Sidetracking Competition in Commuter Rail

Transit agencies are looking for good deals for operating their commuter-rail systems. Amtrak and its allies have a different idea.
by | March 26, 2012

For decades, commuter-rail systems in most large metropolitan areas either have been operated by the local transit agency itself or have been outsourced to one of a few large railroads. One of those was Amtrak.

But as more transit systems have pursued competitive contracting in recent years, Amtrak, the nation's publicly subsidized passenger railroad, has not fared well. The company's response is an amendment to the surface transportation bill currently pending in the U.S. Senate filed by Majority Leader Harry Reid. The amendment would limit competition by requiring passenger-rail operators — both public agencies and private businesses — to be licensed by the Surface Transportation Board, an independent adjudicatory entity within the Department of Transportation made up of partisan appointees.

All passenger-rail operators except Amtrak, that is. It would be exempted from the licensing requirement.

Amtrak was established as a long-distance railroad in 1971, but it soon took on lucrative commuter-rail contracts to mitigate its legendary financial woes. More recently, yawning transportation infrastructure funding gaps have forced governments to sharpen their pencils in pursuit of better deals. More transit agencies are now seeking fixed-price contracts that shift financial risk to commuter-rail operators. Amtrak prefers cost-plus contracts and has been unwilling to bid on ones that would require it to take on that risk.

For a time, Amtrak was able to summon the political muscle to hold back the tide of a shifting market. In 1999, the Massachusetts Bay Transportation Authority undertook a plan to break its commuter-rail operation into several pieces and put each out to bid. But when Amtrak's bid for the first piece of the service came in $116 million higher than the lowest bidder and $92 million above any other bid, the company, working closely with its powerful unions, was able to secure the contract by getting the Federal Transit Administration to threaten to cut off the MBTA's federal funding if it didn't re-up with Amtrak.

The Reid amendment specifically allows the STB to impose "any additional requirements the Board determines are appropriate." Anyone familiar with the MBTA's Amtrak fiasco understands that licensing really means giving the Surface Transportation Board veto power over commuter-rail operators chosen by local transit agencies and forcing the agencies to accept more-expensive options.

Although Amtrak won a contract extension in Boston, the episode triggered congressional hearings and generated significant media coverage. In 2003, the MBTA succeeded in jettisoning Amtrak. Virginia Railway Express and Caltrain's service between San Francisco and San Jose are among the contracts Amtrak has subsequently lost.

Whether in business or government, the ability to predict costs with some degree of certainty is critical, and open competition that results in fixed-price contracts goes a long way toward achieving that goal. Of 19 commuter-rail systems for which the National Transit Database collected cost data each year from 2007 to 2009, the MBTA's service was the third least expensive in terms of both operating and capital costs per passenger mile. Twelve of those 19 systems contracted out commuter-rail operations.

When it comes to commuter rail, the market is speaking. Struggling transit agencies want the benefits of fair and open competition that allow them to shift financial risk to commuter-rail operators, even if Amtrak doesn't like what the market has to say.

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