A weekly digest of events, opinions, and forecasts from United Rail Passenger Alliance, Inc. PLEASE NOTE NEW MAILING ADDRESS 1526 University Boulevard, West, PMB 203 Jacksonville, Florida 32217-2006 Telephone 904-636-6760, Electronic Mail info@unitedrail.org http://www.unitedrail.org
Volume 3, Number 3
Founded three decades ago in 1976 by Austin M. Coates, Jr., URPA is a nationally known policy institute that focuses on solutions and plans for passenger rail systems in North America. Headquartered in Jacksonville, Florida, URPA has professional associates in Minnesota, California, Arizona, the District of Columbia, Texas, New York, and Tennessee. For more detailed information, along with a variety of position papers and other documents, visit the URPA web site at http://www.unitedrail.org.
URPA is not a membership organization, and does not accept funding from any outside sources.
1) URPA Vice President and guiding light Andrew Selden has cracked the secret and elusive Amtrak accounting code for creating the false profits shown on the Northeast Corridor. Read on to learn further why so many people are so nervous about having real, bona fide business people looking at Amtrak’s steamy books.
By Andrew Selden
If you want to understand Amtrak's financial results, the October 2005 monthly report is instructive. In that one month, the company lost (in very round numbers, throughout) about $100 million dollars (in generally accepted accounting principle [GAAP] terms). Of that, about $65 million was real cash (excluding depreciation of $43 million) funded by federal operating grant money.
The cash losses were allocated, by Amtrak, as follows (all numbers are "Federal Railroad Administration [FRA] Defined Train Cost"):
NEC: $17,000
State-Supported Routes: $486,000
Other Short Distance Routes: $961,000
Long Distance Routes: $18.5 million
What rational person, seeing those numbers, wouldn't conclude there was a real serious issue with the long distance trains as a group, and maybe get out the handy pocket calculator and start dividing that number by "ridership" (cheerfully and reliably supplied by Amtrak and its fans) to get those bogus "loss-per-passenger" numbers that politicians, the National Association of Railroad Passengers (NARP), and the media like to toss around?
Here's where the big lie comes in: astute number-crunchers may have noted that 17 + 486 + 961 + 18,491 does not sum to 65. It sums to just shy of $20 million. Where is the remainder? The missing $45 million – a figure, in CASH, that Uncle Sam had to cover that is more than TWICE the aggregate cost of ALL of Amtrak's train operations? That the martyred previous Amtrak President and CEO ran up, month after month?
Well, the monthly report has that money, in its own line, right below the segmented FRA train costs: $45 million, described as (and I am not making this up): "General Operating Funding."
Now, since the $18.5 million assigned to the long distance trains times 12 months comes out to $222 million, we can safely conclude that the $18.5 assigned to the long distance group above is pretty fully-allocated, such that none, or very, very little, of the missing $45 million, can be allocated to them as "overhead" (and if we use Amtrak's grossed-up, but unsupported number for long distance losses of $300 million per year, the difference is about $6.5 million a month, which would leave $38.5 million of the "General Operating Funding" in October to be charged against something other than long distance trains).
The pretty clear message from Amtrak's own report therefore is that something that they do (called "general operating") costs twice as much as running trains; the mystery activity does NOT involve the long distance trains as a group; and, the mystery activity is a steadily recurring item.
Since the long distance trains are all paid for outside of the mystery activity, what is left? We can reasonably surmise that the "state-supported" trains' costs are at least fully-allocated (knowing what we do about how Amtrak charges California and Illinois to run their trains), and the "other short distance" category is peanuts. What is left? Headquarters costs? Which of Amtrak's activity centers requires a very large headquarters and other-than-train-operations staff? Could it – just maybe – be that "successful" Northeast Corridor, with all of its magnificent-but-not-in-a-state-of-good-repair infrastructure, and those 11,000 employees?
Is it even remotely possible that to get a true picture of the financial results of Amtrak's operations of its "successful" NEC segment we should add to the reported $17,000 loss on train operations all of the net $38.5 million in "general operations" costs, and discover that the long distance trains as a group "lost" $18.5 million but the NEC as a group lost nearly $40 million, more than twice as much as the long distance group?
Is it possible that if the NEC infrastructure were owned by a different entity, and Amtrak shed those costs, but had to pay rent to use the NEC, that its costs for "FRA Defined Train Operations" in the NEC might leap upwards by a large fraction of the $38.5 million (or more)? Unless it sharply curtailed the number and velocity of its trains that use that property? And that even if it cut those costs in half they would still exceed all of the long distance trains as a group?
And, we still haven't accounted for NARP's favorite line, the "non-cash" depreciation (and since 90+% of the capital is in the NEC, that's where 90+% of the depreciation charges are incurred), which would add another $43 million a month (90% of which would be about another $38 million) to the losses of the NEC, for a total monthly result, using real-world business accounting (the kind you go to jail for not using if you are the CFO of a publicly-traded company), of a loss of around $75 million. Just in October 2005. Using the most favorable and conservative assumptions.
