Turn ownership and governance of Amtrak over to private RRs?

I think that Amtrak's ownership structure needs to be reformed to help move it towards efficiency and profitability, all while maintaining commitments to minimum levels of service and improvements.

Amtrak is a hybrid, with its preferred stock owned by the Federal government and its common stock owned by private railroads (and their successors, in the case of Penn Central). That means that the Federal government calls the shots in decisionmaking for the company and would get first dibs on any payout if Amtrak pays dividends or is sold or dissolved. The private railroads would just get whatever scraps are left in case of a sale or dissolution, and they may have rights to vote on a few matters.

Why not change this ownership structure as follows?

* Give the private railroads almost all of the stock in Amtrak--both preferred and common. They would be able to call the shots in how the company is run (subject to the next paragraph below), and they'd also benefit from any dividend payments or cash in case of a sale or the like.

* Amtrak's charter (which is like a constitution) could set some ground rules that couldn't be changed without the Federal government's consent. For example, the charter could require that the company provide specific minimum levels of service on specified routes and would require that the company meet whatever goals that the Federal government deems necessary. So the private railroads would not be able to downgrade or eliminate trains without the Federal government's approval.

EDITED TO ADD: Amtrak would still get subsidies, but I see it as working sort like the British model, once restructured: private owners could make Amtrak run more efficiently and keep the savings for themselves.

To me, this is a win-win; the public would get at a minimum the same Amtrak as today. Private railroads would get an incentive to run the company efficiently, since they could benefit financially from a well-run Amtrak. If private railroads want nothing to do with this, they could sell their shares to other transportation companies- say, United and Delta or even European railroads.

Thoughts?

I don't see any reason the private railroads would have any interest in this. They got rid of their passenger obligations 40 years ago. Why would they want passenger trains back? Passenger trains loose money. That why the freight railroads got rid of them. And what mysterious foreign companies would want to buy that obligation?

The more hands you have in the pot, the worse thing will get. Do you really think the various freight operators, some that are on record as saying they don' really want passenger service on their territory will run them in a uniform manner? They don't do it now. What happens when Amtrak trains runs over short line that may not be able to afford it? You will have competing and conflicting interests as one company who has very little problem with passenger service is on the same footing as a company that doesn't want passenger service around.

Addtionally, unless you're creating a shell company to shield everyone from the liability, your plan creates another bone of contention. In other words, who will take the weight? What happens if one company decides they don't think the wheel on this train needs to be trued while another company insists on it?

This doesn't seem like a good plan.

SouthernRailway would do good to read up on history and creation of Amtrak before offering more Ideas such as this

Dutch is right. The freight railroads would have even less use for passenger service than they did in 1971. Right now, when the freight railroads get some kind of incentive payments for running Amtrak trains on time, just look at the DixielandSoftware maps and see how will they treat passenger trains. In 1971, the freight business was going downhill. Now, with deregulation and other changes, the freight railroad business is doing great....even less room for passenger service.
And, Mr Southern, I have 3 letters for you: NEC. It is kept running, on the edge of disaster from deferred maintenance, only by massive subsidies for capital expenditures. If it were privatized, no way would that money be forthcoming. And, who would buy or run the NEC absent the Federal money? No one in his right mind.

EDITED TO ADD: Amtrak would still get subsidies, but I see it as working sort like the British model, once restructured: private owners could make Amtrak run more efficiently and keep the savings for themselves.

Don't do it. It's expensive and doesn't work. The Labour Party is considering going back to the British Rail model.

Operating subsidies are one thing. They might suffice for LD trains and non-NEC corridor trains. But the NEC (which sometimes shows good farebox returns compared to some other routes) is totally dependent on continuing capital investment that would never be provided by a private company. And there would be even more Congressional resistance to paying subsidy money to a private railroad than to Amtrak. It is a moot question because no private entity would ever consider taking ownership of the NEC.

DutchRailnut wrote:SouthernRailway would do good to read up on history and creation of Amtrak before offering more Ideas such as this

I've read extensively about why Amtrak was created, and the legislative process that was involved.

