Wall Street Journal learns states face steep new charges for train service

January 25, 2013

In a copyrighted January 22 story the Wall Street Journal noted a development that has had transportation officials in six states scratching their heads for over a year.

“Amtrak is shifting costs for some of its shorter passenger-train routes to the states, forcing them to decide between paying more or cutting back on rail services that many have been trying to expand,” wrote Journal reporter Mark Peters.

Readers can find the complete Wall Street Journal article at

http://online.wsj.com/article_email/SB10001424127887323301104578258270226054556-lMyQjAxMTAzMDIwMzEyNDMyWj.html?mod=wsj_valetbottom_email

Although Peters did not dissect the origins of the rate increase in detail, he noted that in 2008 Congress passed legislation mandating that starting in the fall of 2013 all Amtrak trains on routes under 750 miles in length must be paid for by the states they serve rather than out of Amtrak’s share of the federal budget. Amtrak’s budget henceforth can be spent only on trains using the Northeast Corridor, which Amtrak owns, and on multi-state overnight long-distance trains designated by Congress as part of a “national” system.

The shift of the charges from the federal to the states’ expense column is expected to be particularly hard on the states of Indiana, Michigan, New York and Pennsylvania. When Amtrak was created in 1971 all four states had corridor routes that were designated part of Amtrak’s national system. Now they must shift to the state-supported category. If cash-strapped states cannot find the money to cover the increases, they may have to scale back passenger-train services just as ridership and revenues are hitting all-time highs.

For New York the stakes are steep. The nine daily round trips between New York and Albany—two of which continue on to Buffalo—have operating costs that exceed the revenue from passenger fares. Until now Amtrak’s budget has made up the deficit. Now New York must supply the money, which is expected to total $44 million per year.

Michigan is in a similar situation. Its three daily Chicago-Detroit Wolverine round trips started out as part of the Amtrak system. Now the state must take them over at an estimated cost of more than $12 million per year. Pennsylvania, which enjoys daily service between Pittsburgh and Philadelphia from Amtrak’s Pennsylvanian, will have to cover the train’s annual deficit of about $10 million.

“This is why our company acquired the rights to more than 50 former Santa Fe Railway Hi-Level coaches,” said Corridor Capital Chairman James E. Coston. “We knew the additional Amtrak charges were coming, so we went into business as a fleet assembler so states seeking to grow their passenger-train revenues could use their own rolling stock to manage their costs.

Coston said states that lease or buy a fleet of Hi-Level trains remanufactured by Corridor Capital can sidestep the new Amtrak charges because they won’t be using Amtrak’s assets.

“They’ll also reduce their operating costs because Hi-Levels are newer and cheaper to maintain, plus they’ll raise more revenue from ticket sales because the Hi-Levels have more seats,” he said.

“One reason the states are struggling to pay for their Amtrak trains is that many frequencies are sold out,” Coston said. “There are potential passengers out there willing to buy tickets, but the states have no additional seats to sell. If the states had sufficient extra seats they could raise enough revenue to pay for their own coaches and locomotives.”

Coston explained that the Amtrak coaches have only about 65 seats each, while the double-deck Hi-Levels have nearly 100. A four-car Hi-Level train can earn about 30 per cent more revenue than an Amtrak train of the same length.

“Bottom line–a Hi-Level purchase or lease from a private-sector fleet assembler can pay for itself out of the train’s earnings,” Coston said.

“Only the train’s operating costs need to be subsidized if Hi-Levels are used, and those costs drop too because Hi-Levels are newer and need less maintenance.”

Amtrak’s latest ridership and revenue statistics suggest the need for additional seating capacity is urgent. While numbers nationwide hit their all-time highs in 2012, with ridership up 3.7 per cent and revenues up 8.7 per cent, the state-supported corridor trains strongly outperformed those in the Northeast Corridor and long-distance category. Ridership on Illinois’ Chicago-Carbondale trains was up 14.5 per cent and revenues were up 14.6 per cent. On New York’s Adirondack, those numbers were 13.9 and 19.4 per cent. On Maine’s Downeaster service they were 10.3 and 19.9 percent.

But Coston said the “most interesting” numbers may be those from Michigan.

“A funny thing happened to the Chicago-Detroit Wolverine service,” he said: “Over the entire year ridership grew by 6 per cent, but when Amtrak added some extra Wolverine frequencies just before and after Thanksgiving, the growth rate for the Thanksgiving weekend shot up 17 per cent compared to 2011, when no extras were operated.”

The conclusion, said Coston, is that “There are lots more train riders out there waiting for seats. If the seats are supplied, they’ll ride, and their fares will pay for the new seats.

“The states don’t have to make an agonizing choice between paying more for their trains or reducing train service to hold the line on costs,” he said. “They can buy or lease new Hi-Levels and use the additional seats sales to pay down their acquisition costs. Hi-Levels can pay for themselves while reducing the total cost of train operations.”

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