This Week At Amtrak 2005-02-22
Vol. 2, No. 5 - February 22, 2005
- Andrew Selden, URPA Vice President of Law and Policy and President of the Minnesota Association of Rail Passengers offers this commentary on Amtrak current affairs:
In early February, the White House released details of its annual budget proposal, which had been foreshadowed in President Bush’s State of the Union address in January: 150 non-performing federal programs would be eliminated. Naturally, Amtrak was high on the list. The budget proposed eliminating all of Amtrak’s subsidy, keeping only $360 million for Northeast Corridor-using regional transit agencies like SEPTA and MARC, and some matching grants for state-sponsored projects. Bond agencies immediately threatened to downgrade Amtrak debt, raising its costs.
Congressional support for Amtrak is too broad, and the refusal of most Senators to fund anything for an “NEC-only” Amtrak too deep, for shutdown to be a real threat, despite anything NARP or others might say. Minnesota’s Republican Senator, Norm Coleman, was quoted in the St. Paul Pioneer Press on February 9 as saying, “Zeroing out Amtrak and limiting help to only commuter and freight traffic in the Northeast Corridor is not an option, and I don’t expect Congress will agree to it.” An MSNBC poll showed 65% of Americans agree. But the White House’s frustration with Amtrak is hard to argue with: $29 billion spent over 34 years, with never an end in sight. How much is “enough”? And the White House’s antipathy to what it still calls the “money-losing” interregional long distance services is entirely predictable, given years of propaganda to that effect from Amtrak, seconded by Amtrak’s ever-reliable alter ego, NARP. What’s different this year is the proposal to shut down the whole program, let the pieces fall where they may in a federal bankruptcy, and see what bits and pieces the states might want to pick up.
Illinois’ Senator Richard Durbin ridiculed the White House plan’s suggestion that states could form compacts to fund interstate routes, pointing out that we already have a perfect device for combining multi state programs, called the “Federal Government.”
One of the best early reactions came from Gene Skoropowski, who runs California’s Capital corridor:
"Since the entire long distance passenger rail system costs about $300 million in subsidy, there is not much of a ’savings’ likely to come cutting off all those services. Of the remaining $900 million of the total $1.2 billion Amtrak federal allocation, about half is for vehicle overhauls and capital infrastructure maintenance/renewals along the Northeast Corridor (and Amtrak has said that even this amount is insufficient for the tunnels, bridges, tracks, signals and stations that need repairs/replacement there), so there is no savings there, as those obligations will continue, and in fact, increase with time. Most of the remainder of the Amtrak subsidy has to go for debt service (rolling stock debt, since Congress never provided the capital funds for much of the replacement needed in the past few decades, and debt from prior years) and federally mandated entitlement programs (Railroad Retirement, FELA, etc.) so there is no savings there. All employees who are displaced from any discontinued services are entitled to six years pay according to the federal law. So where is the “savings”? Not much, it appears. Moreover, where is the new federal share of the money going to come from to provide the much touted 50-50 federal state share for capital improvements?
"So what does the American taxpayer/traveler get out of this? The obligation to continue to pay, but no rail service to ride. The concept makes no sense. …
"And of course, the feds envision the demise of most long distance national network passenger trains, leaving 1) no connecting rail services for the corridor trains; 2) many communities across our country with NO transportation other than driving, since essential air service is going or gone, and Greyhound is gone; and 3) a greatly diminished base of political support in Congress for any federal funding program for intercity passenger rail, as many states, mostly rural, will have lost their long distance passenger rail services, which is all they had to begin with. …
"Ridership is at its highest in the history of Amtrak. Amtrak has delivered a quality product to the American public, a service that is both being used and appreciated. It is not profitable, but it is an essential public service. No one expects the policy department, fire department, public libraries, parks or schools to show a ‘profit’, but we all certainly agree that they are essential public services. Passenger rail service is no less an essential element of nation’s system of transport. …
"Just like with the interstates, the long distance routes tie the country together, and connect small rural communities to the rest of the nation. We did not build the interstates across Wyoming because of traffic congestion. We built the roads because it was good economics for the nation. No less is true for the continued operation of the few long distance trains we have left in our country today. What we need … is high frequency, higher-speed corridor services superimposed over segments of the long distance routes. Here’s a few ‘for instances’: along the California Zephyr Route from Emeryville (San Francisco), California to Chicago there are corridor opportunities on the route or on segments of the route between Sacramento, California-Reno/Sparks, Nevada; Salt Lake City, Utah-Denver/Pueblo; Omaha, Nebraska-Chicago, Illinois.
