Amtrak’s Financial Track Record Growing Brighter : Transit: Head of system says federal subsidy could be phased out, but only after bigger U.S. investment.

In the middle of the morning in the middle of the week--hardly a busy travel time in anyone’s date book--Union Station hums with activity.

Shoppers tramp the corridors of its two-story boutique mall. Commuters pulse out of a Metro subway station in the basement. Travelers queue in the vaulted marble-and-mahogany lobby to buy Amtrak tickets to Philadelphia, New York and Boston or Chicago, Atlanta and Miami.

Arriving and departing trains send shudders through the building, all the way through to W. Graham Claytor Jr.’s roomy, wood-paneled office four floors above the tracks. Now that Amtrak dominates the market to New York and rakes in record revenues by expanding service elsewhere, each rumble affirms Claytor’s faith in his railroad.

Given half a chance, the Amtrak president tells anyone willing to listen, his quasi-public National Passenger Rail Corp. can resolve many of the nation’s troublesome transportation and pollution problems.

And, he preaches, with a little help, it soon could do away with its federal operating subsidies--something that no other national passenger railroad in the world has done.

“We can make this railroad self-sufficient in operating funds by the end of this decade,” he said, repeating a sermon he has preached often this summer down the street on Capitol Hill. “But we’ve made it clear that we can only do it if we get a considerable increase in capital investment.”

To that end, Amtrak is proposing, among other things, diverting 1 cent of the federal gas tax--$1.2 billion a year--from the general fund to Amtrak, where it would be used to expand and modernize intercity rail services.

Grabbing 10% of a significant federal tax, skeptics note, is a cheeky notion for a company that serves at best 2% of the nation’s intercity travelers--a company that such critics as Fred Smith of the Competitive Enterprise Institute dismiss as an anachronism, “an expensive toy.”

Predictably, the proposal has drawn howls from the highway lobby and scoffs in Congress and the White House, where few people are looking for new ways to spend money.

Claytor, 81, is willing to wait. A former Navy secretary, he is well aware that his bold idea doesn’t stand much of a chance the first time it is offered up--not in an election year, and especially not in a presidential election year.

But, Claytor said, the fact that it has merited serious discussion shows how far Amtrak has come since the early ‘80s, when it was hemorrhaging money and struggling merely to avoid extinction at the hands of White House and congressional budget-cutters.

Ridership and revenues are healthy, while subsidies have dropped to where some conservative think tanks are agitating for the government to auction off the company to investors, as it sold off another federally rehabilitated railroad, Conrail, in 1987.

“It has come a long way since 1971, when (Amtrak service started and) . . . people thought covered wagons and passenger trains were of the same era--and both in the past,” Claytor said, repeating a favorite line.

By one measure--passenger-miles, the miles traveled by all passengers--Amtrak has doubled its ridership in two decades. Actual passenger counts increased 40% in that time. Washington State University Associate Prof. David C. Nice said Amtrak accomplished this by borrowing management techniques from airlines and a customer-service ethos from its own past.

“The Amtrak system has succeeded in stopping the decline in passenger train ridership and has generated modest but relatively steady increases in ridership since 1972,” Nice wrote in a Transportation Quarterly article on Amtrak’s future. “Nothing remotely comparable occurred during private operation of passenger trains in the postwar era.”

Meanwhile, Amtrak is branching into lucrative sidelines, such as hauling mail, developing land around stations, building or repairing cars for other railroads, and operating commuter and intercity trains under contract to local governments. These activities will generate $400 million this year--29% of Amtrak’s $1.37 billion in revenues--without consuming scarce capital.

Indeed, Amtrak is important to California’s effort to cope with congestion, pollution and inadequate transportation. It already runs commuter trains in Orange County and the Bay Area, and will operate Southern California’s regional Metrolink system, scheduled to start Oct. 26.

Amtrak also runs four state-subsidized intercity trains, including San Jose-to-Sacramento service to ease congestion on Interstate 80 and Bakersfield-to-Oakland trains to supplement infrequent airline service to Fresno, Stockton and the rest of the San Joaquin Valley.

This expansion in California--along with its presence in the nation’s capital, where it runs local commuter trains and popular intercity service to Philadelphia, New York and Boston--makes Amtrak a visible, vital part of the nation’s most populous and politically powerful regions.

Amtrak already more than covers the marginal cost of new service, Claytor said, and so each expansion will reduce the federal subsidy, which helps to cover such systemwide fixed costs as claims and heavy maintenance. But if Amtrak needs to expand to reduce its taxpayer subsidy, it will need more tax money--at least in the short term--to expand.

Smith, president of the conservative, pro-market Competitive Enterprise Institute, fumes at the idea. “Amtrak carries a fraction of a fraction of intercity passengers,” he said. “It’s a remnant of a bygone era.”

Stephen Moore, an economist at the libertarian Cato Institute in Washington, said he thinks the gas-tax proposal is “an awful idea,” but he believes Amtrak merits additional investment from the general fund if it finally pushes the railroad into the black--and keeps it there.

“Amtrak has shown tremendous improvement,” Moore acknowledged. “I’d be willing to put a billion dollars of tax money in it, if I was certain there is a drop-dead date after which it would go private.”

Amtrak, in fact, was created by Congress in 1970 as a private, profit-making company. Although it never fulfilled that mandate--it has never run in the black--it did succeed in preserving the fast-disappearing remnants of the nation’s passenger railroads after the Northeast’s Penn Central Railroad went bankrupt.

Self-sufficiency was promised again in 1981, when Amtrak’s $881-million annual subsidy came to symbolize wasteful government spending and was slated for cuts. Then, as now, profitability was conditioned on a substantial capital investment, which did not materialize.

