Jack_S Looking at both capital and operating costs I don't think there is any passenger railroad in the world that makes a profit. If I am mistaken I trust that the members of this forum will enlighten me. Why should Amtrak be any different? Jack
Looking at both capital and operating costs I don't think there is any passenger railroad in the world that makes a profit. If I am mistaken I trust that the members of this forum will enlighten me.
Why should Amtrak be any different?
Jack
If we add externalized costs to the capital and O&M, and look at the total private+public outlay for the transportation service delivered, most intercity rail passenger services should have a positive ROI, whereas highways cannot because they are so land-intensive, emissions-intensive, time-intensive and rather unsafe. Air service don't externalize costs to the same extent because their land use is much smaller, their safety very high, and their value-of-time very high.
I haven't yet seen anyone credible tackle this calculation. It is a very difficult calculation as one has to consider the opportunity costs of real estate, air emissions, property taxes, and many shared costs and benefits that are not easily allocated.
RWM
Railway Man Jack_S: Looking at both capital and operating costs I don't think there is any passenger railroad in the world that makes a profit. If I am mistaken I trust that the members of this forum will enlighten me. Why should Amtrak be any different? Jack If we add externalized costs to the capital and O&M, and look at the total private+public outlay for the transportation service delivered, most intercity rail passenger services should have a positive ROI, whereas highways cannot because they are so land-intensive, emissions-intensive, time-intensive and rather unsafe. Air service don't externalize costs to the same extent because their land use is much smaller, their safety very high, and their value-of-time very high. I haven't yet seen anyone credible tackle this calculation. It is a very difficult calculation as one has to consider the opportunity costs of real estate, air emissions, property taxes, and many shared costs and benefits that are not easily allocated. RWM
Jack_S: Looking at both capital and operating costs I don't think there is any passenger railroad in the world that makes a profit. If I am mistaken I trust that the members of this forum will enlighten me. Why should Amtrak be any different? Jack
The original question was whether Amtrak makes a profit or is subsidiized, The answer to that question is that the revenue Amtrak derives from its users is less than the amount it spends to provide its service. The difference is make up by the government. That means that (i) Amtrak is not "profitable", and (ii) Amtak depends on public subisdies for its survival.
The issue of whether there are "externalized" costs isn't relevant to the question of whether Amtrak is "profitable" or whether it is subsidized . It goes to the issue of whether it makes economic sense for the government to SUBSIDIZE some Amtrak services. I agree there is a case to be made that some of Amtak's services make sense to subsidize. But that doesn't mean they that they are "profitable".
I agree, without question Amtrak farebox revenue does not cover operating, maintenance, and capital costs, much less return a profit. But to determine whether a subsidy exists, I think I want to look at whether there are avoided government expenditures. Certainly you would agree if there were off-book costs, we'd want to include those? If so, should we also look at off-book credits?
I think it would be interesting to consider all of the off-book or externalized costs and credits that can be found. But we need a definition of subsidy. Making a profit or receiving a subsidy are not the only two outcomes possible. For example, if Amtrak did not make a profit, but did cover its costs through fares and taxes provided only by the riders, it would not be receiving a subsidy.
So the question posed in the title of this thread is not an either / or question.
You would think that Amtrak would be on this like stink on a skunk! What better to secure your future than to show a positive net benefit. Make me think that there is a) something wrong with Amtrak, or b) the answer doesn't come out very favorable. (or both?)
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
Bucyrus I think it would be interesting to consider all of the off-book or externalized costs and credits that can be found. But we need a definition of subsidy. Making a profit or receiving a subsidy are not the only two outcomes possible. For example, if Amtrak did not make a profit, but did cover its costs through fares and taxes provided only by the riders, it would not be receiving a subsidy. So the question posed in the title of this thread is not an either / or question.
Defining "making a profit" and "receiving a subsidy" is pretty simple, and can be done without all the fancy economic jargon. Amtrak is "making a profit" if the bag of gold AMTRAK GETS from those who use its services (primarily passengers) and those who contract for its services (states, etc.) is larger than the bag of gold AMTRAK SPENDS to provide those services. And, in making that determination, it's important to include in second bag of gold ALL of the gold Amtrak spends to provide its services, without regard to whether the gold is for "operating" or "capital" expenses. After all, a dollar is a dollar. We can quibble whether all the gold spent in a particular year should, as an accounting matter, be considered an expense for that year or "spread" over several years (that's the practical consequence of the distinction between "operating" and "capital"). But the bottom line is that, in order for Amtrak to be "profitable", the bag of gold coming in has to be larger than the bag of gold going out.
If, on the other hand, the bag of gold AMTRAK SPENDS to provide its services is larger than the bag of gold AMTRAK GETS from those who use or contract for its services, Amtrak is generating losses, not profits. I believe that is the actual state of Amtrak's finances. Amtrak certainly does not "cover its costs" through fares or other revenues provide by riders or those who contract for its services.
The value that OTHERS GET from Amtrak service, or the costs OTHERS INCUR because of Amtrak's service are irrelevant to the question of whether AMTRAK is making a profit or incurring a loss.
Now let's turn to "subsidy". Amtrak is "receiving a subsidy" if it's receiving bags of gold from someone (like the Feds) who does not use or contract for its services. The amount Amtrak gets every year from the Feds to to cover the shortfall between the amount Amtrak spends to provide its services and the amount it collects from those who use or contract for its services is a "subsidy".
