Vol. 2, No. 32 - November 03, 2005
- Today’s hot off the presses headline comes from the General Accounting Office in Washington, via the House Transportation & Infrastructure Committee. It’s fascinating reading.
Headline: GAO Predicts Amtrak’s Current $1 Billion In Operating Losses To Increase By 40% In Next Four Years; GAO Report States “No Effective Corporatewide Cost Containment Strategy Exists” To Address Growing Losses
Washington, D.C. - A two-year investigation by the Government Accountability Office (GAO) into Amtrak’s management and spending practices uncovered numerous procurement abuses, inadequate financial controls and questionable spending, leading GAO to predict that Amtrak’s current $1 billion annual operating loss will increase by $400 million a year by FY 2009.
The GAO report states “while Amtrak has recently reduced costs, revenues are declining faster than costs, leading to operating losses exceeding $1 billion annually. These losses are projected to grow by 40 percent within four years; no effective corporatewide cost containment strategy exists to address them.”
The GAO report entitled “Systemic Problems Require Actions to Improve Efficiency, Effectiveness, and Accountability” was publicly released today and can be accessed at the GAO website at: http://www.gao.gov
Other highlights of the report include:
- Amtrak procures $500-$600 million in goods and services per year, but was unable to provide GAO with detailed, comprehensive data on total spending.
- There is no company-wide strategic plan or cost containment strategy (page 92).
- Over $500,000 in performance bonuses were given to Amtrak managers, despite the lack of measurable performance goals. These awards were issued even though the company’s financial picture had not been finalized. David Gunn, Amtrak’s current president, received a substantial cash performance bonus, although the performance goals in his employment contract were never filled in (page 73).
- No-Bid contracts were awarded without justification even when Amtrak’s own guidelines required justification (pages 112-114).
- Initial contracts were expanded far beyond their original scope - a software contract was increased from $60,000 to over $500,000 (page 107); a signal survey services contract went from $45,000 to over $764,000 (page 115).
- Of $4.3 billion in costs for 2002-03, only $357 million (8 percent) was directly assigned to each train line. Amtrak allocated the other 92 percent of costs to the various lines using arbitrary formulas, for which GAO could not find supported (page 68).
- Purchase order arrangements designed for contracts under $5000 were used for $100,000 purchases.
Rep. Richard Baker To Chair Amtrak Working Group
The GAO report was the focus of the first meeting this morning by the Amtrak Working Group, a bipartisan panel of House Transportation and Infrastructure Committee Members assigned to evaluate the information from the GAO, the Amtrak Inspector General and the Department of Transportation Inspector General.
U.S. Rep. Don Young (R-Alaska), the Chairman of the Transportation and Infrastructure Committee, appointed U.S. Rep. Richard Baker (R-LA) to Chair the Amtrak Working Group. Baker also serves as the Chairman of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, which uncovered numerous financial irregularities within Fannie Mae and Freddie Mac.
“I look forward to meeting with the other members of the working group during the next few months to review the materials that have been developed on Amtrak’s stewardship of intercity passenger rail,” Baker said. “This GAO report certainly provides comprehensive and detailed information concerning the current state of intercity passenger rail transportation.”
“Over the last two years the GAO has been working at my request on an evaluation of Amtrak’s management and performance,” Young said. “The report was structured to provide comprehensive and detailed information concerning the current state of intercity passenger rail transportation under Amtrak’s stewardship. As we assess the current federal role and look to the future opportunities to meet intercity passenger rail transportation needs, it is imperative that any system we adopt or continue to support operates in an efficient and businesslike manner.
“This GAO report has raised very serious questions about the planning, acquisition procedures, cost controls, and financial management at Amtrak. In addition, we will also be receiving information from the Amtrak and DOT Inspector Generals regarding their investigations into Amtrak’s management and spending practices.
“Rep. Baker is the ideal person to lead this effort to thoroughly examine Amtrak’s management practices, how it acquires its goods and services, and the accuracy of the information provided to the Congress and the public.
“In light of the heavy federal subsidy used to keep Amtrak solvent, I am specifically interested in allegations of wasteful spending, poor business practices, inadequate record keeping, and the lack of a comprehensive strategic plan,” Young said.
The Amtrak Working Group has been asked to determine whether there is sufficient information to warrant the establishment of a formal Congressional taskforce to address this issue. Baker’s group has until February 17, 2006, to report back to the Committee.
