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Author Topic: Amtrak Cost Allocations: Don Phillips' Column
Gilbert B Norman
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The Don Phillips column appearing in June TRAINS is indeed provocative. In the column, Mr. Phillips contends that Amtrak's allocation of fixed costs are allocated so that the
Corridor, and in particular the Acela, are shown to be profitable and the Long Distance trains are hopeless losers. Mr. Phillips contends that if the fixed costs were properly allocated, as well as some costs being capitalized that should be expensed, the Corridor and Acela would be "The Biggest Loser" and the LD's would still lose, but the losses would be "tolerable".

The problem I have is that the column quotes Mr. Andrew Selden, at attorney from Minneapolis, but unsaid is that he has done work for NARP - and to me NARP is more concerned about the preservation, and for that matter expansion, of the LD System.

While of course the allocation of fixed costs/expenses in any industry with a high percentage of such such as a railroad, can be the "Pandora's Box" ("figures don't lie but liars figure"), the column loses much credibility with the direct quotations from someone long affiliated with NARP. I have no answers for this issue; the Monthly Performance Reports that show the Corridor as profitable are of course unaudited. The outside auditors (Ernst & Young for the moment) are largely concerned with the presentation of the Consolidated Financial Statements, and as such the capitalization of costs that should be expensed is of their concern, how the fixed costs are allocated over the trains is of considerably less.

June TRAINS is presently being circulated; also of interest is an article on Iowa Pacific passenger operations.

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TwinStarRocket
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And here when I saw the title I thought you meant Trump.

Andrew Seldon and I went to the same church and Sunday School as teenagers (That would make him a 67 year old Episcopalian). I do remember him as very impressive and intelligent. He is also president of MNArp, the Minnesota passenger rail advocacy group, and writes extensively in their monthly newsletter (only available in print form). He is associated with United Rail Passenger Alliance, a self funded national rail policy institute, and in 1998 he was a finalist to run Amtrak (George Warrington got the job).

But in all his writings he seldom has a good thing to say about NARP. Mostly he advocates running Amtrak and the LD's more like a business, making relatively small investments where he sees growth potential (such as equipment, frequencies and connectivity). He is for paying the railroads more to use their tracks so they might be willing partners. He contends Amtrak's accounting allocation practices, and the way it measures ridership/revenue, tend to make NEC performance look better and the LDs look worse than they really are. And he comes up with a lot of figures and analysis to back this up.

Outside of the rail world, Seldon has a reputation in Minnesota as a leading attorney in the field of franchise law.

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Gilbert B Norman
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Mr. Twin Star, this 72 year old Episcopalian will stand corrected regarding with which train advocacy group Mr. Selden has been associated. While I hold great respect for Mr. Phillips as a journalist, this column simply had too many earmarks, with foundation or otherwise, that it had been "fed" to a columnist by an LD advocate. One would have to accept that of a "cub reporter" with a small market media outlet, but Mr. Phillips, having held positions with both the Washington Post and The New York Times, clearly graduated to the "top 25" (a media term for large markets).

Obviously as a CPA, I am well aware to the extent that "liars figure" (or at least competent persons executing a policy agenda) in any industry regarding the allocation of indirect and fixed costs.

Now all here know that even though I ride LD's and come away with a "more positives than negatives" travel experience, I am no advocate of the mode and believe that they should have been gone some five years after A-Day. I believe that Amtrak pays anything less than the full opportunity cost, i.e. what could a Class I earn with another train, is reprehensible and clearly represents a "taking" under the Fifth Amendment. Towards that end, I would like to have charged against the LD's an amount representing the opportunity cost of the Class I rights of way they use and with the excess of that fair compensation over actual Amtrak payments, i.e. that amount that represents a "taking", allocated over all train miles.

Now let's see who are "The Biggest Losers".

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notelvis
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It seems as if this one argument from the LD advocacy folks..... and I am a NARP member who supports maintaining the existing Long-Distance network with perhaps a few modest enhancements*..... has not changed in 50 years.

That argument being that there are different ways of 'figuring' the numbers in order to solidfy one's position. Most, but not all, of the railroads in the mid-to-late 60's stood to benefit from making those LD losses look as horrible as they possibly could.

A book which I enjoyed by Fred Frailey is titled 'Twilight of the Great Trains' and is essentially a study of the contrasting manner in which many of the leading railroads handled the decline and demise of their passenger trains during the mid-to-late 1960's.

OK...... back to the term *modest enhancements*. I don't advocate adding a ton of new passenger LD passenger trains to cities across the land where Union Station closed 40 years ago. I do advocate doing modest things to increase ridership and make the existing network more user friendly.

