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  • Budget Conference Spending Cuts: Start with Amtrak Subsidies

    Union Station, Los Angeles, California, May 2, 2010


    A good place for budget conferees to start cutting federal spending would be at Amtrak, the federally subsidized passenger rail service, with its $72 million loss on its food and beverage service in fiscal year (FY) 2012 and generally poor financial performance.

    Amtrak’s inspector general Ted Alves states in a recent audit report that “Amtrak’s operating losses on food and beverage services have been a long-standing issue, and they contribute directly to the need for federal subsidies to support operations.” Amtrak’s total federal subsidies surpassed $1.4 billion in FY 2013, and of that, $470 million were for operations. Alves is correct: Subsidies to Amtrak remove a big incentive for it to operate efficiently and rein in unnecessary costs. That’s how you get $72 million in food and beverage service operating losses in just one year.

    If Congress weaned Amtrak off federal subsidies and forced it to run more like a business, Amtrak would be forced to find savings and become efficient—just like a private company has to do.

    Alves offers a few recommendations that Congress would be wise to require Amtrak to implement. High labor costs are driving the food and beverage service losses, and Amtrak could save $6.9 million annually if it made on-board managers align dining and café car staffing with ridership. Amtrak should also start charging customers for the wine and champagne it now offers as complimentary on long-distance routes. This would save about $1 million a year.

    It won’t be easy. As Alves notes, “guaranteed hour provisions in labor agreements may prevent Amtrak from capturing these savings.” That means even though it would make financial sense for Amtrak to have both full-time and part-time workers during peak demand seasons, Amtrak’s agreements with unions that ensure workers get full-time hours prevent it from having a flexible workforce.

    But Amtrak must change the way it does business. Ultimately, Amtrak should be privatized, not paid for with taxpayer dollars. As a step forward, Congress should make future federal subsidies to Amtrak contingent upon decreases in its operating costs. It could require Amtrak to bid out its various operations to competition, so that a private-sector company could perform the service at less cost.

    Representative Bill Shuster (R–PA), chair of the House Transportation and Infrastructure Committee, has even expressed support for increased competition at Amtrak, illustrating that privatization is not a radical idea. Recent decisions by Pennsylvania and Virginia to chip in more for Amtrak routes in their states provides further support.

    These opportunities to save money at and reform Amtrak, just one of numerous recipients of federal money, indicate that there is room to cut spending in Washington—and stop forcing the defense budget to bear most of the budget tightening. The budget conferees have no excuse.

    Posted in Capitol Hill, Economics [slideshow_deploy]

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