Starting in the 1950s, various observers proposed that private railroads pool their passenger trains and equipment into a nationwide network, with subsidies coming from the Federal government. Republicans were all for direct subsidies to private railroads. The only reason that we have Amtrak instead of private railroads continuing to run passenger trains in exchange for direct subsidies is because some Congressional Democrats (i.e., the predecessors of Nancy Pelosi and Harry Reid) refused to give subsidies to private corporations.

Private railroads have been given the opportunity to have their shares in Amtrak bought out by the government, and they've refused. They clearly see some value there. They could make money from Amtrak by (1) selling their shares to someone else or (2) running the railroad more efficiently and pocketing the money saved.

Passenger trains certainly don't make money, but different aspects of the passenger rail business do: railcar manufacturing, operating commuter trains under contract, construction of rail lines, etc. This would be another example of that.

I've looked at the numbers for a few Amtrak long-distance trains and they seem to lose more money than their private predecessors did. The private Auto-Train sometimes made small amounts and sometimes lost small amounts; it now consistently loses a decent amount. The Southern Crescent lost $6 million per year in the late 1970s; now (admittedly with daily Atlanta-New Orleans operation, rather than 3 days/week), it loses over $35 million. So give the private sector some incentives with these trains, and they might perform better.

Mr Southern, I think you must live in an alternate universe. Could you elaborate on when the railroads were invited to sell their Amtrak stock and refused? What was the context? What were the terms? As far as profits to be made by running passenger trains efficiently, where was this ever done? Even "back in the day," passenger trains were not big money makers. I have never been able to find out how much money they made or lost, since, as we know, railroad cost accounting tends to be less than transparent. But historians I have corresponded with agree that railroads mostly broke even, and that was OK because there were political and public relations reasons to run passenger service. A couple of name trains made money, but not so much the passenger service as a whole. But that was back in the day. On the eve of Amtrak, a couple of railroads, such as the SCL, thought they could make a profit running passenger trains, but even they decided to join Amtrak.You might remember that railroads could stay out of Amtrak if they wished, and Southern and Rio Grande did. But by 1971, most railroads saw passengers as a big cash drain.How would this have changed in the last 40 years? You want to blame the Democrats for not being willing to subsidize passenger rail run by private railroads? Huh? For years in the Northeast, mostly-Democratic state governments subsidized the private commuter railroads before Amtrak and Conrail. Would the Republicans be more generous? The Tea Party? Please don't let your personal political ideology get in the way of your seeing the facts.

JoeG wrote:Mr Southern, I think you must live in an alternate universe. Could you elaborate on when the railroads were invited to sell their Amtrak stock and refused? What was the context? What were the terms?

I must live in the alternate universe of Amtrak's official communications. Below is an extract from Amtrak's 2009 annual report:

"The Act also required Amtrak to redeem at fair market value the shares of common stock outstanding as of December 2, 1997, by the end of fiscal year 2002.
Amtrak has discussed the redemption of the shares with the owners, but there has been no resolution of this matter between Amtrak and the owners. Amtrak believes that the fair market value of the common stock is zero. Nevertheless, in an effort to comply with the Act, Amtrak has made an offer to redeem the stock for cash at a price of $0.03 per share to the stockholders. By a letter dated November 2, 2000, counsel for the four common stockholders responded to Amtrak and rejected the offer as inadequate. Amtrak is considering various courses of action."

JoeG wrote:As far as profits to be made by running passenger trains efficiently, where was this ever done? Even "back in the day," passenger trains were not big money makers. I have never been able to find out how much money they made or lost, since, as we know, railroad cost accounting tends to be less than transparent. But historians I have corresponded with agree that railroads mostly broke even, and that was OK because there were political and public relations reasons to run passenger service. A couple of name trains made money, but not so much the passenger service as a whole. But that was back in the day. On the eve of Amtrak, a couple of railroads, such as the SCL, thought they could make a profit running passenger trains, but even they decided to join Amtrak.You might remember that railroads could stay out of Amtrak if they wished, and Southern and Rio Grande did. But by 1971, most railroads saw passengers as a big cash drain.How would this have changed in the last 40 years?

Of course passenger trains don't make money. My point is that private industry should get an incentive for reducing their losses.

