Commentary

Time to Liquidate Amtrak

By Joseph Vranich, Cornelius Chapman and Edward L. Hudgins
February 14, 2002

The consequences of Amtrak’s three decades of mismanagement are coming home to roost. The federally owned passenger rail company is threatening to discontinue all long-distance rail service in October if Congress doesn’t give it $1.2 billion. The handout part is nothing new. When it was created in 1971 policy makers promised it would operate without subsidies within a few years. Instead, every year for the past three decades Amtrak has needed taxpayers’ handouts that now exceed over $25 billion. In 2001 it posted a record high $1.1 billion loss. Over the years Amtrak has run too many money-losing lines with too few riders. Congress should call Amtrak’s bluff. Rather than handing it more taxpayer dollars, it should liquidate this railroad and allow private companies to salvage the potentially profitable routes.

Amtrak’s latest move is part of an ongoing process in which the railroad tries to hold on to its profligate practices. On Nov. 9, 2001, the Amtrak Reform Council, created by the Amtrak Reform and Accountability Act to monitor that railroad, found that the railroad would not be able to survive without federal operating subsidies by the end of 2002. Under the law the Council must prepare a plan to reorganize Amtrak — release date Feb. 7 — while Amtrak itself is required to prepare a plan, in the words of the act, for its “complete liquidation.”

But a handful of senators recently forbade Amtrak from using any funds to prepare that plan, figuring that if they just don’t look at the railroad’s problems they will go away. Liquidation would force Amtrak to open its books.

How might Amtrak’s liquidation proceed? Unpaid creditors could force Amtrak into Chapter 11 bankruptcy. Such a move would mean the appointment of a trustee to manage the disposition of Amtrak’s assets.

One goal of liquidation is to reimburse creditors by selling assets, which would be valued in the free market. For example, Chicago Union Station might be sold to the local Metra Commuter rail system, which uses the station more than Amtrak does, or even sold to private developers. Trains needn’t be scrapped. Some of Amtrak’s coaches might be purchased by private operators for financially sensible short-distance trains, like the Chicago-Milwaukee run. Double-decker Superliners might be purchased for land-cruise runs that offer tourists scenic vistas.

Many money-losing routes would probably be abandoned. But major parts of the system, most notably the Northeast Corridor between Washington, New York, and Boston, likely could be operated profitably by private owners. Companies that have expressed interest in purchasing the Corridor — which includes the trains, tracks, and stations — or in operating it under a franchise include Peter Pan Bus Lines, Railway Service Corporation, Guilford Rail System, and British train operators Great Western Trains, Stagecoach, Virgin Management Group and GB Rail.

Railroad liquidations through insolvency proceedings were common in the 19th century when railroads were the principal means of transportation in America. Over 27,000 miles of rail were taken over by courts, and another 40,503 miles of track were sold at foreclosure sales of railroad assets between 1894 and 1898. Amtrak’s passenger rail operations constitute a small part of transportation today and thus liquidation that shuts down weak lines would hardly disrupt travel. To put this point in context, in 2000 Americans made only 22.5 million trips by Amtrak compared to 665 million on commercial airlines.

The Reform Council’s plan for Amtrak includes reorganizing the railroad by putting its train operations into one subsidiary, its real estate, tracks, and facilities into another subsidiary, and permitting Amtrak to control a future rail franchising system. This plan is too little, too late. Amtrak is certain in the future to fail again and again.

Ayn Rand’s Atlas Shrugged tells the story of a railroad — and a country — collapsing under the weight of government controls. In that novel the way to get the trains to run again is for the government to get out of the way. In the real-life case of Amtrak it is time for the government to do just that: to return the trains to private owners and leave them alone to run them efficiently and profitably. Liquidation would be the best way to stop the waste of taxpayers’ dollars and to give parts of Amtrak’s passenger operations the best chance of survival.

Joseph Vranich, former CEO of the High Speed Rail Association, served on the Amtrak Reform Council from February 1998 to July 2000. Cornelius Chapman is a member of the law firm Hutchins, Wheeler and Dittmar. Edward L. Hudgins is director of regulatory studies at the Cato Institute.