One example - suppose Missouri decided to extend one of the River Runners from Kansas City to Omaha connecting there with the California Zephyr. Suddenly Denver, Salt Lake City, and northern California are accessible to St. Louis and Kansas City without 'backtracking' through Chicago.

And Twinstar - one additional LD that I would advocate for would be a St. Paul - Kansas City train. Open SOCAL up to riders in Zip 5 without having to go through Chicago or Seattle.

But I digress -

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George Harris
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quote:
Originally posted by notelvis:
It seems as if this one argument from the LD advocacy folks..... and I am a NARP member who supports maintaining the existing Long-Distance network with perhaps a few modest enhancements*..... has not changed in 50 years.

Likewise, and I agree with your examples as good places to start.

quote:
One example - suppose Missouri decided to extend one of the River Runners from Kansas City to Omaha connecting there with the California Zephyr. Suddenly Denver, Salt Lake City, and northern California are accessible to St. Louis and Kansas City without 'backtracking' through Chicago.
This one should do well. There are 2 ways to skin this cat, one via UPRR and the other via BNSF. Pre Amtrak I think the CB&Q was somewhat faster than MoPac. At least they had more trains.
quote:
And Twinstar - one additional LD that I would advocate for would be a St. Paul - Kansas City train. Open SOCAL up to riders in Zip 5 without having to go through Chicago or Seattle.
This one should do well. When it died pre-Amtrak it was in part caught up in the overall decline of the Rock Island. Which also gets us around to the issue of the line now being UP. However, UP has shown themselves cooperative with Amtrak when the price is right, one example being the California Sacramento services.

Another would be to extend the Illinois supported morning train to Carbondale all the way to Memphis, with an equivalent return. The old daytime City of New Orleans carried far more people north of Memphis than south thereof.

It appears that there would be much that could be done in the Northeast, and I mean that in the real geographic sense of north of the Ohio and east of the Mississippi, not just in the corridor territory.

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TwinStarRocket
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Just adding more sleepers to the western LD's would help. Outside of January, a good portion are sold out. Promoting onboard upgrades would fill even more (most conductors seem reluctant to bother). What if we got wi-fi working and allowed coach passengers to upgrade enroute, then advertised this option onboard?

If we add connecting routes to increase city pairs, we need the capacity to gain the revenue.

Take the cost of one Superliner sleeper as part of a large order, and assume 70% capacity at current prices, how long before before that sleeper pays for itself? We have created a good paying attendant job or two and improved the revenue to cost ratio of that train.

Of course if this worked, the "downside" would be that we created longer trains and needed more engines. Would that mean it was too successful?

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RRCHINA
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Back to Messers Phillips and Normans concern about appropriate accounting:

How about Congress mandating that Amtraks accountant (Ernst and Young per GBN) establish accounting proceedures to analyze Amtraks business as it would, say Chevron, BNSF or JB Hunt; and not permit Amtraks officers to interfere with the accountants decisions and proceedures.

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TBlack
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Gilbert,
Bless your Episcopalian Soul, you've opened a wound and I'm going to help pick the scab!

TSR, I've met your "Donald"; I'd love to tell you about it (but not on the internet); Not much chance that he speaks the Gospel.

George, I have enormous respect for your professional accomplishments and perspective; tell me about the traffic counts you expect on these new routes.

Tom

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Vincent206
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I haven't read the article, but I do know that, thanks to the PRIIA legislation, Amtrak is now working with a standardized set of cost allocation rules. Whether those standards favor the NEC at the expense of the LDs is open to debate, but there is a standardized set of rules for cost allocation.
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George Harris
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quote:
Originally posted by TBlack:
George, I have enormous respect for your professional accomplishments and perspective; tell me about the traffic counts you expect on these new routes.

Tom

I can talk a while about alignment and track, but when it comes to ridership, I am guessing as wildly as anybody else. The only thing I can say is that those systems that were built in the right place have usually had ridership in excess of the initial guesswork.

It seems that there is no middle ground. Systems normally have ridership that is either well in excess of projections or well under. Those that I know about that are under are usually slower than the bus routes the replaced or as has been said about one, connecting places where people do not live with places where their are no jobs.

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notelvis
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Admittedly my initial thought was that Donald Duck had been knighted.....
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MargaretSPfan
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To get right to the point: Amtrak is a SERVICE and should NOT be treated like a for-profit business. Period. Government is here "to promote the general welfare", as our Constitution says.

