Posted on 08/16/2002 6:18:19 PM PDT by CedarDave
A railroader’s plan for Amtrak
Susquehanna’s Walter Rich thinks Class 1s should get back in the passenger business — but not in the traditional way
by Bill Stephens
| Walter Rich — the man who transformed sleepy short line New York, Susquehanna & Western into a key transcontinental link for double-stack traffic — has crafted what seems to be a sensible plan for saving Amtrak. At first blush, the plan seems to be a non-starter. That’s because Rich envisions having the Class 1 freight railroads resume operating passenger trains for the first time since they fled the money-losing passenger business three decades ago. Class 1s have scoffed at recent suggestions they pick up passenger operations again. “That’s true,” notes Rich. “But that’s because they’re looking at the traditional model.” The twist in Rich’s plan – and really what sets it apart – is that the freight railroads would form a joint company to operate a national passenger network. The company, modeled after Trailer Train, would receive incentives that would make the Class 1s want to participate. Tax credits would replace subsidies and appropriations The two major incentives, Rich says, would be federal tax credits to offset losses associated with passenger trains, and provisions insulating freight railroads from liability involving passenger train accidents. “You have a body of people out there, the leaders of the Class 1 railroads, that know how to run railroads – the finest railroads in the world,” Rich says. There’s no reason they couldn’t do the same thing for passenger trains, he reasons. In this, Rich’s plan echoes United Transportation Union President Byron A. Boyd Jr.’s call for a summit of rail industry leaders to solve the passenger rail problem. Rich credits Boyd with getting him thinking about how Class 1s could be a part of a solution to Amtrak’s woes. Figuring out how to pay for it was Rich’s contribution. “These guys are in business to make money,” Rich says of Class 1 leaders. “At the end of the day, they want to make money for their stockholders. Obviously, if you put together an incentive, they’d be happy to do it.” Rich notes that Trailer Train has proven to be successful. “It’s a great model of how railroads can get together to run something – and run it well,” he says. Add to that model the incentive of federal tax credits – which would fully compensate railroads for passenger train losses – and you have a formula that could prove attractive to Class 1s, says Rich, who heads the Cooperstown, N.Y.-based Delaware-Otsego Corp. Freight railroads have been quick to point out that Amtrak doesn’t pay its way for the use of their tracks. The Association of American Railroads claims that the freight railroads subsidize passenger service because they can charge Amtrak only incremental track use costs, not the full costs, which include capital improvements and the full market value of a slot on the main line. Rich says the tax incentives could be structured to account for the full operating and capital costs of providing passenger service. That, in itself, would be an incentive, he says. “Clearly, providing a quality passenger service isn’t going to make money,” Rich says. “After 9/11, there’s demand for it.” What railroads would need to fill the demand, he says, is a guarantee that they’d get paid for providing passenger service. The system can’t rely on annual appropriations from Congress, he says. Just look at how Amtrak has fared under that system, simply lurching from crisis to crisis. By using tax credits, the passenger railroad operating company would be reimbursed automatically, and then the freight railroads would be reimbursed based on their level of passenger train operations. The tax credit idea, Rich says, also would help remedy some of the harm done to railroads by federal subsidies of highway and aviation systems. The cost: about the same as now Housing a national passenger train system under the private umbrella of the railroads has other advantages, Rich points out. Amtrak is a political creature. It depends on Congress for appropriations, its board is dominated by political appointees and its route structure is dictated, to a certain extent, by political considerations. This is not a recipe for good railroading. Rich envisions a board of directors that includes the CEO’s of the participating railroads, plus a federal transportation official. “It would be run by railroaders, with political input but not political decisions,” says Rich, who notes that he’s a fan of how new Amtrak President David Gunn is sorting out the railroad’s organizational flaws. Another advantage, from the railroads’ perspective, would be the removal of the privatization schemes floated by the Bush administration and Amtrak Reform Council. Those plans call for private companies to bid on Amtrak routes. The Class 1s don’t like this because they don’t want to have to deal with several operating companies, or have to grant them access to their tracks. The AAR noted that it was “deeply concerned” – that’s PR-speak for “hopping mad” – about the proposal to franchise Amtrak’s