies of the House Committee on Appropriations,

February 27, 2002, p. 10. That rapid growth was substantially less

than Amtrak had projected, however. It had projected revenues

from those activities of $181 million in 2001 and $400 million

by 2003.
14 THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

vantages: it diverted resources from the replacement of

passenger equipment (except the acquisition of Acela

trains); antagonized some freight railroads, which feared

diversion of profitable traffic; and hampered passenger

operations with delays caused by switching freight cars

after trains had departed terminals with passengers on

board. Amtrak reported losing about $3 million a year

on its freight service.35 In September 2002, Amtrak’s new

management announced that the company would discontinue express service, although it would continue to carry

mail.36

Growing Debt

Although Amtrak Chief Executive Officer George Warrington continued until February 2002 to assure the Congress that Amtrak was steadily moving toward operating

self-sufficiency, the company was covering its costs

through increasing debt.37 Indeed, Amtrak had embarked

on a borrowing binge between 1997 and 2001, incurring

new debt of about $2.7 billion, thus boosting its total outstanding debt to $4.4 billion.38 In 2000, Amtrak sold and

leased back some of its fleet of trains to raise $124 million

in cash, and in 2001, it mortgaged portions of Penn Station in New York City to raise enough cash to continue

operating until it received an infusion of federal aid at the

beginning of fiscal year 2002.39 Nevertheless, during the

1998-2001 period, the President’s annual budget submissions never requested more than 60 percent of the amount

authorized for Amtrak under the Reform Act, nor did

Amtrak appeal directly to the Congress for full funding,

as it was permitted by law to do.

Compounding Amtrak’s problems was the fact that in the

mid-1990s, the company had embarked on a program

of improving its fleet of railcars and locomotives, through

both new purchases and major overhauls. That effort not

only increased the amount of outstanding debt but also

raised annual depreciation and interest expenses. Although

depreciation was not counted in determining whether

Amtrak met the test of operating self-sufficiency, interest

was.40 The cost of paying interest on the company’s debt

skyrocketed from $74 million in 1997 to more than $250

million in 2003.41

The 2002 Bailout

By 2002, Amtrak had exhausted its ability to borrow.

Nearly all of its assets had been used as collateral for loans.

Moreover, its access to short-term loans was cut off because Amtrak was unable to get auditors to approve its

annual financial statement. In the midst of that financial

crisis, George Warrington resigned from his position as

president and chief executive officer in the spring of 2002

and was replaced by David Gunn. Mr. Gunn scrutinized

Amtrak’s finances and determined that the company

would need a federal bailout to keep from shutting down

in July.

35. Amtrak spokesman Bill Schulz, as quoted in Laurence Arnold,

“Amtrak Proposes Collecting More from States,” Associated Press

Newswire, September 19, 2002.

36. Don Phillips, “Amtrak Chief Proposes More Cuts: Budget Plan

for ‘03 Ends Freight Service,” Washington Post, September 19,

2002, p. E1.

37. George Warrington left Amtrak in April 2002. Amtrak’s rosy

assessments were not shared by the General Accounting Office,

whose reports between 1998 and 2001 painted increasingly bleak

pictures of Amtrak’s finances.

38. Statement of Kenneth M. Mead, Department of Transportation

Inspector General, “Amtrak’s Financial Condition,” before the

Subcommittee on Transportation and Related Agencies of the

Senate Committee on Appropriations, June 20, 2002, p. 2.

39. Ibid., p. 3.

40. The Reform Act was silent on the treatment of depreciation.

Accountants generally consider depreciation an operating expense.

Thus, the fact that the act required Amtrak to achieve operating

self-sufficiency but said nothing about capital contributed to

confusion. The purpose of depreciation is to account for the consumption of capital and the eventual need to replace it. If Amtrak

was not going to have to cover its capital costs—and the operating

self-sufficiency requirement implied that it might not have to cover

at least some of them—then not counting depreciation might be

appropriate.

41. Department of Transportation, Office of the Inspector General,

2001 Assessment of Amtrak’s Financial Performance and Requirements, Report No. CR-2002-075 (January 24, 2002), p. 7 (for the

1997 number); and Amtrak, “Amtrak Recommends $1.8 Billion

Federal Operating and Capital Investment Grant for Fiscal Year

2004” (news release, February 20, 2003), available at www.amtrak.

com/press/atk20030220028.html (for the 2003 number).
CHAPTER TWO A BRIEF HISTORY OF AMTRAK 15

Faced with the threat of a shutdown—which could have

serious consequences for passengers of commuter railroads

as well as those of Amtrak—the Bush Administration put

together a loan of $100 million under an existing program

for financing rail infrastructure.42 That loan kept the railroad running over the Fourth of July weekend. After the

Congress returned from its holiday recess, it passed a supplemental appropriation of $205 million to keep Amtrak

operating through the rest of the fiscal year.

Today, having received a total of about $27 billion in

federal subsidies over 32 years, Amtrak is still teetering

on the edge of bankruptcy, and policymakers are still

struggling to find a workable plan for intercity passenger

rail.

42. That loan program is the Railroad Rehabilitation and Improvement

Financing program, authorized initially under the 4R Act of 1976

and revised most recently in 1998 by the Transportation Equity

Act for the 21st Century.

3

Amtrak’s Role in Intercity

Passenger Transportation

The primary goal of any passenger transportation

system is to provide mobility (that is, to enable people to

move from place to place). Lesser, but important, goals

are safety, reliability, speed, convenience, and comfort.

Apart from enthusiasts who enjoy a particular mode of

transportation for the ride, travelers generally do not view

transport as an end in itself. Rather, it is a means to an

end, such as conducting business, visiting relatives and

friends, or seeing new places.

Several measures can be used to indicate the mobility that

a transportation service provides. Those measures include

the number of passengers served, the number of passengermiles traveled, the number of places served, and the number of miles of route. By any of those measures, Amtrak’s

role in providing mobility is very small, except in the

Northeast Corridor.

Recent Trends in Amtrak’s Ridership

During the 1991-2002 period, Amtrak’s ridership was

relatively stable. The number of passenger-miles traveled

ranged from 5.1 billion to 6.3 billion a year and averaged

about 5.6 billion (see Figure 3 on page 6). The total number

of passengers ranged from 19.7 million to 23.5 million

annually, averaging 21.6 million (see Figure 4). 

During that time, the number of passengers peaked in

2001, the next to last year of the period, but the number

of passenger-miles peaked in 1991, the first year of the

period. Consistent with that difference, the average trip

length (calculated by dividing passenger-miles by passengers) declined continuously throughout the period, from

about 286 miles in 1991 to 235 miles in 2002. 

Amtrak’s Role Nationwide

As noted earlier, Amtrak accounted for only 1.0 percent

of the intercity passenger-miles traveled by commercial

carrier in 2000 (see Table 1 on page 7). The railroad’s 5.5

billion passenger-miles that year pale in comparison with

the 516.1 billion traveled on airlines (92.2 percent of total

intercity passenger-miles on commercial carriers) and the

37.9 billion traveled on buses (6.8 percent of the total).

Travel by private automobile reigned supreme, however,

accounting for more than 2.5 trillion passenger-miles in

2000.

In terms of numbers of passengers, Amtrak served a scant

2.3 percent of domestic intercity passengers traveling by

commercial carrier in 2000. The railroad carried 23 million passengers that year, compared with 611 million passengers on commercial airlines (61.2 percent of the total)

and 365 million on intercity buses (36.5 percent).1

In geographical coverage, Amtrak appears only slightly

better relative to other modes of transportation. It serves

more than 500 stations in 46 states, compared with 546

1. Rosalyn A. Wilson, Transportation in America 2001, 19th ed.

(Washington, D.C.: Eno Transportation Foundation, 2002), p.

46.

CHAPTER
18 THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

Figure 4.

Number of Amtrak Passengers, 1971 to 2002

(Millions)

Source: Congressional Budget Office based on data from the Association of American Railroads, the Eno Transportation Foundation, and Amtrak.

airports that the Federal Aviation Administration classifies

as “commercial service” airports (those having more than

2,500 passenger boardings per year).2

 In comparison,

Greyhound serves about 2,600 points, of which 112 are

company-owned terminals.3

 Other bus companies serve

additional points, although Greyhound dominates scheduled intercity bus service.