As a matter of fact, there should be a lot more LD trains, not just a paltry few more. And I think there should be a track-building program that is as extensive as that which created the Interstate Highway system. It is ridiculous to expect rail traffic to be able to remain fluid with too many single-track main lines or even just double-track main lines. When there are finally many, many miles of quad-track main lines, then Amtrak and the freight railroads will finally have enough track to stay out of each other's way.

Personally, I am in favor of "open access", where the government pays for and maintains the rail rights of way, and all railroads, freight and passenger, pay taxes to support those rights of way. This is the way our highways are built and maintained. What would be wrong with using that model for railroads?

We passenger-rail supporters have for far too long been forced to subsist on table scraps. It is way past time we got a full seat at the table and got the enthusiastic support for this vital service that we all deserve.

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Railroad Bob
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quote:
Originally posted by MargaretSPfan:
To get right to the point: Amtrak is a SERVICE and should NOT be treated like a for-profit business. Period. Government is here "to promote the general welfare", as our Constitution says.

I think that was the original idea back in 1970/71 when the Nat'l Rail Psgr. Corp appeared. That is was going to be a "service."

I like your vision of a passenger rail system, but heavy resistance would come from many, many quarters.

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RRCHINA
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The word SERVICE can have many interpretations and definitions. Some of which I shall not share here but they may be found in studies of animal husbandry.
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Henry Kisor
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(((Rrrrimshot!)))
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Ocala Mike
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quote:
Originally posted by RRCHINA:


The word SERVICE can have many interpretations and definitions. Some of which I shall not share here but they may be found in studies of animal husbandry.


Exactly; just as the word CONGRESS can have many interpretations and definitions, one of which is very descriptive of what our legislators in DC do to us every day.
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notelvis
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The notion that Amtrak would ultimately become a 'for-profit' enterprise was slipped, rather late in the game, into the original Railpax legislation to improve the chances such legislation would be passed.

While that may have served the immediate purpose of greasing the skids for Railpax, that notion that Amtrak would someday earn a profit has become quite an albatross around Amtrak's neck in my opinion.

--------------------
David Pressley

Advocating for passenger trains since 1973!

Climbing toward 5,000 posts like the Southwest Chief ascending Raton Pass. Cautiously, not nearly as fast as in the old days, and hoping to avoid premature reroutes.

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Gilbert B Norman
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quote:
Originally posted by MargaretSPfan:
To get right to the point: Amtrak is a SERVICE and should NOT be treated like a for-profit business. Period. Government is here "to promote the general welfare", as our Constitution says.

As a matter of fact, there should be a lot more LD trains, not just a paltry few more. And I think there should be a track-building program that is as extensive as that which created the Interstate Highway system. It is ridiculous to expect rail traffic to be able to remain fluid with too many single-track main lines or even just double-track main lines. When there are finally many, many miles of quad-track main lines, then Amtrak and the freight railroads will finally have enough track to stay out of each other's way.

Personally, I am in favor of "open access", where the government pays for and maintains the rail rights of way, and all railroads, freight and passenger, pay taxes to support those rights of way. This is the way our highways are built and maintained. What would be wrong with using that model for railroads?

We passenger-rail supporters have for far too long been forced to subsist on table scraps. It is way past time we got a full seat at the table and got the enthusiastic support for this vital service that we all deserve.

For convenience of readers, I have taken liberty with captioning SPMargaret's comments in entirety.

While it is undeniable that any level of government exists "to promote the general welfare.." and many an agency has "service' as part of its official or implied title, this is no license to operate that agency in other than an economic and efficient manner.

To propose additional Long Distance frequencies and routes and to accommodate those additional services, say "four a day" over many Western routes that prevailed through the 1950's, a build-out of track capacity to be predominately used by the passenger trains, would simply represent a squander of taxpayer $$$$, and would result in political consequences inimical to the interest of any passenger train service.

To propose that the Class I railroad industry have imposed upon them a requirement that they will host (and give priority to) additional passenger trains over their existing ROW's would represent a "taking" without just compensation as proscribed by the Fifth Amendment. Any action imposed that restricts the industry from making "best use" of their investor owned facilities represents such a "taking".

Further, adding additional passenger trains beyond the so-called Amtrak Basic System, i.e. the System laid out by the Incorporators under RPSA '70 and with relatively few "tweaks" represents the system in place today, to one route will only create a "they got a train we want one too" mentality. The results of that would simply be more interference with the efficient movement of freight traffic. As example, what if somehow passenger trains were restored to the Overland Route and again North Platte NE had service, what is to keep Dalhart TX (on the RI Golden State Route) from chirping "we want one too" (avoiding Amarillo as an example as they may just get one anyhow).

