Swan Song For Amtrak
by Andrew Selden, Minneapolis MN
The latest crisis at Amtrak reflects two forces that aren’t very obvious to most observers. One is political, one is financial.
The financial issue predominates, and it is still the same issue that has vexed Amtrak since 1976, when the U.S. Railway Administration solved a major part of the Penn Central / Conrail problem by dumping the ownership costs of the Northeast Corridor onto Amtrak. The issue is that the NEC, whatever its societal value, is a financial black hole that is now enveloping the whole corporation.
Page 26 of Amtrak’s 1994 Annual Report (incidentally, the best-written report they have ever released, thanks to new CFO Elizabeth Reveal) publicly admits that the NEC costs Amtrak $260 million in direct losses, PLUS an “allocation of corporate overhead costs,” which we conservatively estimate at $100 million.
How do we arrive at that figure? Let’s construct a profit and loss statement for the NEC drawn entirely from Amtrak’s own data. The revenue lines on the table below are actual numbers from Amtrak data. NEC train operations include NEC local revenues earned on NEC-transient long haul trains like the Montrealler and the Palmetto. The cost lines are Amtrak’s ‘actual audited’ category expenses from the 1994 Annual Report multiplied by the NEC’s share of percentage of those expense categories stated in a 1990 Amtrak analysis. NEC-National System ratios haven’t changed ‘materially’ between then and now (they’ve changed some, but not significantly; and this is just an excuse to illustrate the scale of what Amtrak’s ownership and ‘current’ pattern of operations in the NEC cost).
NORTHEAST CORRIDOR
1994 ESTIMATED
STATEMENT OF PROFIT LOSS
(In Thousands)
REVENUE
Train Operations $423,904
Other 342,496
TOTAL $766,400 $766,400
COSTS
NEC 1990 Ratio Est. 1994 NEC Share
Train Operations 44% $224,575
Maintenance of Way 79% 185,573
Maintenance of Equipment 43% 184,549
On Board Service 14% 25,924
Stations 45% 65,976
Reservations Marketing 34% 63,681
General Support )
Retirement Benefits ) 54% 222,388
Taxes and Insurance )
General Adminisrtrative )
Depreciation 65% (est.) 159,301
TOTAL $1,131,967 ($1,131,967)
NET LOSS ($365,567)
Not a pretty picture. Remember that the 1994 operating subsidy for the whole system was just $351 million, suggesting that national system operations already cross-subsidize the NEC to the tune of $10 million or more. The NEC costs the taxpayer a net subsidy of roughly $31.25 per passenger. The remainder of Amtrak’s subsidies go to capital investment, excess railroad retirement, and other special applications not related to national system train operations.
So, against this background, and facing a cash flow crisis (losses over subsidy of well over $200 million in FY94), what does Amtrak do? Answer: the classic federal bureaucratic reaction – slash operations in the highest revenue-producing sectors of the system. Amtrak’s highest revenue producing train, the Empire Builder, is slashed. One of Amtrak’s few trains producing (even on Amtrak’s books) an operating profit, the Palmetto, is eliminated. The hapless Montrealler, charged on Amtrak’s books with costs equal to 15% of ALL of the costs of ALL the Metroliners (ponder that relationship for a while), is eliminated. (Guess where the its costs will be reallocated.)
ITEM: $170 million of the 1994 excess losses are one-time, non-recurring accounting adjustments for future retirement benefits ($90 million) and reserves for future liability claims ($80 million).
Amtrak totally ignored $100 million in costs that could be avoided in the NEC without loss of one cent of revenue. How? Cutting top speeds to 110 mph would avoid more than $60 million in maintenance of way expenses (the cost of which alone consumes 44% of ALL NEC train revenues), power consumption, and equipment maintenance. It would add just 7 minutes to New York-Washington trip times (affecting just 17% of NEC riders) and 2 minutes to New York-Philadelphia trip times (50% of NEC riders). These changes are hardly likely to send train riders fleeing for the airports, or I-95. Consolidating non-rush hour Metroliners and conventional trains into single, not overlapping, hourly frequencies would avoid more than $40 million more in redundant annual operating costs without affecting ANY passengers. But making these changes would require rethinking political orthodoxies prevalent in Washington since the High Speed Ground Transportation Act of 1966.
Politically, the Amtrak “plan” represents a victory by Northeastern politicians in an attempt to hijack Amtrak’s financial resources to preserve the NEC at the expense of usable train service for the entire rest of the country. As a purely political proposition, it is not clear why the NEC should enjoy half-hour frequencies when entire regions of the country including 4 of the 10 largest cities have less than one train daily.
ITEM: The NEC has consumed 90% of Amtrak’s capital grants over the last 10 years, with NO apparent financial return on the investment. Where would the national system be today if it had received just 20% of the nearly $5 billion in capital that has gone into the NEC?
Amtrak IS in a state of collapse. But its strategic plan won’t work, and is 180 degrees off the mark, precisely because it slashes its main sources of revenue and its ONLY growth opportunities, but does virtually nothing to contain the principal source of its continuing cash hemorrhage, the NEC. Amtrak and its consultants believe most of its costs are “activity-drive” and will abate with reductions in national system train operations where the opposite is true. Amtrak’s long haul trains’ revenues more than cover the costs of running the trains, but fail only to cover arbitrarily allocated shares of system overheads, which do NOT abate with marginal reductions in train-miles.
Amtrak can be saved, both as a corporation and more importantly as a national network of surface transportation services, but not the way current management is going about it. Ironically, much of what Thomas Downs is doing is correct and overdue: reducing and decentralizing a terribly bloated management staff, refocusing Amtrak’s activities on customer service, challenging Congress to take labor and transit subsidies out of Amtrak’s budget, and outsourcing many functions to get costs down to real, i.e., non-political, non-railroad, levels. But Mr. Downs has fallen into a 30 year-old political trap of believing that Amtrak’s future lies in the high-cost, low-return short distance corridors, rather than in the high-revenue, high-growth potential of the national system long-distance network.
