Amtrak and the Michigan State Budget

The Passenger Rail Investment and Improvement Act of 2008 ended the federal government's financial support of many passenger rail routes. The federal subsidy for the operational costs for the Wolverine passenger rail service running from Pontiac-Detroit-Chicago, for example, has ended.

The Michigan Legislature, however, included an extra $19.3 million in the budget for the 2013-2014 fiscal year to replace the lost federal funds. This sum represents a tripling of the state subsidy required to cover Amtrak's operating costs compared to the previous year.

Michigan taxpayers will provide a $98.11 subsidy per roundtrip passenger in fiscal 2014. Two other Amtrak lines, the International/Blue Water (Port Hudson-Chicago) and Pere Marquette (Grand Rapids-Chicago), have been running on Michigan taxpayer money since their inception in 1974 and 1984, respectively. Their combined operating costs, not including routine track maintenance, rose from $1 million in 1994 to $8.7 million in 2012. Now that Michigan must also subsidize the Wolverine, the impact on the state budget is substantially larger.

The total state budget for operational costs, capital investments and routine track maintenance in fiscal 2014 is $40.6 million. Assuming a 3 percent increase in total ridership (which is same growth in total ridership last year), taxpayers will provide $98.11 per roundtrip passenger in fiscal 2014. A lower bound estimate, using only the budgeted operating costs, results in an expected subsidy of $49.51 per roundtrip this year.

Economists tend to favor subsidies only when the benefits of a service cannot be restricted to those who pay — that is, when the service has what economists describe as "public good" characteristics. Classic public goods are clean air and the defense of a country. The benefits of both cannot be easily restricted to those who pay a fee to a private provider of such services, and thus any company that tried to provide clean air or defense would raise insufficient revenue to cover the costs of providing those services.

But passenger rail service is not a genuine public good like defense and clean air and thus does not have to be provided by government. It is a private good that happens to receive taxpayer support. In fact, up until 1970 and the bankruptcy of the Penn Central railroad, passenger railroad service was not subsidized by taxpayers. In other words, only those who benefited from passenger rail directly were required to pay for it.

For this reason, passenger rail subsidies, like the ones Michigan taxpayers are forking over this year, should be discontinued. The same logic applies to subsidies for any mode of transportation, because none are genuine public goods. Ending these subsidies would not harm transportation in Michigan or the United States — it would simply mean that travelers will pay the full price of their chosen method of transportation, without having to subsidize someone else's preferred choice of travel.

Two common arguments made for subsidizing passenger rail despite it not being a public good are that it reduces highway congestion and is more environmentally friendly. However, in 2007 a federal transportation study found that inter-city bus transportation was nearly three times more energy efficient per passenger-mile than passenger rail. Additionally, the congestion increase of switching from rail to bus would be negligible; Michigan’s three Amtrak lines carried around 700 roundtrip passengers per day in 2013, which could have been replaced by fewer than 15 inter-city buses.

Michigan subsidizes Amtrak by diverting revenues raised through fuel taxes and vehicle registration fees, which historically were meant to pay for public highways by the motorists who use them. In an economically efficient and sustainable system, the funds supporting one method of transportation would not be taken away and provided to another.

The people and policymakers of Michigan should ask themselves whether it is a good idea to continue forward with a transportation system that is distorted in these ways.

Public transportation should be funded by those who use it, not the vast majority who don’t.

As much as I enjoy watching and riding trains, the author is right. OTOH, I believe the public good is served by railroads in general due to volume capability over long distances. There will likely come sea change in private transportation over the coming decades. The price for owning, maintaining, licensing, and insuring a car is becoming prohibitive. An alternative mode would be welcome, provided there is more privacy and comfort than found with public transportation today; a collective private enterprise might thrive, at least until the government finds out how to tax and regulate it to death like they do everything else. Bastards.

“Under what circumstances should taxpayers subsidize passenger rail services?”

If the “taxpayers” are getting ALL the revenue for those subsidies from the users of the services, O.K., otherwise not.

You folks up in MI need to spend a couple hundred bil on “Hi Speed Rail” like those compassionate folks in California.
Do it “for the children”.

It is very interesting to note that back when passenger rail (ran by private enterprise) was teetering (becoming unprofitable), taxpayer BILLIONS were being pumped into the Interstate Highway Program and municipal airports, while the railroads we not being similarly subsidized.

In fact, a 15% tax was being levied on passenger train fares... and guess where that money was headed?

Interstate highways and municipal airports.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.