WeekendTraveler

I am reading that Amtrak wants to spend $250MM to seize Washington Union Station. I am also seeing that Amtrak wants to spend billions on new routes around the US--not necessarily in its core markets.

A normal business would figure out the rate of return on its investment before spending the money. A normal business would often want to build on its market share in a market in which it is already the market leader, rather than spending money to expand in small markets where it has only a small market share. (I always thought that a rule of thumb in business is that it's best to be #1 in a market, not even #2 or #3.)

So when Amtrak considers how to spend billions of dollars of additional subsidies that it's getting, does it do studies to confirm that the rate of return on its spending will be positive?

For example, for the tens of billions in new subsidies that Amtrak is getting, I would think that such a large amount of money, used wisely, could put Amtrak on a path to significantly increase its revenue per seat-mile on routes where it already has high ridership (but still has plenty of excess capacity, such as the Northeast Corridor) and reduce its operating losses, which could free Amtrak from the burden of begging for cash from Congress every year. For example, spend the money to get Washington-NY trip times down to 2 hours, and maybe add some new branches to suburban areas, and air travel in that corridor could be largely eliminated and Amtrak could get a lot of new riders. But new projections that Amtrak just released show its operating losses increasing on many routes over the next few years, and not falling overall, despite this influx of cash.

Does anyone have enough knowledge of Amtrak's inner workings to confirm that it does allocate spending like a normal business would, to ensure that it directs spending in areas where the economic payoff will be the largest?

Thanks.

nerd

No. Amtrak is not a private business and does not allocate funds the way a private business would.

physioprof

Nor should it be operated "like a private business", because it is not a private business. An enormous part of the reason why Amtrak receives the subsidizes that it does is precisely to enable it to keep operating "non-profitable" routes. Do you think the Senator from South Dakota is gonna vote for Amtrak subsidies if it cancels the only train in South Dakota bcs it isn't "profitable"???

WeekendTraveler

There are two questions here:

1. Should Amtrak operate a minimum national network in part to ensure political support around the US?

The answer is “yes”, but that’s not what I’m asking.

2. If Amtrak is given $66 billion in new funds, should it have to spend those funds in the most efficient way to get the best rate of return on the investment?

That’s what I’m asking. Based on this thread, it looks like the answer is “no”.

Since the answer is “no”, why is the US government giving Amtrak that much; since transportation funds are generally scarce, shouldn’t those funds be directed to whatever the most pressing need, with the highest rate of return?

schriste

If point 1 is deemed to be true, then you have set the stage for problems. How do you define rate of return? Just money? then you have to throw out premise number 1. If you keep point 1 then you need politicians to do the sausage making as there is no absolute answer.

nerd

Infrastructure is expensive.

And instead of throwing around big numbers with no context:

Might also be worth noting the funding amounts to $13B/year; the budget for the Dept of Transporation next year is $142B.

WeekendTraveler

If you look at Amtrak as two companies in one:

1. The first provides a skeletal network of trains around the US. Goal: social service, helping mobility, etc. Offering: Conventional trains at conventional speeds on freight railroads’ tracks.

2. The second provides high-quality service and has a high market share, and is a viable transportation option for lots of people. Goal: moving large numbers of people. Offering: Acela and some high-frequency corridors.

Congress has made it clear that the first company is going to survive and get enough subsidies to remain in business.

The question is: when Amtrak gets $66 billion in additional funds, should those funds go to the first company or to the second?

The Obama high speed rail grants went largely to the first company, marginally improving a few routes around the US but not making much of a difference.

I’d say that the new $66 billion for Amtrak should go to the second company. If it’s going to the first, where it won’t make a big difference for large numbers of riders, then it’s just money being thrown at something for political reasons, which is a waste.

paytonc

That's a supremely weird example to choose, given that Union Station commands the highest retail rents in DC. The leasehold interest that Amtrak is seeking to seize was valued by a private sector appraiser at over $1.2B a few years ago; the most recent appraisal puts it at ~$830M, but that reflects temporary market weakness and currently high vacancies. (Current mismanagement means that the vacancies, and thus lost value, predate the pandemic. For instance, they vacated the upstairs offices in 2017 to build a hotel... which still hasn't happened, even as multiple upscale hotels were built right behind the station!)

If Amtrak's eminent-domain strategy works, they will have scored a profitable asset at a 70%+ discount off the appraised value, and even a 45% haircut from the mortgage balance, all thanks to careful contract reading... seems like exactly what a very savvy private real estate investor would do.

nerd

Then do your research and find out exactly where the $66B is going, hint hint

WeekendTraveler

I have. I’ve read the statute in its entirety. Some is going to improve the NEC, but most isn’t. Really too bad, since $66 billion could really speed up the Acela.

Good to hear about Union Station. I didn’t realize that the price was so far below market value. Smart of Amtrak to try to take control in that case.

physioprof

Assumptions you are making that are unwarranted include:

(1) Congress should appropriate funds in proportion to how "efficient" their use is

(2) "efficiency" is equivalent to "best rate of return on 'investment'"

(3) "transportation funds are generally scarce"

(4) "most pressing need" is equivalent to "highest rate of return"

WeekendTraveler

Amtrak’s funding history (or lack of funding history) demonstrates (3). The point is that dollars for transportation- or any other use- are not unlimited.

For (1), (2) and (4), those are my personal preferences: spend money for transportation where you get the biggest bang for the buck in terms of better transportation for as many people as possible.

Private companies spend money on infrastructure projects based on the expected financial return from the investment. At least that’s my experience in the private-sector part of the rail industry.

But it sounds like Amtrak doesn’t do that, which explains why it provides mediocre trains instead of world-class ones.

schriste

The choice is not as you put it... one or the other, but instead some distribution. You may want it to all go to the second company, which is fine, but others will obviously disagree and neither you or the others is "correct". Again, that is why we have politicians.

WeekendTraveler

You're 100% correct, but it's disappointing (to me) that funds are doled out for political reasons.

I've been involved in government planning of a local mass transit line, and each line of the local transit authority had to meet minimum financial criteria; if a line failed to meet those financial criteria, it was eliminated. Similarly, funds for capital expenses were doled out due to a formula that included meeting criteria for various financial returns, and new lines were described to the public in part by promises of how much economic return they would have (in many cases, based on the amount of real estate development that was projected along the line). As a result, that transit system has pretty good ridership per line, and pretty good public support (it's won multiple local referenda on transit spending).

If Senator X ensures that part of Amtrak's new $66 billion grant is to, for example, eliminate a grade crossing and build a new station platform for a line that has 2 trains per day, it just seems poor, when the same dollar spent on, for example, the NEC would have more of a bang for the buck.

Sorry, I get on my soapbox and have done so here, but thanks for tolerating my rants.

schriste

Sounds like your local transit authority has at least some reasonably intelligent people associated with it. And perhaps due to merit they will get some funding. However, let's assume that Senator X presides over a very rural state and for the past 50 or so projects/allocations/grants, etc. that have come up... none of them make purely financial sense as putting them in Denver, of Boston or Houston has a higher "return". So perhaps getting that grade crossing eliminated (that killed 6 people over 50 years) and a new station platform allowed Denver to get some new who knows what.