Vol. 2, No. 30 - October 17, 2005
- “The Russians Are Coming! The Russians Are Coming!” No, wait, wrong century.
"I have here in my hands proof, that without a doubt the Red Menace is real, and the State Department is full of Communists.” Er, still wrong century, plus wrong moronic demagogue and wrong party.
"The sky is falling and the Earth is rushing up to meet it!” Ah, yes, finally. The proverbial words of Chicken Little, apparently of late a resident of Washington, D.C., in reaction to last week’s unstartling announcement that Amtrak is planning to separate the Northeast Corridor track, bridges, infrastructure and real estate (not train operations) into a separate subsidiary that will be wholly owned and wholly operated by the National Railroad Passenger Corporation, or Amtrak, as the company is commonly called. Chicken Little has now been around Washington so long, he must certainly have aged some … probably now he has grown a gray beard, has lost some feathers on top, wears glasses, and most likely has a bit of a post-middle age paunch. But, his work is not done. There is great crisis mongering still to be done. The way the politicians and Amtrak apologists and cultists in the Northeast reacted to the story last week of this change, you would think a Republican had been elected President For Life.
Congressmen, senators and governors all issued critical statements to the press, and rushed to give reporters the reported lowdown on this latest vile trick by the Evil Republicans to do away with the NEC as we know it today.
It’s been a laughable time for those prone to reason and circumspection.
- For those interested in the real story, here is what Andrew Selden, Esq., URPA Vice President of Law and Policy had to say:
"October 14, 2005
"The Amtrak Board’s initiative to reorganize the internal structure of National Railroad Passenger Corporation - Amtrak’s real name - by separating the NEC infrastructure into a new, separate, subsidiary of NRPC, is a standard corporate technique to focus management resources - both capital and management attention - on core functions and avoid distraction and dissipation of both time and money.
"The move will have several effects that are enormously beneficial to the cause of intercity rail service. Among them:
"- Transparency of what costs are where, and exactly where the annual federal subsidy grants are being consumed;
"- Introduction of a pricing mechanism, that great ‘invisible hand’ of classical economics, to allocate finite track/time capacity in the NEC to its highest and best use, as among local and regional commuter movements, Amtrak conventional trains, Amtrak transient long distance trains, and higher speed express services.
"Oddly, NJT local commuter trains probably have the same track/time needs as an Acela Express, but draw far less power and impart much less track damage, so their usage fees may be much less than Acela’s even though both need about the same track/time ‘window’ for each frequency. Two thirds empty Acelas may be combined to avoid track fees, and trains like the Crescent may not travel north of Washington, and rely on Acela as a feeder service, for the same reason.
"This is all to the good, as it all helps to better match capacity to demand, and introduce economic rationality to Northeast Corridor train operations.
"Amtrak will retain adequate control over its fortunes in the Northeast under this plan, because the structure proposed by the Board makes it an actual partner with the US Department of Transportation, and with each state along the Corridor. This will facilitate, not hinder, cooperative use of the NEC by each of the various operators of passenger trains there. It will also facilitate allocation of finite track/time to whatever use is the most valuable to the participants, and place ownership, stewardship, and resource responsibilities in the hands of more people (particularly, the states) who are much more closely accountable to the taxpayers and customers of the NEC. Partners who most desire or most benefit from capital improvements will have the ability to bring them about in an orderly process, without undue subsidization from other users.
"The exact form of the reorganized NEC infrastructure company is less important than the concept, but several good models exist on which the new entity can be based. One is the Port Authority of New York and New Jersey, an interstate compact agency of long standing and great success in owning and operating the infrastructure for rail, water, aviation, and roadway systems.
"A similar NEC partnership could be formed, with state participation driven by CONEG, the coalition of governors of the several states in the Northeast.
"Another model would be the old railroad practice of creating a jointly-owned terminal district railroad, through which each of several competitive carriers would be enabled, for negotiated compensation, to use valuable trackage in congested terminal areas where joint use of infrastructure was unavoidable. This model would treat the NEC as a linear terminal district, where each stakeholder has a voice in governing its use.
