Amtrak 1990 to 2000 Financial History as viewed by Congress

[V.Payne]

Amtrak President Claytor was storied in his ability to deal with Congress is such a way that he had great staying power and began many of the major improvements to the Corporation. Most notably at the end of his tenure near 1992, he was able to present the operation of the system in the following way to Congress:

Short-term avoidable costs are more than covered by revenue, long-term avoidable costs are almost so (the proposed 800 Viewliner car order and early tests for NEC HSR tried and true trainsets was to improve this before the FRA got in the way later), and the need for Capital was noted in the Revenue to Expense ratio, but could be compared to other surface transportation funding. Consider the performance give by Claytor given the meager Capital invested during his watch as recorded in the 1994 Annual report.

Then came President Downs, the new single level equipment was not ordered in sufficient number, but he insisted on eliminating costly assets, the Heritage cars, as outlined on Page 10 of the 1994 NRPC Annual Report without first replacing them. This cut was due to the new found desire to not focus as Claytor had on short and long term avoidable cost and the control of such to generate marginal improvements to the business, but instead on operating ratio, for a business that has a large sunk cost in infrastructure capital, per page 27. Thus the size of the fleet reached the point where trains had to be cut and the Mercer Report of 1995 was to rationalize such action but was loudly denounced by those with experience.

 

 

Then came the 1997 Amtrak Reform “deal”, which was for operational self-sufficiency if Capital was funded, which was the same deal that Volpe had proposed in the original 1970 RPSA. However, post 1970 the Capital was dribbled out (think how long it took to get the Washington DC station rebuilt or New York to Boston electrification completed) in the same manner as was unfolding in 2000. Literally the parties have engaging in a chicken-egg scenario of existing performance versus funding.

 

Most importantly, borrowing for Capital had been entered in to begin to Acela program as Congress was mad over the Mercer defined route cuts that left many routes with less than daily frequencies. The mistakes of the Mercer planning are explained on Page 13 of this 1998 GAO paper:

 

“However, the study noted that its estimates of this “revenue retention” were based on limited Amtrak experience and actual results could vary (Ed. Not based on a model but a estimation factor). Mercer recommended substantial eliminations of routes and segments and reductions in the frequency of service designed to maximize operating savings while limiting the loss of services and coverage.

 

In response to Mercer’s recommendations, Amtrak closed 4 routes, truncated 6 routes, and reduced the frequency of service on 11 additional routes, primarily from daily to three to four times per week, during fiscal year 1995. Amtrak also introduced the Piedmont route (between Raleigh and Charlotte), supported by North Carolina, and the Mount Baker International train (between Seattle and Vancouver, Canada), supported by Washington State. These route and service changes resulted in a 13-percent reduction in the total miles that Amtrak trains traveled from fiscal year 1994 to fiscal year 1996 and $54 million in cost savings in fiscal year 1995.

 

However, during fiscal year 1996, Amtrak’s overall ridership dropped by 1.1 million passengers, or 5 percent, and anticipated reductions in operating costs were not realized on routes with reduced frequency of service. Amtrak officials told us that these problems occurred because (1) while passengers affected by frequency reductions generally adjusted their travel plans to conform with Amtrak’s more limited service in 1995, this rider behavior did not continue into 1996; (2) management did not cut costs as much as planned; and (3) less-than-daily service caused less efficient usage of equipment and other unforeseen problems.”

 

Two years later, the sentiment was still poor in Congress due to the Mercer cuts along with other Financial questions from the path to meet the 1997 act and some fairly probing questions from the Amtrak Reform Council (who mostly did their work as a service to the US). Within this 2000 Senate hearing you see the disagreement between parties over funding a request for $10B in Capital, as then the Operational performance was not conforming to the 5-year glide-path defined in 1997. Into this criticism, President Warrington had to offer this apology for the Mercer situation in the same hearing, starting on Page 98:

Senator Wyden. James Coston states, and I quote, ``the Eastern Oregon train was needlessly eliminated.'' Those were his words, and he goes on to say that it could have been possible, by adding a single mail car, a single mail car, to have turned this into one that would have been a cost-effective run.
    Now, a baggage car costs, according to my staff, $300,000. 
I am not up on the exact cost of a mail car, but do you 
disagree with what Mr. Coston has said, (a) that the train was 
needlessly eliminated, which by the way was in line with what 
Governor Thompson said, and that (b) this could have been 
effective if a single mail car had been added? Do you disagree 
with Mr. Coston?
    Mr. Warrington. I frankly am not well-enough acquainted 
with the facts about the economics of one express or mail car 
on that train and the kind of difference it would make, and I 
can confirm that subsequent to this, Senator, but my gut tells 
me that one express car, whether it be a road, rail, or mail 
car, probably would not make up the difference around the loss 
that we would be talking about, around a reactivated service. 
That is what my gut tells me, but I commit to you I will 
certainly take a look at that, but that does not sound right to 
me.
    Senator Wyden. Well, I guess I find your answer troubling 
as well because we have got a proven track record that your 
agency has played politics with this train. The General 
Accounting Office said it, Governor Thompson said it, the 
Amtrak Reform Council said it and you come here and you say, 
well, I will have to get back to you.
    My constituents in Eastern Oregon pay a lot of tax dollars 
for a national rail system, and you folks are basically saying 
that if they want rail service in Eastern Oregon they ought to 
go out and have a bunch of bake sales and see if they can put 
it together.
    I have got those little towns actually levying per-head 
assessments in order to do their share to be part of the 
reinvented Amtrak, and I guess my question to you is, when are 
you going to stop playing politics with my constituents?
    Mr. Warrington. I will be as straight as I can, Senator. 
First of all, I do not play politics with trains. The 
elimination of the Pioneer preceded me as the president of 
Amtrak, and I cannot speak to what the basis was for that 
decision.
    I will tell you, though, that generally, in retrospect, all 
of those eliminations (Mercer Cuts) back in 1995 and 1996 ended up costing the company more in lost revenue than we were able to take out in the way of expenses, given the fixed cost nature of the operation. I can tell you that I have committed and we have 
committed to look at all variations on a restored Pioneer, and 
as a matter of fact we have concluded that the most promising 
opportunity, as I think you know, is the Portland to Boise 
section, which would have about a $6 million loss with 
depreciation, about $4 1/2 million a year loss without 
depreciation, and we are very anxious to work with the States 
of Oregon and Idaho to see if we can bring that service back, 
but it will require contributions.”

So here we are today. If you want to add, or cut service, Amtrak will try to sell you a cost that includes unrelated fixed cost. Seems that once you get away from calculating the Marginal or Avoidable costs for service, it is all about the Contributions you can get as an Agency. 

[V.Payne]

Seems like we are about to be dealing with the same spirit as the 1997-2000 time period. But it is worth noting that there is a test case for eliminating routes in the west. So I thought I might bump this post.

2000 Senate Oversight Hearing on Amtrak

" Mr. Warrington. I will be as straight as I can, Senator.

First of all, I do not play politics with trains. The  elimination of the Pioneer preceded me as the president of  Amtrak, and I cannot speak to what the basis was for that decision.

    I will tell you, though, that generally, in retrospect, all of those eliminations (Mercer Cuts) back in 1995 and 1996 ended up costing the company more in lost revenue than we were able to take out in the way of expenses, given the fixed cost nature of the operation."