Answers to Rep. Corinne Brown’s “for-the-record” follow-up questions (Sept. 20 hearing)

Answers to Witness Questions for the Record given by

The Honorable Corrine Brown to Mr. Ross Capon, President & CEO,

National Association of Railroad Passengers – Submitted Oct. 19 (answer to next-to-last question submitted Oct. 26)

 

Full Committee Hearing On “A REVIEW OF AMTRAK OPERATIONS, PART III:

EXAMINING 41 YEARS OF TAXPAYER SUBSIDIES”


SEPTEMBER 20, 2012

 

Ø  Bus companies have been abandoning service to rural communities because they can make more money elsewhere.  In places they have abandoned, passenger rail provides the only travel alternative. How will the people who live in rural communities have access to travel alternatives if we eliminate funding for Amtrak's long distance trains as the American Bus Association advocates?

 

The outcome would vary from place to place, but in general, these people simply will have access to fewer travel alternatives.  In some cases, this would result in elimination of public transportation.  People who cannot afford, or are physically unable, to drive will be stuck and they will either leave or be dependent on friends and family members who can drive to take them places.  It is well established that depression and related social costs follow from the isolation and the inability to travel, whether in rural America or, for another example, senior citizens living in auto-dependent communities anywhere. 

Ø  Chairman Mica claims that Megabus is an example of a private sector operation that makes a profit and pays taxes, unlike Amtrak.  Is this a fair statement?  What type of federal funding do private bus operators receive? 

 

Megabus's cost structure is low in part because so many of its “terminals” are public sidewalks, which has created planning problems in many of the cities served.  A July 30 service advisory at megabus.com stated, “Please be advised that the Megabus stop for arrivals and departures in St. Louis will be located on the east side of 18th Street, just south of Market Street and adjacent to Union Station until Sunday, August 5th, 2012. The stop will be located on the east side of 21st St between Market St and Eugenia St. as of August 6th, 2012.”

Also, Megabus is an express service that connects large cities but bypasses smaller ones.  Megabus makes no intermediate stops between St. Louis and Chicago, and only one (Columbia) between St. Louis and Kansas City.

The Boston Express bus service that Mr. Pantuso’s testimony cited as a model actually receives federal funds—both operating and capital.   Two new Boston Express buses were acquired with Recovery Act funds.  

Like Amtrak, many private bus operators in rural areas get federal operating funding.  This is provided for buses under the Federal Transit Administration’s Section 5311 program (Formula Grants for Other than Urbanized Areas).

From my prepared testimony:  “The National Transportation Safety Board in October, 2011, released a report showing that the buses which typically pick up passengers curbside rather than at a bus station, are seven times more likely to be involved in deadly crashes than traditional terminal bus lines like Greyhound and Peter Pan.  In the report, the NTSB says that curbside carriers had the highest overall accident rate and death/injured passenger rate of the three categories - curbside, conventional and non-scheduled - in which buses are organized” (WJLA/ABC7, Feb. 15, 2012).  An ABC7 reporter clocked one Megabus at 76 mph and another at 81 mph on I-95 north of Baltimore, although Megabus issued a statement claiming it monitors bus speeds 24 hours a day and saw nothing above 68 mph on the day in question.”

 

Ø  Mr. O’Toole stated that the "real solution [to transportation financing] is to end subsidies to all modes of travel."  What is your response to this?    

 

If he is suggesting the elimination of “taxpayer funding” of all modes of travel, implementation would require government to sell off all highways to private enterprise and let the public pay what the market charged.  It also would require selling off airports and—as Mr. O’Toole and Rep. DeFazio discussed at the hearing—the air traffic control system. 

We suspect all of the above is a political non-starter.  Mr. O’Toole’s suggestion is a common one among Amtrak opponents.  Some of them may find it conceivable that Amtrak subsidies might be eliminated but not subsidies to the other modes.

We take strong exception to the alternative interpretation: that the gasoline tax is a user fee and therefore spending gasoline-tax dollars on highways is not a subsidy.  As noted in my prepared testimony, “the mode-specific trust fund itself constitutes a huge ‘subsidy’ because it directs investment into modes based on their current dominance rather than on their usefulness in solving problems our children and grandchildren will face [such as] environmental impact, energy consumption, quality of life and social equity issues.  The growing senior population needs, and the younger generation prefers, alternatives to driving.” 

To look at it another way, limiting the definition of subsidy to operating costs allows the highway lobby to exclude below-cost access to publicly funded infrastructure from subsidy calculations. 

Regarding youth, “from 2001 to 2009, the number of ‘vehicle miles’ travelled by Americans aged 16 to 34 dropped 23%...A 2011 survey from Zipcar, the car-sharing service, notes that 55% of millennials (18 to 34) are making an effort to drive less, partly because of concern over the environment, and partly because of the cost of owning a car [while] 68% of 18- to 34-year-olds said they sometimes use social media to connect with friends and family instead of going out to see them.  [A] Michigan study found that having a higher proportion of Internet users is associated with lower licensing rates among young people” [Maclean’s, June 5, 2012].