"Yet another model would be in the structure used in many real estate syndication and development deals, the limited partnership. Under this corporate model, each investor has a limited partnership interest, and a negotiated voice in governance of the entity, which is managed by a general partner operating under the terms of the Limited Partnership Agreement. In this model, Amtrak could serve as the managing general partner of the NEC infrastructure entity, and the economic costs and benefits of ownership of the assets of the enterprise would be shared in accordance with the negotiated terms of the Limited Partnership Agreement.
"Agreements between or among states, under the terms of our Constitution, may be made only with the consent of Congress, so any agreement concerning the NEC that involves mutual participation by more than one state will require review and approval by congress, thus assuring full consent by the elected representatives of all of the people in the United States.
"This structure actually only re-creates on a multi-state basis the highly successful existing single-state arrangements used in Florida for the South Florida Regional Transportation Authority (Tri-Rail) and in California for regional and intercity rail service in the Southern California LOSSAN corridor.
"The only real change in the NEC after this change in ownership of the infrastructure is that each stakeholder, including Amtrak, will have a formal voice in NEC investment strategy and usage policies, rather than having all of those decisions centralized as now in an unelected Board that lacks effective accountability to the people it serves. That is surely a major improvement in how intercity, and commuter, rail passenger services are to be provided in the Northeast.”
- Some may recall that Mr. Selden, in January of 1986 - nearly two decades ago - labeled by Trains Magazine as the Dean of pro-passenger Amtrak critics, first called for separation of the NEC from Amtrak.
Here are excerpts from the 1986 Trains Magazine article, “How to get Amtrak out of the woods”:
" … Sell the Northeast Corridor.
"Savings: Up to $430 million [1986 dollars] for 6 years; $230 million per year thereafter
"Amtrak’s ownership of the NEC cost it $330 million in 1985. Amtrak earns $53 million from Conrail, SEPTA, and other users of the NEC, for a net loss of $277 million, nearly 45 per cent of its nationwide operating subsidy. Train operations in the NEC are thought to produce a very small additional ‘above the rail’ operating loss. But Amtrak need not own the NEC. It can be sold and its costs of ownership eliminated without adverse effect on train operations.
"The majority of the $277 million net loss (and subsidy) can be moved off Amtrak’s books by forcing divestiture of the NEC. User fees paid to the new owner for rational levels of intercity, not commuter, services could be as low as $35 to $40 million, for a net savings of $230 million per year. The proceeds of the sale could then be applied to the subsidy, reducing it by another $200 million per annum for about 6 years. The price and rate of payment for the property would depend largely upon its depreciation, projected traffic growth, user fees, and development opportunities.
"The NEC was sold once before in similar circumstances and for identical purposes — by Conrail to Amtrak in 1975. The sale relieved Conrail of the costs of ownership, but boosted Amtrak’s annual subsidy from about $200 million to about $500 million. In ironically similar circumstances, Pan Am, facing large operating losses but owning major real estate assets, sold those assets (including the Pan Am building), leased back what it needed, and lived off the proceeds. In the real world, losers lease, they don’t own, capital assets. Only Amtrak’s access to the Treasury insulates it from such market-driven adjustments. The resulting political vulnerability and constant turmoil, however useful they may be to consumer organizations, is too high a price to pay for the luxury of unneeded subsidization.
"Who would buy the NEC? Perhaps a Federal agency (e.g., the Federal Aviation Administration owns Dulles and Washington National airports and the air traffic control system), or multi-state agency modeled after the NY-NJ Port Authority. The NEC is, after all, a locally useful public transportation infrastructure, like a bridge or airport. But no single airline could afford to own a major airport if it was allowed by law to charge other airlines only the incremental variable costs of their use of the field. Yet that is precisely Amtrak’s position on the NEC under ICC ex parte 417. The resulting subsidy cost of $277 million a year, which threatens the entire system, makes outright ownership of the NEC unaffordable to its dominant passenger carrier.
"If public ownership is not politically feasible, we can turn to the private sector. As it did with Conrail, Congress could mandate a Federal Railroad Administration-brokered sale to one or more private railroads. The commercial opportunity of competitive access to the New York-New Jersey terminal districts, fiber-optics revenue, real estate development opportunities, and the opportunity to depreciate the property are strong lures to private-sector buyers. Secret Office of Management and Budget inquiries early in 1985 produced some private railroad interest in possible acquisition of a share in the NEC. Public benefits would include restoration of rail freight competition in the Northeast, and increased freight revenues on the NEC.