operating authority. By operating passenger trains themselves, the Class 1s would avoid this problem, Rich notes. Plus, they’d eliminate the perceived threat of competition posed by Amtrak Mail and Express. How much would it cost Uncle Sam, in terms of lost tax revenue, to support the private passenger company? About the same as it costs now to run the railroad, or about $1 billion annually, Rich estimates. The costs would be higher because railroads would be fully reimbursed. But the Class 1s would likely do a better job of running the passenger company, and would make it more efficient, which would save money. “So at the end of the day, you’re probably back to a billion or so that Amtrak needs to run,” Rich says. The Amtrak map would be the starting point for the new Class 1-owned company, Rich says, although it might get nibbled around the edges. Rich says the plan wouldn’t address things such as ownership of the Northeast Corridor. “You have to be careful not to get hung up in the details, or you’ll never get anyplace,” he says. Rich, who has discussed his plan privately with a handful of railroad officials, as well as the UTU’s Boyd, says it has been well-received. “People are intrigued with it,” he says. “I haven’t had anyone say it was stupid.” When Boyd called for a passenger rail summit last year, Union Pacific, Burlington Northern Santa Fe, CSX, and the Federal Railroad Administration all expressed support for the concept. Only Norfolk Southern had no response. Canadian National Chief Operating Officer E. Hunter Harrison has said that his railway would be interested in operating passenger trains provided it made business sense. It’s uncertain whether other Class 1 railroads feel the same way. One thing’s for sure, though: Railroads can get together to respond to the privatization issue themselves, or stand idly by with the potential for unknown private operators to gain access to their tracks. Rich’s plan appears to be a practical alternative the railroads could live with – as long as they can overcome three decades’ worth of operating department resistance to running passenger trains. Each Friday, TRAINS news wire editor Bill Stephens takes an in-depth look at today’s railroad industry. |
foreverfree
My "facts" come directly from a member of the Amtrak Reform Council that recently studied the Amtrak problem. What is the source of your "facts"?
By the way, at the end of 2000, there was still $31 billion in the Highway Trust Fund and $14 billion in the Airport and Airway Trust Fund. And that's just the federal money.
I don't think that you know what you're talking about.
This is also true at the state level. In no state do fuel taxes pay the total cost of highways. In every state a chunk comes from taxes connected to the general fund. The percentage differs from one state to another, but it's safe to say that on average, 42% of highway funding comes from fuel taxes and 58% from "other sources", usually sales and income taxes.
The best way to understand highway funding is to think of three concentric circles.
Concentric Circle #1: Fuel Taxes
Thanks to the efforts of the Better Roads Movement in the post-World War I period, many states have constitutional amendments that restrict the use of fuel tax money for highways only. Those who managed to escape this effort of the highway lobby ended up with similar statutory restrictions on fuel tax use.
The federal fuel tax was cracked by Amtrak in 1974, and the crack was widened in 1980. But the lion’s share of federal fuel taxes go to the Highway Trust Fund.
It would be wonderful if the contents of Concentric Circle #1 could pay the total cost of highway construction and maintenance, but it can’t. More money is needed.
Concentric Circle #2: Other Transportation Taxes
Many states have motor vehicle excise taxes, a sort of property tax on cars. There are state licensing fees for cars and trucks. There are taxes and fees galore in different states, and while some of them can be spent on ports, rail, transit, environmental abatement and port facilities, the lion’s share goes to highways.
It would be wonderful if the contents of Concentric Circles #1 and #2 could pay the total cost of highway construction and maintenance, but they can’t. Still more money is needed.
Concentric Circle #3: The General Fund
We all know about the federal income tax. Most states have a broad-based tax such as a sales tax or income tax. This money can be used for anything, but in every state the legislature appropriates some money for highway construction and maintenance out of the general fund. Here transportation needs compete with education, welfare and a whole lot of other state needs, so the battles can be savage.
When you average a lot of numbers you can lose sight of each number’s individual uniqueness. So when I say that an average of 58% of highway funding comes from state and federal general funds, that covers a multitude of higher and lower numbers. But it’s a fact.
The contents of this circle are a subsidy, pure and simple. This subsidy permits you to drive on the public highways and not pay what a cost accountant would deem “your fair share”.