As I said before, this does not answer the question of whether the Federal "subsidy" is or is not a prudent use of public funds. It could well be that subsidizing some of Amtrak's services is cheaper for the government than paying for alternatives. But that doesn't change the fact that the amount the Feds pay Amtrak to keep it afloat is a "subsidy".
Another question raised in defense of Amtrak: does Congress hold the Air Traffic Control System, the Inland Waterways (Army Corps of Engineers), the Interstate HIghway System (and the policing of it), the Coast Guard or other military services, the USPS,, or any other of the goverment agencies, departments, or programs, to be able to prove itself by making a profit for the government? That is not just a rhetorica question but also a question of philosophy which must be met by our government in order for it to continue its spending schemes.
RIDEWITHMEHENRY is the name for our almost monthly day of riding trains and transit in either the NYCity or Philadelphia areas including all commuter lines, Amtrak, subways, light rail and trolleys, bus and ferries when warranted. No fees, just let us know you want to join the ride and pay your fares. Ask to be on our email list or find us on FB as RIDEWITHMEHENRY (all caps) to get descriptions of each outing.
henry6 Another question raised in defense of Amtrak: does Congress hold the Air Traffic Control System, the Inland Waterways (Army Corps of Engineers), the Interstate HIghway System (and the policing of it), the Coast Guard or other military services, the USPS,, or any other of the goverment agencies, departments, or programs, to be able to prove itself by making a profit for the government? That is not just a rhetorica question but also a question of philosophy which must be met by our government in order for it to continue its spending schemes.
I know that highway project do not have to undergo any kind of rigorous cost/benefit analysis like transit project do. It's a big hole in the boat. A local suburban interstate interchange was recently rebuilt at a cost of $250 million over 2 years and it did little to relieve traffic congestion. When asked, the DOT replied it was primarily a safety improvement project to eliminated left hand mergers. There had not been a fatality at the previous interchange in it's 30 year history.
Also, attempts to finance some highway projects that the local DOT wanted to build, but couldn't fund, as PPP toll roads all folded as the best possible projected revenue couldn't come close to covering the construction costs.
The ACE has long been known as a prime "sty" of pork. At least they have to calculate an ROI, but there have been some "tail wagging the dog" analyses done.
USPS? They are required to NOT make money - or lose any. Postage is supposed to cover costs - although they look like they are on the wrong side of the slope these days as increased first class postage chases away more volume than it does to increase revenue. (I don't need 6 day a week mail. Three days a week would be plenty.)
Falcon48 Bucyrus: I think it would be interesting to consider all of the off-book or externalized costs and credits that can be found. But we need a definition of subsidy. Making a profit or receiving a subsidy are not the only two outcomes possible. For example, if Amtrak did not make a profit, but did cover its costs through fares and taxes provided only by the riders, it would not be receiving a subsidy. So the question posed in the title of this thread is not an either / or question. Defining "making a profit" and "receiving a subsidy" is pretty simple, and can be done without all the fancy economic jargon. Amtrak is "making a profit" if the bag of gold AMTRAK GETS from those who use its services (primarily passengers) and those who contract for its services (states, etc.) is larger than the bag of gold AMTRAK SPENDS to provide those services. And, in making that determination, it's important to include in second bag of gold ALL of the gold Amtrak spends to provide its services, without regard to whether the gold is for "operating" or "capital" expenses. After all, a dollar is a dollar. We can quibble whether all the gold spent in a particular year should, as an accounting matter, be considered an expense for that year or "spread" over several years (that's the practical consequence of the distinction between "operating" and "capital"). But the bottom line is that, in order for Amtrak to be "profitable", the bag of gold coming in has to be larger than the bag of gold going out. If, on the other hand, the bag of gold AMTRAK SPENDS to provide its services is larger than the bag of gold AMTRAK GETS from those who use or contract for its services, Amtrak is generating losses, not profits. I believe that is the actual state of Amtrak's finances. Amtrak certainly does not "cover its costs" through fares or other revenues provide by riders or those who contract for its services. The value that OTHERS GET from Amtrak service, or the costs OTHERS INCUR because of Amtrak's service are irrelevant to the question of whether AMTRAK is making a profit or incurring a loss. Now let's turn to "subsidy". Amtrak is "receiving a subsidy" if it's receiving bags of gold from someone (like the Feds) who does not use or contract for its services. The amount Amtrak gets every year from the Feds to to cover the shortfall between the amount Amtrak spends to provide its services and the amount it collects from those who use or contract for its services is a "subsidy". As I said before, this does not answer the question of whether the Federal "subsidy" is or is not a prudent use of public funds. It could well be that subsidizing some of Amtrak's services is cheaper for the government than paying for alternatives. But that doesn't change the fact that the amount the Feds pay Amtrak to keep it afloat is a "subsidy".
Bucyrus: I think it would be interesting to consider all of the off-book or externalized costs and credits that can be found. But we need a definition of subsidy. Making a profit or receiving a subsidy are not the only two outcomes possible. For example, if Amtrak did not make a profit, but did cover its costs through fares and taxes provided only by the riders, it would not be receiving a subsidy. So the question posed in the title of this thread is not an either / or question.
I agree that it is easy to define profit. But defining a subsidy is not as simple as you suggest. First of all, the fed does not have any money to provide a subsidy. The money must come from the taxpayers, and some of those taxpayers use the service.
