Amtrak Joe vs. the Modern Robber Barons
Then Democratic presidential candidate Joe Biden speaks at Amtrak's Alliance Train Station, Wednesday, September 30, 2020, in Alliance, Ohio. (AP Photo/Andrew Harnik)
Biden’s big bet on rail infrastructure will be wasted unless he takes on the financiers who control the industry.
For a chief executive whose love of trains won him the nickname “Amtrak Joe,” this must be a pretty exciting moment. President Joe Biden’s bipartisan infrastructure bill, which designates an unprecedented $66 billion to expand rail service across the country, appears poised to pass the Senate.
The bill promises to furnish a more convenient and environmentally friendly mode of travel between destinations that are far enough apart to make driving tedious but close enough together to make flying impossible or at best impractical. You may never use these new trains yourself, but those who do will create less traffic congestion, cleaner air, and a cooler planet. Removing more freight from pavement-pounding long-haul semi-trucks onto super fuel-efficient trains will make driving safer and more pleasant, and may yield huge reductions in carbon emissions.
But for any of this to happen on any meaningful scale, the Biden administration will need to do more than invest more public money in train travel. It will also need to reverse decades of deregulation, lax antitrust enforcement, and other policy blunders that left latter-day robber barons in control of nearly all the nation’s highly monopolized railroad infrastructure, just as they were in the worst days of the Gilded Age. This time, the financiers aren’t presiding over an expanding rail system; they’re selling it off and permanently liquidating its assets for short-term economic gain.
Unless Biden takes on the financiers, merely maintaining Amtrak service–let alone expanding it–will become ridiculously expensive. Here’s an example that shows why.
Amtrak for decades offered train service along the Gulf Coast corridor between New Orleans and Mobile. In 2005, Hurricane Katrina badly damaged the tracks. The two giant corporate rail systems that own the line, Norfolk Southern and CSX, made the necessary repairs, and within a year resumed running their own freight trains. But Amtrak service never returned.
It’s not that people in the region don’t want their Amtrak trains back. A broad coalition of civic and business leaders, including Mississippi’s Republican Senator Roger Wicker, has been trying for years to persuade the railroads to let Amtrak resume service. They point to a study by the Trent Lott National Center at the University of Southern Mississippi that says restoring Amtrak service will boost tourism significantly, greatly benefiting Mississippi’s beaches and casinos. They point to the report of a special Gulf Coast Working Group, created by Congress, that estimates the cost of resuming Gulf Coast passenger service at $5.4 million. They point to the fact that the Biden administration, Amtrak, and the three states involved are all willing to furnish the necessary operating funds to run two roundtrip trains a day.
But after five years of negotiations, you still can’t take the train to Gulfport, Biloxi, Pascagoula, or anywhere else along the Gulf Coast. CSX, which controls most of the track along the route, insists that restoring Amtrak service would interfere with the seven or eight daily freight trains it runs daily along the Gulf Coast. It’s an argument that rail corporations often deploy against passenger service.
The objection is absurd on its face. During World War II, when troop and military freight trains crowded this route along with civilian freight traffic long since lost to trucks, dispatchers still managed to move 11 scheduled passenger trains per day between Mobile and New Orleans. These included the storied “Pan American” of country music fame. And they did it using telegraphs, not the efficient GPS train control technology available today.
CSX’s recalcitrance is a negotiating strategy to get Amtrak either to go away or to pony up for huge infrastructure investments that would mostly benefit CSX itself. The railroad says restoring Amtrak’s two trains requires a second main track, new sidings, siding extensions, yard bypasses, and modernization of drawbridges. At one point, CSX put the price tag at $2 billion–orders of magnitude more than estimates provided by the Federal Railway Administration and other independent experts.
Such maneuverings reflect the growing power of hedge funds and other “activist investors” over the railroad industry. In 2017 the financier Paul Hilal used his activist fund Mantle Ridge to buy a $2 billion stake in CSX and win control of its board. Hilal used this power to depose CSX’s long-standing management and replace it with a team of downsizing specialists committed to boosting short-term profits by shrinking the railroad’s physical assets, labor force, other expenses. The new focus on cost cutting and downsizing seriously degraded CSX freight operations and caused CSX to take an impossibly hard line with Amtrak.