Regional Differences in Amtrak’s Role

Although national totals provide an overall indication of

Amtrak’s role in passenger transportation, they mask

important regional variations. Passenger ridership differs

greatly among the states. The number of passengers

boarding Amtrak trains in 2000 ranged from 925 in New

Hampshire (equivalent to three a day) to nearly 5 million

in New York State (equivalent to more than 13,000 a

day).4

 Of the top 10 states in terms of passenger boardings,

five were in the Northeast Corridor.5

 California and Illi2. Information on airports comes from Department of Transportation,

Federal Aviation Administration, 2001-2005 National Plan of

Integrated Airport Systems (NPIAS) (August 28, 2002), p. 4, available at www.faa.gov/arp/planning/npias/index.cfm. Of the 546

commercial service airports, 422 have more than 10,000 boardings

and are classified by the Federal Aviation Administration as primary

airports. A total of 5,314 airports were open to the public in 2001.

Information about Amtrak comes from the “Amtrak Facts” page

of the company’s Web site, www.amtrak.com/press/amtrakfacts.

html. The states that Amtrak does not serve are Alaska, Hawaii,

South Dakota, and Wyoming. Amtrak served about the same

number of stations in 1984 (510), although the number has fluctuated between 487 and 542 in the interim. See Department of

Transportation, Bureau of Transportation Statistics, National

Transportation Statistics 2000, Table 1-7. 

3. See the Greyhound Corporation fact sheet available at www.

greyhound.com.

4. Personal communication to the Congressional Budget Office by

a staff member of the former Amtrak Reform Council, May 7,

2002.

5. The five states in the Northeast Corridor were New York, Pennsylvania, New Jersey, Maryland, and Massachusetts (in order of

most boardings). In addition, about 3.5 million passengers boarded

in Washington, D.C.

1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001

0

5

10

15

20

25
CHAPTER THREE AMTRAK’S ROLE IN INTERCITY PASSENGER TRANSPORTATION 19

nois, both of which have large urban populations, were

also in that group, as were Virginia, Washington State,

and Florida. Of the 46 states served by Amtrak, the 10

with 70 or fewer passenger boardings per day generally

have relatively small populations and population clusters:

New Hampshire, Idaho, Kentucky, Arkansas, Utah, Kansas, West Virginia, Nebraska, Tennessee, and Alabama

(in order of fewest boardings).

From 1994 to 2000, the number of Amtrak passengers

in the Northeast Corridor generally rose, as did the number of passengers in the West.6

 The number of passengers

on trains outside those two regions, by contrast, generally

declined.7

 The number of passenger-miles has shown a

somewhat similar pattern, rising substantially in the West

and slightly in the Northeast but generally falling elsewhere.8

Amtrak’s role in transporting passengers, relative to other

modes of travel, is much more prominent in the Northeast

Corridor than in the rest of the country. The cities along

that corridor provide a relatively high density of population, for which rail transport has an advantage. Amtrak

accounts for about 14 percent of all intercity trips (including those by automobile) between Washington, D.C.,

and New York City and about 47 percent of trips between

those cities by rail or air carrier.9

6. In 1994, Amtrak began providing information on ridership by

business unit—Northeast, West, and Intercity.

7. See Amtrak, 2000 Annual Report (Washington, D.C.: National

Railroad Passenger Corporation, 2001), p. 47.

8. Ibid., p. 46.

9. The percentage of all trips is from Amtrak, The Northeast Corridor

South End Transportation Plan, Washington, D.C., to New York

City: Phase II Letter Report, Report to Congress (Washington, D.C.:

National Railroad Passenger Corporation, January 2000), p. 9; the

percentage of trips by rail or air is from Tom Ramstack, “Airlines

Recovering from 9/11 Slump,” Washington Times, August 13,

2003, p. C8.

4

The Basic Economics

of Passenger Rail

In a market economy, the interaction between the demand for and the supply of goods and services determines

what is produced, how much is produced, and what price

is charged. For passenger rail service, the primary economic issue is whether travelers are willing and able to

pay a large enough price to cover the costs of providing

service. Economic theory and recent experience suggest

that passenger rail has its best chance of success in densely

populated corridors where cities are located close together.

Even if the cost of providing service exceeds what consumers are willing to pay, however, government subsidies

for passenger rail service may be justified on the grounds

of economic efficiency if passenger rail provides external

benefits, such as reducing congestion or pollution.

The Demand for Passenger Rail Service

The amount of a product or service that people are willing

to buy generally depends on its price, the prices of substitute or related products, the buyer’s income and personal preferences, and other factors. In the case of travel,

an influential component of the cost is the value of travelers’ time, which people consider part of the price of

a trip.

Travel time is especially important in comparisons of rail

and air for long-distance trips, because even when airline

fares are higher than train fares, the savings in time costs

can make air travel much less expensive. For shorter trips,

travelers often face a trade-off between highway congestion

and access time to rail stations. If traveling to a rail station

or between a station and one’s destination takes a long

time, the automobile is likely to win out because it goes

directly from door to door. However, highly congested

roads increase automobile travel time compared with that

of trains. The trade-off between access time and line-haul

time (the amount of time actually spent traveling on an

intercity passenger carrier) helps explain why people going

from the greater Washington, D.C., area to the New Jersey

suburbs of New York City may opt to use a car, whereas

those traveling from downtown Washington to midtown

Manhattan prefer taking the train. In general, transportation experts regard the automobile as having the advantage in terms of travel time and convenience for trips of

less than 150 miles.1

Another factor relating to time is the extent to which

travelers can use their time in transit productively (a

particularly important issue for business travelers) or

enjoyably (a consideration for vacation travelers). For short

trips, travelers may be able to put their time to more

productive uses when riding on a train than when driving.

They may also be able to get more work done when taking

a train (even though the total travel time is greater) than

when taking an airplane if the latter requires a succession

of interrupting activities, such as taxi rides and screening

at airports. For longer trips, however, the less productive

1. Transportation Research Board, In Pursuit of Speed: New Options

for Intercity Passenger Transport, Special Report 233 (Washington,

D.C.: National Research Council, 1991), p. 7.

CHAPTER
22 THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

access and waiting times associated with air travel would

be more than offset by the overall savings in travel time.

Still another element of travel time is waiting time, both

scheduled and unscheduled. People taking trains, airplanes, or buses are constrained by the schedules of the

carriers. Besides taking account of how long it usually

takes to get to the terminal, they must build in a cushion

to make sure they get there on time. Whereas a minute

makes little difference when traveling by car, it can make

hours of difference if a traveler just misses a train, plane,

or bus. Thus, frequency of service is important. A carrier

that offers hourly service is more attractive (all other things

being equal) than one that offers infrequent service.

As for unscheduled time, travelers value reliability—which

helps explain why seasoned Northeast Corridor travelers

head for the train station in foggy weather, when they

anticipate delays in airline service but not in rail service.

If given the choice between transportation that reliably

takes 3.5 hours and an alternative that has an equal probability of taking 3, 3.5, or 4 hours, most travelers would

prefer the reliable 3.5-hour trip. Reliability enables people

to plan ahead and make the most productive use of their

time.

Apart from time, another element of cost relates to the

number of people traveling together. For group travel,

automobiles typically have lower out-of-pocket costs per

person than other modes of transportation do.

Elasticity of Demand

One way to understand the types of service that travelers

value most highly is through formal economic models that

relate the demand for rail service to its price and other

characteristics. Studies of Amtrak in the 1970s generally

concluded that, except for business travel in the East,

demand was highly elastic with respect to price (in other

words, an increase in price would greatly reduce demand

and a decrease in price would greatly expand it).2

 Moreover, studies found that bus travel was a much closer substitute for rail than air travel was.

Economists Steven Morrison and Clifford Winston analyzed the demand for intercity travel by different modes

of transportation. They modeled demand as a function

of the costs and times of the various modes, the frequency

of service, the characteristics of travelers and their households (such as income and how many people were traveling together), and other factors.3

Morrison and Winston found that the demand for rail

service is much more sensitive to changes in cost and travel

time than the demand for automobile or airline travel is.

They determined that rail demand is elastic with respect

to price, which means that reducing fares would increase

revenues because it would attract disproportionately more

passengers. They also found rail demand to be elastic with

respect to time, estimating that a 1 percent increase in

travel time would yield a 1.67 percent decrease in business

trips and a 1.58 percent decline in vacation trips (see Table

3). As expected, business travelers had much less elastic

demand with respect to cost than vacation travelers did

for all transportation by commercial carrier, reflecting the

fact that business travel is generally reimbursed by companies or clients, whereas vacation travelers usually pay

their own way.

Because the duration of a trip includes access time to

stations and waiting time as well as line-haul time, Morrison and Winston’s analysis suggests that railroads could

attract more passengers by locating stations in accessible

and convenient places and by increasing the frequency of

service (thereby diminishing waiting times) as well as by

increasing the speed of the trains themselves.

That analysis used data collected in the late 1970s, before

airline deregulation dramatically changed intercity travel.

Rail, bus, and automobile travel have not changed as

fundamentally since that time, however, so the conclusions

about those modes are likely to still apply.