If a service were not making a profit, but its cost exceeding the fare box receipts were being paid for by taxpayers, and if all of those taxpayers were using the service, there would be no subsidy. The taxpayers would simply be paying for what they use, partially through the fare box, and partially through their taxes.
Now this perfect scenario is unlikely to occur because there will always be taxpayers who don’t use the service. But I would say that pubic highways are much closer to this perfect scenario than Amtrak is. Most taxpayers use the highways, whereas few of them use Amtrak.
So, something that does not make a profit is not necessarily subsidized. It is possible to not make a profit and not be subsidized.
Whether or not taxpayers use a service directly is irrelevant. You are comparing apples and oranges. Some services are totally government funded because they are a part of the government, while some, like Amtrak, are public corporations, in which all the stock is held by the federal government. The difference between total expenses and revenues from the fare box = the subsidy from the US Treasury, which in the case of Amtrak long distance routes is pretty high.
C&NW, CA&E, MILW, CGW and IC fan
schlimm Whether or not taxpayers use a service directly is irrelevant. You are comparing apples and oranges. Some services are totally government funded because they are a part of the government, while some, like Amtrak, are public corporations, in which all the stock is held by the federal government. The difference between total expenses and revenues from the fare box = the subsidy from the US Treasury, which in the case of Amtrak long distance routes is pretty high.
Well speaking of apples and oranges:
If I take a dollar out of my pocket and give to a guy who owns an apple tree, and he gives me an apple, have I subsidized the guy with the apple tree?
Now, if I take a dollar out of my pocket and give to the government, and they turn around and give it to the guy with the apple tree, and he gives me an apple, has the government subsidized the guy with the apple tree?
Either way, the guy with the apple tree got the dollar and I got the apple.
Either way, there is no grant involved, which is necessary to constitute a subsidy. It is strictly payment for goods.
You are playing word games for the sake of the games. Giving a guy a buck for an apple is American business. Giving the government a dollar to give to a man for his apple is subsidizing in the broadest sense. In reality I suppose The man on the street would give the apple salesman 80 cents and another 80 cents to the government to give the apple salesman 20 cents in order that he makes the dollar. But what really happens is that the businessman doesn't grow apples and gets a buck from the government for every apple he doesn't grow. The man on the street then gives his grocery merchant a dollar for an apple imported from Chile` and the American company receiving the dollar for not growing the apple cries foul and gets another dollar from the government.
henry6 You are playing word games for the sake of the games. Giving a guy a buck for an apple is American business. Giving the government a dollar to give to a man for his apple is subsidizing in the broadest sense.
You are playing word games for the sake of the games. Giving a guy a buck for an apple is American business. Giving the government a dollar to give to a man for his apple is subsidizing in the broadest sense.
If that example is a subsidy in the broadest sense, then let me ask:
Who was it that received that subsidy?
Guys, enough already! We all know Amtrak is subsidized and by whom and why.
The purveyor of the ;product or service receives the subsidy be it running a train, boat, plane or bus or raising hogs or corn or selling gadgets...if the priced paid by the end user is less than what the purveyor needs and the government makes up that difference, then you have a subsidy. Right?
henry6 The purveyor of the ;product or service receives the subsidy be it running a train, boat, plane or bus or raising hogs or corn or selling gadgets...if the priced paid by the end user is less than what the purveyor needs and the government makes up that difference, then you have a subsidy. Right?
Well yes maybe in that case, but you are introducing something new to the argument. In my apple example, I never said anything about the price paid by the end user being lower what the purveyor needs. If that were the case, there would be something fundamentally flawed in the economics of the transaction. If the purvayor needs more, he or she should charge more. Then if the customer won't accept the price increase, the purveyor needs to get a second job.
Bucyrus In my apple example, I never said anything about the price paid by the end user being lower what the purveyor needs. I acknowledge that in that paying a dollar as the cost of the product is a sale not a subsidy. A subsidy would be if you paid 80 cents for an apple and the government gave 20 cents to make it a dollar. If that were the case, there would be something fundamentally flawed in the economics of the transaction. If the purvayor needs more, he or she should charge more. Then if the customer won't accept the price increase, the purveyor needs to get a second job. And this is exactly what our farm subidy program is all about. However, big business, instead of Mom and Dad, own the farms and pick up the subsidies...but corporate welfare, we are told, doesn't exist. So if a trucker or airline can't provide the service at what the customer will pay...including airport, right of way controls, right of way itself, employees...then why does the government step in to provided the people and services and not charge the operators at least a break even amount of money? But, corporate welfare, we are told doesn't exist. But have a passenger train not make money, the government steps in and help defray the costs or absorb the loss, then it is a subsidy, even socialism. And the government, we are told, should not provide corporate welfare because it is socialism.
In my apple example, I never said anything about the price paid by the end user being lower what the purveyor needs. I acknowledge that in that paying a dollar as the cost of the product is a sale not a subsidy. A subsidy would be if you paid 80 cents for an apple and the government gave 20 cents to make it a dollar.
If that were the case, there would be something fundamentally flawed in the economics of the transaction. If the purvayor needs more, he or she should charge more. Then if the customer won't accept the price increase, the purveyor needs to get a second job. And this is exactly what our farm subidy program is all about. However, big business, instead of Mom and Dad, own the farms and pick up the subsidies...but corporate welfare, we are told, doesn't exist.
