Volume 3 Number 3
- URPA Vice President and guiding light Andrew Selden has cracked the secret and elusive Amtrak accounting code for creating the false profits shown on the Northeast Corridor. Read on to learn further why so many people are so nervous about having real, bona fide business people looking at Amtrak’s steamy books.By Andrew Selden
If you want to understand Amtrak’s financial results, the October 2005 monthly report is instructive. In that one month, the company lost (in very round numbers, throughout) about $100 million dollars (in generally accepted accounting principle [GAAP] terms). Of that, about $65 million was real cash (excluding depreciation of $43 million) funded by federal operating grant money.
The cash losses were allocated, by Amtrak, as follows (all numbers are “Federal Railroad Administration [FRA] Defined Train Cost”):
NEC: $17,000
State-Supported Routes: $486,000
Other Short Distance Routes: $961,000
Long Distance Routes: $18.5 million
What rational person, seeing those numbers, wouldn’t conclude there was a real serious issue with the long distance trains as a group, and maybe get out the handy pocket calculator and start dividing that number by “ridership” (cheerfully and reliably supplied by Amtrak and its fans) to get those bogus “loss-per-passenger” numbers that politicians, the National Association of Railroad Passengers (NARP), and the media like to toss around?
Here’s where the big lie comes in: astute number-crunchers may have noted that 17 + 486 + 961 + 18,491 does not sum to 65. It sums to just shy of $20 million. Where is the remainder? The missing $45 million - a figure, in CASH, that Uncle Sam had to cover that is more than TWICE the aggregate cost of ALL of Amtrak’s train operations? That the martyred previous Amtrak President and CEO ran up, month after month?
Well, the monthly report has that money, in its own line, right below the segmented FRA train costs: $45 million, described as (and I am not making this up): “General Operating Funding.”
Now, since the $18.5 million assigned to the long distance trains times 12 months comes out to $222 million, we can safely conclude that the $18.5 assigned to the long distance group above is pretty fully-allocated, such that none, or very, very little, of the missing $45 million, can be allocated to them as “overhead” (and if we use Amtrak’s grossed-up, but unsupported number for long distance losses of $300 million per year, the difference is about $6.5 million a month, which would leave $38.5 million of the “General Operating Funding” in October to be charged against something other than long distance trains).
The pretty clear message from Amtrak’s own report therefore is that something that they do (called “general operating”) costs twice as much as running trains; the mystery activity does NOT involve the long distance trains as a group; and, the mystery activity is a steadily recurring item.
Since the long distance trains are all paid for outside of the mystery activity, what is left? We can reasonably surmise that the “state-supported” trains’ costs are at least fully-allocated (knowing what we do about how Amtrak charges California and Illinois to run their trains), and the “other short distance” category is peanuts. What is left? Headquarters costs? Which of Amtrak’s activity centers requires a very large headquarters and other-than-train-operations staff? Could it - just maybe - be that “successful” Northeast Corridor, with all of its magnificent-but-not-in-a-state-of-good-repair infrastructure, and those 11,000 employees?
Is it even remotely possible that to get a true picture of the financial results of Amtrak’s operations of its “successful” NEC segment we should add to the reported $17,000 loss on train operations all of the net $38.5 million in “general operations” costs, and discover that the long distance trains as a group “lost” $18.5 million but the NEC as a group lost nearly $40 million, more than twice as much as the long distance group?
Is it possible that if the NEC infrastructure were owned by a different entity, and Amtrak shed those costs, but had to pay rent to use the NEC, that its costs for “FRA Defined Train Operations” in the NEC might leap upwards by a large fraction of the $38.5 million (or more)? Unless it sharply curtailed the number and velocity of its trains that use that property? And that even if it cut those costs in half they would still exceed all of the long distance trains as a group?
And, we still haven’t accounted for NARP’s favorite line, the “non-cash” depreciation (and since 90+% of the capital is in the NEC, that’s where 90+% of the depreciation charges are incurred), which would add another $43 million a month (90% of which would be about another $38 million) to the losses of the NEC, for a total monthly result, using real-world business accounting (the kind you go to jail for not using if you are the CFO of a publicly-traded company), of a loss of around $75 million. Just in October 2005. Using the most favorable and conservative assumptions.