In short, advocate to one heart's content; the First Amendment guarantees that right, but do not expect any more LD's. They were to have been gone starting some five years after A-Day, and the Carter Cuts of 1979 appeared to be the first step towards fulfilling such. But funny how politics have a way of getting in the way of "understandings" (and even enacted legislation), so here we are, for better or worse, forty two years later with no end in sight for the LD's.

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RRCHINA
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Very well reasoned GBN, thank you.
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Vincent206
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Mr. Phillips' article is sorely lacking in figures to back up his claims, so I took some numbers from the last 6 months of Amtrak's Monthly Performance Reports and did some calculations on train-mile costs. Generally it appears that LD trains that operate partially on the NEC do cost more to run than trains that avoid the NEC:
  • Silver Meteor $79/train-mile
  • Capitol Limited $78
  • Crescent $76
  • Silver Star $72

Compared to the one night trains from Chicago:
  • City of New Orleans $63
  • Texas Eagle $57

And the 2 night trains from Chicago:
  • Southwest Chief $65
  • California Zephyr $62

I don't include the Lake Shore Limited, Empire Builder, Sunset Limited or Cardinal in the calculations because their split routings or 3x/week frequencies would create apples to oranges comparisons. And I excluded the Palmetto because it doesn't offer sleepers. The Coast Starlight is the only daily LD train that doesn't run on the NEC or originate in Chicago, so it's difficult to compare it to anything, other than the Crescent--both the Starlight and the Crescent routes are 1377 miles long. Plus, the Starlight is more of luxury train and its cost show it--$94/train-mile!

So, the numbers do show that operating on the NEC does raise train operating costs. But is that premium because of a diabolical plot to skew the numbers against the LD trains or is it just more expensive to run a train on the NEC? I don't know the answer to that question.

If it's more expensive to run LD trains on the NEC, shouldn't eastern corridor trains that use the NEC also be more expensive to run? The answer is that the costs of the eastern corridor trains appear to vary wildly:
  • Maple Leaf $77/train-mile
  • DC-Newport News $75
  • DC-Lynchburg $65
  • Palmetto $53
  • Pennsylvanian $48
  • Adirondack $46
  • Carolinian $41
  • Ethan Allen $35
  • Vermonter $24

The corridor trains that run in the Midwest have more consistent cost numbers than the corridor trains in the east:
  • Blue Water $56/train-mile
  • Wolverines $55
  • Hiawathas $52
  • Pere Marquette $52
  • Illinois Zephyr $43
  • Chicago - St. Louis $45
  • Illini $43

It's the trains out west that have the highest operating costs:
  • Cascades $70
  • San Joaquins $66
  • Surfliners $64
  • Capitols $56

The Heartland Flyer costs about $55/train-mile, the River Runners $36 and the Piedmonts $33.

I did a quick calculation for the Acelas (~$85/tm), but I'd like to double check that before I draw any conclusions and I haven't done any numbers for the NERs or Empire Service trains (too complicated).

Overall, I'd say that there are some peculiarities in Amtrak's cost allocation system, particularly for corridor trains on the east and west coasts. For example, it appears to be more expensive to run the Surfliner than the Southwest Chief. Hopefully Don Phillips and Andrew Selden have access to more information than I do and can provide some answers.

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yukon11
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An interesting post, Vincent. Thanks.

Maybe it's just me, but I have a problem in drawing conclusions from the various figures of cost per mile. The question of how does Amtrak figure its core costs might be pertinent. For a particular run, does Amtrak always figure in state funding and depreciation and does it do this in all cases?

Besides cost per mile, I like to look at farebox recovery. I think farebox recovery can show other things to look at...such as ridership, popularity of the train, and whether or not an increase in train frequency might be beneficial to a particular Amtrak train.

Here is a chart, a couple of years old, which shows cost, revenue, farebox recovery, as well as other figures for the various Amtrak trains:

http://reasonrail.blogspot.com/2012/12/amtrak-routes-by-2012-cost-recovery.html

Just one point of interest, your cost per mile figure for the Carolinian is $41/mile. The farebox recovery for the Carolinian is 80.92%. Maybe that might show that an increase in frequency would be a good idea?

Richard

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PullmanCo
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As a Missourian, I watched, with great laughter, the debacle of Kansas trying to extend the Oklahoma service.