So if a trucker or airline can't provide the service at what the customer will pay...including airport, right of way controls, right of way itself, employees...then why does the government step in to provided the people and services and not charge the operators at least a break even amount of money? But, corporate welfare, we are told doesn't exist.
But have a passenger train not make money, the government steps in and help defray the costs or absorb the loss, then it is a subsidy, even socialism. And the government, we are told, should not provide corporate welfare because it is socialism.
And on it goes...
schlimm Guys, enough already! We all know Amtrak is subsidized and by whom and why.
Yes, Amtrak is heavily subsidized, but that is not the point of discussing the definition of subsidy.
Defenders of Amtrak always point to its subsidy and claim that the subsidy is not objectionable because we subsidize other forms of transportation. That is why we need to define what is a subsidy.
A subsidy is a payment to a vendor to make his income at least even with his cost or to guarantee cost plus reasonable profit. In the case of Amtrak it is to cover out of pocket costs where fare does not meet that amount. Government is most often cited for offering subsidies to agriculture and transportation businesses for instancre, but a business can also subsidize itself by having a gross leader pay for the short comings of a loss leader. In relation to transportation here, we are talking governments payments to an operator to not lose money.
Bucyrus Falcon48: Bucyrus: I think it would be interesting to consider all of the off-book or externalized costs and credits that can be found. But we need a definition of subsidy. Making a profit or receiving a subsidy are not the only two outcomes possible. For example, if Amtrak did not make a profit, but did cover its costs through fares and taxes provided only by the riders, it would not be receiving a subsidy. So the question posed in the title of this thread is not an either / or question. Defining "making a profit" and "receiving a subsidy" is pretty simple, and can be done without all the fancy economic jargon. Amtrak is "making a profit" if the bag of gold AMTRAK GETS from those who use its services (primarily passengers) and those who contract for its services (states, etc.) is larger than the bag of gold AMTRAK SPENDS to provide those services. And, in making that determination, it's important to include in second bag of gold ALL of the gold Amtrak spends to provide its services, without regard to whether the gold is for "operating" or "capital" expenses. After all, a dollar is a dollar. We can quibble whether all the gold spent in a particular year should, as an accounting matter, be considered an expense for that year or "spread" over several years (that's the practical consequence of the distinction between "operating" and "capital"). But the bottom line is that, in order for Amtrak to be "profitable", the bag of gold coming in has to be larger than the bag of gold going out. If, on the other hand, the bag of gold AMTRAK SPENDS to provide its services is larger than the bag of gold AMTRAK GETS from those who use or contract for its services, Amtrak is generating losses, not profits. I believe that is the actual state of Amtrak's finances. Amtrak certainly does not "cover its costs" through fares or other revenues provide by riders or those who contract for its services. The value that OTHERS GET from Amtrak service, or the costs OTHERS INCUR because of Amtrak's service are irrelevant to the question of whether AMTRAK is making a profit or incurring a loss. Now let's turn to "subsidy". Amtrak is "receiving a subsidy" if it's receiving bags of gold from someone (like the Feds) who does not use or contract for its services. The amount Amtrak gets every year from the Feds to to cover the shortfall between the amount Amtrak spends to provide its services and the amount it collects from those who use or contract for its services is a "subsidy". As I said before, this does not answer the question of whether the Federal "subsidy" is or is not a prudent use of public funds. It could well be that subsidizing some of Amtrak's services is cheaper for the government than paying for alternatives. But that doesn't change the fact that the amount the Feds pay Amtrak to keep it afloat is a "subsidy". I agree that it is easy to define profit. But defining a subsidy is not as simple as you suggest. First of all, the fed does not have any money to provide a subsidy. The money must come from the taxpayers, and some of those taxpayers use the service. If a service were not making a profit, but its cost exceeding the fare box receipts were being paid for by taxpayers, and if all of those taxpayers were using the service, there would be no subsidy. The taxpayers would simply be paying for what they use, partially through the fare box, and partially through their taxes. Now this perfect scenario is unlikely to occur because there will always be taxpayers who don’t use the service. But I would say that pubic highways are much closer to this perfect scenario than Amtrak is. Most taxpayers use the highways, whereas few of them use Amtrak. So, something that does not make a profit is not necessarily subsidized. It is possible to not make a profit and not be subsidized.
