Passenger trains, at one time the nation’s primary means of intercity transportation, began losing riders to automobiles in the 1920s and to airplanes in the 1950s and 1960s. Revenue losses on passenger services mounted, and in 1970, the final year in which these services were operated by private railroads, over $1.7 billion (in 1994 dollars) was lost on these services. Railroads had stopped investing in new passenger cars and facilities, and service declined, leading to the near demise of passenger rail service. To revitalize intercity passenger rail service, in 1970 the Congress created the National Railroad Passenger Corporation, commonly called Amtrak. Amtrak began operations on May 1, 1971, with the task of reversing the decline in intercity rail ridership and making up for years during which the railroads had neglected passenger operations. Until World War I, intercity travel generally meant train travel, and the railroads operated up to 20,000 passenger trains daily. After World War II, however, ridership declined dramatically, and by 1970 only about 300 intercity passenger trains were operated daily, providing only about 0.5 percent of intercity travel. In response to declining revenues, most railroads did not invest in new passenger equipment and allowed the service to deteriorate. Trains frequently failed to run on time, speeds were slow because of poor track and roadbeds, and equipment was old and prone to breakdowns. Intercity train travel was rapidly becoming extinct in the United States. The nation’s railroads, which focused primarily on freight service, had to obtain permission from federal or state regulators to abandon unprofitable passenger train services. Before passage of the Transportation Act of 1958, state regulatory commissions had the authority to discontinue passenger trains. Some state agencies allowed the railroads to discontinue unprofitable passenger operations, and between 1920 and 1958, service was discontinued for more than one-half of the railroads’ passenger miles.Because of the large decline in the number of trains, state commissions became more reluctant to allow the railroads to discontinue more services. The 1958 act transferred effective control over decisions to discontinue passenger services to the Interstate Commerce Commission (ICC). The ICC was concerned that continuing losses from passenger train operations could threaten the financial health of the entire railroad industry. It therefore allowed railroads to eliminate passenger operations that generated serious deficits. a for-profit corporation to provide intercity and commuter rail passenger service, employing innovative operating and marketing concepts so as to fully develop the potential of modern rail service in meeting the Nation’s intercity and commuter passenger transportation requirements. The Corporation will not be an agency or establishment of the U.S. Government. The Congress gave Amtrak specific goals to (1) provide modern, efficient intercity railroad passenger service; (2) help alleviate the overcrowding of airports, airways, and highways; and (3) give Americans an alternative to private automobiles and airplanes to meet their transportation needs. The act required Amtrak to operate a basic passenger rail system that considered the passenger service that existed at the time the act was passed as well as opportunities to provide additional rail service that would be faster, be more convenient, and serve more population centers at a lower cost. Fig. 1.1 shows Amtrak’s route network. Amtrak’s first full year of operation was 1972. Although the route system today is not much larger than the one operated in 1973, it now carries about 30 percent more passengers, serves 22 percent more stations, and operates about 29 percent more train miles. (See table 1.1.) In 1971, Amtrak took over routes from all but three of the railroads that were providing passenger service at the time. In return for relief from their obligation as common carriers to provide passenger service, the railroads turned over their passenger cars and locomotives to Amtrak. The original fleet of over 1,500 cars averaged more than 22 years in age. In 1994, Amtrak’s fleet of 1,900 cars still included about 435 of the original passenger cars. Amtrak eventually took over control of yards, stations, train service employees, and reservation offices. By 1976, most of Amtrak’s services, other than those provided by train and engine crews, were provided by Amtrak’s own employees. Using $120 million provided by the Congress, Amtrak purchased 103 miles of track between Philadelphia and Harrisburg, Pennsylvania; 83 miles joining Kalamazoo with Michigan City; 62 miles linking New