Home Asides Policy Idea of the Day: Privatizing the Northeast Corridor

Policy Idea of the Day: Privatizing the Northeast Corridor

by Benjamin Kabak

As Amtrak moves forward with plans to bring high-speed rail to the Northeast Corridor, House Transportation Committee Chair John Mica would prefer to see someone other than the federal government oversee the nation’s most profitable rail line. As the Associated Press reported last week, Mica has called for the privatization of the Northeast Corridor. “I believe that we have great potential in the Northeast corridor,” Mica said. “The only thing standing in the way is Amtrak or the federal government or Congress.”

Essentially, Mica wants the government to sell its only profitable rail line while Amtrak itself would prefer to see private investment help fund the high-speed rail network. At a time when many believe the federal government should focus its high-speed rail resources solely on the Northeast Corridor, Mica’s announcement is a peculiar one. For now, at least, the Northeast Corridor helps offset the losses the federal government suffers by supporting the rest of Amtrak’s national rail network. Severing it isn’t an economically sound policy proposal.

In the House, Mica and John Duncan say they have enough votes to pass the plan, but the Senate wouldn’t usher this move through. New Jersey Senator Frank Lautenberg warned that ticket prices, already high, would immediately increase under a privatized plan, but those are the least of our worries. Yonah Freemark believes that privatization would spell the end of the competition currently fueling the Northeast Corridor’s profitability while Alon Levy says that FRA regulations are to blame for any inefficiencies in Amtrak’s operations.

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Stephen Smith May 31, 2011 - 3:20 pm

When you say “profitable,” you mean “operationally profitable,” right? But HSR would involve large capital costs which would, in Mica’s plan, be shouldered largely by private investors. Of course he’s talking about privatizing the whole corridor, not just the HSR tracks, so the government would lose some profits (that is, if you trust their accounting, which anyway I’m not 100% sure that I do) on that, but they would also not have to pay for (much of) the HSR project. If the profits on existing lines are larger than the loss on HSR, then the government loses money on net. But if it’s the other way around, they gain money. Not sure how the net accounting works out, but I don’t think it’s at all obvious that keeping the NEC and building HSR on it would really be good for the federal budget.

Alon Levy May 31, 2011 - 3:25 pm

The multi-billion dollar question is how much building HSR on the NEC costs. If it’s $10 billion, then the rate of return is in the double digits. If it’s $100 billion, then it’s a boondoggle. That’s why I keep complaining about the FRA and about agency turf: those make construction much more expensive, making projects that could otherwise be successful not worth it. Organization is cheap; concrete is expensive.

Christopher May 31, 2011 - 3:32 pm

Privatized rail is the norm in a lot of places. How is it done? I’m sure through heavy subsidy but is there a better model for us? I wonder if a long term lease on the operations there could work that way Amtrak could still capture revenue.

Alon Levy May 31, 2011 - 6:12 pm

There are tons of way to privatize. The two basic models are:

1. Japan, or the US pre-Amtrak. Railroads own track and operations, set their own schedules, and negotiate trackage rights when they want. They cooperate on schedules and fares The government may or may not provide some public works money for construction – e.g. the Pennsylvania Railroad electrified the NEC with WPA money in the Depression – but does not subsidize operations.

2. The EU today. Tracks and operations are separate; the tracks remain publicly owned, and private companies as well as separate state-owned railroads can bid on operations. If this is done for regional service, then the local government owning the track will provide a subsidy and get the operator that requires the least subsidy for operations; however, intercity service is not subsidized. The public entities owning the track may also set integrated schedules and fares to ensure seamless transfers between different companies – again, this is done (mainly) for regional rather than intercity trains.

Mica proposed to go with model #2.

Jerrold May 31, 2011 - 3:41 pm

Let’s not forget how Amtrak came about:
Private railroads were going broke all over the place.
What makes anybody think that it would be any different the second time around?

Bolwerk June 2, 2011 - 9:31 am

If we don’t change FRA and land use regulations, it won’t be. Private railroads didn’t just “go broke” in a vacuum; they were taxed to death largely to pay for highways and airports.

ProgressivePeach May 31, 2011 - 4:01 pm

Anytime you hear the GOP talk about “privatization,” change it to “sell off this public asset to my cronies/contributors for a fraction of its true value” and you’ll get the jist of what they’re really calling for.

