United Rail Passenger Alliance

FOR IMMEDIATE RELEASE

ATK-07-138

November 15, 2007 Amtrak Board Elects Donna McLean Chairman

WASHINGTON — Donna McLean was elected Chairman of the Board of Directors of the National Railroad Passenger Corporation (Amtrak) at the November 8, 2007 board meeting. McLean, who was appointed to the Board by President Bush and approved by the Senate in July 2006, had served as Vice Chairman of the Board. She replaces former Chairman David M. Laney, who remains a board member until his term expires in late November 2007.

As Chairman of the Board, McLean will lead the board of Amtrak, the nation’s intercity passenger railroad, which operates in 46 states on a 21,000-mile system serving more than 500 stations. A former official at the U.S. Department of Transportation, she is owner of Donna McLean Associates, LLC, a Washington, DC-based consulting firm specializing in transportation policy.

McLean praised the stewardship of former Chairman Laney, saying, “David was an activist board member and Chairman who was keenly interested in improving Amtrak’s business model, accountability and service. He was very successful in all those areas, and thanks in large part to his efforts, Amtrak’s relevance in the national transportation mix has never been stronger, with record ridership and revenues being achieved for the last several fiscal years.”

Prior to forming Donna McLean Associates, McLean was Assistant Secretary for Budget and Programs and Chief Financial Officer of the U.S. Department of Transportation (DOT). She had also served at the DOT as the Assistant Administrator for Financial Services at the Federal Aviation Administration beginning in 1999. From 1993 to 1999, McLean was a professional staff member of the Aviation Subcommittee of the House Transportation and Infrastructure Committee in the U.S. House of Representatives.

McLean earned a Bachelor of Science degree in political science and holds a master’s degree of public affairs, both from Indiana University.

We welcome Ms. McLean as the newest chairman of the Amtrak Board of Directors.

Mr. Carper is the former mayor of Macomb, Illinois, Ms. Naples was the New York State Commissioner of Motor Vehicles under former Governor George Pataki, and Mr. Stutler was the Florida Secretary of Transportation under former Governor Jeb Bush.

There is a lot to be said about the current state of the Amtrak board with the lamentable departure of David Laney and Floyd Hall. Sometimes, an intelligent conversation can say more about a situation than a written treatise. Let’s take a peek at an internal URPA communication about the new board between two Washington wags on URPA’s private Intranet.

[Washington Wag One]: Carper is the mayor of McComb, Illinois; don’t know whether he’s part of the Delaware senator’s bloodline. He was both pushed by [Senate Majority Leader and Democrat] Harry Reid and endorsed by UTU, which should be conclusive evidence he won’t be pushing any new initiatives. I am sure he is representative of the same old parcel-out-the-sinecures mentality, where expertise and understanding of the concept of fiduciary duty are irrelevant. I would bet the same can be said of the others.

Unless these worthies get instant confirmation, Amtrak will remain in the headless-horseman configuration to which it has now once again reverted, i.e., not a even a colorable claim to a board quorum (five according to the articles of incorporation that are amendable only by two-thirds shareholder vote; four according to the questionable DOT/Amtrak position).

Thus, since Amtrak’s self-handicapping policy statement requiring initial (pattern) labor agreements to be directly approved by the board is apparently still in force, a cloud necessarily exists over the fall 2003 TCU agreement and/or the contractual outcome of the likely upcoming strike. I expect Amtrak to trot out its threadbare claim that an “executive committee” can act as the alter ego for a board quorum. If that questionable claim were true, the board of Coca-Cola or Microsoft could (mostly) go on vacation, and make a rump board of unfortunates on some exec committee do all the work, notwithstanding little details like the corporation’s articles, etc.

[Washington Wag Two]: As [Washington Wag One] lays out, the Am-Board will be down to three members (Donna McLean, R. Hunter Biden and US DOT Secretary Mary Peters) by the end of December, and thus without quorum. Laney’s term expires at the end of this month and Floyd Hall was a recess appointment. Amtrak President and CEO Alex Kummant is a non-voting member and doesn’t count for quorum purposes.

The Democrats are using a parliamentary maneuver to keep the Senate nominally “in session” so there won’t be any recess appointments this year.