Demand for High-Speed Rail

The economic studies of the 1970s focused on existing

rail service. More recently, studies have looked at the

2. See George W. Hilton, Amtrak: The National Railroad Passenger

Corporation (Washington, D.C.: American Enterprise Institute,

1980), p. 36. Hilton cites internal Amtrak memoranda.

3. Steven A. Morrison and Clifford Winston, “An Econometric

Analysis of the Demand for Intercity Transportation,” Research

in Transportation Economics, vol. 2 (1985), pp. 213-237.
CHAPTER FOUR THE BASIC ECONOMICS OF PASSENGER RAIL 23

Table 3.

Elasticities of Demand for Intercity

Passenger Service

(Percent)

Automobile Bus Rail Air

For Vacation Trips

Cost -0.45 -0.69 -1.20 -0.38

Travel Time -0.39 -2.11 -1.58 -0.43

For Business Trips

Cost -0.70 -0.32 -0.57 -0.18

Travel Time -2.15 -1.50 -1.67 -0.16

Source: Steven A. Morrison and Clifford Winston, “An Econometric Analysis

of the Demand for Intercity Transportation,” Research in Transportation Economics, vol. 2 (1985), pp. 213-237.

Note: These elasticities show the percentage decrease in demand for a

particular mode of transportation that would result from a 1 percent

increase in cost or travel time.

economic feasibility of high-speed passenger rail service,

which currently operates in Japan and some European

countries but not in the United States.4

 Forecasting the

demand for a service that does not yet exist is difficult for

several reasons. Key determinants of the future demand

for travel—population, employment, incomes, and economic linkages between cities—are themselves hard to

predict. Moreover, the costs of using competing modes

of transportation—such as future airline fares and gasoline

prices—are difficult to forecast but would be critical in

influencing the demand for high-speed rail service. Hence,

any predictions about demand for high-speed rail must

be regarded as uncertain.5

A study sponsored by the Department of Transportation

and conducted by the Transportation Research Board

(TRB) concluded that although forecasts of demand were

uncertain, high-speed rail service would be unlikely to

attract enough travelers to break even financially.6

 That

study found that the primary potential demand for highspeed rail would be for trips of about 150 to 500 miles.7

It noted that demand would depend not only on the distance between cities connected by high-speed rail but also

on those cities’ populations, incomes, and the extent to

which their economic and social activities complemented

one another.8

The Department of Transportation conducted another

study of the commercial feasibility of high-speed rail in

the mid-1990s, as required by legislation.9

 It approached

the question of demand differently than earlier economic

studies had, in part because projecting demand for something that does not yet exist is different from making estimates on the basis of empirical data. The feasibility study

started by projecting demand for each mode of transportation—airlines, existing (“low-speed”) rail, buses, and

automobiles—in the absence of high-speed ground transportation and then developed estimates of the fares that

would attract passengers away from those modes and

maximize net revenue for high-speed rail.10 Next, the study

projected the number of travelers currently using each

mode who would switch to high-speed rail if it existed

and then increased that number by as much as 10 percent

to reflect “induced demand” (trips that had not previously

taken place but would be stimulated by the attractiveness

of the new mode). The model that was used for the study

contained interactive effects between demand, revenues,

system requirements, and costs.

Besides projecting demand and revenues, the feasibility

study estimated passengers’ consumer surplus and the

4. Some of those studies included magnetic levitation trains, which

run on their own guideways but not on rails. For simplicity, this

study uses the term “high-speed rail” instead of “high-speed ground

transportation,” which, strictly speaking, is more accurate.

5. See Transportation Research Board, In Pursuit of Speed, p. vi. For

a discussion of demand methodologies, see pp. 104-106.

6. Ibid., pp. vi-vii.

7. Ibid., p. 6.

8. Ibid., p. 101.

9. Department of Transportation, Federal Railroad Administration,

High-Speed Ground Transportation for America (September 1997),

commonly referred to as the “commercial feasibility study.” It was

required by section 1036 of the Intermodal Surface Transportation

Efficiency Act of 1991 (P.L. 102-240).

10. Ibid., p. O-10.
24 THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

benefits to the public at large from high-speed rail.11 The

results of that study were more optimistic about the

prospects for high-speed rail than the TRB study had been.

The feasibility study concluded that for an array of railservice options in several intercity corridors, passenger

revenues could cover operating costs and contribute to

paying capital costs.12 However, government subsidies

would be needed for the initial investments. The study

argued that such subsidies would be justified in several

cases because the total benefits—including consumer

surplus and reductions in congestion and pollution—

would exceed the total costs.

Both the TRB study and DOT’s commercial feasibility

study emphasized the sensitivity of their cost and benefit

estimates to the specific route and type of service. Their

results were intended to suggest the market and service

parameters for which investing in high-speed passenger

rail service would hold the most promise, but more

thorough analysis would be necessary to evaluate specific

proposals. (The potential costs of high-speed rail are discussed later in this chapter.)

The Supply of Passenger Rail Service

The supply of a product or service, such as passenger rail,

generally depends on the costs of providing it. Most

economic research on railroad costs has focused on freight

service. However, the economics of passenger service are

intertwined with those of freight rail because Amtrak uses

freight railroads’ tracks outside the Northeast Corridor.

(High-speed rail service would probably require its own

new tracks or substantial upgrading of existing tracks.)

Freight Railroad Costs 

Economists have long been interested in the cost structure

of railroads because of the central role they played in the

U.S. economy historically and the fact that they have been

subject to federal regulation since 1887.13 Economists have

studied railroad costs from the standpoint of whether the

industry should be regulated to protect the public and,

if so, what regulatory design is likely to achieve that goal

with the least harm to economic efficiency.

In the late 19th century, alleged abuses by “robber barons,” combined with the overall importance of rail transportation to the economy, provided an impetus for the

federal government to regulate railroads to protect against

monopoly power. Like other capital-intensive industries,

railroads were characterized by economies of scale, in

which the higher the level of output, the lower the average

cost of producing it. The economies of scale associated

with railroads’ large fixed costs and low variable costs

favored a monopolistic structure, and that structure carried

the potential for charging high prices and providing poor

service where no competition existed while charging low

prices to try to undercut rivals (and drive them out of

business) where competition did exist. Railroads made

large investments in fixed plant—especially rights of way

and track but also equipment. Once that fixed investment

was in place, the cost of adding another car to a train (or

carrying an additional ton of freight or an extra passenger)

was relatively small. That cost structure led to the concern

that prices would prove unstable and government regulation would be necessary.

Through the first half of the 20th century, railroads were

generally considered to be a declining-cost industry—that

is, the greater the output, the smaller the average production cost.14 Around the middle of the century, economists

began to question some of the previous conventional

wisdom. Groundbreaking statistical research by econo11. Consumer surplus is a measure of the difference between the value

that people place on a product or service and the actual price they

have to pay for it.

12. The study defined a corridor as “a natural grouping of metropolitan

areas and markets that, by their proximity and configuration, lend

themselves to efficient service by ground transport.” See Department of Transportation, High-Speed Ground Transportation for

America, p. O-1.

13. The Staggers Rail Act of 1980 (P.L. 96-448) removed many regulatory constraints, and the ICC Termination Act of 1995 (P.L.

104-88) eliminated the Interstate Commerce Commission. However, the ICC’s successor, the Surface Transportation Board, continues to oversee rail rates, mergers and acquisitions, and construction and abandonment of railroad lines.

14. Robert E. Gallamore, “Regulation and Innovation: Lessons from

the American Railroad Industry,” in José A. Gómez-Ibáñez,

William B. Tye, and Clifford Winston, eds., Essays in Transportation Economics and Policy: A Handbook in Honor of John R. Meyer

(Washington, D.C.: Brookings Institution, 1999), p. 498.
CHAPTER FOUR THE BASIC ECONOMICS OF PASSENGER RAIL 25

mists John Meyer, Merton Peck, John Stenason, and

Charles Zwick suggested that railroads were characterized

by constant returns to scale—in other words, that the

average cost of production did not rise or fall as the

amount of service changed.15 By the 1970s, economists

were considering economies of scope (declining average

costs as geographic or product coverage increases) and

economies of density (declining average costs as the

amount of service on a route or network increases) as well

as economies of scale. Theodore Keeler concluded that

freight railroads’ main lines were likely to be subject to

constant returns to traffic density, whereas other lines had

increasing returns to traffic density.16 Surveying recent

studies of transportation costs, Ronald Braeutigam reported that most indicate no significant economies of scale

for railroads, although many find economies of density.17

Amtrak’s Cost Structure 

Amtrak’s cost structure has some similarities to and differences from that of freight railroads. Economies of density suggest that, like freight railroads, Amtrak could gain

by providing more-frequent service in high-volume markets and not trying to serve less-dense markets. Conversely,

outside the Northeast Corridor, Amtrak’s cost structure

differs from that of freight railroads in that it is not characterized by the large fixed costs of infrastructure (since

Amtrak uses the freight railroads’ tracks).