NOW do we understand why NARP and the Northeastern politicians and media dread having Floyd Hall and Enrique Sosa, two accomplished CEOs of very large public companies, on the Amtrak Board of Directors overseeing Amtrak's planning and investment strategy? And why the last president and CEO and NARP were so bitterly opposed to breaking out the ownership, and costs, of the NEC infrastructure?
2) OK, the secret and elusive Amtrak accounting code has been cracked, and we can all see how the books have been cooked to make the NEC look "profitable" when it really isn't profitable under GAAP rules.
Now, the big question is, why didn't the United States Department of Transportation Inspector General crack this code, first? Why did Andrew Selden, a highly respected attorney in private practice with a deep background in corporate and financial affairs discover this before the people who are paid by the government to do this job?
And, the next big question is, what about the alleged high costs associated with operating Amtrak dining and sleeping cars that the IG is always moaning about, to the point where Congress has enacted laws micro-managing these two areas? How valid are those numbers on Amtrak books? Will a close inspection prove that dining car costs are actually much lower than the books show? Will a close inspection prove that sleeping cars are much more of a cash cow than the books show? Inquiring minds want to know. A lot of dining car jobs are precariously resting on the outcome, not to mention the welfare of passengers who will have the ability to enjoy morally admirable meals while enroute to their destinations on Amtrak long distance trains.
The Amtrak Board of Directors is right to seek a company outsider to be the next CEO of the company; someone who has never been tainted with Amtrak accounting.
3) A miracle has occurred and there are two new American heroes. Their names are David Hughes and Jon Tainow. Mr. Hughes is Amtrak’s Acting President, and Mr. Tainow is the interim Amtrak Vice President, Transportation. Mr. Hughes and Mr. Tainow each need to take a medal out of petty cash. Until this week, and prior to the departure of Amtrak’s former Vice President, Transportation, Amtrak routinely and with malice annulled or truncated trains for various reasons, including natural disasters, man made disasters and if it thought it could save a buck or two so an exec could count on a performance bonus.
Amtrak’s constant mantra was "no alternate transportation will be provided" when a train departure was wholly or partially annulled. But, those sad and woebegone days seem to be fast becoming a thing of the past, just like the two mercifully departed Amtrak executives that have now been replaced with people who understand passenger service.
Sadly, in the Pacific Northwest, there has been continual heavy rains since mid December. Weather experts say this spate of rain may outlast the previous storms, which reigned/rained for 33 days in 1953. As a result of this, some mud slides have occurred, and conditions are ripe for more similar problems. Amtrak has had to alter schedules for the Empire Builder, Coast Starlight, and much of the Seattle to Portland service.
In every instance, Amtrak is providing alternate transportation to passengers. This is the way it’s supposed to be, every day of the year. Bravo! to Mr. Hughes and Mr. Tainow.
4) Another minor miracle has occurred, this time on the NEC. According to Amtrak, due to passenger requests, hot food service has returned as of Wednesday, January 11th to first class Wondertrain Acela departures. Here is what Amtrak announced in its reservations system:
"HOT MEALS RETURN TO ACELA EXPRESS FIRST CLASS
"AS A RESULT OF FEEDBACK FROM PASSENGERS, AMTRAK WILL RESUME SERVING HOT MEALS ON ACELA EXPRESS FIRST CLASS BEGINNING WEDNESDAY, JANUARY 11, 2006.
"WE WILL OFFER A FULLY PREPARED HOT BREAKFAST IN ADDITION TO THE CONTINENTAL BREAKFAST, SOUP AS AN OPTION TO ACCOMPANY THE FRESH SANDWICH OR SALAD FOR LUNCH, AND A CHOICE OF TWO FULLY PREPARED HOT ENTREES FOR DINNER. ADDITIONALLY, THE WINE IS UPGRADED, AND GLASSWARE AND CHINA RETURN (EXCEPT FOR THE PREPLATED MEALS)."
This is a very good start. Now, what about the Diner Lite program? We breathlessly await good news that perhaps this disaster-in-the-making program may never get off the ground, as it was allegedly slated to begin in February. Word has already come that 100 dining car employees from the Los Angeles crew base have already lost their jobs in preparation for Diner Lite on the Southwest Chief and Sunset Limited."
Where I would disagree with the author would be in his put-down of Mr. Gunn. I think that Mr. Gunn saw the writing on the wall, and intuitively knew that one cannot easily separate infrastructure from operations in a prvately-owned transport system - both have to report to the same supervising authority in the event of disagreements. However, the author brings forth the argument, suspected by many, that the true costs of the NEC are hidden in Amtrak (the organization's) overhead.
Post your thoughts below. Constructive criticism only, please.
-------------------- "Travel is fatal to prejudice, bigotry, and narrow-mindedness, and many of our people need it sorely on these accounts. Broad, wholesome, charitable views of men and things cannot be acquired by vegetating in one corner of the Earth all one's life." Posts: 506 | From: Wisconsin | Registered: Mar 2002
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posted
Interesting bit from Selden about the missing $45 million. But he seems to employ a a good deal of conjecture in drawing his conclusions about what it really means. To wit:
"since the $18.5 million assigned to the long distance trains times 12 months comes out to $222 million, we can safely conclude that the $18.5 assigned to the long distance group above is pretty fully-allocated..."