Alex C May 31, 2011 - 4:09 pm

And what does Mica propose we do with routes that go through the NEC but serve areas outside of it? Pay a tariff to this private company? What about commuter agencies that go along the NEC? I wonder what lobbyist is paying him to get that sweetheart deal.

I agree on the FRA regulations part though. They are 1920’s regulations and need to be updated for the 21st century. Unfortunately, all new rolling stone for commuter rail in the Northeast is already built to the insane tank-like weight and crash test standards.

Alex C May 31, 2011 - 4:17 pm

Meant rolling stock* there…

Donald May 31, 2011 - 4:25 pm

Good point. You have NJ Transit, Metro North, Virginia Railway Express, SEPTA, and MARC all on the NE Corridor. If they have to pay the private entity, that will mean higher fares for everyone who uses those systems.

Alon Levy May 31, 2011 - 5:46 pm

Metro-North owns the tracks it uses on the NEC. In fact one of the causes of the slowness of the Acela is that Metro-North restricts all trains to 75-90 mph on the New Haven Line and bans tilting.

Clarke May 31, 2011 - 7:56 pm

I think the real option would be to add a separate right of way for all of these commuter rails (or, in the case of the Metro North tracks, add separate tracks for Amtrak trains [side note: there are numerous MN stations with platform extenders that block an entire track…why can’t MN run their trains run on those tracks?])

Alon Levy June 1, 2011 - 1:05 am

Yes, that’s how it should be done. Metro-North is fully four-tracked except for one short three-tracked version that Amtrak is rightly proposing to four-track. The traffic is such that express commuter trains can weave between local commuter trains and express intercity trains and it’s not a big deal. However, the agency turf is such that Metro-North wants full control of all four tracks.

Alex C June 1, 2011 - 1:26 am

Platform extenders are there when a track is out of service, usually for rail and sleeper replacement or overhead wire work. They’re not meant as permanent.

Donald May 31, 2011 - 4:10 pm

Obvivously Mica is trying to re-pay all of his donors by handing them over the NE Corridor. There is nothing that Republicans will not privatize.

Eric F. June 1, 2011 - 8:59 am

Nothing in that statement is accurate or even sensical.

Phil May 31, 2011 - 4:40 pm

I look at it this way: This country is broke and we have a nice thing in the NE corridor that the govt. pays for but guess what were broke and we cant have nice things for free. It’s a giant shit sandwich and we all have to take a bite so in teh grand scheme of things if the NE corridor becomes pricey or a pile of crap in the name of saving money then I guess the ends justify the means.

I’m a huge supporter of rail and I don’t think privatization is the answer but at least ideas are being thrown around.

Chris May 31, 2011 - 4:50 pm

To me there are two main questions:

(1) Can the government ensure that it’s getting a real market price for whatever assets/franchises it decides to sell

(2) Can the government credibly claim that it will stick to whatever agreements it makes with a private operator, in both directions – not to take advantage of a private operator, nor to later socialize risks that the private company agreed to take on

I worry more about #2, especially if “private investor” ultimately means an Asian or European state-owned corporation. But if it’s possible to get genuine private money to work on building HSR in the NEC, that would be tremendous – it’s a dollar for dollar reduction in money government would need to spend to achieve the same goal.

Guest May 31, 2011 - 6:01 pm

No, it is the government’s practice of supporting an unprofitable national rail network that is not “economically sound.”

Troy May 31, 2011 - 10:17 pm

Why not privatize the routes that are not making money? I don’t want some Florida politician enriching his corporate friends by giving them my Acela service to soak themselves with. Give them routes in Kansas.

Bolwerk June 2, 2011 - 9:37 am

What good would that do? Hell, what will it do at all, except make them even more expensive to operate?

Steve June 5, 2011 - 3:15 pm

The reason EVERY SINGLE passenger railroad in this country is in public hands is because the private sector couldn’t or wouldn’t operate them profitably. They were ALL built initially by private companies (look at your Monopoly board – Penn RR, Reading RR, B&O RR, etc.) and subsequently run into the ground. This is just another Republican idea to enrich the pockets of their friend and backers. After a couple of decades, the government will be forced to step back in and “save” the railroads. Why can’t we wake up and realize that passenger railroads are not able to operate on fares alone, and that’s OK because mass transit is in the public good? Passenger railroads require substantial public support, and if that means subsidizing the private owners/operators why not cut out the middle-man (which rightfully demands a profit) and operate them directly?


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