"Shared ownership is not unprecedented. It simply treats the NEC as a large terminal district; many hotly competitive railroads jointly and profitably own feeder lines, terminal districts, and union stations.
"The NEC’s financial circumstances demand more NEC freight service in the short term. Exclusive use by the passenger service (at a cost of $230 million) is an ideal that is not affordable to Amtrak with today’s Federal deficits and political climate. Freight traffic, however, can be restricted predominantly to nighttime, and we know from years of experience with the well-maintained, CTC-controlled main lines of Santa Fe, Union Pacific, and other Class 1 carriers that heavy freight tonnages and high traffic densities are not incompatible with 100-mph passenger service, in terms of operational factors or ride quality.
"Structuring the buyer of the NEC as a limited partnership (the customary means of syndicating large real estate projects) would enable Amtrak to be the general partner, retaining needed day-to-day operational control. The limited partners would be allocated the tax and other financial benefits of ownership.”
- One startling aspect of the story last week was the automatic jump to the conspiracy theory, that this was all part of some grand plan to undermine the Republic and hurt the little guy. The conspiracy theorists rose to new heights; one would have thought this was all an Oliver Stone Hollywood epic starring Kevin Costner. Perhaps one of the most fascinating parts of this was the charge of the Amtrak Board of Directors having a “secret” meeting and concocting this alleged conspiracy. Hmmmm …. well, the Board met in its regularly scheduled session on September 22, 2005, and the minutes of the meeting were made available to reporters and others. Not much “secrecy” there. However, Amtrak’s premier sycophant echo organization that leads the railroad’s Amen Corner last week heavily promoted the concept of secrecy to an attentive news media, which is interesting, because mounting evidence indicates the paid staff of the organization knew of this development the day of the Board meeting and chose not to say anything to its executive board, membership, or news media at the time. How’s that for secrecy?
- Media reaction was interesting. One major daily newspaper jumped on the story the day it broke in TWA for the next morning’s editions. Another major daily newspaper considered the story a yawn, and passed on it. Later in the week, the story was carried by other major Northeast and national newspapers and national wire services, plus Washington insider publications. The reporting was varied; the level of hysteria reported ran the gamut from “end of the NEC as we know it” to reporting that the whole political world was caught off guard by this to sober analysis of facts as reported by the players in the story. Some media automatically jumped to the conclusion this was part of a Bush Administration plan to dismantle Amtrak, which was never mentioned by anyone from Amtrak quoted in the story. Some even went so far as to say that Congressional approval was necessary for this move of creating a wholly owned and controlled subsidiary of Amtrak, which legal experts say it is not. All of the media were kind enough to credit URPA with first breaking the story in last week’s October 12th TWA.
- Who were the players in this story? Other than the predictable politicians and spokespersons for public agencies, the main focus of the story was on Amtrak Chairman of the Board David Laney, who fielded a host of media questions and something of a mini inquisition. Absent from the debate was Amtrak’s excellent corporate communications department spokespersons, and the usually talkative and quotable Amtrak President and CEO David Gunn, the third of the Transit Trio of Tom Downs, George Warrington, and Mr. Gunn.
- In the meantime, other topics of debate continued to roll in last week. Here is a communication from a frustrated New Yorker who uses Amtrak’s Empire Corridor service between Albany and New York City:
"I just came across your website after hearing about it from the NY Times article published today.
"I’m a regular commuter between Albany and New York City and I can assure you that the quality of service on that line is abysmal. Adding insult to injury, Amtrak has announced gigantic fare increases for commuters, while being evasive about exactly how much they will be or when they will occur. In the interim, they have graciously agreed to let commuters purchase monthly passes up to a year in advance — giving their short-term cash flow a boost — while further alienating their best customers.
"In short, the commuters in the Northeast corridor are fed up and want some kind of radical reform as much as your group does!”
- A new white paper, Concepts of the Successful Long Distance Train of the Future, is now available on the URPA web site, http://www.unitedrail.org.