Amtrak Food Fight   July 1st, 2005

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!

This entry was posted on Friday, July 1st, 2005 at 2:18 PM and is filed under Commentary.