Amtrak Board’s Decision to Create New NEC Subsidiary Not a Break-Up, Laney Says

Reproduced with permission from Daily Report for Executives, No. 198, pp A-8 – A-9 (Oct. 14, 2005). Copyright 2005 by The Bureau of National Affairs, Inc. (800-372-1033)

Amtrak Board’s Decision to Create New NEC Subsidiary Not a Break-Up, Laney Says

By Derrick Cain

A decision by the Amtrak Board of Directors to create a subsidiary to operate Amtrak’s Northeast Corridor only amounts to a separation of finances, and does not signal a break-up of the nation’s financially-beleaguered passenger rail system, Chairman David M. Laney told BNA Oct. 13.

Laney confirmed that the board voted “unanimously” at a closed Sept. 22 meeting to approve a resolution directing the Amtrak management to “take all appropriate action to create the NEC Subsidiary.”

The board’s resolution states that “the creation of the NEC Subsidiary and the transfer to it of the NEC Infrastructure is undertaken for purposes of facilitating and furthering future capital investment, financing, development, oversight and operation of the NEC Infrastructure with the intent to enhance the performance and capacity of the NEC Infrastructure for the benefit of the Corporation and all current and future users of NEC Infrastructure.”

The resolution further directs Amtrak to complete all actions before a January meeting of the board.

While the announcement sent shock waves through Capitol Hill and among Amtrak stakeholders, Laney told BNA he believed “people are overstating” the resolution’s purpose. “Amtrak is still totally under control [of the NEC],” Laney said. “This is a fairly basic step.”

NEC Assets to Be Separated.

Laney said the action allows for an actual separation of the assets of the NEC corridor, but leaves the Amtrak management structure intact. “It adds a level of credibility and transparency to both sides,” Laney said.

Laney said he was unsure of the exact vote count of the board on the resolution, because board member Jeffrey Rosen, who represents Secretary of Transportation Norman Y. Mineta, may have abstained from the vote. The other two members, Floyd Hall and Enrique Sosa, voted in favor of the resolution. Still, Laney characterized it as a “unanimous” vote.

Decision Contrasts With Past Stance

Ross Capon, executive director of the National Association of Railroad Passengers, said the decision sharply contrasts from the board’s anti-split position in its April 2005 “Strategic Reform Initiatives and FY06 Grant Request.” That document said that “the board and management have extensively explored a number of recommendations calling for the NEC infrastructure to be moved into a separate entity. We have also reviewed models for such a structural split adopted and implemented in other countries with varying degrees of success. This step in the overall reform process remains an option for continued review. We have decided for now, however, that the costs, complexities and risks of such a split within Amtrak outweigh the benefits. Consequently, we have concluded that separation of NEC assets from NEC operations is not advisable at this time.”

Capon told BNA that the board’s latest move is a “prerequisite for a complete break-up [of Amtrak.” “This is a huge step,” Capon said.

Capon also criticized the board for not announcing the vote ahead of time, or even after the vote. He speculated that it was “leaked” to a group that would handle the issue sympathetically.

Group Explains How It Found Out

The United Rail Passenger Alliance, a rail policy institute based in Jacksonville, Fla., announced the board’s decision in its weekly e-mail report on Oct. 12. URPA President Bruce Richardson told BNA that he received the information through a “former government official.” Richardson did not identify the individual but confirmed that it was not Rosen.

Then, Richardson told BNA that he sent an e-mail to a “high-level Amtrak” official and said he received a “friendly” confirmation. He would not name that official, other than to say that it was someone “higher” than Amtrak President David Gunn.

Richardson, whose group routinely criticizes Amtrak, said the board may not have wanted to make the announcement sooner because “they didn’t want to send creditors into a tizzy when there’s nothing to worry about.”

Further, Richardson said the decision was “not confidential, not a secret” and “they weren’t trying hard to hide it.”

‘No Ulterior Motives.’

Laney said there was “no ulterior motives” in how the information became public and said the resolution had been on the board’s agenda “for some time.” “We just got around to it then,” Laney said.

Still, it appears not even lawmakers knew the board was contemplating such a resolution, and expressed concern aboutnot being made aware.

Rep. Corrine Brown (D-Fla.), ranking member of the House Transportation and Infrastructure Committee’s Railroad subcommittee, would “question why the board would make this decision without telling Congress,” according to Brown’s legislative director Nick Martinelli.

“She’s adamantly opposed to carving out the NEC,” he said.

Rep. Steven C. LaTourette (R-Ohio), chairman of the House Transportation and Infrastructure Committee’s Railroads subcommittee, said that it is “too early to tell” whether the board’s action is a positive move for Amtrak.

“Amtrak is going to have to seek enabling legislation and I’m sure we’ll have plenty of questions for Amtrak,” LaTourette said in an Oct. 13 e-mail.

Lawmaker Wants Public Explanation

Rep. Robert Menendez (D-N.J.), a member of the same subcommittee, wrote a letter to Laney Oct. 13 asking for an “immediate public explanation” of the “secret” vote. “It appears that, in the absence of public support, the administration is now trying to use its hand-picked board to take steps that have never been approved by nor explained to Congress,” the letter said. “Your decision to hold the vote in secret and shield the outcome from public scrutiny only reinforces the conclusion that this administration has no commitment to rail service in this country or to the riders that depend on it.”

Menendez said unless Laney explains the board’s actions, he will ask the subcommittee to hold hearings into the actions when Congress reconvenes the week of 17.

Menendez and others believe that the board’s decision closely tracks portions of the administration’s Amtrak reform plan released in April, which seeks to essentially privatize the system (73 DER A-10, 4/18/05 ). They say the move also reflects the administration’s very public attempt to “zero out” Amtrak’s fiscal year 2006 budget, except for operating money for the NEC.

Laney, however, told BNA that he “is the author of this thing.”

“It’s truly unrelated to the administration’s plan,” Laney said.

Laney also noted that he has said in the past that the “risks of separation of the management outside of Amtrak outweighs the benefits.” That, he said, is different that what the resolution directs Amtrak to conduct.

Brian Turmail, spokesman for the Department of Transportation, would not comment on an “accounting move.”

“The board is responsible for changes in its accounting practices,” Turmail said. “Our position is that Amtrak must reform.”

Amtrak Expert Applauds Move

Thomas A. Till, managing director for the Cascadia Center for Transportation and Regional Development and former member of the Amtrak Reform Council, said the board’s move is “an excellent decision.” “It’s making two lines of business clear,” Till said.

Several rail stakeholders say the division would stop the practice of Amtrak using money made on trains in other parts of the nation to be used to fund the NEC.

“This new development for the NEC is a huge victory for those who believe in fiscal transparency for Amtrak,” the URPA said in its newsletter. “No longer will Amtrak be able to cascade hidden NEC costs onto the long distance system. No longer will trains in California unwittingly help pay for costs associated with unrelated NEC expenses.”

Amtrak said it would not comment on the board’s decision.