NOW do we understand why NARP and the Northeastern politicians and media dread having Floyd Hall and Enrique Sosa, two accomplished CEOs of very large public companies, on the Amtrak Board of Directors overseeing Amtrak’s planning and investment strategy? And why the last president and CEO and NARP were so bitterly opposed to breaking out the ownership, and costs, of the NEC infrastructure?
- OK, the secret and elusive Amtrak accounting code has been cracked, and we can all see how the books have been cooked to make the NEC look “profitable” when it really isn’t profitable under GAAP rules.Now, the big question is, why didn’t the United States Department of Transportation Inspector General crack this code, first? Why did Andrew Selden, a highly respected attorney in private practice with a deep background in corporate and financial affairs discover this before the people who are paid by the government to do this job?
And, the next big question is, what about the alleged high costs associated with operating Amtrak dining and sleeping cars that the IG is always moaning about, to the point where Congress has enacted laws micro-managing these two areas? How valid are those numbers on Amtrak books? Will a close inspection prove that dining car costs are actually much lower than the books show? Will a close inspection prove that sleeping cars are much more of a cash cow than the books show? Inquiring minds want to know. A lot of dining car jobs are precariously resting on the outcome, not to mention the welfare of passengers who will have the ability to enjoy morally admirable meals while enroute to their destinations on Amtrak long distance trains.
The Amtrak Board of Directors is right to seek a company outsider to be the next CEO of the company; someone who has never been tainted with Amtrak accounting.
- A miracle has occurred and there are two new American heroes. Their names are David Hughes and Jon Tainow. Mr. Hughes is Amtrak’s Acting President, and Mr. Tainow is the interim Amtrak Vice President, Transportation. Mr. Hughes and Mr. Tainow each need to take a medal out of petty cash. Until this week, and prior to the departure of Amtrak’s former Vice President, Transportation, Amtrak routinely and with malice annulled or truncated trains for various reasons, including natural disasters, man made disasters and if it thought it could save a buck or two so an exec could count on a performance bonus.Amtrak’s constant mantra was “no alternate transportation will be provided” when a train departure was wholly or partially annulled. But, those sad and woebegone days seem to be fast becoming a thing of the past, just like the two mercifully departed Amtrak executives that have now been replaced with people who understand passenger service.
Sadly, in the Pacific Northwest, there has been continual heavy rains since mid December. Weather experts say this spate of rain may outlast the previous storms, which reigned/rained for 33 days in 1953. As a result of this, some mud slides have occurred, and conditions are ripe for more similar problems. Amtrak has had to alter schedules for the Empire Builder, Coast Starlight, and much of the Seattle to Portland service.
In every instance, Amtrak is providing alternate transportation to passengers. This is the way it’s supposed to be, every day of the year. Bravo! to Mr. Hughes and Mr. Tainow.
- Another minor miracle has occurred, this time on the NEC. According to Amtrak, due to passenger requests, hot food service has returned as of Wednesday, January 11th to first class Wondertrain Acela departures. Here is what Amtrak announced in its reservations system:
“HOT MEALS RETURN TO ACELA EXPRESS FIRST CLASS
“AS A RESULT OF FEEDBACK FROM PASSENGERS, AMTRAK WILL RESUME SERVING HOT MEALS ON ACELA EXPRESS FIRST CLASS BEGINNING WEDNESDAY, JANUARY 11, 2006.
“WE WILL OFFER A FULLY PREPARED HOT BREAKFAST IN ADDITION TO THE CONTINENTAL BREAKFAST, SOUP AS AN OPTION TO ACCOMPANY THE FRESH SANDWICH OR SALAD FOR LUNCH, AND A CHOICE OF TWO FULLY PREPARED HOT ENTREES FOR DINNER. ADDITIONALLY, THE WINE IS UPGRADED, AND GLASSWARE AND CHINA RETURN (EXCEPT FOR THE PREPLATED MEALS).”
This is a very good start. Now, what about the Diner Lite program? We breathlessly await good news that perhaps this disaster-in-the-making program may never get off the ground, as it was allegedly slated to begin in February. Word has already come that 100 dining car employees from the Los Angeles crew base have already lost their jobs in preparation for Diner Lite on the Southwest Chief and Sunset Limited.