Amtrak has many costs that do not vary much, or at all,

with the quantity of service provided. For example, its

interest costs have risen sharply as the company has increased its debt load from $1.7 billion in 1997 to $4.8

billion at the end of 2002.18 As noted earlier, its interest

expense in 2003 is expected to exceed $250 million. Amtrak’s depreciation costs have also risen substantially in

recent years as it has increased its capital investment.

Those costs are essentially fixed in that they do not depend

on the amount of service offered.

In addition, although economists usually think of labor

costs as variable, some of Amtrak’s labor costs are essentially fixed—or at least not as avoidable as might be expected.19 Before enactment of the Amtrak Reform and

Accountability Act of 1997, Amtrak was required to provide up to six years’ worth of compensation to workers

who lost their jobs when service on a route was discontinued (or reduced to fewer than three trains a week).

Section 141 of the Reform Act removed those statutory

labor-protection provisions and required Amtrak to negotiate new provisions within six months as part of the

collective bargaining process. In November 1999, after

Amtrak had deferred the issue, an arbitrator set new rules

governing employee protection, including up to five years’

worth of compensation rather than the previous six.20 The

arbitrator said the new provisions could be amended

through negotiations beginning in January 2000, but no

new agreement has been announced.

Labor costs make up around half of Amtrak’s total operating costs. About 90 percent of the company’s 22,000

employees are covered by collective bargaining agreements.

15. John R. Meyer and others, The Economics of Competition in the

Transportation Industries (Cambridge, Mass.: Harvard University

Press, 1959).

16. Theodore E. Keeler, Railroads, Freight, and Public Policy (Washington, D.C.: Brookings Institution, 1983), p. 57. Because of legislation enacted in 1980 that substantially lessened regulation of freight

railroads and made it easier for them to abandon little-used routes,

the cost structure of major railroads may reflect the constant returns

that Keeler found for the main lines.

17. Ronald R. Braeutigam, “Learning about Transport Costs,” in

Gómez-Ibáñez, Tye, and Winston, eds., Essays in Transportation

Economics and Policy, p. 77.

18. See the statement of Kenneth M. Mead, Department of Transportation Inspector General, “Amtrak’s Financial Condition,” before

the Subcommittee on Transportation and Related Agencies of the

Senate Committee on Appropriations, June 20, 2002, p. 4 for the

1997 number; and Amtrak, 2002 Audited Consolidated Financial

Statements (Washington, D.C.: National Railroad Passenger Corporation, 2003) for the 2002 number, which includes current liabilities and long-term debt and lease obligations.

19. Avoidable costs are those that would not be incurred if a given train

or route was discontinued.

20. See background material prepared for an April 11, 2002, hearing

on Amtrak’s status by the Subcommittee on Railroads of the House

Committee on Transportation and Infrastructure, available at

www.house.gov/transportation/rail/04-11-02memo.html. The Reform Act established a process and timetable for negotiation and

dispute resolution. When Amtrak and its unions were unable to

reach agreement, they submitted to binding arbitration.
26 THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

Negotiations ending in 2000 raised wage payments for

covered employees “by about $248 million over the costof-living increases paid for the period 1996 to 2000.”21

The growth in wages and benefits does not appear to have

been matched by increases in productivity.22

Even on the level of individual trains or routes, the principles of fixed and avoidable costs are relevant to business

decisions. Like airplane seats or hotel rooms, train seats

are perishable commodities. Empty seats are a lost opportunity to earn revenue. Most airlines have sophisticated

“yield management” systems that let them adjust fares up

or down depending on whether a flight is filling up more

quickly or more slowly than its historical pattern. Such

systems might be too costly for Amtrak relative to the

potential gains, but Amtrak could add to its net revenue

by filling any empty seats with passengers who were

willing to cover just their additional cost, which would

probably be very small.

Costs of High-Speed Rail

High-speed passenger rail service requires a higher standard for tracks and alignments than the standard that currently characterizes most freight rail systems.23 Thus, such

service could require significant upgrades to existing track.

For trains traveling faster than 150 miles per hour, safety

and operating considerations make dedicated track desirable. Highway/rail grade crossings are a concern for the

safety of both train passengers and motorists, necessitating

either significant improvements at grade crossings or

(especially for very high speed trains) their elimination.

Therefore, building high-speed rail systems would most

likely entail substantially higher costs than making marginal upgrades to the existing Amtrak system would.

The 1997 DOT study of the commercial feasibility of

high-speed rail estimated the cost of building tracks that

would accommodate trains operating at speeds of 90 miles

per hour to 200 miles per hour in several corridors. Typical estimates of the initial investment ranged from $459

million for 90-mile-per-hour service on the 128-mile route

between San Diego and Los Angeles, to $9.2 billion for

150-mile-per-hour service on the 545-mile route between

Los Angeles and San Francisco (LA-SF).24 “New highspeed rail”—defined as steel-wheel-on-rail systems with

maximum operating speeds of about 200 miles per hour—

was estimated to cost $15.8 billion on the LA-SF route

and $19.1 billion on the Northeast Corridor. Magnetic

levitation (maglev) systems were estimated to be even more

expensive: $23.4 billion for the LA-SF corridor, $22.1

billion for the Northeast Corridor, and $33.4 billion for

an 878-mile system including the Northeast Corridor and

the Empire Corridor between New York City and

Buffalo.25

Those estimates appear optimistic. The feasibility study

estimated that costs for the 306-mile route between Miami

and Tampa would range from $4 million to $7 million

per mile for trains traveling up to 125 miles per hour, $14

million per mile for 200-mile-per-hour service, and $23

million per mile for maglev service. Recent estimates by

companies proposing to build a 125-mile-per-hour rail

system on the 90-mile route between Tampa and Orlando

were around $30 million per mile.26 That difference underscores the cautionary note in the DOT study, which

stated that more-detailed cost estimates than those in the

study would be necessary before making a commitment

to any given project. It also suggests that actual costs

21. Department of Transportation, Office of the Inspector General,

2001 Assessment of Amtrak’s Financial Performance and Requirements

(January 24, 2002), p. 6.

22. See General Accounting Office, Intercity Passenger Rail: Amtrak

Will Continue to Have Difficulty Controlling Its Costs and Meeting

Capital Needs, GAO/RCED-00-138 (May 2000), pp. 22-28, for

a discussion of Amtrak’s difficulties in getting its labor costs under

control.

23. The precise standard that is necessary depends on the top speed.

See Department of Transportation, High-Speed Ground Transportation for America, Chapters 5 and 7.

24. Department of Transportation, Federal Railroad Administration,

High-Speed Ground Transportation for America, p. 7-21, and HighSpeed Ground Transportation for America, Statistical Supplement,

pp. 1-2 and 4-5. All of those costs are present values as of 2000,

discounted at 7 percent, in 1993 dollars. See page 4-1 of the report

for its general assumptions. 

25. Department of Transportation, High-Speed Ground Transportation

for America, Statistical Supplement, pp. 28-30.

26. Joe Follick, “Train Proposals Unsealed Monday: Bids Show HighSpeed Rail Could Cost Up to $2.7 Billion,” Tampa Tribune, March

11, 2003.
CHAPTER FOUR THE BASIC ECONOMICS OF PASSENGER RAIL 27

would be substantially higher than those presented in the

study.

Externalities and Economic Efficiency

DOT’s study of the feasibility of high-speed rail indicated

that in some cases, such service could provide benefits to

the general public, not just to rail passengers. When a service carries with it external costs or benefits (“externalities”), government subsidies can sometimes lead to greater

efficiency in the use of resources (for more information,

see Box 1).

Rail supporters contend that in crowded areas, such as the

Northeast Corridor, a rationale exists for subsidizing rail

service because doing so could reduce congestion at airports and on highways. That argument has two major

weaknesses, however. First, passenger rail service accounts

for such a small proportion of travel that it cannot contribute greatly to alleviating congestion or pollution.27

Second, even if it could, providing subsidies for rail would

be a less efficient way to address those externalities than

charging for them directly would be. For example, economic efficiency could be increased at congested airports

by charging higher prices for peak-hour takeoffs and landings. That policy would encourage airlines to shift some

flights to less congested times of the day.

Another possible justification for subsidizing passenger

rail service would be if that service could provide backup

transportation in the event of a national emergency.