"This concept can be replicated along almost all the long distance routes. What’s the result? A network that is uncannily similar to the successful European model, where a long distance train makes the entire route once a day (a la Vienna-Paris), but frequent corridor services along segments of the route provide convenient connections between population centers, airports, and to/from the long distance services. …
"The administration’s plan can become the basis to start the discussion for funding. It leaves a lot to be desired, but just maybe it is the beginning of a federal capital funding partnership. Congressional action will be the key to success or failure. …
"Congress needs to take the same approach, since the Administration obviously hasn’t, and all of us who have a passenger rail transportation mission to accomplish need to do everything we can to move Congress to address this issue and provide, at long last, the resources needed, in partnership with states, for a comprehensive national passenger rail system. The time is overdue."
I agree with much of what Mr. Skoropowski wrote, with these qualifications:
Mr. Skoropowski merely assumes his key conclusion: that trains are “an essential public service.” That has been proven WRONG (again) with all the service annulments in the last two months. In January, the Sunset disappeared from the Jacksonville-New Orleans market and the corridor trains disappeared from the LA-Santa Barbara market for weeks, and … and what? Nobody besides railfans and the employees even noticed. Try shutting down I-5 or I-10 (and the parallel secondary roads) or the New Orleans airport for a few days and let’s see what constitutes “an essential public service.” “Need” is not a persuasive argument for rail investment - it is comforting rhetoric, perhaps, but not sustainable. “Benefit” on the other hand is both logical and supportable, as is “consumer choice.” But not “need.” Havre, Montana is better off with train service than not, and southern California is better off with some folks on some trips having a choice of rail or road, but Louisville and Las Vegas seem to cope just fine without this “essential public service.”
Mr. Skoropowski also misses a key economic point: the return on investment of public capital, measured in purely economic rather than political terms, i.e., incremental dollars in fare revenue and incremental units of output generated per dollar invested, is FAR higher in long distance markets than corridors; and other (and much cheaper and more productive) mechanisms than publicly-funded corridor development programs are available to give the host railroads an incentive. Market rate track rent coupled with enforcement of federal trackage rights access is one. FRA-administered tax credits for privately-funded, host railroad-managed, investments in infrastructure that benefit the passenger service are another. There are certainly others. But we don’t need to use the NEC as a model for anything.
As to rolling stock, public handouts probably are every bit as necessary to acquire cars for short corridor deployment as they are for transit vehicles, because the utilization is just as (un-) productive. That is NOT the case for new Superliners. We have demonstrated repeatedly that they could be 100% privately financed, precisely because - if used properly - they can earn back their cost and a margin above that. A federal non-cash partial or whole loan guarantee would reduce the overall cost of acquisition, and accelerate deployment, but it isn’t strictly necessary.
Our perception is that the White House is not serious about eliminating Amtrak, but it is serious about (i) forcing Congress to rethink some basic assumptions, and (ii) signaling David Gunn that the Administrationhas lost confidence in his leadership, and it is time for him to move on. We concur. In the same week the budget was published, the Board of Directors at Hewlett-Packard fired CEO Carly Fiorina, for failing to increase earnings, for allowing the stock price to drop 50%, and for an autocratic leadership style that was running off talent. Why should Amtrak not have similar, if not higher, standards of accountability for a CEO burning through billions of public dollars to no discernible effect?
- Andrew Selden
2) Last Amtrak fiscal year, FY ‘04, the Empire Builder once again was number one in the entire system in output - revenue passenger miles - and revenue earned from passenger tickets. The Builder’s passenger miles of 337.8 million led the system; the Southwest Chief was second, with 312.6 million, the California Zephyr had 280.5 million and the Coast Starlight 232.7. All of the vaunted Acelas combined - only produced 30% more output, at 463 million than the once-a-day Empire Builder. All of the Pacific Surfliners had 194.9 million (less than the single train Coast Starlight’s 232.7 million); the Chicago-St. Louis “corridor” 39.3 million. Any two western long distance trains produced more output than all of the Acelas combined.
The Builder’s revenues, $39.1 million, also led the pack. The Chief and Zephyr each earned $31 million, the Starlight $28.9 million. Each trip of the Builder produced $53,600 in revenue, from 600 passengers (year’s total ridership: 437,200). Only Amtrak could “lose money” on inputs like these. - Andrew Selden
- Amtrak’s cutbacks in cars assigned to western long distance trains are costing it hundreds of thousands of dollars in lost revenue every month. For example, in January alone, dropping the third sleeper from the Starlight lost $108,000 in revenues. On the California Zephyr, reduced capacity in January cost $66,000 in lost sales.