Falcon48: Bucyrus: I think it would be interesting to consider all of the off-book or externalized costs and credits that can be found. But we need a definition of subsidy. Making a profit or receiving a subsidy are not the only two outcomes possible. For example, if Amtrak did not make a profit, but did cover its costs through fares and taxes provided only by the riders, it would not be receiving a subsidy. So the question posed in the title of this thread is not an either / or question. Defining "making a profit" and "receiving a subsidy" is pretty simple, and can be done without all the fancy economic jargon. Amtrak is "making a profit" if the bag of gold AMTRAK GETS from those who use its services (primarily passengers) and those who contract for its services (states, etc.) is larger than the bag of gold AMTRAK SPENDS to provide those services. And, in making that determination, it's important to include in second bag of gold ALL of the gold Amtrak spends to provide its services, without regard to whether the gold is for "operating" or "capital" expenses. After all, a dollar is a dollar. We can quibble whether all the gold spent in a particular year should, as an accounting matter, be considered an expense for that year or "spread" over several years (that's the practical consequence of the distinction between "operating" and "capital"). But the bottom line is that, in order for Amtrak to be "profitable", the bag of gold coming in has to be larger than the bag of gold going out. If, on the other hand, the bag of gold AMTRAK SPENDS to provide its services is larger than the bag of gold AMTRAK GETS from those who use or contract for its services, Amtrak is generating losses, not profits. I believe that is the actual state of Amtrak's finances. Amtrak certainly does not "cover its costs" through fares or other revenues provide by riders or those who contract for its services. The value that OTHERS GET from Amtrak service, or the costs OTHERS INCUR because of Amtrak's service are irrelevant to the question of whether AMTRAK is making a profit or incurring a loss. Now let's turn to "subsidy". Amtrak is "receiving a subsidy" if it's receiving bags of gold from someone (like the Feds) who does not use or contract for its services. The amount Amtrak gets every year from the Feds to to cover the shortfall between the amount Amtrak spends to provide its services and the amount it collects from those who use or contract for its services is a "subsidy". As I said before, this does not answer the question of whether the Federal "subsidy" is or is not a prudent use of public funds. It could well be that subsidizing some of Amtrak's services is cheaper for the government than paying for alternatives. But that doesn't change the fact that the amount the Feds pay Amtrak to keep it afloat is a "subsidy".
I've been away from my computer for nearly two weeks and just saw these responses to my earlier "bag of gold" post (which was an attempt to get away from all of the economic jargon).
As I understand these responses, the argument is that, even if the money Amtrak is paid directly by those who use or contract for its services doesn't cover Amtrak's costs to provide those services, and even though the difference is paid for by the Federal government, the Federal support is not a "subsidy" because those who use the Amtrak service are the taxpayers who pay the "subsidy". That would only be true if all or most taxpayers were also users of Amtrak service. The vast majority of taxpayers do not use Amtrak. Therefore, the argument is not valid.
Moreover, the amount of the Federal payments made to Amtrak which are borne by individual taxpayers is not proportionate to their actual use of Amtrak. In other words, given three taxpayers with equal income and taxes, one who never uses Amtrak, one who uses Amtrak once every 5 years, and one who uses Amtrak every week, each is paying the same amount to support Amtrak deficits. Therefore, it is not valid to treat Amtrak's Federal support as a form of "fare" for service received.
I agree, however, that "it is possible to not make a profit and not be subsidized", at least for awhile. However, an enterprise that is chronically in this position is doomed. It will eventually cease to exist, typically when it runs out of cash or requires additional capital investment to continue in business. The Milwaukee Road and the Rock Island are excellent examples of what eventually happens to enterprises which do not make a profit and aren't subsidized. It may be a long, painful death, but it is unquestionably a terminal condition. In Amtrak's case, however, it might be a painful death , but it wouldn't be a long one. Without Federal support, it wouldn't have enough cash to operate even for the short term.
The real issue is not whether Amtrak is "subsidized" - it clearly is. The issue is the extent to which the subsidy is justified. Pretending that there is no subsidy - even though Amtrak would quickly shut down if it had to depend solely on its farebox and contract revenue - is a pointless exercise.
Falcon48 Bucyrus: Falcon48: Bucyrus: I think it would be interesting to consider all of the off-book or externalized costs and credits that can be found. But we need a definition of subsidy. Making a profit or receiving a subsidy are not the only two outcomes possible. For example, if Amtrak did not make a profit, but did cover its costs through fares and taxes provided only by the riders, it would not be receiving a subsidy. So the question posed in the title of this thread is not an either / or question. Defining "making a profit" and "receiving a subsidy" is pretty simple, and can be done without all the fancy economic jargon. Amtrak is "making a profit" if the bag of gold AMTRAK GETS from those who use its services (primarily passengers) and those who contract for its services (states, etc.) is larger than the bag of gold AMTRAK SPENDS to provide those services. And, in making that determination, it's important to include in second bag of gold ALL of the gold Amtrak spends to provide its services, without regard to whether the gold is for "operating" or "capital" expenses. After all, a dollar is a dollar. We can quibble whether all the gold spent in a particular year should, as an accounting matter, be considered an expense for that year or "spread" over several years (that's the practical consequence of the distinction between "operating" and "capital"). But the bottom line is that, in order for Amtrak to be "profitable", the bag of gold coming in has to be larger than the bag of gold going out. If, on the other hand, the bag of gold AMTRAK SPENDS to provide its services is larger than the bag of gold AMTRAK GETS from those who use or contract for its services, Amtrak is generating losses, not profits. I believe that is the actual state of Amtrak's finances. Amtrak certainly does not "cover its costs" through fares or other revenues provide by riders or those who contract for its services. The value that OTHERS GET from Amtrak service, or the costs OTHERS INCUR because of Amtrak's service are irrelevant to the question of whether AMTRAK is making a profit or incurring a loss. Now let's turn to "subsidy". Amtrak is "receiving a subsidy" if it's receiving bags of gold from someone (like the Feds) who does not use or contract for its services. The amount Amtrak gets every year from the Feds to to cover the shortfall between the amount Amtrak spends to provide its