Although Amtrak played such a role in the immediate

aftermath of the terrorist attacks of September 11, 2001,

many travelers rented cars; took taxis, limousines, and

buses; or drove their own vehicles for trips while the

aviation system was shut down because of the attacks.

Box 1.

Externalities

Economic efficiency is defined as the allocation of

resources that produces the greatest satisfaction of

wants within the constraints of scarce resources and

technological limits. In a market economy, prices

generally provide an incentive for efficient resource

allocation: if the price of a good or service is equal

to the value of the resources used in producing it,

resources are allocated to their most efficient uses. (A

price that is higher than the marginal cost of producing the good or service indicates that people place

a greater value on it than on the resources consumed

in producing it, so those resources should be converted into the higher-value good, and vice versa.) 

Sometimes, however, markets do not reflect the full

cost or benefit associated with the production or consumption of a good or service. That can happen when

the production or consumption creates a by-product,

such as congestion or pollution, whose costs are not

borne directly by producers or consumers. Congestion

and pollution are referred to as “externalities” because

they are costs that are borne by people other than the

direct producers or consumers. Strictly speaking, congestion costs are borne by consumers, but they are

considered externalities because each additional unit

—such as each additional car on the road—adds to

the costs (in terms of time) of other users. Of course,

the additional driver also incurs some of the congestion cost; that is, the externality is internalized to

some extent.

Rail’s Comparative Strength: 

Densely Populated Corridors

The decline in rail travel over the past half-century is a

consequence of the basic economics of supply and demand. Automobiles have an economic advantage on most

short trips between cities, and airlines have an advantage

on most long trips. Rail has its best chance of success on

routes of about 100 miles to 300 miles that connect cities

with large populations. The Northeast Corridor meets

those criteria and is where Amtrak has achieved its best

results. In addition, corridors in California and the Pacific

Northwest have some of those characteristics, and rail ser27. For a discussion of that issue, see Gerard J. McCullough, “Amtrak

Subsidies and Transportation Externalities,” in Transportation

Research Board, National Conference of Critical Issues for the Future

of Intercity Passenger Rail, Transportation Research Circular No.

484 (Washington, D.C.: National Research Council, March 1998),

pp. 27-29; and General Accounting Office, Intercity Passenger Rail:

Assessing the Benefits of Increased Federal Funding for Amtrak and

High-Speed Passenger Rail Systems, testimony before the Subcommittee on Transportation of the House Committee on Appropriations, GAO-01-480T (March 21, 2001), pp. 8-10.
28 THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

Box 2.

Can the United States Learn from Other Countries’ Experience 

with Passenger Rail?

Passenger rail is a much larger component of intercity

transportation in some nations than it is in the United

States. France, Germany, and Japan, for example, have

convenient high-speed trains that whisk passengers

between major cities in comfortable, reliable cars. What

accounts for the differences in passenger rail between

other countries and the United States?

Geographical factors and government policies are the

main sources of those differences. European countries

and Japan are more compact than the sprawling United

States, making intercity travel by rail as fast as travel by

air. In addition, those nations’ governments have promoted passenger rail through various policies, including:

# Direct government subsidies of passenger rail. The

countries whose rail service is most often compared

with that of the United States—Japan, France, Germany, the United Kingdom, and Canada—all subsidize passenger rail heavily. Only on Japan’s main

island, Honshu, is passenger rail able to cover its

operating costs with operating revenues.1

# Government subsidies of local mass transit. Those

subsidies, along with planning to accommodate

interconnections between transportation lines, have

1. John Frittelli, Foreign Intercity Passenger Rail: Lessons for Amtrak? CRS Report for Congress RL31442 (Congressional

Research Service, June 7, 2002), p. 13.

led to convenient mass transit links with intercity

railroad stations—something that is often lacking

in the United States.

# Steep taxes on gasoline. Very high gasoline taxes have

made automobile use more expensive and ownership less prevalent than in the United States, which

reduces competition with rail for short to mediumlength intercity trips.

# Protective policies toward airlines. Until recently,

many European countries tried to shelter their national airlines from competition. The high air fares

that resulted from those policies made air travel

much more expensive than rail. In contrast, the deregulated air fares in the United States have made

air travel affordable to everyone but people at the

lowest income levels.

# Government regulation of safety. European trains do

not have to meet as high standards of crashworthiness as the Federal Railroad Administration requires

of U.S. trains, which makes them lighter and less

expensive to operate.2

2. The main exception to the U.S. rules involves the Spanish-built

Talgo trains used in the Cascades service in the Pacific Northwest. Those trains received a waiver from the Federal Railroad

Administration after some modifications were made to increase

their safety.

vice appears to be gaining in popularity there as state governments have provided subsidies to improve its quality

and frequency. The key ingredients for passenger rail are

clusters of densely populated areas within about 300 miles

of each other that have congested highways and airports.

The Northeast Corridor contains a string of population

centers, each of which generates demand for travel to

neighboring cities that can be reached by rail in no more

than about four hours—a travel time for which rail is

competitive with airlines.

Moreover, the cities in the Northeast developed before

automobile use was widespread. As a result, many of them

have central business districts with large populations of

office workers and convenient public transportation between workers’ homes and offices. Intercity train stations

are generally located in or near those central business districts, which makes rail more attractive than airplanes for

journeys between downtown areas, because flying requires

traveling (often in congested traffic) to outlying airports.

As the population and commercial activity of cities decentralize, however, rail’s advantage wanes.
CHAPTER FOUR THE BASIC ECONOMICS OF PASSENGER RAIL 29

Before the terrorist attacks of September 11, 2001, New

York’s LaGuardia Airport suffered severe congestion,

causing delays in air travel. Especially when bad weather

limits visibility and airplanes must maintain greater distances between each other, travelers have found that trains

can carry them to their destination as fast as airplanes can

and with greater predictability. Although the recent

decline in air travel because of terrorism and recession has

alleviated congestion in the air, new delays associated with

security procedures have lengthened trips by airplane.

In general, the characteristics—both geographical and

political—that favor passenger rail are more commonly

found in European countries and Japan than in the United

States. (Box 2 summarizes those characteristics.)

Rail’s Comparative Weakness: 

Long-Distance Service

Long-distance train service has several characteristics that

make economic success difficult to achieve. As discussed

at the beginning of this chapter, passengers are sensitive

to trip times. Because rail trips between cities located more

than 300 miles apart take longer than airline trips—and

often longer than highway travel—long-distance train

travel is costly in terms of the value of travelers’ time.

Scheduling trains to meet passengers’ demands is another

challenge. Any train traveling more than 1,000 miles must

inevitably pass through some communities at times that

are inconvenient for most travelers. Trains stop at some

stations in the wee hours of the morning. Not only are

there few people who wish to board or arrive at those

times, but providing station services in the middle of the

night is costly. Sometimes a timetable that makes sense

between distant points results in schedules that render oneday round-trip travel between nearby cities impossible.

On the supply side, long-distance trains currently provide

sleeping and dining cars, which are expensive to operate.

Long-distance trains are in effect mobile hotels and require

the specialized services associated with the hospitality

industry—albeit under more complex conditions.

5

Policy Options for the Future

of Passenger Rail

Current federal policy toward Amtrak is not sustainable. The $1.04 billion federal subsidy that Amtrak

received for 2003 will enable the company to do little

more than limp along, rationing its resources to cover

operating losses on nearly every route. Amtrak estimates

that it will require about $2 billion in federal assistance

annually for the next five years to cover its operating needs

and to address a large backlog of capital investments.1

Without increases in subsidies, the condition of both the

Northeast Corridor infrastructure and Amtrak’s passenger

cars and engines is likely to decline further. That decline

will make travel by rail less safe, less reliable, and less

attractive to passengers. Amtrak has requested $1.8 billion

in federal aid for 2004; the Bush Administration has asked

for half that amount.

The tortuous history of public policy toward Amtrak

indicates the difficulty of reaching agreement about the

appropriate federal role in passenger rail. Laws enacted

over the past 30 years have included attempts to gain

greater federal control (some would say “micromanagement”) of Amtrak as well as attempts to give the company

greater latitude to run its enterprise as a business. At times,

the Congress has directed Amtrak to take specific actions

to rationalize the rail system, and at other times, it has

provided only broad guidance about objectives. The results

of those efforts—however well intentioned—have pleased

few people.

Passenger rail policy is a classic case in which most of the

benefits are concentrated among a few identifiable groups

but the costs are borne widely by taxpayers. Eliminating

a train or route—or even all of Amtrak—would not save

enough money for an individual taxpayer to notice, but

it would have a marked effect on current passengers, railroad workers, and (to a lesser extent and depending on

the circumstances) freight and commuter railroads, suppliers, and Amtrak management.2

 Finding a compromise

policy for passenger rail that offered improvements for

all parties would probably be impossible. But compromises

might exist that would use resources more efficiently and

allow compensation for parties that were made worse off.

