This Week at Amtrak 2006-04-04
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Volume 3 Number 16
- It’s tough to know where to begin. The Amtrak Working Group, led by Congressman Richard Baker of Louisiana has issued the most important government document regarding Amtrak since the final report of the Amtrak Reform Council was issued in December of 2002 by Chairman Gil Carmichael and his blue ribbon panel. The title of the AWG report is “Amtrak in the 21st Century.”The Amtrak Working Group is a part of the United States House of Representatives Committee on Transportation and Infrastructure, and consists of Republican Congressmen Richard Baker, Vernon Ehlers of Michigan, Sam Graves of Missouri, Mark Kennedy of Minnesota, and John Boozman of Arkansas. Democrat members are Elijah Cummings of Maryland, Jerrold Nadler of New York, and Brian Baird of Washington.
The report was presented to committee chairman Don Young of Alaska last week.
There are a number of important topics which will be covered in a series of This Week at Amtrak special editions. The topics will not necessarily be in the order as presented in the group’s report.
For the expediency of electronic mail reading, all footnotes and other notations have been removed from text excerpted from the report presented here. The full text, with all information and notations is available [directy from the House of Representatives: Report of the Amtrak Working Group (PDF; 680Kb; March 2006)] Every reader is urged to review the full contents of the report in its original context for complete clarity.
- Just to get a flavor of this momentous report, here is an excerpt from the section dealing with Amtrak’s mechanical department:[Begin excerpt]
… The report examined Amtrak’s diesel locomotive fleet built by General Electric similar to those run by the freight railroads.
“Overall, our analysis shows that Amtrak is spending between $6 million and $16 million more per year (20% to 53% more) than a typical freight railroad would to maintain its diesel locomotive fleet and that Amtrak could save an additional $5 million by changing the overhaul frequency to the mileage recommended by the manufacturer.”
The Amtrak IG Mechanical Report found, among other things, that maintenance is not being scheduled and performed properly; the heavy overhaul program is inefficient and wasteful; the Work Management System is in substantial noncompliance; and the Mechanical Department has virtually no quality management system.
The Amtrak IG Mechanical Report states, similar to the GAO Report, that Amtrak has no metrics to monitor and measure performance:
“Part of the problem is that the term ‘State of Good Repair’ … has not been defined. Without a definition of what they [Amtrak] are trying to achieve, it is difficult for the Mechanical Department to measure how well they are doing … Without useful fleet performance metrics, Amtrak’s leadership is ‘flying blind.’ Decisions are being made with no ability to determine if changes are helping or hurting performance. Hundreds of millions of dollars are being spent to achieve a ‘State of Good Repair’ without a firm definition of what that means and no way to tell when that has been achieved.”
Amtrak’s maintenance expenditures are not based on prioritized corporate needs. Current material storage and issuing procedures at maintenance facilities are inefficient and have low worker productivity. “Amtrak’s plan for mechanical capital expenditures is to bring the entire fleet up to a “State of Good Repair” regardless of whether or not [repairs to] the cars or locomotives are needed.”
Amtrak does not maintain cost data that allows Amtrak to determine maintenance costs by activity or type of equipment. Cost data is inaccurate, misleading, non-transparent, and inefficient leading to procurement waste, fraud and abuse.
“[W]e found obviously miscoded data that should not have been included … we encountered large amounts of manual manipulation of the cost data … we encountered a large number of negative entries, reflecting attempts to back charges out of certain accounts and apparently move them to other accounts. We had a difficult time finding anyone who knew why this was done … This large amount of manipulation creates the opportunities for mistakes and further miscoding of costs. In addition, it makes it very difficult to trace the costs back to the original purchase or issue and therefore makes the integrity of the data more questionable.”
The IG Report echoes the findings by GAO concerning Amtrak’s inability to contain its costs because it has no data to analyze Amtrak’s spending.
[End excerpt]More on this part of the report will be addressed in a future TWA.
- Amtrak Diner Lite program has been a hot topic in TWA in recent weeks. Below is the text from the Amtrak Working Group report relating to Amtrak food and beverage services:[Begin excerpt]
Amtrak Working Group Review of the Amtrak Inspector General’s June 2005 Report on Amtrak Food and Beverage Operations and other matters.
