In an ideal world, Amtrak wouldn’t exist. Transportation is one of those services best left to the free market. But the fact is that virtually all of America’s systems of mass transportation are subsidized. Even the Highway Trust Fund, which is supposed to be paid for out of gas taxes, is running out of money.

How we move people across the country is in dire need of reform. Our highways are crumbling, Amtrak has never turned a profit and our airports are increasingly obsolete.

Amtrak funding has come up with the recent derailment in Philadelphia that tragically killed eight people. Proponents of increased Amtrak funding have tried to tie the tragic accident to a lack of funding by Congress. This claim runs into the inconvenient fact that, several years ago, the Obama administration testified in front of Congress that they believed Positive Train Control, the system that could’ve prevented the Philadelphia derailment by slowing the train down, was not worth the cost.

As Rep. John Mica, R-Fla., has accurately put it, Amtrak is a Soviet-style operation in need of reform.

The biggest problem Amtrak faces is that it is an agency using 19th century technology to transport people over large distances. Except for nostalgia, it makes little sense to use Amtrak to travel across the country and through sparsely populated areas in the age of air travel. Airplanes can get to long-distance destinations much cheaper and in much less time than traveling by train.

While moving people over long-distances is a failing business model for Amtrak, train travel can play a major role in ground transport on a regional level. Amtrak should concentrate on developing the 11 high-speed rail corridors already identified by the Federal Railroad Administration. Since the Obama administration has come to power, at least $11 billion has been spent on high-speed rail, but there is little to show for it. The most promising high-speed rail projects are those by private companies in Florida and Texas and a state-backed project in California.

What Amtrak needs is to be at least partially privatized so it could get out of the way of these upcoming regional and state rail programs. One option would be to spin off Amtrak into a corporation whose structure resembles the Federal Reserve Board, with a mix of private and public ownership.

For example, the federal government could own 50 percent of the new Amtrak’s preferred stock and the remaining 50 percent of the corporation would be floated on the open market. In exchange for the infusion of private money, there would be no further direct subsidies from Congress toward Amtrak operations. Eventually, the federal government’s ownership stake would diminish as the company would move towards full privatization.

The chairman and perhaps the vice chairman would be appointed by the president and confirmed by the Senate for a significant term, say 15 years. But other board members would be chosen by private shareholders of the new Amtrak. The board leadership could be removed by a unanimous vote of the other governors. In exchange for autonomy, the board would submit annual reports to the Department of Transportation and the congressional committees of jurisdiction.

A reformed Amtrak would have the ability to set its own rates for passenger tickets. It also should have the ability to determine its own routes, without congressional influence. Most of Amtrak’s money-losing routes are the long-distance cross-country trips that serve sparsely populated regions of the country. These routes are so unprofitable that Amtrak even loses money selling food and drinks, which is a hard thing to do.

The board also should have the authority to set priorities in infrastructure projects. To raise money for capital improvements, Amtrak would need the authority to float bonds, which obviously would have at least an implicit guaranty from the federal government. While not a perfect solution (we’ve seen from Fannie Mae and Freddie Mac how such guaranties can be abused), this theoretically would eliminate the need for more subsidies from Congress.

Finally, the new Amtrak would have the authority to set its own labor contracts and move toward privatization of more services. It would need to survive solely on self-generated revenues and would have to compete with airlines and bus services for paying passengers.

With these reforms, Amtrak could shift from an obsolete model of government-run mass transit to one that is more responsive to the needs of its customers.

Featured Publications