Spending Money to Make Money
April 28, 2023
by Jim Mathews / President & CEO
The budget hawks have started circling around the latest Federal budget deliberations, and unsurprisingly some folks in Washington have started hurling at Amtrak one of the nastiest epithets you can use on Capitol Hill – “subsidized.”
This week Speaker Kevin McCarthy (R-Calif.) managed to get a debt-limit bill passed in his chamber with a razor-thin two vote margin. That measure includes a whole host of Federal cuts Republicans have held out as their ransom for approving an increase in the debt limit. With entire categories of Federal spending put off limits in these discussions, a lot of attention has turned to transportation and housing spending and that has meant that in some circles the historic wins in the Bipartisan Infrastructure Law have caught a few eyes.
So, we’re going to have to dust off our talking points about why spending on passenger rail is not a subsidy but, rather, is an investment.
What’s the difference?
Well, when you subsidize something you spend on it because it’s just a good thing to spend on. You don’t expect it to produce a profit or any sort of return, but you do it because there are good and valid reasons to spend those funds. An investment, on the other hand, demands a return.
Misunderstanding of Amtrak’s roles and purpose leads to flawed policy prescriptions. Many people desperately want Amtrak to be a proper "company," but the term younger people use these days for this is "cosplay" -- a nod to adults dressing up in costumes to attend conventions where they pretend to be their favorite comic book or science-fiction hero.
If any of you or I, or all of us, set out to pool our own vast sums of capital to launch a company, we would never attempt Amtrak's mission: to serve the entire country, at a reasonable fare, with safe, modern, reliable rail service.
Florida’s Brightline has the advantage of being able to choose their customers and their markets...as they should, because they have a fiduciary responsibility to maximize return for their shareholders. That's what companies are organized and legally bound to do.
When we pretend that Amtrak is somehow a company, rather than a government agency cosplaying as a company, we want it to behave like a company. We want it to make a profit. We want it to be competitive. But if there were profits in getting Grandma from Marks, Miss., (along with her powered wheelchair and her medical oxygen) to Memphis, Tenn., to see her grandchildren, Kansas City Southern or Union Pacific or Canadian National or someone similar would be falling over themselves trying to do it. But there is no profit in doing that.
However, the damaging leap many American policymakers have made from that previous sentence is to declare that because it’s not profitable it's not worth doing. I strongly disagree. The reason we have a government is to do the things that private industry cannot profitably do and to provide the things that private industry cannot profitably provide...and, in an idea as old as the Constitution itself, to secure and guarantee the preconditions for the success of private capital.
The point of Amtrak is not to make a profit. Not in law and not in practice. The point is to ensure mobility and access for the entire country because that, in turn, fuels prosperity in the communities served and dignity to the people who live in them.
We have successfully argued in recent years that spending money on passenger rail is a prudent investment in mobility and economic growth. So, for all of you reading this, here are few points you can make the next time you’re in a local legislative meeting, or a congressional Town Hall, or any other venue where your voice can make a difference for passenger rail and you hear the same tired old arguments about highways, or gas taxes, or profitable airlines, or too little population.
First point: highways.
If you really want to get serious about subsidies, highways are a better place to look first. Since 2009, the Federal government has transferred $275 billion from general tax funds into the Highway Trust Fund. That’s because gas taxes haven’t been raised since the 1990s and come nowhere close to covering what’s needed to subsidize highway construction and maintenance.
Next point: airlines.
Anyone who tells you that airlines, as private entities, pay their own way and are profitable is merely telling you they don’t know anything about it without saying the words “I don’t know what I’m talking about.” Southwest Airlines, for example, just in the month of August 2022 alone consumed $11.2 million worth of taxpayer-supported air traffic controllers’ time to operate its fleet around the country. There are six airlines each consuming services at a similar rate, which works out to close to $800 million a year.
And just as the gas tax doesn’t cover the full cost of highways, Passenger Facility Charges and Security Fees on passengers’ tickets don’t come anywhere close to covering the true cost of building airport ramps, aprons, taxiways, runways, fences, and navigation aids, nor of providing the security screening to enter every airline concourse. Indeed, earlier this month, the head of the Transportation Security Administration told Congress that tens of thousands of TSA screeners will lose long-awaited pay raises if Congress doesn’t agree to extend them – a $1.4 billion total payroll hike. Losing some portion of the airport screening workforce will inevitably make today’s painful airport experience that much more painful.
Third point: Amtrak is only relevant in the Northeast.
Hogwash. There are dozens of communities all across the Nation where Amtrak is the only source of public transportation. Smaller, rural communities depend on passenger rail in a way that many of the Northeast communities do not. Chemult, Ore., generates three times as many trips as there are residents there. Williams Junction, Ariz., generates more than twice as many trips as residents. East Glacier, Mont., produces 40 percent more trips than residents, and Williston, N.D., produces a third again more trips than residents, as does Santa Barbara, Calif.
Throughout rural America Amtrak acts as an economic engine, powering the served communities and linking rural Americans to prosperity and opportunity. Our research shows that Amtrak service returns anywhere from four times to as much as ten times what is spent on it to the communities served. Because those are tax dollars being invested to produce these results, let’s describe it not as return on equity, but return on taxpayers’ equity.
When we invest just under $3 billion each year to have an Amtrak, the service contributes about $8 billion or so to U.S. GDP. That’s a solid return. Subsidy is in the eye of the beholder.
"We would not be in the position we’re in if it weren’t for the advocacy of so many of you, over a long period of time, who have believed in passenger rail, and believe that passenger rail should really be a part of America’s intermodal transportation system."
Secretary Ray LaHood, U.S. Department of Transportation
2011 Spring Council Meeting