Monthly Archives

July 2005

Issues

RailPAC Endorses the Laney Plan for Amtrak with a few Reservations

Rail Passenger Association of California Board of Directors, Adopted June 4, 2005.

Early arrivals at the RailPAC meeting on June 4 at JLS in Oakland listen to guest Gene Skoropowski, Managing Director of the Capitol Corridor and a NARP director. Left to right around the table: Bill Lindley, RailPAC director/website designer and Treasurer of the Arizona Rail Passenger Association; Jim Clifton, RailPAC Treasurer; Richard Silver, RailPAC Executive Director; Mr. Skoropowski; Marcia Johnston, RailPAC director; guest Bob Conheim, “Lord Mayor” of the Capitol Corridor Riders group and a NARP director; Jim Salvador, a RailPAC member and NARP director. RailPAC VP James Smith and other directors, including Art Lloyd and Bruce Jenkins, member George Gaekle and others arrived to participate in the discussion and endorsement of the Laney Plan. Photo by Russ Jackson, RailPAC Secretary


  1. ENDORSEMENT

    In the interest of national security and the provision of alternate forms of transportation, RailPAC endorses, with some reservations, the “Amtrak Strategic Reform Initiatives and FY06 Grant Request,” calling for “rebuilding America’s Passenger Rail System,” as submitted to the Congress by the Amtrak Board of Directors, its Chairman David Laney, and President David Gunn in April, 2005.

    By now most every passenger rail advocate knows Amtrak now faces a different type of crisis, and one larger than those that have come before. While “passenger rail” has broad support in the country, “Amtrak” has become a target, and solutions are not limited to just a lack of funding. Amtrak is said to be on the verge of bankruptcy, but it is counterproductive for this idea to be widely circulated. The threat of a shutdown if it does not get its budget request is not helpful to its preservation now.

    RailPAC always favors continuing passenger rail where it is economically viable. We vigorously support the California state rail program. But, for 20 years we have been critical of Amtrak’s financial records that tend to make the long distance trains’ performance look worse than it really is. We support national reforms that will make passenger rail more fiscally viable, that reveal the real costs of running these important long distance trains, and that show the drain on the national system of the costs of running the Northeast Corridor (NEC).

    We have reserved endorsement on the proposed changes to the Railway Labor Act and the placement of new employees under Social Security. Those points must be decided in the negotiation process.

  2. RATIONALE

    Below are listed the ten main points of the Amtrak Reform Plan as submitted by Chairman Laney and President Gunn in April, and RailPAC’s comments follow each.

    1. Adequate funding for Amtrak in FY ’06. Amtrak has requested $1.82 billion for fiscal year ’06, including $787 million for capital infrastructure projects, $560 million to support train operations, $278 million for service on existing debt, $175 million in working capital and $20 million for transition costs for the reforms. Last year Amtrak received $1.2 billion in federal money to spend above the $2 billion in tickets it sold.RailPAC: Of the $787 million, almost all of it goes to infrastructure it owns in the NEC, but that is not pointed out publicly. Both the NEC and the long distance trains deserve fair support for current and future needs.
    2. Establishment of a federal capital grant program for state investment in intercity passenger projects, 80% federal, 20% local match. There is no such program currently.RailPAC: We favor this action. California currently pays far more than the 20% local match, so this new program must not cause California any disadvantage in entry to the program. Interstate highways now receive up to 88 % federal match.
    3. The federal government through Amtrak would be responsible for bringing the NEC up to a state of good repair. It is politically unthinkable that the affected states will do this on their own or in conjunction with each other, or agree to any such concept.RailPAC: We favor this action, but there must be fully transparent accounting of assignment of these costs to NEC and state supported intercity services.
    4. Amtrak would remain a vertically integrated company, i.e., corridor maintenance would not be separated from operations.RailPAC: Maintenance costs not associated with the ownership of the NEC are fine to charge to the trains that run on it, just as are costs associated with running the California corridors. We oppose charging the long distance trains for corridor related infrastructure costs when they are paying the freight railroads access charges. We also support more train level responsibility rather than total centralized control.
    5. Amtrak would retain its five businesses: state corridors, long distance trains, NEC operations, infrastructure and ancillary businesses.RailPAC: We agree, as long as the costs for one are not secretly charged to the others except for common overhead costs. Transparency is vital here, so a total revelation of the $3 billion costs of the Acela program would be highly desirable, for instance, as would be a thorough review of NEC operating practices involving multiple trains serving the same markets too often, resulting in low load factors.
    6. Performance targets would be set for long distance trains, and those requiring more subsidy than these standards would also require additional state or federal subsidy, or be discontinued.RailPAC: We support this concept as long as there is no cancellation of trains that fail to meet the criteria immediately. We do NOT support charging the states for the operation of “national system” long distance trains under any circumstances other than for stations and related items. We support two kinds of criteria: 1) passenger related standards (cleanliness, food service and quality, and on time performance) and 2) fiscal criteria, looking not just at ridership, but at revenue passenger miles (to reflect trip lengths) and revenue, and an honest list of costs of operation. Each federal dollar invested in the long distance markets produces several times more revenue and transportation “output per dollar invested” than any dollar sunk into the short corridor markets. Amtrak must redirect a much larger share of available investment capital towards the long distance markets that have consistently sold-out trains.
    7. Changes to the Railway Labor Act.RailPAC: We RESERVE a blanket endorsement of this element, but we WILL NOT SUPPORT any changes to on board staffing of trains that have the potential to affect the safety of the trains and a high level of service for passengers. We believe there are opportunities for improving both economics and work conditions. Any work rule changes must be thoroughly vetted through the negotiation process and be fair to the affected employees as well as the company.
    8. Place new employees under Social Security rather than Railway Retirement.RailPAC: We RESERVE a blanket endorsement here, too, as it will have a major affect on the future of the Railway Retirement program. This must be fully coordinated with that agency, the affected freight railroads, and railway labor.
    9. The Plan envisions that there would be a growth in competition in the industry for both services and possibly operations. The states would become the purchaser and have the right to select the most efficient operator.RailPAC: We support this concept for corridor operations, but ask, “Can a private operator do it for less and provide more and better service?” The competition factor should be tested first on a new corridor operation and where it has the support of the freight railroads.
    10. Amtrak’s debt of some $3.8 billion would be assumed by the federal government, thereby removing the need for nearly $300 million in annual debt service.RailPAC: We support this idea, as politically challenging as it may be on top of its budget request for next year. Amtrak should never find itself in this kind of debt again.
Commentary