services and the amount it collects from those who use or contract for its services is a "subsidy". As I said before, this does not answer the question of whether the Federal "subsidy" is or is not a prudent use of public funds. It could well be that subsidizing some of Amtrak's services is cheaper for the government than paying for alternatives. But that doesn't change the fact that the amount the Feds pay Amtrak to keep it afloat is a "subsidy". I agree that it is easy to define profit. But defining a subsidy is not as simple as you suggest. First of all, the fed does not have any money to provide a subsidy. The money must come from the taxpayers, and some of those taxpayers use the service. If a service were not making a profit, but its cost exceeding the fare box receipts were being paid for by taxpayers, and if all of those taxpayers were using the service, there would be no subsidy. The taxpayers would simply be paying for what they use, partially through the fare box, and partially through their taxes. Now this perfect scenario is unlikely to occur because there will always be taxpayers who don’t use the service. But I would say that pubic highways are much closer to this perfect scenario than Amtrak is. Most taxpayers use the highways, whereas few of them use Amtrak. So, something that does not make a profit is not necessarily subsidized. It is possible to not make a profit and not be subsidized. I've been away from my computer for nearly two weeks and just saw these responses to my earlier "bag of gold" post (which was an attempt to get away from all of the economic jargon). As I understand these responses, the argument is that, even if the money Amtrak is paid directly by those who use or contract for its services doesn't cover Amtrak's costs to provide those services, and even though the difference is paid for by the Federal government, the Federal support is not a "subsidy" because those who use the Amtrak service are the taxpayers who pay the "subsidy". That would only be true if all or most taxpayers were also users of Amtrak service. The vast majority of taxpayers do not use Amtrak. Therefore, the argument is not valid. Moreover, the amount of the Federal payments made to Amtrak which are borne by individual taxpayers is not proportionate to their actual use of Amtrak. In other words, given three taxpayers with equal income and taxes, one who never uses Amtrak, one who uses Amtrak once every 5 years, and one who uses Amtrak every week, each is paying the same amount to support Amtrak deficits. Therefore, it is not valid to treat Amtrak's Federal support as a form of "fare" for service received. I agree, however, that "it is possible to not make a profit and not be subsidized", at least for awhile. However, an enterprise that is chronically in this position is doomed. It will eventually cease to exist, typically when it runs out of cash or requires additional capital investment to continue in business. The Milwaukee Road and the Rock Island are excellent examples of what eventually happens to enterprises which do not make a profit and aren't subsidized. It may be a long, painful death, but it is unquestionably a terminal condition. In Amtrak's case, however, it might be a painful death , but it wouldn't be a long one. Without Federal support, it wouldn't have enough cash to operate even for the short term. The real issue is not whether Amtrak is "subsidized" - it clearly is. The issue is the extent to which the subsidy is justified. Pretending that there is no subsidy - even though Amtrak would quickly shut down if it had to depend solely on its farebox and contract revenue - is a pointless exercise.
Bucyrus: Falcon48: Bucyrus: I think it would be interesting to consider all of the off-book or externalized costs and credits that can be found. But we need a definition of subsidy. Making a profit or receiving a subsidy are not the only two outcomes possible. For example, if Amtrak did not make a profit, but did cover its costs through fares and taxes provided only by the riders, it would not be receiving a subsidy. So the question posed in the title of this thread is not an either / or question. Defining "making a profit" and "receiving a subsidy" is pretty simple, and can be done without all the fancy economic jargon. Amtrak is "making a profit" if the bag of gold AMTRAK GETS from those who use its services (primarily passengers) and those who contract for its services (states, etc.) is larger than the bag of gold AMTRAK SPENDS to provide those services. And, in making that determination, it's important to include in second bag of gold ALL of the gold Amtrak spends to provide its services, without regard to whether the gold is for "operating" or "capital" expenses. After all, a dollar is a dollar. We can quibble whether all the gold spent in a particular year should, as an accounting matter, be considered an expense for that year or "spread" over several years (that's the practical consequence of the distinction between "operating" and "capital"). But the bottom line is that, in order for Amtrak to be "profitable", the bag of gold coming in has to be larger than the bag of gold going out. If, on the other hand, the bag of gold AMTRAK SPENDS to provide its services is larger than the bag of gold AMTRAK GETS from those who use or contract for its services, Amtrak is generating losses, not profits. I believe that is the actual state of Amtrak's finances. Amtrak certainly does not "cover its costs" through fares or other revenues provide by riders or those who contract for its services. The value that OTHERS GET from Amtrak service, or the costs OTHERS INCUR because of Amtrak's service are irrelevant to the question of whether AMTRAK is making a profit or incurring a loss. Now let's turn to "subsidy". Amtrak is "receiving a subsidy" if it's receiving bags of gold from someone (like the Feds) who does not use or contract for its services. The amount Amtrak gets every year from the Feds to to cover the shortfall between the amount Amtrak spends to provide its services and the amount it collects from those who use or contract for its services is a "subsidy". As I said before, this does not answer the question of whether the Federal "subsidy" is or is not a prudent use of public funds. It could well be that subsidizing some of Amtrak's services is cheaper for the government than paying for alternatives. But that doesn't change the fact that the amount the Feds pay Amtrak to keep it afloat is a "subsidy". I agree that it is easy to define profit. But defining a subsidy is not as simple as you suggest. First of all, the fed does not have any money to provide a subsidy. The money must come from the taxpayers, and some of those taxpayers use the service. If a service were not making a profit, but its cost exceeding the fare box receipts were being paid for by taxpayers, and if all of those taxpayers were using the service, there would be no subsidy. The taxpayers would simply be paying for what they use, partially through the fare box, and partially through their taxes. Now this perfect scenario is unlikely to occur because there will always be taxpayers who don’t use the service. But I would say that pubic highways are much closer to this perfect scenario than Amtrak is. Most taxpayers use the highways, whereas few of them use Amtrak. So, something that does not make a profit is not necessarily subsidized. It is possible to not make a profit and not be subsidized.