First, I'm still amazed at the regulatory hurdles required to gain new service. AN ENVIRONMENTAL IMPACT STUDY? EXCUSE ME? Whatever happened to doing a business case and making a go/no-go decision based on the business case?

Next, the Missouri service is 403(b) or its successor. As a Missourian, the last stop would be St Joe, if it ran up the Q, or Leavenworth and/or Atchison, if it ran up the MP. I'd expect the service to reasonably terminate in Lincoln on the Q (that's the route of the Pioneer Zephyr, KC-Lincoln), and ??Omaha?? if on the MP/UP. I'd expect KS to pick up a share, perhaps 10%, based on the activity and loadings at its stations on the line.

Finally, let's be honest: The service at best MIGHT be able to serve both 3/4 and 5/6. Right now, the Missouri Service is scheduled to support 3/4 on the west side. Someone in St Louis has to confirm if it supports the Texas Eagle on the East side.

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yukon11
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I just got around to reading the June issue of TRAINS.

Regarding the Don Phillips column, I saw the reference to the Acela being a big time loser, while long-distance trainss being a "money losers, but not big ones". However, reading the rest of the Don Phillilps article, I have to wonder how he draws that conclusion. He cites, I think correctly, the inconsistencies in the LD train accounting and Northeast Corridor accouting and the lack of uniformity in assessing costs. If that is the case, how can Mr. Phillips really tell what Amtrak train is a small or big-time money loser? I don't understand "the commingling of capital and operating funds for the Northeast Corridor", nor why costs triple for LD trains entering Northeast territory.
I do think that Amtrak has a political integer in its calculation of expenses.

There is a lot of interesting stuff in the June issue.

The Fred Frailey article talks about the interest, initially by BNSF and CN, in liquefied natural gas (LNG) as a substitute for diesel. The article states that conversion will mean big up-front costs. However, the long-term saving could be huge. I wonder if other freight outfits, and Amtrak, might eventually look into LNG.

Finally, a nice article on the Montana Rail Link. I sure wish that we may, at some point, see a return of the passenger train on the old Northern Pacific line. Maybe a USA version of the Rocky Mountaineer, from Seattle to Sandpoint to Billings.

Richard

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Gilbert B Norman
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Richard, somehow I do not think you are an accountant, but I am a CPA.

I can only reiterate to you and other participants at this topic that when it comes to cost allocation, you enter a world of "Big Daddy, what do you WANT to see?"

Trust me on that one. Richard' I saw it up front too many times during my railroad career.

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Ocala Mike
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Cost Accounting - Ugh!!! All I remember is FIFO and LIFO for merchandise valuation. Now the real fantasyland comes into play when you hit Government Accounting!
Posts: 1496 | From: Ocala, FL | Registered: Dec 2006  |  IP: Logged | Report this post to a Moderator
George Harris
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Was it Mark Twain that said that there were three kinds of lies? "Lies, damn lies, and statistics.". The other relevant saying is that "Figures may not lie, but liars figure."

I have seen much of that. You can also do a lot to get what you want by careful selection of your requirements when writing specifications, to either make sure you get a particular product or to make certain that one you do not want cannot qualify.

I think when we get to talking about Amtrak's costs, benefits, which trains are winners and which are losers, we get into a lot of Alice in Wonderland accounting, particularly when it comes to assignment of overhead and other fixed costs.

Posts: 2693 | From: Olive Branch MS | Registered: Nov 2002  |  IP: Logged | Report this post to a Moderator
MDRR
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I think both George and GBN have nailed it correctly. To try and truly conclude anything from the numbers provided is probably meaningless...
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yukon11
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I can remember, when I first entered a federal health care agency, my naivete about how things worked. I found out that if I strived to keep costs under budget, I would be ostracized. However, if I went over budget I would be rewarded. It was all about spending. I even remember we used to have to, literally, redistribute supplies from one area to another, or one shelf to another. That meant the supplies were "issued" and spent. Made it easier to go over budget..which meant a larger budget for the next fiscal year!

I noticed, this morning, in the Amtrak "News and Media" section there is an article on insufficient federal investment in the Northeast Corridor:

http://www.amtrak.com/ccurl/492/352/Limited-Federal-Investment-Limits-NEC-Infrastructure-ATK-13-058.pdf

Richard

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Geoff Mayo
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Reminds me of a major rail supplier I used to work for. Whenever a project went over budget or didn't make much money the sentiment often voiced was "gosh, that cost a lot. Let's scrap it", instead of "okay, we didn't do so well there, but now we've done it, how can we sell it to others to try to recoup some of the costs?"

--------------------
Geoff M.

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