The federal government has several policy approaches

available—ranging from ending subsidies (which would

most likely lead to a shutdown of all or most intercity passenger rail service) to making massive new investments

that would not only upgrade the existing system but also

provide new high-speed service in corridors throughout

the country. This chapter evaluates four options that cover

a broad range of policy choices with regard to the future

level of federal support for passenger rail service.

1. Amtrak, “Amtrak Recommends $1.8 Billion Federal Operating

and Capital Investment Grant for Fiscal Year 2004” (news release,

February 20, 2003), available at www.amtrak.com/press/atk2003

0220028.html.

2. See the appendix for more details about Amtrak’s relationships with

freight and commuter railroads.

CHAPTER
32 THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

Box 3.

Should Amtrak Be On-Budget?

Because Amtrak is considered a private corporation, its

transactions are not included in the federal budget.

However, the Report of the President’s Commission on

Budget Concepts, which provided the conceptual basis

for the government’s overall budget, concluded that the

budget should include all programs of the federal government and its agencies.1

 According to guidelines in

the report, entities like Amtrak would be treated as

federal.

The criteria in the report for determining whether an

entity is federal include the entity’s ownership, the

source of its capital, who selects its managers, and the

degree of control that the President and the Congress

exercise over it. Applying those criteria to Amtrak suggests that the decision to exclude the railroad from the

federal budget should be revisited. 

# Ownership. The first claim to any profit that Amtrak might earn is held by the Secretary of Transportation, who owns all preferred stock in Amtrak.

Some of today’s freight railroads hold common

1. See President’s Commission on Budget Concepts, Report of

the President’s Commission on Budget Concepts (October 1967).

stock certificates, which could be interpreted as

giving them nominal ownership of Amtrak. (Those

certificates were issued to the railroads as compensation for some of the rolling stock and lines that

were used to form Amtrak in 1970.) However,

those common shares convey virtually no benefits

to the holders. Amtrak does not produce any earnings or dividends and does not convene an annual

meeting of shareholders.

# Source of capital. The federal government is the primary source of capital for Amtrak. When the company was created, lawmakers hoped that such assistance would be temporary until Amtrak became

self-supporting, profitable, and creditworthy. That

hope has not been realized.

# Selection of managers. The President appoints Amtrak’s entire board of directors with the advice and

consent of the Senate.

# Degree of control. The federal government has extensive control over Amtrak’s policies through the

board of directors that it appoints and through the

leverage that it gains by providing essential financial

support.

Those options do not address all of the rail-related issues

that are currently under debate, however—many of which

are difficult to resolve. If policymakers can agree on a

vision for passenger rail over the next 10 or 20 years, they

can more productively tackle such issues as governance

(including budgetary treatment, accountability, and transparency), financing (from federal, state, and local governments and private-sector investors), and the desirability

of separating infrastructure from operations. For example,

if federal spending on rail increased, policymakers might

want to record Amtrak’s transactions in the federal budget

to make the company more accountable for its use of

federal funds.3

 (For a discussion of Amtrak’s budgetary

treatment, see Box 3.) The 2003 appropriation law took

a small step in that direction by requiring that the Department of Transportation disburse subsidies for Amtrak only

after the railroad has provided enough information to

satisfy DOT that the funds will be used according to a

business plan approved by the department.

The options examined in this chapter are only broad outlines, so the Congressional Budget Office has not estimated their federal costs. (Doing so would require greater

specificity for each option.) However, the broad options

can be analyzed qualitatively in terms of their expected

implications for economic efficiency and their distributional effects. The efficiency effects are discussed with

respect to several factors: rail service in particular and

transportation service in general, externalities, and dynamic effects (that is, how investment decisions today 3. Federal grants to Amtrak are shown in the federal budget, but Amtrak’s revenues, expenses, and other financial transactions are not.
CHAPTER FIVE POLICY OPTIONS FOR THE FUTURE OF PASSENGER RAIL 33

might affect future costs both to the private sector and

to society as a whole). The distributional effects include

impacts on passengers, railroad workers, commuter and

freight railroads, and taxpayers.

Option I: Eliminate Federal Subsidies

and Provide for an Orderly Shutdown

of Service

Ending federal subsidies would essentially implement the

outcome that the Amtrak Reform and Accountability Act

of 1997 envisioned if Amtrak did not achieve operating

self-sufficiency by 2003: restructuring or liquidation. The

federal government could cease providing subsidies immediately, thus driving Amtrak into bankruptcy and

liquidation. Alternatively, it could provide subsidies for

another year or two, with the understanding that they

would be used for transitional assistance to railroad workers and to the state and local governments most acutely

affected by the shutdown.

Amtrak might be able to reorganize itself around a few

routes, but bankruptcy law does not give railroads as much

latitude as companies in other industries have to free

themselves of obligations.4

 In particular, the law does not

permit the bankruptcy trustee or the court to impose

changes in labor contracts as part of restructuring.5

 Burdened with the costs of those contracts, Amtrak might be

unviable and thus forced to liquidate. A limited set of

corridor services might be bought by investors or states,

but most corridor and all long-distance service would

probably be shut down.

Effects on Economic Efficiency 

In the absence of externalities, this approach would lead

to an efficient outcome in terms of transportation economics. Only service that was sustainable without federal

support would continue, and the cost of that service would

be borne by consumers who were willing to pay for it or

by state and local governments that deemed the benefits

of having rail service worth the cost of subsidizing it. (Currently, 13 states provide Amtrak with a total of $136 million a year to support service to their communities.)6

 Eliminating federal subsidies for passenger rail would cause

a shift to more efficient modes of transportation—bus,

airplane, and automobile.

In places where airport or highway congestion is a problem, this option could result in some inefficiency because

its market-based approach does not take account of such

externalities. However, as noted earlier, available information suggests that passenger rail does not contribute significantly to alleviating congestion on other modes of

transportation. This option also neglects possible benefits

of having alternative modes available.

Ending federal support for intercity passenger rail service

would complicate—though not prevent—the introduction

of new service in the future. Some of the domestic technical know-how of producing and operating modern

equipment and service might be lost in the absence of

current demand for it. If passenger rail service was revived

in the future, however, new technologies would most likely

be available from foreign sources. Moreover, most proposals for high-speed rail have been made independently of

Amtrak and have assumed the construction of new tracks

that could safely accommodate fast trains.

Distributional Effects 

This option would affect taxpayers, passengers, commuter

and freight railroads, and railroad employees. It would

save federal taxpayers about $1 billion a year, based on

the current rate of subsidy. Passengers would have to turn

to buses, airplanes, or cars for the 25 million trips they

take on Amtrak each year. Even if all of those passengers

crowded onto buses or airplanes, they would increase the

demand for those modes only marginally, because those

modes already provide 99 percent of the passenger-miles

taken on commercial carriers annually.

In the Northeast Corridor, state and local transportation

agencies operate commuter rail service along Amtrak’s

4. General Accounting Office, Intercity Passenger Rail: Potential Financial Issues in the Event That Amtrak Undergoes Liquidation, GAO02-871 (September 2002). Appendix I contains a detailed description of the bankruptcy process for railroads.

5. See 11 U.S.C. 1167. If the Congress wanted to treat railroads like

other industries, it could amend the bankruptcy law.

6. Amtrak, “Amtrak Recommends $1.8 Billion Federal Operating

and Capital Investment Grant for Fiscal Year 2004.”
34 THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

tracks and use Amtrak’s stations and other facilities. Currently, the commuter railroads are required to pay Amtrak

only for the marginal costs they impose. If Amtrak stopped

operating, those agencies would probably find a way to

continue running commuter service, but they would most

likely have to cover the full costs of infrastructure and

operations themselves through increases in fares or subsidies. The federal government could provide transitional

assistance to those state and local agencies, or it could allow them to divert existing federal aid for other programs

(such as highway and transit programs) to corridor rail

service.

Elsewhere in the country, Amtrak provides commuter rail

service under contracts with state and local agencies. In

the aftermath of Amtrak’s threatened shutdown in July

2002, some of those agencies have taken steps to ensure

that service can continue in the event that Amtrak no

longer meets its contractual obligations. (See the appendix

for more details.)