Amtrak Food Fight

By RailPAC President Noel T. Braymer — In the wake of Amtrak’s increasing financial problems, there has been increasing pressure on Amtrak to cut costs. The Government Accountability Office (GAO), Congress’s investigative arm, thinks it has found an area ripe for cost savings in Amtrak’s Food Services. Food service has long been a target of cost cutting for rail passenger service. To save money back in the 1960s, the Southern Pacific experimented with vending machines to replace diners, which brought howls of protest. The Superliner diner was originally designed around a traditional crew of 11. Today, the Superliner diners make do with about half that number. Inventory control has been and continues to be an issue with food service.

The concerns that RailPAC has on this issue are twofold. First is Amtrak’s accounting. The GAO most likely came up with their cost numbers by going through Amtrak’s books. The problem is that because of their accounting methods, Amtrak can’t tell anyone what their true costs are. Amtrak accounting has evolved from systems it inherited from the freight railroads when they ran passenger service prior to Amtrak. American railroad passenger accounting has many strange flukes. What it was often most useful for was inventing major loses for passenger trains to justify permission from the government to eliminate service. Before Amtrak can really save money, it must reform its accounting system to find out what its real cost are.

At the heart of the problem with Amtrak’s accounting is its “Route Profitability System” (RPS). Amtrak knows how much it spends. What it can’t tell you is what it really costs to run a specific train or its food service on different trains. Instead Amtrak arbitrarily assigns what it thinks is the share of its costs to different trains and services. The basis for assigning costs is proportional to revenues! In other words the more money a diner brings in, the more it costs, and the more money it loses!

Here is a analogy of what would happen if someone tried to run a business the way Amtrak does. Let’s say you are an aspiring business tycoon. First you get yourself a big office, office equipment, and a salary for yourself and a secretary. Your business consists of two hot dog carts. Everything about the two carts is the same, except one cart is selling all its hot dogs every day before the end of the day. The other cart always has food left over that ends up being thrown away. The cart that is selling out is doing twice as much business as the other cart. Your accountant, who is using RPS accounting, will tell you that the first cart is costing twice as much as the second cart. Well, frankly, you are losing lots of money. Using the data from his RPS accounting your accountant tells you the way to save money is to shut down the hot dog cart that is always sold out because of its “high costs.”

You do what your RPS accountant tells you to do– so what happens? You save money on your avoidable costs like food and wages. But you still have your rather high fixed overhead costs for your office, secretary, the bank payment for your now unused hot dog cart, and your own salary. Plus you have lost the revenue from the busier cart. Of course you didn’t “save money”- you’re in worse shape than before. In a nutshell this is the problem Amtrak faces every time it uses RPS data to “save money” by cutting back service. The RPS data creates “high costs” for passenger trains while hiding the costs of Amtrak’s massive overhead. It is the source of ammunition for the critics of Amtrak over what are truly phony figures.

The other issue RailPAC has about food service is that it is critical on trains, particularly long distance trains. When people are on a train from 8 to 48 hours they have to eat. The RPS accounting is already biased against the long distance trains because they bring in more income, therefore have “higher costs.” Major degradation of food service could greatly reduce ridership on the long distance trains and cripple Amtrak’s best source of income. What does it cost the airlines for food service? Who knows? It is included in the airfare and considered part of the cost of doing business.

Amtrak’s biggest problem is not the cost of the operation of its trains, but rather its massive overhead, which has to be supported with a skeletal system of passenger trains. It should be understood that Amtrak was not created for the benefit of the traveling public. Amtrak was used to bail out the bankrupt PennCentral Railroad and to insure that as it was reorganized as Conrail that it could be profitable. To do that the expensive and unprofitable parts of the PennCentral were dumped on Amtrak. These included New York Penn Station, Chicago Union Station, Beech Grove maintenance facility, Sunnyside yard on Long Island, and most of the North East Corridor, among other property. Much of the expense that RPS puts onto the national system comes from Amtrak’s massive overhead “inherited” from the PennCentral. Using RPS hides the true cost of this excessive overhead and makes services like trains or food service look exceedingly expensive.

Just how flexible are Amtrak’s definition of costs? Let’s look at the old San Diegan. For six fiscal years, from 1987- 88 to 1992- 93 the San Diegan made a slight “profit” on operations, but not capital. Starting in 1993-94, Amtrak negotiated a change in the formula on how Amtrak’s cost’s were figured with Caltrans for the San Diegans. In 1992-93 the San Diegan’s “cost” was $13,254,709. After only modest expansion of service by 1997-98, the “cost” was $44,769,723 with a farebox recovery of 33.9 percent!