Exasperated by the railroads’ refusal to negotiate in good faith over the restoration of Gulf Coast service, Amtrak recently appealed to an independent federal agency known as the Surface Transportation Board. But deregulation left the federal government with very limited control over railroad infrastructure. When Congress and the Nixon Administration created Amtrak in 1970, they relieved railroad owners of their previous obligation to provide passenger service at their own expense. Half a century later, the federal government has no clear legal standard to decide when freight railroads must grant Amtrak access to their track, or what the terms of service will be. And since Amtrak owns track only between Boston and Washington and a few other places, dependence on freight railroads is a huge obstacle to improving or expanding passenger rail service.
For example, more than ten years’ studying and lobbying has been dedicated to the question of whether Amtrak will be permitted to run more than one round-trip train per day between Harrisburg and Pittsburgh. Public policymakers must wrestle with many knotty problems; this shouldn’t be one of them. There’s plenty of track capacity. Amtrak ran two roundtrip trains along the mostly three-track mainline as recently as 2004. But Norfolk Southern says today that bringing back that second train would create unworkable disruptions to its freight service. The railroad’s latest maneuver was to demand that the State of Pennsylvania pay for a study to calculate how much the public must pay Norfolk Southern for the necessary capital improvements, such as a possible fourth track.
Another example is the drawn out battle Amtrak and the public had to wage to restore passenger service between Boston and Portland, Maine. By the time Amtrak came into being, passenger service on the route had already been discontinued. To get it started again, Amtrak, along with state and local governments, had to agree to pay the railroad that owns the tracks tens millions for capital improvements. Then it to took another decade of litigation before the railroad, now known as Pan Am, would allow Amtrak to run its trains fast enough so that people would want to ride them. A pending merger between Pan Am and CSX now threatens the public’s considerable investment in that passenger route and any prospect of expanding Amtrak service elsewhere in New England.
Biden recently signed an executive order that commanded the Surface Transportation Board to put more pressure on railroads to stop their habitual practice of delaying Amtrak trains by making them wait for passing freight trains. That’s helpful. But the order failed to clarify what rights Amtrak possesses to expand service, and on what price it and other public entities must pay railroad owners for capital improvements. Because there’s no clear statutory authority, some industry insiders predict Amtrak’s legal fight to restore Gulf Coast passenger service will go all the way to Supreme Court, which could take years. State and local governments seeking to establish commuter rail service have even less legal leverage than Amtrak in negotiating terms with private railroad owners.
It’s much the same story when you consider the prospects for expanding freight rail service in the U.S. Don’t expect much progress unless we claw back Wall Street control.
There’s an urgent and overwhelming societal need to divert more freight from trucks to trains. Freight trains are three to five times more fuel efficient than trucks, and produce far less emissions. Indeed, when electrically powered by overhead wires, trains can be emission-free, and lack the battery disposal costs that plague electric trucks. According to one study, a modest investment in electrifying freight railroads could reduce carbon emissions by 39 percent and, by 2030, remove an estimated 83 percent of long-haul trucks off the road.
Moving more freight by rail would also reduce the number of Americans who are killed or injured by collisions with large trucks, a casualty rate of 156,000 people per year. In addition, it would reduce dramatically the damage done to America’s roads and highways by large trucks–each of which causes the same wear and tear as 9,600 passenger cars.
Yet hedge funds, private equity firms, and other financiers are using their control of highly monopolized, underregulated railroads not to expand rail freight but to sell off rail assets and hand over all but the highest margin business to trucks.
Some of this downsizing is justified by the decline of the railroads’ thermal coal business as electric utilities convert to natural gas. But most of the downsizing results simply from financiers forcing railroads to shed all but their most lucrative lines of business. Such practices threaten to shrink the nation’s rail network to the point of non-viability, but so long as rail expenses fall faster than rail revenues, the short-term return on assets increases. That’s all Wall Street cares about.