Under existing labor agreements, Amtrak is obligated to

give workers who lose their jobs when service is discontinued up to five years’ pay and benefits. If Amtrak shut

down, it would be liable for about $3.2 billion in such

claims, according to a recent estimate by the General Accounting Office.7

 Whether Amtrak would have enough

assets to pay those claims is doubtful. The federal government might choose to pay some or all of them—or

to offer other assistance to Amtrak’s workers—although,

according to the Comptroller General, the government

is not liable for any of Amtrak’s debt.8

A shutdown of Amtrak would also have consequences for

the Railroad Retirement System—the counterpart to

Social Security for railroad workers. Amtrak’s employees

contribute about $400 million to the system annually,

about 9 percent of its total receipts. The Railroad Retirement Board has estimated that the system would need

additional funding by 2024 (or increases in payroll taxes

for freight railroad workers or reductions in benefits) if

contributions from Amtrak employees ceased.9

Option II: Reorganize to Build on

Passenger Rail’s Comparative Strengths

This option would focus federal resources on the Northeast Corridor and other corridors that have the requisite

characteristics to take advantage of rail’s comparative

strengths. The national network of passenger rail service

would be eliminated, and the resources saved by discontinuing long-distance trains would be deployed where the

payoff is likely to be the greatest: rebuilding and maintaining infrastructure, cars, and engines on high-density

corridors that already serve a large number of rail passengers. That shift in focus could make train travel safer and

more reliable and could stimulate increased ridership and

support for passenger rail. The Northeast and West Coast

corridors could serve as demonstration projects for other

corridors where the necessary conditions for efficient rail

service are emerging.

As noted earlier, trip time is an important determinant

of a traveler’s choice of mode. For rail, that means not just

line-haul time but also access and waiting times. Reducing

rail travel time by choosing convenient locations for stations and by providing greater frequency of service could

be as effective in wooing passengers as building costly new

infrastructure to accommodate high-speed trains would

be. In addition, the reliability of schedules (to minimize

unscheduled delays) could be enhanced by devoting more

resources to maintaining equipment and infrastructure.

Greater reliability could increase the demand for train

travel—attracting more passengers and inducing them

to pay more for their tickets.

This option would build on the comparative strengths

of passenger rail service. As discussed in Chapter 4, passenger rail works best where population densities are high

and where trip times between cities are no more than

about four hours. High densities work to rail’s advantage

because they produce a large number of potential travelers

and because they generate congestion delays that make 7. General Accounting Office, Intercity Passenger Rail: Potential Financial Issues in the Event That Amtrak Undergoes Liquidation, pp. 4,

17-18.

8. See opinions B-277814 (October 27, 1997) and B-217662 (March

18, 1985) of the Comptroller General.

9. General Accounting Office, Intercity Passenger Rail: Potential Financial Issues in the Event That Amtrak Undergoes Liquidation, p. 5.
CHAPTER FIVE POLICY OPTIONS FOR THE FUTURE OF PASSENGER RAIL 35

other modes of transportation relatively less attractive.10

Rail also has an advantage for travelers whose origin and

destination are easily accessible to train stations—which

often means accessible to local public transit. (If people

taking short intercity trips have to drive any appreciable

distance to get to the train station, they are likely to save

time by making the entire trip by car.) By focusing on

areas where passenger rail is most competitive, this option

would ensure that federal subsidies were used more costeffectively than they are now.

Effects on Economic Efficiency

This approach would promote greater efficiency in longdistance transportation because it would prompt a shift

to more cost-effective modes for such travel. For congested

corridors, it could lead to greater efficiency than Option

I if the size of the subsidies reflected the cost of the congestion externalities (although, as discussed earlier, the size

of such externalities is unknown, and there are more-direct

ways to address the externalities of one mode than to subsidize another).

This option would also provide a demand for improving

short-distance intercity service—which could include

upgrading tracks, signaling systems, and equipment. If

ways could be found to provide corridor service more

efficiently, that could stimulate interest in investing in

corridors with emerging demand for rail transport.

Distributional Effects

Eliminating nationwide service would inconvenience some

passengers, although relatively few travel long distances

by train even on long-distance routes. (Most passengers

board those trains and disembark at intermediate points.)

Gaps caused by the loss of service could be filled by airlines

and intercity bus companies, which serve many more communities than Amtrak does now. 

Because passenger trains use the tracks of freight railroads,

this policy would not preclude the possibility of resuming

passenger service in the future. As long as freight railroads

continue to use the tracks, the infrastructure will be maintained to accommodate freight trains. A future decision

to bring back passenger service might require investment

to upgrade tracks, but rights of way and basic services

would already be in place.11

Like Option I, this policy would cause disruptions for

Amtrak’s workforce. Some workers could be redeployed

to corridor services, but others would lose their jobs. Even

those who continued to be employed might have to move

to new locations and learn new job skills. Depending on

the amount of money that lawmakers were willing to

provide, those workers could receive some compensation

or retraining to mitigate the policy’s negative effects.

In terms of the impact on taxpayers, this option could be

designed to use the same size federal subsidy as currently;

the only difference is that the money would be used more

cost-effectively, so taxpayers would get more benefit for

the dollar.

Option III: Upgrade the Corridors 

and Keep the Existing National Network

This option would maintain the existing level of service

on long-distance routes while providing additional resources for the high-density corridors where rail has an

economic advantage. With regard to the corridor investments, the efficiency and distributional effects would be

similar to those described in Option II.

Although Amtrak has to pay freight railroads only the

incremental cost of using their tracks—and thus avoids

the large costs of owning and maintaining railroad infrastructure outside the Northeast Corridor—it has been

unable to earn enough revenues to cover costs. Continuing

to subsidize long-distance rail service draws resources that

could be spent on highways and aviation. This option

would measure up favorably in terms of economic efficiency only if the demand for long-distance rail transport

10. Passenger rail itself is not immune from congestion; at peak holiday

travel times, rail service can be crowded. Moreover, some freight

rail corridors have become congested, especially when the economy

is booming, which has caused delays in passenger service.

11. Under current law, Amtrak has access rights to the freight railroads’

tracks on favorable terms. If those rights were extinguished, a future

operator of passenger service would have to negotiate with the

freight railroads for such access and would probably have to pay

more than Amtrak does now.
36 THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

increased substantially in the future—something for which

there is little empirical support. If that happened, this

option would have the benefit of stimulating further

investment to improve rail speed, safety, and reliability.

Keeping the national system at current levels of service

would mean that none of the beneficiaries of current

policy would lose. The additional costs associated with

upgrading corridors while maintaining long-distance

service would be paid through increases in taxes or cuts

in other government programs. If state and local governments were willing to provide subsidies, the impact on

the federal budget would be lessened, but that would

require those governments to make similar difficult

resource-allocation decisions. 

A variant of this approach—which could moderate the

costs somewhat—would involve reducing some of the onboard services offered on long-distance trains. The expensive-to-operate sleeping and dining cars could be eliminated on the grounds that they are a costly luxury for

which there is little justification for taxpayer subsidies.

Instead, long-distance trains could provide only the coach

and cafe service offered on corridor trains. Alternatively,

travelers desiring luxury services could be charged prices

high enough to cover the cost. Such measures would not

have much effect on people traveling shorter distances on

long-distance trains. Long-distance travelers who wanted

hotel accommodations could disembark and stay in hotels

along the way, catching the next convenient train to their

destination.

Option IV: Substantially Upgrade Both

the Corridors and Long-Distance Service

This option envisions a future in which passenger rail

would play a much more prominent role in intercity

transportation, compared with other modes, than it does

today. The option would substantially upgrade track and

equipment for both corridor service and long-distance

service across the country. Those upgrades would entail

large increases in federal assistance—at least several billion

more dollars per year.

This approach could include a program of massive new

investment in rail service in the “high-speed rail corridors”

designated by DOT in response to legislation. Although

most of those corridors do not have the size or density of

population necessary for passenger rail to have an economic advantage, those conditions might materialize in

the future—particularly if the resources devoted to rail

investments were diverted from investments in highways

and airports. If policymakers sought to make rail the

dominant mode for travel up to several hundred miles,

they could focus federal resources to help make that

happen.

Effects on Economic Efficiency

Analysis of the available data suggests that this option

would not be economically efficient under any of the

criteria used to evaluate the various policy choices in this

study. The shift in emphasis envisioned in this approach

is so large that past or present experience provides little

guidance. The many billions of dollars per year needed

to implement this option could probably come only from

raising taxes, cutting spending, or increasing the federal

budget deficit. Within the framework of the Congressional

authorization and appropriation processes, such an increase in funding would most likely entail trade-offs

among transportation programs—highways, transit, and

aviation—and thus would lead to a significant shift of

transportation resources from more-efficient modes (highways and aviation) to less-efficient rail.