If you truly want highways to be funded from the contents of Concentric Circles #1 and #2 -- i.e. by “user fees” and “subsidy-free” -- you’ll have to raise the combined federal and state fuel taxes to $3 per gallon to pay for it. This will effectively destroy the trucking industry and force shippers to move goods by rail. It will also take the ability to own and operate a car out of the hands of millions of Americans, who will actually be forced to rub shoulders with their neighbors on buses and trains.
But it gets even worse: Transportation taxes will never go down.
Every time you build a new highway or increase capacity on an old one, you increase the maintenance base of your system. That means the costs of maintaining your highway system will always increase. And that means your transportation tax burden will always increase. You’re on a treadmill to penury unless you find a way to step off. There are two ways: triage and privatization.
Triage
Have you ever seen a state remove the number from a highway and turn it over to a county or municipality? It does happen on occasion. Some state highway departments have the authority to give and take highways at will. In other states the legislature makes the call, either consulting with the highway department or dictating to it.
But this merely shifts the burden elsewhere. Most states have formulae for handing out the contents of Concentric Circles #1 and #2 to counties and municipalities. But these monies get mixed with property tax revenue and other county and city taxes to maintain non-state highways. Somebody’s taxes will still go up.
Another method of triage is to tear out a highway. This has only been done in two places that I know of. In Portland, Oregon, a short freeway was demolished to make way for an urban park along the Willamette River. In San Francisco a freeway was demolished because it was both an eyesore and was badly damaged in the 1989 earthquake.
I don’t see roads being torn out on a massive scale in my lifetime.
Old Privatization Paradigm: The “Closed” Financial System
The Pennsylvania Turnpike was built in the Thirties on the model of the German autobahns. It had no speed limit and bypassed the major cities.
After World War II, New Jersey, Ohio, Indiana and Illinois linked up to the Pennsylvania Turnpike and spent a decade building a toll limited access highway to permit people to go from New York to Chicago at high speed without encountering a traffic light. People gladly paid for the privilege.
To avoid complaints that people were paying twice -- once at the toll booth and again at the gas pump -- the highways were built on a “closed” financial system. The toll highway authority was authorized by the state legislature to issue revenue bonds based on future revenues to be generated by tolls and by leases from gas stations and restaurants at the service plazas. No tax money was used. (A member of the authority that owns the Atlantic City Expressway toll road once commented to me, “Owning and operating a toll road is like having a license to print money.”)
Some of these toll authorities were authorized to exist in perpetuity, and others were to be reviewed by the legislature every time a bond issue was redeemed.
When the National Interstate and Defense Highway Act of 1956 was passed, the federal government forbade the use of Highway Trust Fund money on any toll road, even if it carried an interstate number. This created an interesting situation in Connecticut.
In 1975, a bridge on the Connecticut Turnpike collapsed into a river, killing nearly 100 people. An engineering study showed the cost of fixing up the basic infrastructure to be in the billions and the cost of expanding the highway to be even higher. You may remember the cost of money in the Carter era, which is why the state thought that authorizing a new bond issue for the turnpike would be a mistake. So the state legislature violated the principle of a closed financial system and appropriated enough money to call the remaining bonds, dissolve the turnpike authority and take the tolls off the turnpike. This opened it up for Highway Trust Fund money because it was Interstate 95, and the federal-state split in those halcyon days was 90-10. The Connecticut congressional delegation went to Washington with palms outstretched and brought home enough highway pork to rebuild Interstate 95 on the federal nickel.
New Privatization Paradigm: The “Mixed” Financial System
Virginia, Florida, Texas, Colorado and California have been building toll roads where the principle of “toll equity” permits mixing gas tax money with toll income. These toll highways permit motorists to bypass badly congested suburban areas and charge a premium on this based on time of day. It is a “mixed” financial system, which normally would have people up in arms because they are in fact paying for the highway twice. But the roads have become popular enough that Texas is considering building an entirely new statewide network using this principle.
The Future
The ISTEA law now permits states to charge tolls on interstate highways. No state has done this because of the political firestorm that would develop, but more and more it is being acknowledged by state highway departments that future limited access highways will carry tolls. Someday a state will be forced to put tolls on an existing freeway to avoid yet another tax hike caused by perpetually climbing maintenance bills. Like it or not, it’s where we’re headed.
The free lunch is about to end.
Thanks for posting the essay!
BUMP for additional readers.
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