"We can reasonably surmise that the "state-supported" trains' costs are at least fully-allocated..."
Much of his argument depends on these two statements being true, which he does not establish definitively. These statements MAY be true, but we don't KNOW they are true. There is certainly reason to pursue these roads, but not yet enough information to base policy on.
And I'm really fed up with Selden's characterization of NARP. NARP has been just as critical of Amtrak's use of fully allocated costs as URPA has been, and to accuse NARP of anything else is misleading or worse.
As I've said before, I find URPA's positions interesting, but their attitude leaves me cold.
Posts: 2649 | From: California's Monterey Peninsula | Registered: Dec 2000
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Are we to have an interneicene war between these two advocacy groups?
Posts: 9975 | From: Clarendon Hills, IL USA (BNSF Chicago Sub MP 18.71) | Registered: Apr 2002
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posted
I have been a NARP member, and a member of the Minnesota state MNARP, for as far back as I can remember. The MNARP newsletter contains many well written rants by member Andrew Seldon. It only comes out in paper so I can't copy & paste.
Like Mr. Toy, I am skeptical, but intrigued, by everything Mr. Selden writes. Since URPA is a "policy institute" they are not really accountable to anyone but themselves. They have no motivation to be truthful. (People in policy institutes thought up the Iraq war before 9/11, but that's another story.) The trouble is, I want to believe everything Andy Seldon says in regards to the true cost and losses of LD's. I want Amtraks's accounting methods to be a national scandal news event so someone less lazy than me will uncover the truth.
Since NARP is financially dependent on member contributions, their positions can be influenced by what drives member contributions. As such, they would not be likely to take an anti-NEC position, and are likely to pull in more money when the LD's are threatened. So, here I am skeptical of them too.
We need a Trainweb cable channel with 24 hour face to face debates moderated by Tim Russert including NARP, URPA, and some members of this board (with all expenses paid 1st class rail transportation to appear, of course). Sec. Mineta and Rep. Mica can only be invited if they are willing to wear dunce caps. But then I would have to quit my job and watch TV all day.
My common sense tells me if the Empire Builder generates $42 million a year in revenue, it is not losing hundreds per passenger if costs are allocated fairly. And if the EB can do it, any LD with good equipment and a railroad that runs it reliably can also do it. I would like to see URPA put our money where their mouth is, and see if it works.
One of Andy Seldon's rants is that connectivity creates a national rail network, thereby expanding the number of possible city pairs and expanding the market exponentially. This makes sense to me. He claims Amtrak deliberately avoids connectivity and gives valid examples. (The claims were made before reliability went south). NARP has never addressed this as a major issue and it should be discussed. Seldon claims Amtrak might be embarrassed by their lack of equipment if connectivity increased ridership.
Of course this also involves reliability and equipment issues, but if new revenue is generated it is surprising how many problems can be solved.
Posts: 1572 | From: St. Paul, MN | Registered: Dec 2002
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posted
Thanks Mr. Toy for saying it better than I could. I too was bothered by "safely conclude" and "reasonably surmise" used by Selden as well.
I think he makes some salient points, but I have a hard time taking them seriously when he blatantly promotes himself at the same time: Andrew Selden, the highly respected attorney who broke the code...etc etc. I would like to say Andrew get a grip on yourself.
I have the strange feeling that this method of accounting was used from the beginning and was simply accepted as each year went by (not that it's right by the way). I also suspect that Mr Selden's great antipathy towards David Gunn had to do with the fact that he lost the Amtrak presidency to David Gunn a few years ago. Yes Mr. Selden did offer himself for the job...I remembering him having his resume up and stating his intent on the URPA site a few years ago after Warrington left.
I am now amused and amazed that Mr. Selden annoints David Hughes as the "savior" of Amtrak; this after only 2 months on the job. Interesting read on Mr. Selden's part. I guess time will tell where the truth lies on all of this!
Posts: 171 | From: Aurora, Illinois | Registered: Jun 2005
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posted
IIRC, Hughes was Amtrak's Chief Engineer. That would mean a track and facilities type guy who would of necessity be centered on the Northeast Corridor because that is the main piece that Amtrak actually owns. My cycical perspective was they were throwing him into what is essentially and operation and traffic job so he could fail and therey somehow "prove" to that Mineta wants to convince that Amtrak is a hopeless case.
I truly hope he succeeds and confounds the lot of them, but given his his likely unfamiliarity with the inner workings of what he must manage, and more importantly the extreme constraints he has to work with, I will be extremely surprised if he does. However, I also know a lot of track types would love to have a shot at running the trains and have ideas they have nurtured for years but have never had the chance to try out.
George
Posts: 2808 | From: Olive Branch MS | Registered: Nov 2002
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