The Amtrak Inspector General issued a report entitled “Amtrak Food & Beverage Operations- Evaluation of FY ’03 Performance.” The report examines Amtrak’s performance on a system, route, and service type level. The report also compares Amtrak’s performance with that of the U.S. restaurant industry. Lastly, the report identifies opportunities to improve performance.
In summary, the Amtrak IG found that:
- The financial performance of Amtrak’s food and beverage operation is significantly worse than average compared the U.S. restaurant industry;
- That all of the varying types of food and beverage operation on all Amtrak routes lose money; and
- Amtrak’s food and beverage operations in FY ’03 generated approximately $78 million in revenue but had $162 million in expenses-resulting in a loss of over $83 million.
Separately, the GAO conducted its own review of Amtrak’s food and beverage operation and found similar results. In its June 2005 food and beverage report. GAO found that “Amtrak’s financial records show that for every dollar Amtrak earns in food and beverage revenue, it spends about 2 dollars, a pattern that has held consistent for all three years GAO reviewed.”
These findings are consistent with Amtrak’s Inspector General’s figures of $78 million in revenue and $162 million in expenses, roughly a little more than $2 in expenses for every $1 in revenues. In GAO’s estimation, Amtrak has lost a total of almost $245 million between fiscal year 2002 and fiscal year 2004 on food and beverage operations.
Information that could provide both internal and external accountability for the food and beverage function (and other areas) is limited. Amtrak does not include any information about its food and beverage expenses in any of its internal or external reports, including its monthly performance reports, its internal quarterly progress reports or its annual consolidated financial statements. This lack of information makes it difficult for internal and external stakeholders to gauge the profit or loss of the operation as well as to assign accountability. This lack of transparency is typical of many aspects of Amtrak’s operations. Amtrak has revised its contract with its outside vendor and the AWG urges the Committee to monitor the forthcoming bid and award of new food and beverage contracts.
In the last few months Amtrak has taken steps to renegotiate its primary food and beverage contract as well as pursue alternate methods of meeting passenger culinary needs. The AWG urges Amtrak and the Amtrak IG to closely monitor such efforts to determine their effectiveness and impact on the traveling public.
[End excerpt]
- [Begin excerpt]
Amtrak Working Group Note Concerning Legislation Enacted by the Congress Last Year Affecting Amtrak’s Food and Beverage Operations
The Amtrak IG testified before the Subcommittee on Railroads just nine months ago on June 9, 2005 outlining his findings concerning Amtrak’s food and beverage services. The IG stated that “the management of these operations are critical to the overall success of Amtrak … [as] food and beverage operations represent almost $200 million in annual expenses to the corporation.”. Key findings by the IG included “that Amtrak food service employees are paid 3 ½ times the amount paid to the equivalent U.S. restaurant employee … [being] compensated more than $54,000 [annually], while comparably skilled food service workers are compensated $14,450 to $15,835.”
Notwithstanding these pay rates, the IG stated his review of Amtrak’s food and beverage operations was prompted, in part, by “a number of investigations of food and beverage workers … [including] an eighteen month period alone, [wherein] 135 employees were dismissed, resigned, or were disqualified for improper cash handling.”
The IG stated that relatively recently Amtrak corrected a major flaw in its on-train cash handling system. A couple years ago Mr. Gunn implemented a reform in which he directed managers to replaced the “cardboard boxes” used to handle food and beverage cash on the trains with cash registers and receipts, a move which the IG has indicated has been “partly successful, but weak controls remain.”
Two other key Amtrak IG findings in this respect were 1) “Amtrak pays about 2 ½ times the amount paid by comparable U.S. restaurants to supply food and beverage to its operations;” and 2) Amtrak pays about twice as much, on average, for non-consumable stock [such as linens, napkins, china and utensils] as a comparable U.S. restaurant.”
Accountability is low and compensation is high in the food and beverage sector of the Amtrak operation. However, Amtrak lawyers and business managers who fail to draft, scrutinize, and manage corporate contracts cost the corporation even more than frontline on-train employees who help themselves to the contents of the cash register.
