Monday, March 14, 2005

Funding and The Great Lie – The System Shuts Down

Right now, Amtrak, the national passenger railroad system (motto: serving mostly the Northeast), is operating on a budget roughly $600 million short of what it needs just to remain in a “state of good repair.” The latter is Amtrak’s phrase, not mine. The Bush Administration has let it be known that it does not want Amtrak federally funded beyond the current fiscal year. This series of blog articles has focused first on our opinion that there is an inherent Great Lie in the operation of passenger railroads in the United States, and second on what will happen if federal funding is fully withdrawn from Amtrak.

We noted in the last blog – see March 6 – that at first nothing would happen. The point was that funding would be withdrawn in the middle of a fiscal year and everyone would probably get over it by the time the next fiscal year started. The first visible reaction, reported in Trains, April 2005, was to discontinue the purchase of DMU trainsets and the pole replacements needed to maintain and upgrade the electrical system – power for trains – for Northeast Corridor right of way.

Transportation systems of different kinds react differently to shortages or outright lacks of funds. Passenger railroading is still government regulated to a far greater extent that freight railroading. Notice that I said regulated, not subsidized. Traditional government regulation for railroads covered everything from how much railroads could charge their customers to how they could account for it. Non-traditional regulation began with subsidization. The budget process from the local level up to the federal level controls what passenger railroading can and cannot do.

The managements of subsidized transportation systems reacts to shortages of funds and shortfalls that may be made up in the next fiscal year by cutting services and processes that can be done without for a short time and that can be reinstated when the government (local, state, federal) comes up with more loot. What management has done with the Amtrak shortfall is a good example.

What management will have to do if federal funds disappear completely is different. First, management of Amtrak will have to strongly lobby state and local governments for funding to continue service through those areas that now help support Amtrak trains or say they want to. This is what President Bush wants them to do.

Second, Amtrak management will have to take a long, hard look at what they can do to preserve assets in the event of a shutdown. They will have a fiduciary duty to make the property, both track and rolling stock, worth as much as possible in the event of liquidation. This will lead to certain decisions to curtail service in the areas where state supported trains are not on the horizon and where maintenance costs are high and there is a higher risk of wrecking the assets or rendering them valueless. An example of the latter would be in areas where freight railroads have deferred maintenance on Amtrak routes.

Finally, when the last of the federal money is gone, management will have to get all the trains home and shut down the system anywhere that state and local funding hasn’t kicked in. In my opinion, that will be everywhere except the Northeast Corridor, Pacific Coast, and possible Chicago trains (Kansas City, Chicago, Milwaukee, Detroit, maybe Minneapolis).

My readers will notice that I have not said anything about management deciding to raise fares to cover lost funding. They won’t, because they know that passenger railroading has never been able to cover its costs and probably never will. That fact is part of The Great Lie.

However, before we get into the History of The Great Lie, we will cover the Consequences of the Shut Down. Please stay subscribed or return often for our next blog.

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