An excerpt from the article, “How to get Amtrak out of the woods” by Andrew C. Selden, TRAINS magazine, January 1986, pp. 24-30.
[Dollar figures are in unadjusted 1986 dollars.]
1. Sell the Northeast Corridor.
Savings: Up to $430 million for 6 years; $230 million per year thereafter
Amtrak’s ownership of the NEC cost it $330 million in 1985. Amtrak earns $53 million from Conrail, SEPTA, and other users of the NEC, for a net loss of $277 million, nearly 45 per cent of its nationwide operating subsidy. Train operations in the NEC are thought to produce a very small additional “above the rail” operating loss. But Amtrak need not own the NEC. It can be sold and its costs of ownership eliminated without adverse effect on train operations.
The majority of the $277 million net loss (and subsidy) can be moved off Amtrak’s books by forcing divestiture of the NEC. User fees paid to the new owner for rational levels of intercity, not commuter, services could be as low as $35 to $40 million, for a net savings of $230 million per year. The proceeds of the sale could then be applied to the subsidy, reducing it by another $200 million per annum for about 6 years. The price and rate of payment for the property would depend largely upon its depreciation, projected traffic growth, user fees, and development opportunities.
The NEC was sold once before in similar circumstances and for identical purposes - by Conrail to Amtrak in 1975. The sale relieved Conrail of the costs of ownership, but boosted Amtrak’s annual subsidy from about $200 million to about $500 million. In ironically similar circumstances, Pan Am, facing large operating losses but owning major real estate assets, sold those assets (including the Pan Am building), leased back what it needed, and lived off the proceeds. In the real world, losers lease, they don’t own, capital assets. Only Amtrak’s access to the Treasury insulates it from such market-driven adjustments. The resulting political vulnerability and constant turmoil, however useful they may be to consumer organizations, is too high a price to pay for the luxury of unneeded subsidization.
Who would buy the NEC? Perhaps a Federal agency (e.g., the Federal Aviation Administration owns Dulles and Washington National airports and the air traffic control system), or multi-state agency modeled after the NY-NJ Port Authority. The NEC is, after all, a locally useful public transportation infrastructure, like a bridge or airport. But no single airline could afford to own a major airport if it was allowed by law to charge other airlines only the incremental variable costs of their use of the field. Yet that is precisely Amtrak’s position on the NEC under ICC ex parte 417. The resulting subsidy cost of $277 million a year, which threatens the entire system, makes outright ownership of the NEC unaffordable to its dominant passenger carrier.
If public ownership is not politically feasible, we can turn to the private sector. As it did with Conrail, Congress could mandate a Federal Railroad Administration-brokered sale to one or more private railroads. The commercial opportunity of competitive access to the New York-New Jersey terminal districts, fiber-optics revenue, real estate development opportunities, and the opportunity to depreciate the property are strong lures to private-sector buyers. Secret Office of Management and Budget inquiries early in 1985 produced some private railroad interest in possible acquisition of a share in the NEC. Public benefits would include restoration of rail freight competition in the Northeast, and increased freight revenues on the NEC.
Shared ownership is not unprecedented. It simply treats the NEC as a large terminal district; many hotly competitive railroads jointly and profitably own feeder lines, terminal districts, and union stations.
The NEC’s financial circumstances demand more NEC freight service in the short term. Exclusive use by the passenger service (at a cost of $230 million) is an ideal that is not affordable to Amtrak with today’s Federal deficits and political climate. Freight traffic, however, can be restricted predominantly to nighttime, and we know from years of experience with the well-maintained, CTC-controlled main lines of Santa Fe, Union Pacific, and other Class 1 carriers that heavy freight tonnages and high traffic densities are not incompatible with 100-mph passenger service, in terms of operational factors or ride quality.
Structuring the buyer of the NEC as a limited partnership (the customary means of syndicating large real estate projects) would enable Amtrak to be the general partner, retaining needed day-to-day operational control. The limited partners would be allocated the tax and other financial benefits of ownership.