Amtrak side-steps the fiscal cliff

Posted by Fred Frailey
on Tuesday, January 29, 2013

It’s increasingly likely that come March 1, Amtrak and every other federally supported agency, including the military, are going to collectively share $85 billion in non-negotiable budget cuts for the ensuing seven months. Sequestration is the awkward term used in Washington to describe what is about to happen; TV newscasters simply call it the fiscal cliff.

To cut to the quick: Amtrak tells me that it can survive such a budgetary whacking without curtailing any train services. That’s a remarkable outcome when you consider the size of the cuts in federal support it will undergo if this comes to pass: an expected reduction of $38 million from an operating grant for fiscal 2013 of $466 million and a $78 million cut in its grant for capital spending and debt service. And remember, these cuts would all have to be absorbed, not slowly over the entire fiscal year (which ends September 30) but quickly during just the final seven months of it.

If you haven’t been paying attention to this issue that has we Washingtonians all wringing our hands, I congratulate you for exercising good judgment. I will summarize it in the fewest possible words. Conservative Republicans are aghast at what they call out-of-control government spending that is creating a Mount Everest of federal debt. Liberal Democrats are aghast that the rich are getting richer and want to tie any cuts in federal spending to a similar amount of tax increases. Meanwhile, the ticking time bomb is the Budget Act of 2011, which decreed that if cuts in deficit spending totaling $1.2 trillion over the next decade could not be agreed upon by Congress before the end of 2012, they would automatically occur — sequestration, in other words, with every federal recipient’s budget being chopped by 8 to 10 percent. The drop-dead date was postponed in a rare congressional accord until March 1.

What makes me feel that sequestration will occur is this: The Republican-controlled House passed the specified budget cuts and sent the legislation to the Senate. The Democrat-controlled Senate, seeing no tax increases in the House bill, won’t take it up. So there’s a political standoff, and both parties seem resigned to the inevitable.

Getting back to Amtrak: In response to questions I put to spokesman Steve Kulm, the corporation today said that so far in fiscal 2013, “Amtrak has been controlling costs and managing its budget at a spend rate less than the federal appropriated amounts. . . . Amtrak is also experiencing solid revenue growth so far this fiscal year.”

The statement added: “While Amtrak is confident we can withstand a funding cut without cutting service, the continued lack of predictable federal appropriations makes proper budgeting and future planning extremely difficult.”

You and I cannot peer over the shoulder of the bean counters at Amtrak, but the latest financial reports (covering just the first two months of fiscal 2013) provide some hints of how it could dodge bullets. In those two months alone, Amtrak spent $67 million less than budgeted for capital programs, mostly due to delays in engineering programs (a saving of $42 million) and the timing of payments for new electric locomotives and long-distance passenger cars (a saving of $20 million). In other words, delays in spending can have the same effect as cuts in spending. And here’s another budget line that begs close attention: Salaries, wages, and benefits were $25 million over budget during October-November, which comes to a startling $150 million at an annual rate. However, I am told that this has a lot to do with recovery from Hurricane Sandy and the salary overages are trending down. My point is that there are plenty of branches to bend or trim before dropping trains, and Amtrak’s statement seems to acknowledge that.

It’s always possible that dogs will learn how to meow, cats to bark, and politicians of different parties to compromise before or soon after March 1 and do a wiser and more judicial job of cutting the federal deficit than sequestration will accomplish. But right now, that doesn’t seem likely. Plus, I am not comfortable knowing that Amtrak is facing financial stress without a chief financial officer (the post was recently advertised in The Economist). After all, Amtrak has a history of walking off its own fiscal cliff, as occurred in the last years of George Warrington’s presidency (1998-2002), when money was moved around and moved around — this trick, that trick, loans here, loans there — until oops, there was none left and payrolls almost didn’t get met. — Fred W. Frailey

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