As for aviation, fares are higher in Canada because Canadian airports—at least the top 25 in terms of volume—recover their full costs from users, and these costs are higher than in the U.S. because they include the cost of capital.  U.S. airports can borrow using tax-free bonds; this represents a subsidy that increases with interest rates (which are not so high these days).

Ø  Mr. O’Toole also claims that the solution is privatization.  What concerns do you have with this proposed "solution"?  Other than the example of a single scenic train operating in Canada, do passenger trains run anywhere else in the world without a subsidy and make a profit? 

 

There are perhaps three railways in the world—all in Japan—that unambiguously make money without subsidy -- JR East, JR Central and JR West.  But even this claim must be tempered by noting that, due to the terms of the privatization, it is not completely clear whether the companies are paying fully for the value of the assets they received.  As detailed in a 2006 GAO report (pp. 135-137), the privatization of these three companies followed more than 20 years of huge public investment to construct dedicated high speed lines, and required the government to assume most of the massive debt associated with that construction.

Railroads worldwide can fall victim to superficial analysis because:

·         Costs usually are easily captured on the financial statements of one or a few organizations, whereas highway and aviation costs tend to be spread over many organizations and levels of government.

·         Benefits related to the environment, to energy efficiency, and to mobility for those who cannot or do not want to drive, are hard to quantify and often ignored—just like similar highway- and aviation-related costs.

NARP welcomes private sector participation in the establishment and operation of passenger rail services.  We have opposed privatization schemes whose creators have not acknowledged or addressed the enormous infrastructure disadvantage passenger rail is saddled with.  For example, if any of these schemes had been presented as a transfer of passenger train equipment and

operations to duly qualified private operators COUPLED WITH a massive infrastructure modernization and expansion program funded publicly, we might not have fought them. 

That said, the UK and Japan come up frequently in conjunction with talk of "successful private-sector rail operations".  Lots of good information about passenger rail history in both places is available on line, so we likely do not need to repeat it, but we should point out the common thread between them - it only works when you have already invested heavily in the infrastructure using public funds, and developed successful operations that are frequent, fast and serve very dense markets - also with public funds in the initial years until revenue streams become established that investors can leverage.

The Rocky Mountaineer (RM), a private, luxury train in Canada, the one referred to in your question, is akin to a cruise ship—without tourist class. It primarily provides an “experience” rather than “transportation.” Passengers are housed overnight in luxury hotels—not on the train. The company does not yet serve Seattle—RM’s web site shows one Seattle train in each direction next year (westbound from Calgary August 17, 2013; eastbound from Seattle August 24). A one-way ticket costs $9,650 (“Goldleaf Deluxe Service”) or $8,558 (“Goldleaf Service”). Amtrak will operate the planned Vancouver-Seattle part of this run.

 

Ø  Mr. O’Toole commented on the Sunset Limited and how expensive it is to ride in comparison to other modes, including airlines.  Do you agree with his calculations?  If not, why not?

 

He quoted a high fare for traveling from New Orleans to Los Angeles via Chicago, not on the Sunset Ltd., which only runs three days a week.  If you query Amtrak’s reservation system about New Orleans-Los Angeles travel on a day when the Sunset does not run, you get the higher fare.  But the Sunset coach fares are reasonable.  For example, a computer check on Wed.  Sept. 19 showed $195 for Saturday Sept 22 departure while Greyhound’s web site showed $239.  Checking on the same day for travel on Saturday Oct. 27, the Amtrak fare dropped to $156 while Greyhound was still $239.

No question that sleeping car fares are high, which is logical because the accommodations cost more to provide and the fare includes dining-car meals.  We have highlighted the “multi-purpose nature” of long-distance trains as a strength. 

Equally important, as noted in my testimony, is that so many passengers do not ride endpoint to endpoint but board and/or detrain at intermediate stations, in many cases with limited or no other public transportation or only high air fares.

 

Ø  Republicans have attempted numerous times in the past to eliminate or outsource Amtrak's long-distance routes.  Can you talk about the importance of those routes?

 

These trains serve:

·         Small markets with little or no alternative public transportation.  By “little,” I mean small aircraft with very high fares, or bus routes that serve different destinations than the train.

·         People in all markets who do not want to—or should not—drive long distances, including the growing senior population.

·         People with temporary or permanent medical prohibitions against flying.  As it happens, I had breakfast on October 18 on Amtrak’s Capitol Limited with a senior citizen who was forbidden to fly because of a blood clot in his lungs.  He was on the return leg of a round-trip from rural Washington State to Pittsburgh, PA.

·         People with disabilities and those with medical equipment that is far easier to deal with on a train than on a plane or bus.

·         Tourists both foreign and domestic who find this a pleasant way to see the U.S.

 

Ø  One of the witness' testimony stated that "Amtrak plays an insignificant role in the nation's transportation system."  Having carried nearly 30.2 million passengers and over 200 million other passengers on Amtrak commuter-operated trains and on Amtrak-maintained infrastructure just last year, what is your response to this? 

