Opening the NEC to Private Competition for the Development of HSRail

Hearing: Opening the Northeast Corridor to Private Competition for the Development of High-Speed Rail

Before the
Committee on Transportation and Infrastructure
United States House of Representatives

May 26, 2011, Submitted June 9, 2011

Chairman Mica, Ranking Member Rahall, Subcommittee Chairman Shuster, Ranking Member Brown, and Committee Members:  Thank you for the opportunity to comment for the record in this hearing. 

We appreciate your interest in improved passenger train service and certainly agree that rail has the potential to play a much bigger role in the Northeast Corridor (NEC).  At the same time, we believe it important that consideration of any significant change in the framework for providing passenger train service be well informed by careful consideration of many facts that have not gotten the attention they merit.

As the Committee is aware, and as I highlighted at your January 27 roundtable in New York City, the condition of the existing NEC railroad is of paramount importance, along with the capital investments outlined in the multi-agency Northeast Corridor Infrastructure Master Plan released June 4, 2010.  This Corridor is not going to produce world-class high speeds but it likely always will be vital to more travelers than any “next generation” railroad devoted solely to high-fare, high-speed travel. 

We are generally happy to make the case that investments in rail infrastructure are important for the nation’s economic competitiveness and for the ability of future generations to travel efficiently.  At the same time, when it appears that there is not even support for increasing the federal gasoline tax (the CEO of General Motors notwithstanding), it seems appropriate to caution that constrained resources force decisions about priorities.  The public interest would not be served if a “next generation” focus leads to neglect and thus even a partial shutdown of the existing railroad.

There has been much discussion of NEC ridership trends over the past 34 years, and the suggestion that this “proves” Amtrak has been an unworthy steward of the NEC.  As indicated by the attachments to Rep. Brown’s June 2 letter, on an apples-to-apples basis, ridership on the “NEC Spine” (Boston-Washington) rose from 6.4 million in 1976 and 6.8 million in 1977 to 10.4 million in 2010.  Thus, 2010 ridership was 62.5% higher than the 1976 level and 52.9% above 1977.

These figures are constrained by three, related factors. 
• Amtrak has been mandated to maximize revenues, not ridership.
• The size of the available fleet could not support the significant traffic growth that lower fares would produce.
• Infrastructure “choke points” that partly stem from the tripling of NEC commuter trains since 1976.  These important services consume a considerable amount of track capacity.

In major infrastructure projects, and particularly the NEC where a significant part of the task still involves addressing a backlog of deferred investment, the private sector normally would not make a significant commitment absent an even bigger commitment by government. 

The value of Your January 27 roundtable was enhanced because you invited participants from the financial community.  When asked if they had high-speed rail experience, Kent Rowey of Freshfields Bruckhaus Deringer noted his involvement with the Taiwan high-speed rail project, where he said government participation was 95% and private participation 5%.  Thomas Hart’s written statement for the May 25 hearing said, “There was delay in opening the finished line that increased project costs, and the consortium encountered construction difficulties in urban areas.  Numerous lawsuits were filed after tendering and actual passenger numbers were below forecasts.  As a result the government is today practically the sole owner due to the concessionaire’s financial problems.”

A next-generation Boston-Washington railroad certainly should attract more than 5% private participation, particularly taking into account station area development opportunities, but the cost to the public sector would still be staggering when compared with federal intercity passenger rail funding to date, though not of course compared with train investments in many other nations or the cost of providing the equivalent in highway and air capacity.

NARP certainly recognizes the value of private sector participation in areas that complement rail services, including development and operation of stations.  But we cannot overstress recognition of the continued, essential role of the Federal Government if a realistic corridor development policy is to be crafted.

It is not clear that “30 years is too long” to build a brand-new Boston-Washington railroad or that this timeline is evidence that Amtrak cannot manage a large-scale project.  Considering the land takings involved, the political and legal challenges associated with assembling new rights-of-way—particularly in populated areas, and the significant proportion of public funding we believe the project is likely to require, 30 years may well be realistic.

