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High Speed Intercity Passenger Service, Infrastructure Disaster

Since 1900, no railroad in the world has ever made money carrying passengers. Admittedly, some European countries, China and Japan have high speed intercity passenger service (HSR) but their annual operation losses are gigantic. They can afford those losses because their defense spending, as a percentage of their respective domestic products, is much less than the United States.

On Friday, June 10, 1970 at 5:30 pm, the Penn central Railroad filed for bankruptcy, making it the largest bankruptcy in the history of the United States until that time. As a result, Congress enacted legislation to deregulate the industry. Congress also enacted legislation to eliminate the huge losses railroads suffered due to the fact that the industry could not abandon intercity passenger service.

Thus Amtrak was born. On October 30, 1970, President Nixon signed legislation authorizing the creation of the government owned National Railroad Passenger Corporation, doing business as Amtrak. Amtrak was authorized to purchase all intercity passenger operations and would operate the business, paying fees to the rails for the use of their lines. Many routes were discontinued to reduce the size of their losses. For the twelve months ending September 30, 2009, Amtrak lost $1,264,355,000. Every year, Amtrak has to go to congress to seek the funds (subsidies) to continue operations.

Among the 13 corridors being studied for high speed services are Chicago to St. Louis, Los Angeles to San Francisco and Chicago to Detroit. Should all the corridors be approved, Amtrak's operating loss per year would exceed $10 billion. Of course, defense spending could be reduced, but that is not a viable alternative.

In 2008, Amtrak's Inspector General published an analysis of government subsidies to passenger rail in Europe and compared them to Amtrak's subsidies. For 1995 to 2006, the study found that the governments of Germany, France, the United Kingdom, Spain, Denmark and Austria spent a combined total of $42 billion annually on their national passenger railroad subsidies. 1.

These six nations have a combined population of 269 million compared to the united states of 309 million.

For over three years there has been a bill in Congress, with substantial bi-partisan support, to enact an investment tax credit for the railroad industry to expand its capacity to carry freight traffic.

In 1980, Congress enacted the Staggers Act, named for Senator Harley Staggers, which essentially deregulated the railroad industry. For the next twenty five years, every year, freight revenue, as measured by revenue per ton-mile, declined, thus benefiting shippers and the consuming public. In 2005, pricing power returned to the industry and freight rates, in general have risen each year since. This is a distinct signal that the industry is operating at, or close to, full capacity. What is needed is more double track and passing tracks, as well as more fuel efficient locomotives.

Ton-mile freight traffic is going to continue to grow so railroad freight infrastructure must be expanded. This could be accomplished best by an investment tax credit for capital spending.

An infrastructure bank would not have the faintest idea how to implement this. Let railroad management accomplish this goal. It's their industry and they know what to do. Because it is a capital intensive industry, management must have the incentive to provide for the future.

1. Courtesy of Amtrak, Office of Inspector General. "Public Funding Levels of European Passenger Railroads" April 22, 2008, page 4, and the Heritage Foundation.