Given this history, taxpayers might be forgiven for being skeptical of new self-sufficiency claims--particularly because Amtrak is seeking $331 million in operating subsidies and $572 million in capital improvements in 1993, even as Claytor talks of righting his capsized balance sheet.

But Claytor and Federal Railroad Administrator Gilbert E. Carmichael argue that the aid is a relatively small and shrinking share of the nation’s transportation bill--far less than the $2 billion in federal aid for air travel that they contend is hidden away in the budget--and a small price for a potentially valuable asset.

Under Claytor, Carmichael and others contend, Amtrak has shown that it has found a formula to improve its bottom line. In 1981, Amtrak’s fares covered about 48% of its operating costs. Last year, the figure was 79%. This year, Claytor expects it to reach 84%.

Even its harshest critics acknowledge Amtrak’s steadily improving financial performance and credit Claytor for finally getting the railroad on track.

“Graham Claytor is one of the best managers in the world,” Smith said.

“Claytor’s appointment certainly was a significant turning point in Amtrak’s history,” said Michael Schafer, a Waukesha, Wis., author and Amtrak historian.

Considering his reputation and results so far, Claytor can be compelling when he says cost-cutting alone cannot push Amtrak into the black. It also must take in more money, he said, which means it needs more trains to bring new services to waiting passengers.

“People are realizing that (railroading) was always a good way to go. It just went out of fashion,” said Claytor. “Now it’s coming back--strong. And this time, I think it is going to stay.”

Claytor was not always so confident of Amtrak’s future. When railroads were invited in 1971 to shed themselves of their loss-making passenger services by turning them over to Amtrak, the Southern Railroad was one of only three companies to decline the offer. Claytor, Southern’s president at the time, doubted that Amtrak could survive on the small amount of support promised by Congress.

The new national passenger rail company--initially called Railpax, later Amtrak--was launched with a $40-million grant and $300 million in guaranteed loans for capital.

Others also said the money wasn’t enough to replace aging passenger cars and rebuild tracks to stem a 50-year ridership free-fall. From a peak in 1920, when 20,000 daily trains connected every town of any size, passenger service had declined to 500 trains a day in 1970--and 100 of them were targeted for abandonment.

Ironically, while Congress was creating Amtrak, it also authorized $17.3 billion to complete one of Amtrak’s chief rivals, the 41,000-mile Interstate Highway System.

By the time Amtrak rolled out its first train in May, 1971, it had reduced service further, to include only the most viable skeleton of a coast-to-coast network. Gone were such memorable trains as the Wabash Cannon Ball, but their cars and locomotives rolled on--incorporated into a new system designed to turn a profit within three years.

Profits, like many trains, were behind schedule. Amtrak boosted ridership from 15.8 million in 1971 to 18.5 million in 1974, buying sleek French turbine-powered train sets to replace cars and locomotives inherited from the private railroads, but losses continued to mount.

Schafer said the 1974 Mideast oil embargo won new support for the relatively fuel-efficient passenger railroad network and helped galvanize support to let Amtrak buy hundreds of miles of track in the Northeast after the final collapse of the Penn Central in 1976.

However, not even a second oil shock in 1979 was enough to mask Amtrak’s continuing losses. Even as ridership was climbing to more than 20 million passengers for the first time, Congress ordered the railroad to drop five lines. When losses persisted, Congress slashed Amtrak’s subsidy.

By the middle of the decade, Amtrak executives were openly discussing bankruptcy as one way to deal with the vanishing federal support. Instead, they revamped the way they did business.

“The best thing that happened to Amtrak was when the subsidy was cut back in the 1980s; it forced them to operate at the point of a knife,” said Moore, the Cato Institute economist. “It forced them to make certain labor and management changes, and reform.”

Amtrak joined the Airline Reporting Corp., finally putting its schedule on computer screens at 32,000 travel agencies. It also adopted the airlines’ “yield management” fare system that tracks and updates ticket sales to maximize both ridership and revenues.

Passenger amenities were improved, also in the style of airlines. Cellular phones and films were introduced on some trains, and food services were improved. New stations were built and a few forsaken architectural gems, such as 30th Street Station in Philadelphia and South Station in Boston, were restored.

As service improved, inflation-adjusted subsidies fell and ridership set records. More than 22 million people boarded Amtrak in 1990, riding 6 billion passenger-miles. In the Northeast, where Amtrak does half of its business, 125-m.p.h. Metroliner trains now carry more passengers between New York and Washington than all airlines combined.

Amtrak is investing $300 million to improve the track between New York and Boston, and will soon test a Swedish “tilting train” that can take corners at 125 m.p.h. Claytor wants to cut travel time on that corridor so that Amtrak can grab most of that market from the airlines.

Success in this area is important to Amtrak, because medium-range trips of 200 to 400 miles are where train proponents contend Amtrak can compete most effectively with airlines and cars.

Rather than spend billions to build a third Chicago airport or to expand Los Angeles’ airport, which are choked by frequent short-hop flights, Carmichael said, the country could use the same money to build high-speed trains. Trains could make the medium-length trips nearly as fast for a fraction of the fuel, he said.

While it works to woo medium-haul business travelers, Amtrak is stepping up efforts to attract more tourists on its long-distance trains. Claytor wants to add new routes, increase the number of trains on existing lines and create truly transcontinental service.

The first of those coast-to-coast “see-level land cruises” may start next April, when the thrice-weekly Sunset Limited from Los Angeles to New Orleans is scheduled to be extended to Miami. Transcontinental service across a northerly route is under study.

“People are under the impression that railroads are on the fence, teetering on the edge of bankruptcy,” said Carmichael. “They see abandoned lines with grass growing between the rails and they think the railroads are a 19-Century technology, obsolete. . . . It’s just not true.”