Surely, I’m not the only one who’s noticed that the only nominees stone-walled by the Senate were those with just the sorts of real-world transportation and business experience required under the Amtrak Reform and Accountability Act (Floyd Hall, Robert Crandall, Enrique Sosa, and Lou Thompson). The “political” nominees, senatorial offspring, etc., sail right through with nary a whimper of protest. The latest round of nominees appears to round out the Board with a full complement of party insiders. Happy days are here again for the status quo folks.

[WW One]: There was a faint glimmer of hope a few years back the Bush administration would bring this rogue government corporation to heel via its board. They, perhaps naively, assumed the board that actually runs the corporation, not the hired help and the hired help’s protectors on the Hill.

[WW Two]: I do fear that with Laney and Hall’s departure, the Board will lose any skepticism of management. It’s not a very deep bench. The last round of nominees has only been around for a year. Once again, we’ll be back to the status quo of the Board swallowing whatever Kummant and the lifers lower down the ranks put before them.

[WW One]: The faint glimmer went away quickly when it became apparent the Bush Administration, like its predecessor (which set out to sabotage the reform law from day one), was going to treat the Amtrak board as a parking place for political hacks and low-value trading cards with the Senate Democrats, to whom they almost always surrender (no matter who is in nominal control). In short, by being generally invertebrate and specifically ignorant about Amtrak (such as the statutory requirement for board member expertise — modeled on the National Transportation Safety Board statute), the Bush Administration produced results generally indistinguishable from those produced by the active sabotage under Clinton.

[WW Two]: Sadly, someone might actually notice if the NTSB were stuffed with unqualified seat-warmers.

Once in a while, a board member manages to exceed expectations. That’s what we have to hope for, I guess. Having looked at the Amtrak statutes, the Board has a lot of latitude in how it conducts its affairs. It can do as much or as little as it wants, subject to how much time its members are willing to donate to the effort. It could take a much more hands-on approach and not be content to hold (as it appears now) quarterly meetings where it rubber-stamps management decisions. Laney did show signs of such activism (tentative steps to set up a NEC subsidiary), but it withered away after former Amtrak President and CEO David Gunn got the ax.

[WW One]: Ah, but the federal Amtrak statute is only the tip of the proverbial iceberg for board members, who are not federal employees (except for one slot that is allowed — but not required — to be unwisely filled with the United States Department of Transportation secretary or another fed). As specified in 49 USC 24301(a), (b), and (f), Amtrak is a District of Columbia business corporation subject to the DC Business Corporation Act, except where the latter conflicts with federal provisions. Among other things, this means Amtrak has non-federal statutory requirements — almost universally blown off by the ace board members, management and alleged general counsels — for annual stockholder meetings etc., as well as being bound by its own articles of incorporation and bylaws (which at Amtrak naturally contradict each other on little matters like board quorums).

For the directors individually (who I am sure receive “quality” briefings from the Administration and Amtrak), this necessarily imposes personal liability under fiduciary standards for all actions (except for the federal immunity/indemnification for matters pertaining to ownership/mortgage of the NEC, 49 USC 24907(c)). As confirmed in testimony by the leading expert on the DC Act, the District of Columbia is probably the worst of 51 jurisdictions in excessively limiting the scope of what D & O insurance is allowed to cover. (This probably explains why few businesses other than restaurants and real estate outfits incorporate in DC.) Thus, given the years of dereliction, conflict of interest, and all kinds of non-fiduciary behavior, shareholders could have virtually all the past directors for lunch, subject only to the DC three year statute of limitations. Because of the latter, managerial Einsteins like former board members former Virginia Governor Linwood Holton, former Massachusetts Governor Michael Dukakis, former Amtrak Chairman of the Board John Robert Smith, and former Amtrak Chairman of the Board and former Wisconsin Governor Tommy Thompson have escaped their just reward. Oh, yes, the chief administrative enforcement entity for violations of the DC corporation act (the local SEC if you will) is Hizzoner, the mayor of DC. Presumably accountability standards emanating from that source will be just as rigorous as they have been for, say, the DC public schools. All of this should persuade even fully qualified non-hack aspirants (IF adequately informed in advance) to keep at least a 10-foot pole between themselves and any Amtrak board slot.

