Making Amtrak Compete Would Benefit All
The recent Amtrak derailment outside of Philadelphia, which killed eight people and injured over 200, is a somber reminder that quick action by Congress is necessary to prevent another passenger rail catastrophe. Amtrak is the sole operator of trains on the Northeast corridor between Washington, D.C., and Boston, and thus bears responsibility for providing safe passenger train travel. Yet, despite a posted 50-mph speed limit on that section of track, the train was traveling at 106 mph around a very tight turn. Amtrak’s contract to operate trains on the Northeast corridor should be terminated immediately.
But wait. No such contract exists. Amtrak has an uncontested, indefinite monopoly on intercity train operations in the United States. The problem lies therein: Amtrak is unconstrained by the fear of losing its operational rights, and thus its revenue, regardless of safety or on-time performance.
The corridor includes stops in such major population centers as Baltimore, Philadelphia, Newark, N.J., and New York. It is highly profitable, with the tight population densities, moderate distances, and concentrated central business districts that are critical for successful passenger rail. The NEC should be a showcase for how the United States can deliver a self-sustaining, reliable, safe, and affordable high-speed passenger rail. The barrier is not geography or insufficient taxpayer spending but appalling, outdated federal rail policy.
We can do better. One appealing solution is a public-private operating partnership, or PPOP. Under this approach, the NEC would be separated from the rest of Amtrak’s routes. The NEC already differs fundamentally from the rest of the passenger rail system. Amtrak owns most of the tracks and rights of way on the NEC, but utilizes freight train tracks in the rest of the country.
A 2013 report from the Brookings Institution notes that the NEC routes, which carry some 11.4 million people each year, earn an operating profit of about $205 million annually. The rest of Amtrak’s nationwide network, however, hemorrhages cash.
Under a PPOP, the right to maintain and operate NEC trains would be bid out at regular intervals of, say, 10 to 15 years. A PPOP concession contract would specify key aspects of service, such as rates, service frequency, and safety standards. Bidding would occur on the basis of the largest upfront concession payment an operator is willing to make for an exclusive operational right subject to the pre-set terms of service.
Amtrak could also be one of the bidders, assuming it does not unfairly benefit from its special relationship with the government. The concept of stripping a government firm of any special advantages in the marketplace is known in other countries as “competitive neutrality.”
Many global rail companies are likely to bid for the right to operate NEC trains. Operational expertise can be drawn from countries as diverse as Spain, Japan, France and the United Kingdom. Indeed, Japan is so interested in a potential U.S. passenger rail market that its government has offered to lend the United States half of the cost of building a "Super-Maglev" train that would reduce travel time between Baltimore and Washington to just 15 minutes.
Given the NEC’s strategic geographical location, worldwide appeal, and large annual operating profit, concession bidding on it would likely generate an upfront payment of several billion dollars. That concession payment could be cycled directly into NEC rail infrastructure, reducing or eliminating the renovation’s budgetary burdens. This is a critical benefit. The tracks, overhead framework, and other infrastructure on the line are in desperate need of expensive upgrade and repair. Yet the federal transportation budget is already stretched to the breaking point. The PPOP bidding approach is also equitable because it would spare NEC riders from having to pay for future upgrades of the infrastructure they use.
PPOP contracts typically include strong performance incentives, with built-in monetary rewards for superior comfort, reliability and safety. The contract can also include penalties for inferior performance. Even more importantly, the contract can be structured to facilitate and encourage innovation. Operators may innovate through technology adoption, train design, train size, and food and beverage offerings, among others. The astonishing degree of innovation that occurred in the airline industry after deregulation provides evidence of how competition drives improvements in the transportation sector.
Under a PPOP, policy-making authority, ultimate control of the system, and ownership of all assets and facilities resides with the government entity that sponsors the bidding. That could be the federal government or a consortium of states. When properly implemented, this hybrid approach can capture the relative strengths of both the public and private sectors.
An NEC PPOP also yields a unique benefit. NEC passengers currently subsidize those using the rest of Amtrak’s system, but the actual size of that transfer is murky. A PPOP would eliminate such unfair cross-subsidies, ensuring that NEC revenues are only used for the improvement of NEC infrastructure. In addition, Congress should ask Amtrak to provide and justify the full transparent cost of its nationwide network. This would allow taxpayers to better assess the value they receive per dollar spent on Amtrak subsidies.
A PPOP would help bring U.S. rail policy into the 21st century and make it consistent with the approach used by many other countries. While private train operation is ubiquitous around the world, the United States remains hindered by the structure of the 1970 law that created Amtrak.
PPOP use in other U.S. transportation modes is growing. Since Jan. 1, 2012 the global transportation firm Transdev has been operating Nassau County’s bus service (called Nassau Inter-County Express, or NICE), under a New York state PPOP. Private bus operations are also ongoing in New Orleans, Phoenix, Denver, San Diego, and Baltimore. PPOPs have been adopted in many parts of Canada, Europe and Asia, with impressive results.
Amtrak has received about $45 billion in subsidies over the past 44 years of its operations. Still greater taxpayer subsidies under the same policy approach are not the answer to its prodigious problems. Thoughtful reform that facilitates competition while retaining public sector ownership and control are the smart way to go. A public-private operating partnership for the Northeast corridor would finally provide U.S. travelers with the opportunity to enjoy world-class passenger rail.