It sounds like you understand the point I was making about subsidies. However, I was not concluding, as you say I was, that Amtrak is not subsidized. They are highly subsidized because, as you point out, many people paying for Amtrak do not use it.
The distinction I was making was intended to illustrate the difference between the Amtrak and highway subsidies. With public funding of highways, more payers have use for highways, as opposed to the number of Amtrak payers who have use for Amtrak.
Look at it this way: Say you had an Amtrak service with a million users, and only those users paid fares and paid taxes to the government to fund the rest of the cost. With that example, there would be no subsidy, because there is no granting of money.
The reason I mention this is because every time people defend public funding of Amtrak, they make no distinction between that subsidy and subsidies funding highways. They simply point to the highway subsidy, and conclude that if they can get a subsidy, then Amtrak deserves a subsidy.
All you say is true. However, there is another, ideological agenda at work with the folks who try to distinguish between tax dollars for services the taxpayer uses and those he/she doesn't. Amtrak, like most government programs, benefits taxpayers, though often the benefits are indirect. For example, schools. I and my family haven't been in school or public university/college for years, not have we had a child in attendance in years either. Yet I pay about 2/3 of my property tax every year alone to "subsidize" them. Other "subsidies" come from my sales, state and federal income taxes. I receive no direct benefit, but many indirect ones. In addition, it is simply a responsibility for living in a society, as opposed to living in isolation on your own little island, where you only pay for what you want personally.
schlimm All you say is true. However, there is another, ideological agenda at work with the folks who try to distinguish between tax dollars for services the taxpayer uses and those he/she doesn't. Amtrak, like most government programs, benefits taxpayers, though often the benefits are indirect. For example, schools. I and my family haven't been in school or public university/college for years, not have we had a child in attendance in years either. Yet I pay about 2/3 of my property tax every year alone to "subsidize" them. Other "subsidies" come from my sales, state and federal income taxes. I receive no direct benefit, but many indirect ones. In addition, it is simply a responsibility for living in a society, as opposed to living in isolation on your own little island, where you only pay for what you want personally.
I don't disagree with you. Saying that government support of a particular program or service is a "subsidy" doesn't mean that it's necesssarily bad. It merely leads to the next question: whether the "subsidy" in a particular case is a good use of public funds. I don't think anyone would dispute that public support of education is a good thing and something that the government ought to do (well, maybe some would, but they would be a small minority). Government support of Amtrak as it is currently structured is, perhaps, more debatable. But identifying the government support as a "subsidy" is merely the starting point in that debate, not the answer to it.
By the way, I overlooked one important caveat in my discussion of "what is a subsidy". There are some government programs where the government support, and the taxes which fund that support, are actually user fees. In transportation, highway fuel taxes are an example of this. The taxes are a way to make highway users pay for highways roughly proportionate to their use of the highway system (the amount of fuel purchased is a rough surrogate to measure use, and a fuel tax is a convenient way to collect the fees). This isn't really a "subsidy" - it's more like the fares Amtrak charges its passengers. However, to the extent there is a shortfall between the highway user taxes and government highway expenditures which is made up by the government, that is a subsidy.
Just to muddy the waters further:
1. Article in last weeks WSJ that some in the House want to eliminate a $6.5B item for FY 2011 air traffic control grant to upgrade the air traffic system. This will be an amount that would be needed for each of the next ten years. Quite a subsidity. But is it necessary? IMHO yes!
2. For the state of Georgia essential air service subsidities were about $1.75M. I believe that is more per passenger than the subsidity for AMTRAK's Crescent and Silver trains per boarding Georgia passengers? More people certainly board AMTRAK every day in Georgia than board Barbie Jets!
3. Our local airport is trying for a federal grant of $2.5M for a runway extension that will never be paid for by airplane fuel since only about 12,000 gallons of all aviation fuels are pumped per month. Unfortunally I do not know the amount of fuel taxes per gallon but will try to find out.
blue streak 1 Just to muddy the waters further: 1. Article in last weeks WSJ that some in the House want to eliminate a $6.5B item for FY 2011 air traffic control grant to upgrade the air traffic system. This will be an amount that would be needed for each of the next ten years. Quite a subsidity. But is it necessary? IMHO yes! 2. For the state of Georgia essential air service subsidities were about $1.75M. I believe that is more per passenger than the subsidity for AMTRAK's Crescent and Silver trains per boarding Georgia passengers? More people certainly board AMTRAK every day in Georgia than board Barbie Jets! 3. Our local airport is trying for a federal grant of $2.5M for a runway extension that will never be paid for by airplane fuel since only about 12,000 gallons of all aviation fuels are pumped per month. Unfortunally I do not know the amount of fuel taxes per gallon but will try to find out.
The projected cost for NextGen is approximately $22 billion. The cost of the system will be recovered for the most part through user taxes. NextGen is not just for the commercial airlines.
