|Cato Policy Analysis No. 425||February 8, 2002|
by Joseph Vranich, Cornelius Chapman and Edward L. Hudgins
Joseph Vranich served on the Amtrak Reform Council from February 1998 to July 2000. He has also served as president and CEO of the High Speed Rail Association and as executive director of the National Association of Railroad Passengers. Cornelius Chapman is a member of the Boston law firm of Hutchins Wheeler and Dittmar. Edward L. Hudgins is former director of regulatory studies at the Cato Institute.
Having found that the government-owned passenger rail company, Amtrak, will not be able to break even by the end of 2002, the Amtrak Reform Council is required by the Amtrak Reform and Accountability Act of 1997 to submit a reorganization plan by February 7. Amtrak itself had been required by the same law to develop a plan for its own liquidation, but a handful of senators blocked Amtrak from doing so. That congressional action shortchanges the public of a much-needed discussion of liquidation, considering that Amtrak's financial losses continue to mount and perpetuation of the status quo cannot be justified. The plan presented here is designed to contribute to the public's understanding of Amtrak liquidation issues despite the failure of Amtrak to put such a document on the public record.
Liquidation would force Amtrak to lay before the public and policymakers all the information about its poor financial condition and operating record. 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.
Railroad liquidations through insolvency proceedings were common in the 19th century when railroads were the principal means of transportation in America. Amtrak's passenger rail operations constitute a very small part of transportation today; thus bankruptcy would produce very little disruption of travel.
If unpaid creditors forced Amtrak into bankruptcy, a trustee would be appointed to manage the sale of Amtrak's assets. In the liquidation process the value of assets would be determined through a market process. A number of parties have already expressed interest in purchasing Amtrak's Northeast Corridor operations, which include the rolling stock, tracks, and stations. This part of the system likely could be run efficiently and at a profit by private owners. Other parts of the system might be purchased by freight companies of other operators. Money-losing routes no doubt would be abandoned.
The reforms currently being discussed by the Amtrak Reform Council are too little, too late. It is in the public interest to use existing bankruptcy laws to liquidate Amtrak.
|Full Text of Policy Analysis No. 425 (PDF, 17 pgs, 112 Kb)|
© 2002 The Cato Institute
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