Amtrak’s response to the concerns expressed about the mismanagement of its food and beverage service is often too little, too late. Many of the actions being taken by Amtrak over the past year or so are the result of the scrutiny it has received. Prior to the Committee initiating oversight of Amtrak’s food and beverage contract, the corporation did not adequately assert its rights under the prior contract and no one was held accountable. Amtrak should not be applauded for merely performing tasks which it had previously neglected.
In response to the Rail Subcommittee’s June 2005 hearing on the Amtrak IG and GAO reports concerning the losses incurred by Amtrak’s food and beverage operations, Congress enacted the following language in H.R. 3058, the Transportation Appropriations Act of 2006:
Provided further, That the Corporation [Amtrak] is directed to achieve savings through operating efficiencies including, but not limited to, modifications to food and beverage service and first class service: Provided further, That the Inspector General of the Department of Transportation shall report to the House and Senate Committees on Appropriations beginning on January 3, 2006 and quarterly thereafter with estimates of the savings accrued as a result of all operational reforms instituted by the National Railroad Passenger Corporation: Provided further, That if the Inspector General cannot certify that the Corporation has achieved operational savings by July 1, 2006, none of the funds in this Act may be used after July 1, 2006, to subsidize the net losses of food and beverage service and sleeper car service on any Amtrak route …
The AWG urges the Committee to remind the DOT IG of its reporting obligations on this matter and to have DOT’s FRA and Amtrak prepare contingency plans for reduced food and beverage service.
- Whew! That’s a mouthful about Amtrak’s food and beverage service. Note the gist of what is being said, that most of Amtrak’s problems are management and control related. Yes, labor is a very high cost. The obvious answer for this is that Amtrak uses union labor, plus the uniqueness of the union labor traveling with the restaurant as it moves from city to city. There are certainly smart ways to control labor costs (once someone actually knows what those costs may be), but wholesale layoffs to achieve the regimentation and ghastliness of Diner Lite is not the answer.This is an opportunity for Amtrak and its labor unions to work together to update union rules that allows more cross-utilization of onboard employees to improve efficiency all around and lower labor costs. This does not necessarily mean a loss of jobs, but a better definition of jobs without the rigidity of current work rules.
The AWG report states that all types of food and beverage services on all routes lose money. But, as reported in TWA (issue no. 13, March 15, 2006), we saw from an internal Amtrak document that every route makes money before labor costs are added. We also know that on some regional and corridor routes, the minimal amount of labor needed to run a single lounge car is easily covered by the profit margins of the sales in the lounge cars. So, what is not adding up, here? The only answer is the outrage of Amtrak’s Route Profitability System (RPS) that has arbitrarily assigned costs to routes (see above in the excerpt from the mechanical department report for examples of this). For decades, Amtrak has been fooling itself to internally justify favored trains and routes over other services. The Auto Train has always been a corporate favorite with good financial reporting, yet it should have high costs because of its dedicated equipment pool and exclusive stations. Wondertrain Acela is another area where Amtrak reports a “profit” on Acela operations, yet huge losses on Northeast Corridor regional services which use the same tracks, stations, dispatching and other services.
All of this fraudulent activity is finally catching up with Amtrak. Most of the people who perpetrated these frauds are long and thankfully gone, but the mess left behind is a huge cleanup task. David Gunn walked into this mess in 2002 and scratched the surface of the cleanup process. The current Amtrak Board of Directors inherited this quagmire, and mercifully, collectively have the professional corporate background to deal with these immense problems and find a way out.
One important fact should be noted. In today’s corporate environment, much of what has been uncovered by the Amtrak Working Group would normally be turned over for criminal investigation if Amtrak was a publicly held company. Stockholders would be shocked and demand retribution and accountability. There would be courtroom trials more riveting than Enron or Tyco. Amtrak has escaped all of this because it is a hybrid government agency. To so many, it’s just government money that has been spent, and a marginal service has been provided in the process. All of this has represented the worst of government functions. We all deserve better.