Say Amtrak's operations lose $500 million per year. If under private ownership, Amtrak's loss on operations falls to $400 million per year, then perhaps the company could pay a dividend to its shareholders of 25% of the money saved, so $25 million, as an incentive.

JoeG wrote:You want to blame the Democrats for not being willing to subsidize passenger rail run by private railroads? Huh? For years in the Northeast, mostly-Democratic state governments subsidized the private commuter railroads before Amtrak and Conrail. Would the Republicans be more generous? The Tea Party? Please don't let your personal political ideology get in the way of your seeing the facts.

I'm not "blaming" Democrats for Amtrak; my point, which is well-documented, is that Amtrak's structure was arrived at due to pressure from congressional Democrats, who refused to approve the Nixon Administration's proposed structure, which would have required the Federal government to pay subsidies to private railroads, leaving ownership and operation of passenger trains in private hands. Those Democrats didn't want to subsidize private corporations. That's an established fact and is well-proven throughout the legislative history of Amtrak's creation. Are Democrats not allowed to have viewpoints?

you don't mention how many shares. I can imagine where I could consider 3 cents a share to be just as worthless as zero, what your quote says was Amtrak's original idea.
Assuming a hundred million shares, 3 cents comes to $3 million presumably taxable long term capital gains, divided among the 4 railroads. Is that even worth paying the accountants and brokers to process the sale?

I think it's an ok gamble for the railroads to negotiate at least a few years for a better price.

its an interesting thought southern. amtrak was born in an era when government thought it could do better. it hasnt been able to do so. its a valid question (how best to structure amtrak) and what was right in 1971 (was anything right in 1971?) may not be right today. perhaps shares of amtrak should be for sale. states are now required to pony up money, perhaps that should also buy them voting shares. perhaps the freight railroads should also have voting shares.
anyway , i tend to agree that publicly subsidized private companies tend to function better in the us than publicly run agencies. if the government ran google it would lose money.
perhaps privatization could come in the form of the government selling shares. maybe an airline company would like a voting share.

Google's a BAD example. Where would google be without the government's help in having created ARPANET in the first place? When I googled ARPANET http://inventors.about.com/library/weekly/aa091598.htm" onclick="window.open(this.href);return false; also mentions NSFNET, which I hope reinforces the idea that we would have a different web without the US government's involvement

And many of you my dear gentle readers have expressed that railroads had ages ago gotten advantages from government involvement.

there is a cash flow issue here. even if the operating losses were curtailed, where is the cash to pay the proposed incentive? the $500mil paid by federal taxes cannot be used for dividends. perhaps something could be done with the nec which probably is marginally profitable. privatize it? don't think the revenues could support the infrastructure sell price. the rest of the operation? no buyers, ever. so what to do? it is an anachronism never to be without huge federal support. i would shut it down completely. the railroad buffs that argue for it? they will fade away in time. ken patrick

SouthernRailway wrote:I've read extensively about why Amtrak was created, and the legislative process that was involved.

Starting in the 1950s, various observers proposed that private railroads pool their passenger trains and equipment into a nationwide network... ..

Mr. Southern, while such may have been first proposed elsewhere, DPM floated the concept of a separate passenger train operating company in his treatise 'Who Shot The Passenger Train?', that appeared in April 1959 TRAINS. Being the arch conservative Southerner he was, DPM avoided the issue of public subsidies and I'd guess he had a Joint Facility in mind along the lines of the post 1947 Pullman Company and Railway Express Agency.

But we forget, no railroad wants to find themselves more involved in the passenger train business than they are at present (the All Aboard Florida charade is just that). Where Corridor passenger trains operate over railroad ROW's, the long range objective is to have those lines in public sector hands - recent case in point the Wolverine lines in Michigan.

The only thing the Class I industry wants is out from the mistake that their predecessor managements made over forty years ago. Joining up was done from desperation and with an unwritten understanding that the party would be over in starting about five years. The Carter Cuts were the first, and I'd dare say only, step towards that objective.

There is simply no way that railroads are going to take any step that would have them more involved in the operation of passenger trains than at present.