There wan an attempt to liberate Amtrak to pick a corporate domicile of its choice — like normal corporations — in the 1997 reform bill, but District of Columbia Representative Eleanor Holmes Norton and Amtrak’s putative management were having none of that. You might find it interesting that the DC Business Corporation Act in 1970 — and now — specifically prohibits incorporating a railroad there. Congress (probably because of excellent research/staff work in ’70) obliviously overrode that in the original Amtrak statute, and it remains to this day. Fortunately, for this and other reasons, DC is not a state. If it were, the federal provision mandating Amtrak’s status as a DC business corporation would be facially unconstitutional on Tenth Amendment grounds for trashing a state’s domestic corporation law.

[WW Two]: Very informative. I’ve asked this before of several people and never gotten a straight answer, but I think this comes close. Since DC is not a state, federal law can override the corporation statutes for Amtrak’s benefit. It could not do that in any other mainland venue. I’ve never heard of any other credible reason for having Amtrak domiciled in DC. As for why Eleanor Holmes Norton should care: as a perpetual money-losing basketcase, Amtrak would not owe any corporate franchise tax to DC, aside from a few minor annual fees.

I looked up NRPC in the DC corporate registration database, and sure enough, there it is, incorporated on March 3, 1971. (One day later would have been entirely appropriate!) Curiously there’s a “revoked” NRPC incorporated in Delaware and registered as a foreign corporation on November 16, 1970.

[WW One]: There was an separate Amtrak Commuter Corporation authorized in the early ’80s (when most of the embedded subsidies for NEC commuter ops were inflicted in the statute), but it was never formed, and the authorizing provisions were repealed in ’97.

As for Norton’s motive, besides carrying water for Amtrak and its unions, she undoubtedly wanted a statutory guarantee that Amtrak would have to keep its HQ and associated spending in DC. Remember, the federal statute addresses not only legal corporate domicile, but principal place of business, which do not have to be — and very frequently aren’t in the real business world — the same thing. The District, of course, had already driven most of what used to be its retail downtown shopping district across the river into Virginia (e.g., Pentagon City mall).

Regarding corporate/director accountability, I forgot to mention that Amtrak is not subject to the SEC. (If it were, it might have supplied almost as many inmates already as Enron.) Congressman John Mica of Florida tried several years ago not to place Amtrak under the SEC on a plenary basis, but just to impose Sarbanes-Oxley oath etc. standards on its financial reporting. Amtrak got that appropriations rider shot down on parliamentary grounds. Rather than being subject to the SEC, Amtrak is considered a closely held private corporation, since its stock is held by five shareholders (four common, one preferred) and is not publicly listed or traded. The good news (sort of) is that if the inert shareholders (three Class I railroads, plus Carl Lindner of Chiquita Banana fame, through an insurance company he controls for common stock, US DOT for preferred) ever bestirred themselves or were willing to convey their holdings to someone who wasn’t inert, Amtrak could be at least partially reformed without Congress putting its mitts on the subject. The bad news as I indicated is that, absent self-help by shareholders, the only public entity empowered to address corporate irresponsibility/governance violations is the DC government. Come to think of it, that would be a self-sufficient motive for the status quo crowd to want a mandate for a DC corporate domicile.

Back when UPS still aspired to be entirely under the Railway Labor Act, a “takeover” scenario was created in which UPS would buy (presumably for very little) most or all of the Amtrak common stock, then do a corporate reorganization combining UPS air, UPS ground, and Amtrak. Since Amtrak and UPS air were already RLA territory, there would be a good chance the new entity would be ruled all RLA. Even without the RLA factor, if UPS were to control Amtrak, it would acquire (1) a national rail express franchise and (2) compulsory access running rights over every railroad in the country.

Although I haven’t checked the latest version, the alleged Amtrak “reform” bills in the Senate that I have seen have been completely retrograde on these subjects — letting Amtrak off the hook on board quorum requirements, reinstituting a politician-studded quota structure for the board a la the pre-’97 statute, and changing the statutory standards for the overdue redemption of the common stock from the present fair market value to screw the shareholders (quite possibly in an unconstitutional fashion).