 

Public policy needs to look ahead, not always in the rear-view mirror.  Ridership in Fiscal 2012 just concluded was 31.24 million.  This was the ninth ridership record during the last ten years.  Growth is occurring in all three of Amtrak’s major sectors – Northeast Corridor (NEC; up 4.8% vs. 2011), other short distance corridors (up 2.1%) and the long-distance train (up 4.7%; all long-distance routes grew; the sector posted its highest ridership in 19 years). 

Growth would be even higher if Amtrak had a larger fleet.  Due in part to fleet constraints, revenues grew even faster than ridership—NEC 6.4%, Other short corridors 7.3%, Long-distance 7.2%.  For example, ridership continues to grow in the Northeast Corridor even though fares are well above what many people can afford.  [In the NEC, the FY 2011 yield—or average revenue per passenger-mile—was 54.5 cents including Acela at 76.6 cents.] 

Not surprisingly, the top complaint from the Northeast that my staff hears about Amtrak is high fares that force them to opt for the curbside buses.  Arguably, the constraints imposed by the size of Amtrak’s fleet and the capacity of key stations and track segments makes the curbside buses vital in maximizing the ability of public transportation to meet demand in this corridor.  

Nationwide, Amtrak is an important service that took millions of passengers out of their cars.  At 31 million riders a year and growing, Amtrak as an airline would rank 7th in enplanements based on calendar 2011 data (below Continental and above JetBlue).   

I’ve noted earlier that it is misleading to quote a single average fare for Amtrak because the services are so diverse, with long-distance coach on the low end and Acela First Class on the high.  By the same token, quoting a nationwide market share for Amtrak masks huge differences among:

·         the regrettably large number of markets that have no train service,

·         the many markets where Amtrak has one round-trip a day (or three a week), and

·         places like the NEC and California Corridors where Amtrak is a major player or becoming one. 

In smaller communities with limited alternatives, the absolute number of Amtrak riders can be small even though the market share and/or significance of the service to the community involved are/is great.

Ø  There seems to be this misconception that Amtrak has been given billions of dollars and that it's a waste of taxpayer dollars.  Yet, according to DOT, over the last four years alone, taxpayers have spent more -- $53.3 billion - on just highways and transit than they have spent in the entire 41 years Amtrak has existed.  Please comment on this. 

 

There is a widespread misperception that “highway users fully pay for the highways with the gasoline tax.”  This was demonstrably not true even before the explicit transfers from the general fund of recent years.  According to an April, 2003, Brookings Institution report [Improving Efficiency and Equity in Transportation Finance, by Martin Wachs], 41% of the $133 billion spent on highways in 2001 came from payments other than the gas tax, tolls, and vehicle taxes and fees.  These other revenues were: 15.3% general fund appropriations; 9.5% bond issue proceeds; 5.8% investment income and other receipts; 5.6% other taxes and fees; 4.8% property taxes.  While most of this was at the state and local levels, federal policy encourages this by offering states generous funding matches for highway investments but no match for intercity rail investments. 

The trend has been away from user fees.  Wachs noted, “Revenues from fuel taxes have for three decades been rising more slowly than program costs as legislators become ever more reluctant to raise them to meet inflation. As a result, the burden of raising the funds for transportation programs is gradually being shifted to local governments and voter-approved initiatives that are, in most instances, not based on user fees.”

The entire discussion ignores highway externality costs such as those related to the environment, quality of life, and energy consumption.  See, three pages earlier, the paragraph that begins, “Railroads worldwide can fall victim to superficial analysis…” in my answer about privatization.

In our view, Amtrak capital investments are not “wasted.”  They help improve the efficiency of Amtrak’s operations. In Fiscal 1980, Amtrak’s operating grant was $630.4 million, which is just over $1.5 billion in current dollars (using the GDP implicit deflator, that is, multiplying by 2.4). The operating grant in Fiscal 2012 was $466 million, or 69% lower in constant dollars than the 1980 level. During the same period, passenger-miles rose from 4.6 billion to 6.8 billion.

 

Ø  How does financing for passenger rail in other countries, and their operating losses, compare with Amtrak?

 

There are private contract or concessioned/franchised passenger operators in a number of countries including—but not limited to—the U.S., Argentina, Brazil, Mexico, U.K., Germany

and Sweden.  Most are "negative concessions/franchises" in which the operator bids for

minimum support from the state.  In addition, most European Union operators pay access charges far less than full cost—in Sweden less than marginal cost—so the actual degree of public support is greater than it appears.  None of these could be truly privatized in the sense that they could be sold and would then operate at a financial profit without support. 

Moreover, among the countries listed above, privately franchised operations are mostly commuter or other local services, not intercity trains.  John Broadley’s prepared testimony for this committee’s March, 11, 2011, hearing stated that DB (the German railway company) “faces almost no competition and has over 99% of the domestic long distance market.”

Comparisons are very difficult, as service patterns, geography, demographics, etc. differ greatly from place to place.

 

Thank you for the opportunity to submit these comments.