Preliminary Report to Congress and the Public A Reexamination of the Amtrak Route Structure United States Department of Transportation May, 1978 THE SECRETARY OF TRANSPORTATION WASHINGTON, D.C. 20590 Dear Mr. Chairman: I am pleased to transmit to you a report containing the Department's preliminary recommendations for a restructured intercity rail passenger system to be operated by Amtrak. The Department's recommendations were requested by the Appropriations Corrmi ttee Conferees in the report accompanying the FY 1978 Supplemental Appropriations Act (P. L. 95-240). I have supported Amtrak since its inception and I continue to be1 ieve in the need for an intercity rail passenger system. While this report was being prepared, I considered whether Federal support of intercity rail passenger service should simply be terminated in light of the large amounts of money we are spending to serve a relatively sniall segment of the traveling public. I have rejected that option, however. There is a significant constituency for maintaining Amtrak as a transportation alternative, even among people who today do not frequently use it. The system will be more efficient and will serve people better if we restruc- ture it and improve its operations in the manner suggested in this report. Further, abandonment of the system would involve large labor protection costs and other expenses, with no subsequent benefits. Additionally, there is the need to consider Amtrak in the context of the nation's energy shortage. The passenger train, if it is operated we1 1 and if it carries a reasonable number of passengers, is energy efficient. The 1973-74 fuel crisis demonstrated that the American people will ride trains when automobile fuel is in short supply. We probably will reach a time when supplies will be permanently limited. In the meantime, we niust work at improving the Amtrak system and its operations, so that the American people will, when the time comes, have available an energy-efficient a1 ternative. The system which I recommend is described in detail in Chapter 5 of the report. I believe it to be a good system which will serve the American traveling public well. In recommending it to you, I want to emphasize that: -- The system is national and serves all regions of the country. Because all taxpayers support Amtrak, its services should not be limited to only a few corridors. -- The system will provide service to and from those locations where a significant percentage of our people 1ive. Approximately 160 Standard Metropolitan Statistical Areas are served by the system, including our 36 largest cities. -- The system will provide a service that will be used. It is expected to have an overall level of usage of over 150 passenger miles per train mile, equivalent to the current level of usage in the Northeast Corridor. -- There are no "poor" performers in the recommended system. Amtrak management will be able to concentrate attention and equipment on those routes which show promise, rather than having to devote resources to routes which today have been shown to be hopeless. -- All of the routes in the system, at the ridership levels pro- jected, will have the potential to be energy efficient, in the sense that they would consume less energy than if their riders were traveling by automobile. -- The system is of a size that Amtrak's present and on-order equipment fleet will be well utilized. It will also require significantly smal ler additional expenditures for new equipment than the existing system. My choice of the recomnended system was not made because it meets any preconceived budget goals. My decision was made because of the attributes out1 ined above. The choice was made from among a variety of potential route systems which were designed by the Federal Railroad Administration to offer alternative types and levels of service. I would be remiss if I did not state that I have serious concerns about the level of funding required for Amtrak. The present Amtrak system is far too costly for the service which it offers. Projections show that if we continue the present system as it is, by 1984 we will be providing subsidies to Amtrak of around $1 billion a year for operations alone. Such a constantly rising level of Federal subsidy cannot be permitted. Unfortunately, these budget concerns will not end even if the reconmended system is adopted and implemented. Clearly, the recommended system will be less expensive to run than the existing system. Had it been in place in FY 1977, the operating appropriation for Amtrak would have been $402 million, instead of $482.6 million. Were we able to operate the recom- mended system for the full year in FY 1979, the operating appropriation needed would be $496.6 million. As it is, because the authorizing legislation which is being considered by the Congress would not permit implementation of the new system to begin until three-quarters of the way through the year, $575 million will be required to subsidize Amtrak's operations in FY 1979. In FY 1980, the first full year in which the recommended system would be operated, it would require an operating appropriation of $547 mi11 ion, whereas the existing system would require $665 mil1 ion. Nevertheless, by 1984, so long as present trends continue unabated, the recommended system would require an operating appropriation of $799 million. While significantly less than the $976 million which would be required to operate the present system, this level also is too high. There are two problems. First, Amtrak's costs have increased at far higher rates than those experienced by other elements of the railroad industry. Second, Amtrak's fare structure has not yet been comprehen- sively designed on a market-by-market basis to recover as much of those cost increases from the passenger as is possible. The disparity between costs and revenues grows each day. As a result, whereas in 1971 revenues covered 50 percent of the costs of operating the system, in 1977 they covered only 37 percent of those costs. The general taxpayer has had to make up the rest. As pointed out in the body of the report, we, unfortunately, have had to assume continuation of the present cost structure and revenue trends. I have, however, directed Jack Sul 1i van, the Federal Rai 1road Admini strator, to work closely with the Amtrak Board between now and the time we present our -final recommendations to Congress to diagnose the problems inherent in Amtrak's cost and fare structures and to develop remedies which will result in lower future Federal subsidies than those we are now projecting. I am informed that Amtrak has begun a market-by-market review of the Corporation's fare structure to find those markets where adjustments, either up or down, can be made to reduce the total net deficit. I am encouraged by such a move on the part of Amtrak and I have directed my staff to cooperate and assist in any way possible. Similar efforts must be made to review Amtrak's costs. I believe that once we have established a new and more sensible Amtrak route structure, we should not consider it to be forever permanent. The review process which is being initiated by this report is healthy and valuable. We should require such a review periodically, whether by the Department or by Amtrak's Board. One of the desirable products of the last six months' analytical efforts has been the creation by FRA staff and Amtrak management of methods for eval uating Amtrak's route structure and operations which have not previously existed. These tools are available for future use and should be applied in periodic overall reviews of the system and its operations. In connection with my final route structure recornendations I will present the Congress with a set of financial and operational goals for Amtrak against which we should measure its future performance. If future review tells us that Amtrak is meeting or beating the goals which we will set, then we may decide that we have a sufficient margin to allow for expansion. Until that time no totally Federally supported services beyond those included in the new system should be initiated. If future review tells us that Amtrak has not achieved substantially greater control over costs and revenues than it has today, and is falling short of those goals, then we must consider further reducing the system. I will support future growth of the Amtrak system only if we can gain control over the cost/revenue relationship and if the level of service we are providing is being provided in an efficient manner. At present, however, I must oppose any move to increase the size of the system above that which I have recommended. We must remember that the primary surface intercity comon carrier mode is the intercity bus. Any decision to expand the scope or intensity of Amtrak's operations must careful ly con- sider the subsequent impact on private sector competitors. I believe firmly that wherever possible there should be more coordination between Amtrak and the bus industry in providing intercity passenger travel. Several ways in which such coordination may be achieved are discussed in the body of the report. I will continue to encourage both parties to find ways to work together to attract intercity passengers from the least efficient energy alternative, the automobile. I also believe that the Administration and the Congress should reexamine Amtrak' s corporate structure and re1ationshi ps with the Federal Govern- ment, particularly with regard to budgetary control. Given the original expectations for Amtrak's eventual profitability, the existing structure and set of relationships were probably appropriate.