Another note of importance is in the excerpt from the congressional mandate for Amtrak to improve its food and beverage financial performance. Nowhere does it mandate for Amtrak to go to Diner Lite. That was strictly an inhouse Amtrak knee jerk reaction that typically meant cutting costs instead of improving quality to meet passenger demand. All Congress stipulates is that improvements are made; it doesn’t care how the improvements occur. Diner Lite is just opposite of what is needed.
Other alarming parts of the report indicate what Amtrak is paying for supplies. As stated above, “Amtrak pays about 2 ½ times the amount paid by comparable U.S. restaurants to supply food and beverage to its operations;” and 2) Amtrak pays about twice as much, on average, for non-consumable stock [such as linens, napkins, china and utensils] as a comparable U.S. restaurant.” How can this be justified? Amtrak’s rolling restaurants and snack bars are no more far flung than any other supply line for a chain of national restaurants. All of Amtrak’s supply terminals are in major metropolitan areas; no special efforts are needed to supply trains in the middle of a desert.
Also as noted in the report, why was there such a lack of adult supervision in the food and beverage areas? “Accountability is low and compensation is high in the food and beverage sector of the Amtrak operation. However, Amtrak lawyers and business managers who fail to draft, scrutinize, and manage corporate contracts cost the corporation even more than frontline on-train employees who help themselves to the contents of the cash register.
“Amtrak’s response to the concerns expressed about the mismanagement of its food and beverage service is often too little, too late. Many of the actions being taken by Amtrak over the past year or so are the result of the scrutiny it has received. Prior to the Committee initiating oversight of Amtrak’s food and beverage contract, the corporation did not adequately assert its rights under the prior contract and no one was held accountable. Amtrak should not be applauded for merely performing tasks which it had previously neglected.”
Again, the answer goes immediately back to poor management. The next logical step from there is poor public oversight. When managers don’t have to be accountable to owners and stockholders, and constantly receive free federal monies with little scrutiny as has occurred for most of the past three decades, this is the resulting catastrophe.
This is the basis of the complaint of “free federal monies.” Too much money has flowed for too long to Amtrak without any responsible people asking why and how the money was being spent. Adding to the problem has been the constant whine of the National Association of Railroad Passengers through the public voice of Executive Director Ross Capon, always demanding more public funding for Amtrak instead of accountability for what funds Amtrak was already receiving. For decades, all we have heard is “just give Amtrak the money it deserves, and it can live up to its full potential and everything will be fine.” Thanks to the Amtrak Working Group, we now know what hogwash this has been for so many years.
Even worse, so many members of the national news media have disgraced themselves by taking up this line of incorrect reasoning hook, line, and sinker. Instead of working to do traditional investigative reporting, the media has simply regurgitated unsubstantiated opinion as fact. The trade press, including Trains Magazine and Railway Age have fallen into this trap, too. No one has questioned why what has occurred, but merely presumed what has occurred was always right. The media has utterly failed the American taxpayer when it comes to passenger rail.
It’s difficult to tell since 1971 and the over $30 billion in taxpayer monies Amtrak has received how much of this has been wasted and stolen. It’s not a pretty picture. On another level, how much money has Amtrak willfully overcharged the several states that pay Amtrak to provide state supported trains? How much have freight railroads been overcharged to use tracks on the NEC? We know there has been no consistency in these charges, but now, we know it’s probably impossible to ever untangle the mess made by poor accounting, poor oversight, and utterly poor management.
- First the Amtrak Reform Council, and now the Amtrak Working Group have given the company a virtual new lease on life. Both reports have demonstrated that if Amtrak is willing to conduct itself according to generally accepted business practices, it can be successful and prosperous.For the past five years, the Bush Administration has been accused of trying to kill Amtrak and end passenger rail service in our country. What should be realized now is the savvy members of the administration realized what the public is just now coming to understand through this report. Amtrak is fatally flawed and a corporate cripple. It can be healed, but it must be healed through drastic measures. “Business as usual” can’t occur.
- There is no reason Amtrak can’t be the proud operator of a vast fleet of long distance trains full of well served passengers. One has only to dare to dream that fiscal sanity will prevail, and Amtrak will be allowed to grow and prosper without the heavy, withering hand of government guiding it to doom.
[End excerpt]