If Nancy Naples is confirmed by the Senate, does anyone believe she will move to make New York state more accountable for the dozens of trains which are operated by Amtrak at federal expense on behalf of New York? In all of New York, with all of the NEC trains feeding New York City, and all of the Empire Service trains feeding the Hudson River Valley and New York City, only the Adirondack between New York and Montreal is state supported. The rest of the trains, mostly regional trains and commuter service trains with little or no benefit to the national system, receive no state funding.

A stark reality is that for a corporation the size of Amtrak (which is relatively small by Wall Street standards, but, still, a large company), the board of directors is woefully small. In order to have a board where decisions are made by challenging discussion and a diverse board population, the board should at least be doubled. We again have an intolerable situation where Amtrak will now have a fairly new president who wasn’t hired by the soon-to-be current board. This isn’t fair to Mr. Kummant, and isn’t fair to the board. If the board were larger and terms rotated on a more rational basis, there are least would be a semblance of continuity between the board and Amtrak’s executive suite.

As noted above, the status quo crowd, the folks who want Amtrak saved at any cost no matter how broken it is, should be pleased with these board appointments. It is highly unlikely this board will demonstrate any real entrepreneurship, and dare to dream about an expanded national system for Amtrak. This proposed board will also remain very comfortable with the process of receiving free federal monies each year to prop up a system which has the real possibility of being much more self sufficient on its own, so will likely not act to reduce the annual federal contribution.

Hopefully, the personalities on this board, working directly with the professionalism already demonstrated by President and CEO Kummant, will not return Amtrak to the status of a public financial cripple waging an annual battle for public handouts from the governmental treasury. If Amtrak continues the very good example set by David Laney where annual appropriations discussions are done using an orderly, professional standard, then some progress which has been made will remain.

Passenger trips will be relatively short, and fares will be low. Riding the NEC trains during Thanksgiving will be a well orchestrated event for the thousand of passengers availing themselves of this travel choice.

Amtrak has prepared an extraordinary 33 page business plan just for this holiday weekend. It goes into exhaustive detail covering almost every contingency (including “regional leisure trains” feeding into the NEC, whatever that means). The book itself is a marvel of professional presentation and easy to use graphics.

Let’s sum it up this way, as one URPA analyst put it.

When can we expect a similar extraganza for the rest of the system, proportionate to the RPMs it generates vis-a-vis the NEC? Seems to me the whole exercise is to mimic the Pennsylvania Railroad, circa 1948. All the local TV stations will be on the Union Station concourse to dutifully record the “rush.”

Also, what will this annual extravaganza cost Amtrak? It’s doubtful that even with trains packed like sardine cans (and, no additional food service cars added, according to the plan) the whole exercise will be an expensive one for Amtrak, with all of the costs coming out of the federal treasury, most likely at the expense of the rest of the Amtrak national system. If any extra equipment is added to regional trains in California (one presumes Thanksgiving is celebrated elsewhere in our country, beyond known civilization west of Pittsburgh, and south of Washington) or Illinois where states pay for this service, will the extra costs be gratis to the states, or will Amtrak invoice the states for the extra services? Is Thanksgiving travel in the NEC just another huge gift all American taxpayers provide to those living in the Northeast and Middle Atlantic states, while giving the proverbial lump of coal to the rest of us in the country?

Inquiring minds want to know.

A few days ago, my wife received her driver’s license renewal notice from IDOT, and in the envelope was a nicely done ad flyer promoting Amtrak trains in the state. It’s packed with useful information — schedules, fares, etc., plus this reminder at the top of the page: $$ SAVE GAS $$

What a great promotion. Every Illinois driver will eventually be reminded of the rail option — in an envelope they MUST open! If other states aren’t already doing this, they should.

The folks in Illinois have come to the same conclusion the folks in California came to decades ago. If the state itself is proactive in promoting train travel for which it pays Amtrak, then higher ridership and revenue passenger miles should equal lower billed costs from Amtrak since ticket income is credited against the cost of operating the trains.

Illinois continues to prove the theory that anyone other than Amtrak is better at marketing passenger trains, especially when marketing efforts pay off and Amtrak is forced to charge states less for services.