It has been stated that Amtrak’s on-board food service losses may reflect bad management.  After all, the snack bar has a monopoly because passengers are captive on the train.  Actually, the snack bar is captive to a clientele that is limited to those passengers on board the train who want to eat and who have not brought food on board to avoid needing to purchase on board.  As then-Senior Vice-President—Operations William L. Crosbie testified to your Railroads Subcommittee on June 9, 2005, regarding food service, “its primary purpose is to enhance ticket sales and ridership, not serve as a profit center.”  This is true in the travel industry generally, not just in passenger railroading.  That said, there is room for improvement in Amtrak’s NEC food service.

A May 25 witness testified about the importance of generating revenue from retail tenants in stations.  The implication seemed to be that Amtrak is not doing this.  Actually, Amtrak generates about $70 million a year from real estate transactions.  Our impression is that they are aggressive in not letting space sit idle, but someone would have to take a closer look to evaluate whether or not money is “left on the table.”

Amtrak has been criticized for reducing its number of employees from 29,000 to 19,000.  About half that decline resulted from transfer of MBTA commuter rail service to a different operator; another 2,500 decline resulted from Amtrak abandoning its mail and freight businesses and closing the three former business units based in Philadelphia, Chicago and Oakland.  That still means that Amtrak has posted increased ridership with roughly 2,500 fewer employees.  In most businesses, that kind of productivity improvement would be praised.  We take Chairman Mica’s general point—the country needs many more passenger trains and if it had them there would be many more passenger train employees.  But as in the NEC, Amtrak overall has had limited resources to work with and constant, intense pressure to become more efficient. 

It bears repeating that Amtrak’s ridership has been rising on all three types of services—short distance in and outside the NEC, and long-distance.  That the latter category has not shown global growth since 1977 is a reflection of a reduction in the size of the relevant fleet as well as discontinuance of some routes, not a loss of passenger interest in use of the trains that remain.

Separation of Carrier and Infrastructure:  The common model in the US is vertical integration, that is, a single entity owns both infrastructure and carrier.  This is true for most major railroads, many short lines, many major commuter railroads and for Amtrak New Rochelle, NY-Washington, and New Haven-Massachusetts line.  (Massachusetts owns and Amtrak dispatches the railroad between South Station and the Rhode Island state line; Connecticut owns New Haven to the New York State line; New York MTA owns state line to New Rochelle; Metro-North Commuter Railroad dispatches New Haven to New Rochelle.)

United Kingdom:  In the UK, full privatization was mandated by a 1993 law with implementation beginning in April, 1994.  Train operating companies run trains and smaller stations and sell tickets.  Passenger operators bid for levels of subsidy and freight operators pay for track access.  Rolling stock companies procure and lease equipment to operators.  An infrastructure company maintains infrastructure and handles dispatching.  The infrastructure company was effectively taken into bankruptcy and renationalized as Network Rail in 2001-2002.

It is our understanding that the entire, balkanized UK operation has become less efficient—that is, per-unit costs have risen.  A recent Ministry of Transport study found that costs were outpacing revenues and that the “percentage of funding” covered by the government had risen from around 40% to over 50%.

In a May 25 news article, “UK rail reform poses ‘big test’ for operators,” Financial Times reported that “Train operators could take over the running and maintenance of the tracks, ending the separation between track and train management that has been blamed for many of the network’s failings.”  The article noted that operator Stagecoach “supports the integration of track and trains.”

Virgin Rail has been praised and cited as a contrast with Amtrak.  Amtrak has been criticized for not providing faster New York-Washington service.  However, as Chairman Shuster noted May 25, Virgin Rail (UK) is not “true” high speed either, although its ridership is strong.  Given resource constraints in the U.S., one possible outcome for the near term and possibly longer is increased reliance on upgraded conventional rail, an approach adopted by many states—among them Washington, Illinois and North Carolina—and strongly supported by us. 

Thank you very much for this opportunity to present our views.

National Association of Railroad Passengers http://www.narprail.org
505 Capitol Court NE, Suite 300
Washington DC, 20002-7706