Coincidence? Amtrak’s results through the first quarter of FY ‘05: ridership slightly above forecast (6.5 million; 6.46 forecast). But revenues are down vs. budget by $17.5 million and costs are over budget by $3.4 million. Is that the result of increased short corridor ridership and decreased long distance service? - Andrew Selden
- Through the great howling and whine of Amtrak and Amtrak cultists and apologists can be heard the annual screams of anguish over the budget battle (Which is a battle - not a crisis that will determine whether or not the Republic will stand and the Army will disperse.).
There is one clean, easy, and simple solution which will solve this annual problem, put Amtrak on a future course for success, and eliminate the constant need for pouring free federal and other monies down a persistent black hole: Amtrak needs to get rid of the NEC and turn it over to either another federal entity or a consortium of Northeast states.
What are all of the good reasons for Amtrak to want or retain ownership of the NEC? Other than it being a giant, false phallic symbol for Amtrak management (”We own right of way, we’re a real railroad!”), there are no good reasons. The owner of the NEC today faces the same conditions and problems that bankrupted the Northeast railroads in the 1950s and 1960s that owned and operated the parts of the NEC. No conditions have changed, except for the name on the ownership certificates.
Amtrak needs to be an operator of trains, not an owner of roadbed. Keep in mind that when Amtrak was originally formed in 1971, it did own the NEC, nor did it want it. It was not until the Ford Administration transferred ownership of the NEC to Amtrak in 1976 to give the fledgling Conrail a shot at viability did Amtrak acquire this huge albatross. And look at what Conrail did - it drove itself straight into privatization and profitability, so much so that it became a sought-after and juicy takeover target in the 1990s.
Think about this: airlines do not own airports (nor do they want to). Trucking and bus companies do not own highways (nor do they want to). Cruise lines do not own piers and docks (nor do they want to). It’s always cheaper and more economical to rent necessary facilities than to own them. Amtrak does very well operating over the tracks of host railroads in other parts of the country ([sigh] with the exception of Union Pacific, when it’s having periodic digestion problems). If Amtrak was a tenant on the NEC, it would eliminate all maintenance of way worries, shed thousands of employees and associated costs, and not constantly be threatening to shut down passenger rail service in an entire nation just because some bridges in Connecticut need to be rebuilt to accommodate millionaire yacht owners who keep their boats at marinas on the wrong side of NEC tracks.
If the NEC were in other hands, Amtrak’s free federal money begfest request would probably be reduced by $1 billion a year, or possibly more. Approval of a federal Amtrak budget would become more routine than contentious. Amtrak’s current budget requests that includes monies for NEC infrastructure is actually a double request, because Amtrak, through ownership, is subsidizing commuter railroad tenants on the NEC. Therefore, not only do the commuter railroads receive their own government monies, but also a subsidy from Amtrak as well, since they do not pay full market rates or fully allocated costs for using the NEC tracks and services that are a crucial part of their commuter operations.
Many distinguished Americans, from the Amtrak Reform Council to former Amtrak board members to various blue ribbon panels have all recommended moving the ownership of the NEC from Amtrak to another entity. Don’t confuse moving with elimination. Think of it as a divorce with joint custody of the children, and very liberal visitation rights.
- Let’s talk for a moment about the constant modal envy that goes on among Amtrak cultists. The story goes like this: “everyone else gets subsidy, so why can’t my favorite (Amtrak) have the same amount, too?”
This poppycock has been going on for too many years, and the refrain has become tedious and tiresome.
Amtrak does get a subsidy, in the form of free federal money every year from the federal government, numerous payments from state governments (usually at outrageously high prices), and one subsidy that practically nobody seems to notice, from the stockholders of the private corporation host railroads.
Amtrak does not pay full market rates, nor fully allocated costs per train mile (one train traveling one mile) over the freight railroad lines. It pays a reduced cost (going back to the precedents set in the original contracts when Amtrak was formed over three decades ago) that does not completely cover the costs of the host railroads to operate Amtrak trains. Above and beyond this, Amtrak also, by contract, has the right to have its trains operated as a priority over freight trains, and also operated 365 days a year, even when the rest of the railroad is shut down for holidays.
This all amounts to a huge subsidy for Amtrak, totally millions and millions of dollars, that comes directly out of the pockets of the host railroads, and therefore the railroad’s owners, the stockholders. Translation: Amtrak is not only receiving free federal money, but it is also receiving free money from private industry.
If you were an airline or trucking or bus company or cruise line, wouldn’t you be jealous if you didn’t have the same deal?
By the way, Amtrak does not extend the same courtesy to private freight railroads which operate trains over the NEC. Amtrak charges fully allocated costs and market rates per train mile. No wonder the freight railroads look to Amtrak more as an adversary than as a partner. Apparently, what is good for Amtrak is not good for the freight railroads. No double standard, here.