Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, October 1, 1993 TAG: 9310060321
SECTION: EDITORIAL PAGE: A15 EDITION: METRO
SOURCE: JAMES K. GLASSMAN
DATELINE: LENGTH: Long
That question is especially compelling at a time when countries throughout the world, from Argentina to Zimbabwe, are taking their state-run enterprises private - raising billions of dollars and improving efficiency to boot.
Yet privatizing Amtrak, or even trimming its budget, merited not a single line in Vice President Al Gore's ``Report of the National Performance Review,'' even though the weighty document offered 23 separate recommendations on how to ``reinvent'' the federal role in transportation.
Set up in 1970 with what was intended to be a one-time aid package of $140 million, Amtrak has so far cost taxpayers about $15 billion. Last year, total ridership and revenue fell, and the operating loss was $711 million.
Congress' mandate to Amtrak 23 years ago was ``to operate rail service on a for-profit basis,'' but the National Railroad Passenger Corp. hasn't come close. Nor is it likely to meet the goal it set in 1990 ``to eliminate the need for federal financial support for Amtrak's operations by the year 2000.''
In fact, the government subsidizes Amtrak to the tune of about $25 per intercity ticket. Under that kind of deal, even Eastern Air Lines Inc. might still be in business.
Amtrak's biggest problem is politics. To maintain support of the constituency that keeps it alive, the railroad runs unprofitable routes such as the Cardinal through Sen. Robert Byrd's West Virginia. ``Cardinal'' is an apt moniker; it's also the nickname on Capitol Hill for powerful legislators who head appropriations subcommittees.
Amtrak also is saddled with unions that run to their congressional friends at the first sign of trouble, an unwieldy bureaucracy, and a distinct lack of marketing acumen.
The nation's freight railroads had many of the same problems until the passage of the Staggers Act of 1980, which freed them from federal regulations and exposed them to competition. Since then, the number of employees on freight lines has declined 57 percent, the number of freight cars has dropped 31 percent and prices charged shippers are down 10 percent. But profits have nearly doubled. Now, that's productivity!
Consider the success of Consolidated Rail Corp. (Conrail), the freight company the federal government stitched together in 1976 from Penn Central and five other bankrupt railroads.
In 1981, Conrail's employees were given a 15 percent stake in the company. The government sold its 85 percent to the public in 1987 for $1.6 billion, and the stock has since quadrupled in price. Conrail's operating income last year was a record $534 million on $3.3 billion in revenue.
Conrail, by the way, has 24,000 employees, roughly the same as Amtrak - but brings in nearly three times as much revenue.
Still, carrying freight and carrying passengers are different businesses, and simply selling (or giving) Amtrak to its employees and the public won't result in instant efficiency and profitability.
Over the years, Amtrak officials have been approached by many smart investment bankers about public offerings of stock. ``But when they took a close look at the numbers,'' said a former Amtrak official, ``they quickly changed their minds.''
So it's doubtful that the right privatization model for Amtrak is Conrail, which was already profitable when it went public.
Instead, the model may be Sweden.
Sweden?
Yes, and, of all people, Paul Weyrich, president of the conservative Free Congress Foundation, suggested it to me. Weyrich was named to the Amtrak board by President Reagan and served on it until this year. While he's a staunch free-marketeer, Weyrich doesn't believe it's practical simply to float an offering of Amtrak shares - nor does he believe Amtrak should be shut down.
He urged me to check out Sweden, which is attracting attention from all over Europe for a system it established in 1988.
The Swedish solution is to split the enterprise in two: Set up a railroad operating company that must make a profit and make the government responsible for the tracks, just as it builds and maintains highways and airport runways.
The operating company, called the Swedish State Railways, remains government-owned (this is Sweden, after all), but it has the power to set routes, price tickets and buy cars and engines. ``The main thing,'' said Stij Larsson, who went over from Ericsson Telecom to run the railways, ``is that you run the company in the same way as if it were private.''
Larsson's only requirement is to make a profit; and, free from political inference, he has. That profit is plowed into upgrading engines, cars and stations. Meanwhile, a separate, state-subsidized agency, the Banverket, owns and maintains the tracks, and the Swedish State Railways pays it a fee.
In an Americanized version of this model, the federal government would sell off Amtrak, which would then become strictly an operating company. At least one current board member, Gov. Tommy Thompson of Wisconsin, believes a private Amtrak would have an excellent shot at ending its operating shortfall.
An obvious solution would be to focus on the Northeast Corridor, the richestconcentration of wealth in the world.
Even now, Amtrak transports 10 million passengers a year between Boston and Washington, more than either of the airline shuttles. Stuart Butler of the Heritage Foundation once suggested that, as part of a privatization plan, stock should be given ``to Amtrak Northeast Corridor riders who have accumulated `frequent passenger' status.''
But, as Thompson told me, ``In order for Amtrak tobecome independent or private, there has to be an infusion of capital.'' That's where the federal government comes in. It would buy Amtrak's roadbed.
Practically the only track Amtrak owns is a 600-mile network in the Northeast Corridor. Maintaining that track, which takes a pounding from freight and commuter trains, is expensive, and as a result the corridor routes - contrary to what most people believe - are not profitable. (Amtrak's most lucrative routes are the long-distance trains.)
A pr ivate Amtrak, rather than currying favor with Congress by snaking trains through 45 states and 524 stations, would be free to pare its work force, eliminate inefficient routes and raise its own funds, just as Conrail did.
If nothing's done? Well, Amtrak can expect to keep losing money at least until its bonds come due in 2975. Yes, according to its weird capital structure, on New Year's Eve 982 years from now, Amtrak will have to settle its debt with the U.S. treasury. Can we wait that long?
\ James K. Glassman is former editor of Roll Call and former publisher of the Atlantic Monthly.
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