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T O P I C     R E V I E W
CG96
Member # 1408
 - posted
Along with a few poor arguments:

"This Week at Amtrak; January 17, 2006

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.
 
Mr. Toy
Member # 311
 - 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.
 
Gilbert B Norman
Member # 1541
 - posted
Mr. Toy--

Are we to have an interneicene war between these two advocacy groups?
 
Mr. Toy
Member # 311
 - posted
Mr. Norman,
URPA seems to think it is so engaged. But NARP doesn't seem to blink an eye. So I guess the answer is no.
 
TwinStarRocket
Member # 2142
 - 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.
 
jgart56
Member # 3968
 - 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!
 
Mr. Toy
Member # 311
 - posted
I forgot that Selden had been interested in the Amtrak job last round.

Might note that David Hughes was hired by Gunn.

Might also note that Hughes was at the helm during the CSX/Silver train debacle not long ago.
 
George Harris
Member # 2077
 - 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
 



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