A D.C. Circuit panel held today that the Passenger Rail Investment and Improvement Act of 2008 (PRIIA) is unconstitutional. This is the second time the same panel has struck down the PRIIA (the first time the panel was reversed by the Supreme Court). The panel’s primary holding is that “the PRIIA violates the Fifth Amendment’s Due Process Clause by authorizing an economically self-interested actor to regulate its competitors.” The panel also devotes a few pages at the end to an Appointments Clause issue far too complicated for synthesis here, along with a lengthy block quote from John Steinbeck’s East of Eden. I’ll set aside the Appointments Clause question for present purposes and focus on the due process part of the decision.

First, a bit of background: Congress created Amtrak in 1970 and tasked it with running a passenger rail service. Amtrak doesn’t own most of the tracks that its trains run on; instead it uses (and pays for the right to use) tracks owned by freight railroads. In 1973 Congress required the freight railroads to give Amtrak preference over their own trains on their tracks and at junctions and crossings. And yet as anyone who grew up along the Northeast Corridor at the end of the 20th century can attest, the 1973 law didn’t result in Amtrak running smoothly. So in 2008 Congress passed the PRIIA with the hope of making sure that the freight railroads would clear the way for Amtrak’s trains to run on time.

Section 207(a) of the PRIIA says that Amtrak and the Federal Railroad Administration “shall jointly,” in consultation with the freight railroads and other interested parties, develop “metrics and minimum standards for measuring the performance and service quality of intercity passenger train operations,” including “on-time performance and minutes of delay.” Section 213(a) adds that “[i]f the on-time performance of any intercity passenger train averages less than 80 percent for any 2 consecutive calendar quarters,” the Surface Transportation Board (a part of the Department of Transportation) may initiate an investigation. If the Surface Transportation Board finds that the delays are due to a freight railroad failing to accord preference to Amtrak trains, then the Board may order the freight line to pay damages to Amtrak.

The D.C. Circuit panel said that this arrangement violates the Due Process Clause. As Judge Janice Rogers Brown wrote for herself and her colleagues:

Our view of this case can be reduced to a neat syllogism: if giving a self-interested entity regulatory authority over its competitors violates due process (major premise); and PRIIA gives a self-interested entity regulatory authority over its competitors (minor premise); then PRIIA violates due process.

The syllogism is indeed neat, but “neat” is not the same as persuasive. First, there is nothing uniquely “self-interested” about Amtrak. Second, there is nothing unique about Amtrak’s “regulatory authority over its competitors.” Either the panel’s syllogism is faulty or else a whole host of agency arrangements are constitutionally infirm.

Let’s start with the “self-interested” point. Congress has said that Amtrak “shall be operated and managed as a for-profit corporation.” 49 U.S.C. § 24301(a)(2). More specifically, Amtrak is supposed to “undertake initiatives that are consistent with good business judgment and designed to maximize its revenues and minimize Government subsidies” (among other nonfinancial objectives). 49 U.S.C. § 24101(d). In this respect, Amtrak is not all that unusual: quite a few federal agencies operate under a statutory mandate to raise enough revenue so that they can fund themselves. Examples include the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Federal Housing Finance Administration, the Public Company Accounting Oversight Board, and—perhaps most notably—the Federal Reserve. Still other agencies, such as the Federal Communications Commission, are partially self-funded: Congress has instructed the FCC “to assess and collect regulatory fees to cover the costs of . . . enforcement activities, policy and rulemaking activities, user information services, and international activities.” 47 U.S.C. § 159(a). Perhaps the panel would say that the difference between Amtrak and all these other agencies is that the others are supposed to generate revenues up to the point that they have covered all their expenses, whereas Amtrak is supposed to keep on generating revenues after that. But that distinction makes no practical difference in Amtrak’s case because Amtrak is running more than $1 billion in the red.

Maybe the difference between Amtrak (which is aspirationally self-funded) and other agencies which actually self-fund is that Amtrak’s officers have their own financial skin in the game. Under 49 U.S.C. § 24303(b), Amtrak’s officers “may not be paid more than the general level of pay for officers of rail carriers with comparable responsibility,” except in “any fiscal year for which no Federal assistance is provided to Amtrak.” Note, though, that the D.C. Circuit panel doesn’t cite any evidence that Amtrak officers’ salaries are tied to Amtrak’s financial performance: all § 24303(b) says is that there is no statutory restriction on Amtrak officers receiving more money than private-sector railroad executives in years when Amtrak is operating in the black. So in a (hypothetical) world in which Amtrak ran a surplus, Amtrak (hypothetically) could pay its officers more than their private-sector peers. It is hard to see how the remote and unrealized possibility of higher salaries for Amtrak officers deprives anyone of life, liberty, or property without due process of law.

What about the fact that Amtrak regulates its “competitors”? First, this depends on what we mean by “competitors”: Amtrak provides passenger rail service, while the railroads it ostensibly regulates under the PRIIA carry freight. The D.C. Circuit acknowledges this point in a footnote: “Amtrak and freight railroads do not compete for passengers but do compete for scarce resources (i.e. train track) essential to the operation of both kinds of rail service.” But lots of government entities compete with private parties for scarce resources—oftentimes while regulating those very same private parties. The Commodity Futures Trading Commission and the Securities and Exchange Commission compete with investment banks to hire lawyers with expertise in credit derivatives—surely a scarce resource. And just as surely that competition poses no due process problems at all.

Indeed, plenty of federal agencies are in more direct competition with the private sector than Amtrak is with the freight railroads. The Department of Education competes with (and regulates) private-sector lenders. The Department of Housing and Urban Development competes with (and regulates) private insurers of mortgage loans. There is no prohibition against the government and the private sector competing with one another. Or, if such a prohibition exists, the D.C. Circuit just invented it.

So to summarize: Amtrak, like other agencies, is supposed to generate enough revenue to cover its costs (though it fails rather miserably in that respect). And Amtrak, like other agencies, competes for scarce resources with private parties that it regulates (though even that overstates the case because Amtrak sets metrics and standards only jointly with the Federal Railroad Administration, and any sanctions against the freight railroads for failing to give preference to Amtrak’s trains must be imposed by still another separate agency, the Surface Transportation Board). The D.C. Circuit’s theory seems to be that these features—a mandate to generate revenue and a competitive relationship with regulated parties—render an agency unconstitutional. I, for one, am not on board.

@DanielJHemel