Haven, Connecticut, and Springfield, Massachusetts; and 12 miles near Albany, New York. In addition, Amtrak acquired about 400 miles of the Northeast Corridor—between Washington, D.C., and Boston—from the estate of the bankrupt Penn Central railroad. The freight railroads, however, own the rest of the track over which Amtrak operates. The Rail Passenger Service Act grants Amtrak the right to use freight railroads’ tracks, and Amtrak is expected to pay the incremental costs that the freight railroads incur to maintain the tracks for passenger service.The freight railroads also provide dispatching and emergency services for Amtrak trains operating on their systems. In recent years, Amtrak has paid about $90 million annually for these services. Amtrak compensates the freight railroads according to individual agreements established in 1971.These agreements expire April 30, 1996. Amtrak’s primary function is operating the 25,000-mile intercity passenger rail route system that serves 44 states. Amtrak operates about 350 trains to serve 6 routes in the Northeast Corridor, 17 short-distance routes (under 500 miles), and 20 long-distance routes. Thirteen of these routes are partially funded by eight states under section 403(b) of the Rail Passenger Service Act; three of these routes are fully funded by two states under section 403(d) of the act. Amtrak generated $1.4 billion in revenues in fiscal year 1994 and had $2.4 billion in expenses. Its federal subsidy was $909 million. Passenger-related services generated 65 percent of Amtrak’s revenues in fiscal year 1994 (see fig. 1.2) but covered only about 38 percent of the expenses. Another 19 percent of Amtrak’s revenues came from commuter rail service, which Amtrak operates in seven metropolitan areas under contract to state or local transportation authorities. Finally, Amtrak earns revenues from other activities, such as real estate development (including 30th Street Station in Philadelphia). Other revenues come from handling specialized freight, including U.S. mail and certain express deliveries, and leasing rights-of-way along the Northeast Corridor to telecommunications firms for data transmission lines, among other things. Over half of Amtrak’s operating expenses in fiscal year 1994 were for salaries, wages, and benefits to employees. (See fig. 1.3.) Passenger-Related Services ($912.8 million) Commuter Services ($271.8 million) 7% Financial ($184.7 million) 6% Facility and Office Related ($153.0 million) 4% Advertising and Sales ($90.8 million) 6% Other ($152.7 million) Salaries and Wages ($855.8 million) Benefits ($449.7 million) Train Operations ($358.4 million) 10% Depreciation ($245.1 million) Since 1971, the federal government has provided Amtrak with over $13 billion to support intercity passenger rail service. Figure 1.4 shows the amounts appropriated to Amtrak over the past 8 years. In fiscal year 1994, Amtrak received federal funds through an operating and capital grant, a grant for the Northeast Corridor Improvement Program (NECIP), and a mandatory payment by the Federal Railroad Administration (FRA) to fund certain retirement and unemployment benefits. The capital grant pays for purchasing cars and locomotives; overhauling fully depreciated equipment (when the overhaul increases the value of the equipment); modifying equipment as required by law; upgrading facilities for maintenance, overhauls, and other work; and servicing debt. NECIP is a long-term capital improvement project that includes electrification of track between New Haven and Boston so that trains will be able to travel at speeds up to 150 miles per hour by the end of the century. NECIP is an ongoing project established in 1976 for the construction and upgrading of tracks, bridges, communications and signals, and electric traction between Washington, D.C., and Boston. Amtrak is required to participate in the railroad retirement and unemployment systems. Each participating railroad pays a portion of the costs for all retirement and unemployment benefits in the industry. Since Amtrak’s payments exceed the corporation’s specific retirement and unemployment costs, FRA has agreed to pay the excess costs for Amtrak. provided funding, but Amtrak’s management knew it was under pressure to reduce operating losses. Amtrak combined an aggressive cost-cutting strategy with new efforts at revenue enhancement to try to improve its revenue-to-expense ratio. This report’s objectives were to assess (1) Amtrak’s financial and operating conditions, (2) the likelihood that Amtrak can overcome its financial and operating problems, and (3) alternative actions that could be considered in deciding on Amtrak’s future mission and on commitments to fund the railroad.