According to the FAA, approximately 30 to 35 per cent of the traffic it controls is commercial airline flights. The bulk of operations are general aviation and military traffic. The airline industry has presented data at Congressional hearings supporting the notion that it pays more than its fair share of the air traffic control system.
The budget for The Essential Air Services Program was approximately $171 million in 2009. This program was mandated in 1979 by Congress as part of commercial airline deregulation. Although I have not worked up the numbers, I would be surprised if the cost per passenger mile is below Amtrak's cost per passenger mile. Moreover, outside of a few remote areas in the west and Alaska, most of the airports served by the program are within an hour or so driving time from a major city with solid commercial air service.
When you speak of the local airport, do you mean a major hub or a satellite field? $2.5 million at Hartsfield would not even show up on the radar scope. The FAA funnels monies for some airport improvements. Of the nearly 13,000 airports in the county, fewer than 500 have any commercial air service. Thus, most of the airport improvement monies go to airports with no commercial service. They are capitalized. Fuel taxes, gate fees, hangar fees, etc. supposedly cover the cost of these airports, including the federal grants, although not all of them generate sufficient revenues to cover the costs.
The federal fuel tax is 21.8 cents per gallon for non-commercial jet fuel, 19.4 cents for aviation gasoline, and 4.3 cents for commercial jet fuel. It appears that the commercial airlines are getting a significant fuel tax break, but if one tallies up the amount of fuel a commercial jet airplane burns, the dollars contributed to the kitty is great.
In addition to the fuel taxes, the airlines pay the following taxes, which of course they collect from the flying public. Like all corporations, they don't pay any taxes. The taxes are paid by their customers: Passenger ticket tax - 7.5%; Flight Segment Tax - $3.70 per passenger; Frequent Flyer Tax - 7.5%; International Departure Tax - $16.30 per passenger; International Arrival Tax - $16.30 per passenger; Cargo waybill tax - 6.25%; Passenger facility charge (local airports) - up to $4.50 per passenger; September 11th fee - $2.50 per passenger; Animal and Plant Inspection Fee - $5.00 per passenger or $70.50 per aircraft without passengers; Custom's User Fee - $5.00 per passenger; Immigration User Fee - $7.00 per passenger. Not all of these fees apply to every flight, of course, but they are ample evidence that airline passengers tote their share of the note.
In addition to taxes, airports rely on gate fees, hangar fees, vendor rentals, parking lot fees, etc. to fund their operations. According to my calculations for 2009; I have not worked up the 2010 numbers, the federal subsidy for airline passengers, excluding the Essential Air Services Program, is less than a penny a passenger mile.
Sam1 When you speak of the local airport, do you mean a major hub or a satellite field? $2.5 million at Hartsfield would not even show up on the radar scope. The FAA funnels monies for some airport improvements. Of the nearly 13,000 airports in the county, fewer than 500 have any commercial air service. Thus, most of the airport improvement monies go to airports with no commercial service. They are capitalized. Fuel taxes, gate fees, hangar fees, etc. supposedly cover the cost of these airports, including the federal grants, although not all of them generate sufficient revenues to cover the costs.
Neither. This is a local general aviation airport (5850 ft runway) that has approximately 1200 operations per month in summer and 800 in winter (many touch and gos). High fuel numbers about 9000 gal jet fuel and 3000 - 5000 av gas (these are 2008 figures and the numbers have gone down considerably since then. There has never been any airline service or cargo service.
There are many such small airports like these spread all over the country. Many are convenience for pilots in that they provide very inexpensive shelter and operation compared to larger commercial airports. Some of these airports I would think would be very necessary if beause they are the only ones for hundres of miles. Others I know of are literally within sight of each other and there should be some kind of rationalization not just for the existence of the airport but also for air traffic conflicts and congestion. Basically there is no rationalization for these small airports,. In reading one report on this money it is noted that many allocations are in the $2000 dollar range and down as low as $9 bucks! So, a call of "let's get serious" is not out of the question here.
A fair number of these smaller general aviation airports in urban areas have shut down because the land was worth more for development. The airport was in effect worth more dead than alive.
In Broome County NY there is a "major" airport with USAIR and Delta Commuter; it also hosts small and private planes. Within 10 miles there is an airport for small and private plane with lights and all, and about 3 or 4 smaller airports. Within 40 miles that jumps to two "major" (as described above), another 3 or 4 lighted fields, and literally dozens of smaller airports. How many are reallly necessary? How many earn their keep? Is a $10 subsidy too much or $2000 too little? Off hand I really don't see the rationalization for so many air strips especially when they are all owned or under the juristiction of a municipal government of some kind.
To extend the above and bring it to topic. Broome County has no rail passenger service. One rail line between here an Utica is out of service since disasterous flooding in 2006 with no industry or reason right now for the railroad to repair it. One line to Buffalo needs a bridge replaced half way between there and here; another is owned by a Class One but operated by a regional; all are single track (one to Port Jervis, one to Scranton, one to Hornell and BUffalo, one to Syracuse, one to Utica[OOS], one to Schenectedy. Should we, as a community, be expecting or asking for help to get better freight and rail connections to boost our ecnomomy? be joined by adjacent and other line communities in asking? Especially for rail passenger service to New York City and or Buffalo? Or should we just let these little airports which do not add to the local economy or which could be consolidated in some way, get the earmarked money?
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