More than any of the alternatives, this option rests on the

idea that rail provides large and unique external benefits

in mitigating congestion and pollution and in influencing

patterns of regional economic development. For example,

rail might stimulate development—or redevelopment—

around train stations in central cities and help stem the

tide of suburban sprawl. (The evidence on whether sprawl

is harmful or beneficial to the economy is mixed, however.)12 In addition, this approach would yield the benefit

12. See, for example, Andrew F. Haughwout, “The Paradox of Infrastructure Investment: Can a Productive Good Reduce Productivity?” Brookings Review, vol. 18, no. 3 (Summer 2000), pp. 38-41;

Joel S. Hirschhorn, Growing Pains: Quality of Life in the New

Economy, Report No. 13467 (Washington, D.C.: National Governors’ Association, June 2000), available at www.nga.org/cda/files/

GROWINGPAINS.pdf; and Steven Hayward, ‘Growing Pains’:

The NGA’s Flawed Report on Sprawl, Backgrounder No. 1393

(Washington, D.C.: Heritage Foundation, September 13, 2000),
CHAPTER FIVE POLICY OPTIONS FOR THE FUTURE OF PASSENGER RAIL 37

of providing alternative transportation in case a national

emergency caused highways, airports, and airways to shut

down. By its nature, this option rests on a claim of longterm dynamic gains.

Distributional Effects 

The big winners from substantially upgrading passenger

rail service nationwide would be railroad workers. Passengers would also gain by having more transportation alternatives. The possible effects on commuter and freight

railroads are less clear. If intercity passenger rail operators

tried to increase service on existing freight rail tracks,

congestion would most likely become a serious problem—

as it already is on a few freight lines. Conversely, if track

capacity was increased, commuter and freight railroads

could benefit.

The big losers would be current and future taxpayers

—whose taxes would go up to pay for the increased subsidies—and other modes of transportation, from which

federal funds would probably be diverted. If the advocates

of large investments in rail are correct, however, future

taxpayers would receive compensating benefits from the

substantial investment in passenger rail.

Conclusions

Seeking a consensus about long-term federal policy toward

passenger rail may be unrealistic. If policymakers cannot

reach agreement about passenger-rail issues, then Amtrak

is likely to limp along as it has for the past 33 years: not

quite satisfying anyone, not providing the most valued

rail service per dollar of subsidy, but not costing very

much relative to the size of the economy and the federal

budget.

Legislation governing Amtrak has often had unintended

consequences. One example is the requirement in the 1997

Reform Act that the company achieve operating self-sufficiency by December 2002. Although lawmakers were by

no means unanimous in desiring that goal or in considering it realistic, Amtrak set out to show that it was on

a “glide path” to self-sufficiency by narrowing the gap each

year between operating expenses and operating revenues.

But it did so in ways that, at least in retrospect, were counterproductive. The focus on that accounting objective led

to ill-considered short-term measures that plunged Amtrak

into more serious financial trouble.13

Among the lessons to draw from that experience is the

importance of setting realistic goals for passenger rail,

finding measures to assess progress along the way, making

midcourse corrections if necessary, and requiring much

greater transparency and accountability in return for

federal subsidies.

which is available at www.heritage.org/Research/SmartGrowth/

BG1393.cfm. There does not even appear to be consensus about

what “sprawl” is.

13. In an interview, Amtrak Chief Executive Officer David Gunn said,

“a lot of our problems are because of this ‘glide path’ business.

. . . [The] basic problem that Amtrak has faced for the last few years

was this glide path to self-sufficiency, which was unrealistic, but

it created enormous problems for Amtrak by forcing the company

to do things like mortgage Penn Station.” See “TW Exclusive Interview: Amtrak President & CEO David Gunn,” Transportation

Weekly, Legislative Services Group, vol. 3, no. 43 (September 3,

2002), p. 5.

Amtrak’s Interconnections with

Freight and Commuter Railroads

Regardless of whether lawmakers opt for major

changes, incremental adjustments, or the status quo, policies toward Amtrak have potential effects not only on the

company’s passengers, workforce, and suppliers but also

on freight railroads and their employees and on commuter

railroads.

Connections with Freight Railroads 

and Their Workers

The major interconnections that exist between Amtrak

and freight railroads arise from the fact that Amtrak was

created by spinning off those railroads’ passenger service.

Freight railroads use the Northeast Corridor, which Amtrak owns; Amtrak uses freight railroads’ tracks outside

the Northeast Corridor; and railroad retirement and unemployment systems cover employees of both freight railroads and Amtrak.

Freight Railroads’ Use of the Northeast Corridor

The Railroad Revitalization and Regulatory Reform Act

of 1976 provided for the transfer of ownership of the

Northeast Corridor from Conrail (the government-owned

freight railroad formed from the Penn Central and other

bankrupt railroads in the northeastern United States) to

Amtrak in order to facilitate the eventual transfer of Conrail to the private sector. Although that law merely authorized Amtrak to make access agreements with freight railroads, Amtrak conveyed to Conrail an easement granting

exclusive freight access rights to the corridor in perpetuity

for a reasonable fee. When the Surface Transportation

Board approved the joint acquisition of Conrail by CSX

and Norfolk Southern in 1998, those railroads inherited

Conrail’s access rights. The need to provide tracks and

services for Norfolk Southern and CSX, and the encumbrance that need would pose if Amtrak declared bankruptcy and was liquidated, mean that those property rights

have major implications for Amtrak policy. Any taking

of the access rights would require compensation for Norfolk Southern and CSX.

Amtrak’s Use of Freight Railroads’ Tracks

Federal law gives Amtrak the right of access to freight

railroads’ tracks outside the Northeast Corridor on very

favorable terms: passenger trains have priority over freight

trains, and Amtrak must pay freight railroads only the

marginal, “out-of-pocket” cost of using their tracks. That

cost has been interpreted as not including the cost of

delaying freight trains. That arrangement was put in place

in an era when the freight railroads generally had excess

capacity and adding a few passenger trains to a route imposed relatively small costs. However, after the regulatory

reforms of the Staggers Rail Act of 1980 made it easier

to cut uneconomic service, the freight railroads streamlined their route structures and capital investment to a size

that more closely matched the demand for service. With

business growing in recent years, some freight railroads

have experienced congestion on their tracks, and passenger

trains have contributed to the costs of delay.

If Amtrak as a corporate entity was dismantled, policymakers would have to decide whether to preserve the

APPENDIX
40 THE PAST AND FUTURE OF U.S. PASSENGER RAIL SERVICE

historic arrangement that gave the company favored treatment or whether to let any future operator of passenger

trains negotiate such arrangements with freight railroads

itself.

Interactions with Freight Railroad Labor

The federal Railroad Retirement System—the equivalent

of Social Security for railroad workers—covers employees

of both Amtrak and the freight railroads. The system relies

largely on the contributions of current workers to pay the

pensions of retirees. Amtrak and its workers contribute

about 9 percent of the Railroad Retirement System’s annual receipts—or about $428 million.1

 If those contributions ceased, “the railroad retirement account would

begin to decline in 2006 and would be in a deficit by 2024

if no actions were taken to increase payroll taxes or reduce

benefits,” according to the Railroad Retirement Board.2

The unemployment insurance system for railroad workers,

which the railroads pay into, would face similar problems.

If Amtrak declared bankruptcy, its workers’ unemployment insurance claims would probably be given priority

to be honored. If the company was liquidated, other railroads that pay into the system would ultimately bear the

costs of Amtrak’s unemployment.3

Connections with Commuter Railroads

Changes in policy toward Amtrak could also affect commuter railroads (operators of service within a metropolitan

area, such as between a city and its suburbs). In the Northeast Corridor, Amtrak provides tracks and services for

commuter railroads at subsidized rates. State and local

transportation agencies generally operate commuter service

and use Amtrak’s stations and other facilities. Currently,

they are required to pay Amtrak only the marginal cost

they impose. In effect, then, federal subsidies for Amtrak

get passed through to subsidize commuter operations in

the Northeast. If Amtrak stopped operating, state and local

transportation agencies in that region would have to cover

the full costs of infrastructure and operations for commuter service.

Outside the Northeast Corridor, Amtrak provides commuter rail service under contracts with state and local

agencies. After Amtrak threatened to shut down in July

2002 because it was running out of cash, those agencies

began exploring alternative ways to ensure that their service would not be disrupted if Amtrak could no longer

meet its contractual obligations. For example, Southern

California’s commuter rail service (Metrolink) reached

an agreement with RailAmerica, a Florida-based railroad

operator, to keep service operating in case Amtrak fails

to fulfill its contract.4

1. General Accounting Office, Intercity Passenger Rail: Potential Financial Issues in the Event That Amtrak Undergoes Liquidation, GAO02-871 (September 2002), p. 21.

2. Ibid., p. 5.

3. Ibid., p. 26.

4. Nancy Luna, “Metrolink Will Keep on Track with Plan B,” Orange

County Register, January 5, 2003.