Private Sector Participation in Intercity Rail Service

» A House Committee holds a hearing on privatizing passenger rail, but recommendations are likely to be difficult to implement.

Three weeks after Florida Governor Rick Scott (R) cancelled the Tampa-Orlando intercity rail project — a decision that seems increasingly foolish considering newly released projections of profitability on the route — members of the House Subcommittee on Railroads, Pipelines, and Hazardous Materials held a hearing today on the potential for increased private sector involvement in the funding and operations of intercity passenger rail service. The stated goal is to consider how to make intercity rail less expensive to run, at least in terms of government subsidies.

For Republican supporters of passenger rail, as few and far between as they are nowadays, getting non-governmental actors into the business is a major priority. Yet the ability to do so has been previously handicapped by other members of the GOP, most recently by Mr. Scott, whose decision to reject federal funds for his state’s project came before companies had the chance to respond to an offer to operate the line that would have required them to absorb construction and operating risks. And the whole goal of encouraging private investment may be troubled by the fundamental deficits in American rail infrastructure.

Nonetheless, the goal of increasing private participation in what for now is a government monopoly in the United States has long been a favorite of House Infrastructure and Transportation Committee Chairman John Mica (R-FL). In December 2008, Mr. Mica announced that the government would solicit private companies for their ideas for how to improve the nation’s rail system, and by February 2009, the government had received more than 100 responses. Notably, French national rail company SNCF produced a stunning report revealing plans for corridors in the Midwest, Texas, Florida, and California. These plans have gone nowhere so far.

There is quite a bit of precedent for private involvement in rail services: The United States’ passenger rail system, which was once impressive, was largely built by companies. More recently, European Union liberalization rules have encouraged the growth of huge multi-national transportation companies that are increasingly playing a role in moving people on commuter and intercity rail lines.

And the American freight rail system, which transports a large percentage of the nation’s goods, is self-supporting. In fact, its operators plan to collectively spend $12 billion on improvements this year alone.

Whether or not it is a good idea to replace monopolistic public sector ownership with private companies and competition is worth evaluating in the passenger rail sector. As Edward Wytkind of the AFL-CIO stated today accurately, privatization in the U.K. has resulted in numerous difficulties and arguably an increase in public subsidies. But an even more serious question is just how realistic privatization is at all in the American context.

Mr. Mica, who referred to Amtrak as a “Soviet-style” passenger rail service because of its reliance on subsidies and lack of competition, argued today that routes be put up for competition, implying that private companies would be able to provide similar services at a less expensive rate for the government.

But there will continue to be very limited interest in “attracting private sector capital,” as Mr. Mica put it, unless there is a significant increase in public investment in intercity rail. The problem is that outside of the Northeast, most rail corridors are owned by the freight railroads, and they offer only limited capacity for increases in passenger operations. These freight companies have been largely uninterested in investing in passenger rail (their ancestors, after all, abandoned such services decades ago), and the Congress cannot simply expect other companies to be able to operate trains on those tracks. The law allows Amtrak, as a public company, to run along freight tracks, but it would be very problematic to extend similar rights to private companies, as Stephen Gardner, Vice President at Amtrak, said today. Would it be fair to force private freight companies to allow other private companies to run on their tracks?

States that subsidize their in-state passenger rail services, including California and North Carolina, among others, have the right to contract intercity rail services out to companies other than Amtrak, but they have not done so so far — part of the problem, apparently, is that few or no companies have expressed their interest in doing so.

Moreover, because the existing infrastructure is so decrepit — too few double-track corridors and poor stations are only the start of the problem — it is hard to see why many private companies would want to become involved in this process, because there are very limited margins for increased profitability.

On the routes where Amtrak currently is not operationally profitable — those outside of the Northeast Corridor — private companies would almost definitely require subsidies. This is not an exception to the rule: In the U.K. and in other countries, private operators often compete for subsidized contracts. Joseph Szabo, head of the Federal Railroad Administration, said today that his agency would move forward with competitive bidding for services along two current Amtrak corridors, but why any company would want to bid out for the three-times-a-week Sunset Limited, for instance, is unclear.

Indeed, the whole discussion about increasing private investment in intercity rail implies that Amtrak has been unreasonable and inefficient in its use of funds. But the fact that Amtrak loses money does not mean that private companies would, or that they would require fewer subsidies. Indeed, Amtrak’s losses are mostly a result of the fact that its routes run along corridors that have suffered from public disinvestment: With capital expenditures along its lines, it would likely do far better. That is what the Administration’s $53 billion intercity rail program is supposed to do, but the Republican Party majority in the House has been largely opposed to any such investments.

The Northeast Corridor, which is the only rail route in the United States that has received significant investment, may be the only good candidate for private involvement because of its high capacity, high ridership, and even higher ridership potential with improvements. The problem with that idea is that Amtrak owns the line and is making money on its operations there. Would competition there be reasonable? Wouldn’t that simply reduce Amtrak’s ability to cross-subsidize its other operations into the future?

Advancing the cause of privatization and competition in America’s passenger railroads paradoxically requires an increase in public investment in infrastructure. That spending could be coordinated with private partnerships, but no company is likely pay for the entire cost of a new line. The European decision to allow liberalization only came after decades of upgrades along intercity corridors and parallel increasing ridership. Only after the government has opened up new lines for service — Florida’s high-speed rail line was an excellent example — will there be significant interest from companies.

Image above: A train in the Netherlands operated by private contractor Veolia, from Flickr user Reinout van Rees (cc)