- If you’re an Amtrak apologist or cultist, and have read this far, you’re probably immediately trying to rationalize excuses for this behavior by Amtrak. Most likely, you’ve reached the automatic conclusion that all of this isn’t Amtrak’s fault, but the fault of the Evil Republicans for not giving Amtrak enough money to do what the company is really destined to do. You will be wailing that if only Amtrak would be left alone to its own devices with huge amounts of someone else’s free federal monies, that the Amtrak world would work perfectly, and the Republic would be stronger and better. You will be even more distressed if you’re the leaders and staff of Amtrak’s sycophant echo chamber organization which never criticizes Amtrak staff, only the Amtrak Board of Directors. You will be trying to figure out how to address this problem without offending your Amtrak staff masters, yet find a defensible position. It’s a tough day for you.
- If you’re a realist and have read this far, you probably haven’t been too terribly surprised at what you have read, but at least certainly disappointed. Amtrak President and CEO David Gunn (the third of the devastating to Amtrak Transit Trio of Tom Downs, George Warrington, and Mr. Gunn) came roaring into office ready to conquer the madness of Amtrak accounting and fiscal responsibility and made some excellent progress. However, it looks like not near enough progress has been made. It must be noted that no corporate behemoth such as Amtrak in such miserable fiscal shape as when Mr. Gunn arrived has ever been tamed in a short period of time. Many things have to change, including the culture of the corporation that allowed these type of abuses to happen in the first place. One big change has already occurred, with the placement of the current Amtrak Board of Directors under Chairman David Laney, replacing the Clinton era board of rubber stamp politicos that had no realistic large corporation experience, and were more interested in Wondertrain Acela than running the whole railroad. Other changes that must be made have to occur on the senior and middle rank staff levels, which are still peopled by old time Amtrakers that as long as they see a steady stream of free federal monies rolling into their budget accounts, are not about to institute meaningful change. Until these corporate ranks are cleaned out, the Amtrak bureaucracy will be highly resistant to any meaningful change.
- One highlight mention above is particularly telling, if you’re a proponent of Amtrak’s original - and only - mission, which is to operate a healthy and robust national passenger railroad system:
“Of $4.3 billion in costs for 2002-03, only $357 million (8 percent) was directly assigned to each train line. Amtrak allocated the other 92 percent of costs to the various lines using arbitrary formulas, for which GAO could not find supported (page 68).”
This tells the whole fraudulent story when it comes to realizing how bad the various numbers are that have been routinely quoted in the news media and elsewhere by everyone from politicians to Amtrak apologists and cultists. Ridiculous and meaningless figures about losses per passenger on long distance trains become even more suspect with this statement. What this statement really says is that Amtrak doesn’t know (or will reveal) what the real costs are for the long distance trains. So, how can any figures from anyone be accurately surmised or quoted, based on Amtrak’s figures?
- This GAO report should open some interesting doors in the days and weeks to come. It’s important to note one fact that may be confusing to some. This is a GAO report, from a completely separate agency than the US DOT’s Inspector General’s office, which often picks up the Amtrak company line in its reports. The two agencies are independent of each other, and should not be confused. The news release did note that the House committee has requested additional, separate reports on the same subject from the US DOT and Amtrak Inspector Generals.
- Here’s one last bit of interesting information. The Amtrak Government Affairs department in January of 2005 (as posted today on Amtrak’s public web site) says that “Amtrak owned property includes 2,141 railroad cars, 425 locomotives, 20 high-speed Acela train sets …” and goes on to list track and infrastructure. Today’s Amtrak internal daily report, which each days lists active rolling stock and daily requirements, says that Amtrak has 1,394 railroad cars (with a requirement for today’s service of 1,112 cars), 350 locomotives (with a requirement for today’s service of 275) locomotives, and the 20 Acela train sets.
Hmmm … so, if the math is correct, there are 747 railroad cars out of use on Amtrak’s roster? And 75 locomotives? Isn’t this enough equipment for another whole passenger railroad?
We know that Amtrak wisely leases some of its surplus locomotives to other railroads, thus generating revenues on these assets. That’s a good thing.
However, even though a very few Heritage passenger cars are leased by Amtrak to VIA Rail Canada, what’s going on with the rest of this equipment? Is it all sitting in the wreck line at Beech Grove, Amtrak’s main repair facility in Indiana? Amtrak always seems to be chronically short of equipment. What justification is there for this much equipment that may be usable to be sitting idle? How much of the national system could be beefed up with this equipment? Most importantly, how much annual revenue is Amtrak giving up by not utilizing this equipment, and relying instead on annual government subsidies in the form of free federal monies? Does Amtrak have a huge opportunity to help itself here, but instead is happily taking government subsidies?
Using conservative figures, the replacement cost for 747 railroad cars is probably in excess of $1 billion. Isn’t this a large, unused asset that is being allowed to deteriorate daily and produce no return on investment?
Again, how much revenue against minimal costs could this equipment be generating if properly used? Inquiring minds and those worried about ever-increasing government deficits want to know.