The FY 2007 Budget and Railroads

[RudyRockvilleMD]

The Administration released its *PROPOSED FY 2007 Budget this morning, February 6, 2006. To view the Budget go to OMB’s web site: www.whitehouse.gov/omb/budget/fy2007 where you can click on, and download The President’s Budget Message, and then click on the Department of Transportation. To get the tables with the FY 2007 numbers you need the CD-ROM which is only available with the hard-copy budget document. There are two items of interest to railfans in the FY 2007 Budget.

1. Proposed Elimination of the DOT Railroad Rehabilitation and Improvement Low Cost Loan Program
The reasons for eliminating this program are there are no justifications to extend favorable loan terms to private companies, taxes on diesel fuel have been eliminated, and the Government would have to cover any unsecured losses which could be significant in case of a loan default.

2. Reforming Passenger Rail Service
In a 2005 assessment of Amtrak the Administration called for significant reforms in curbing losses in its FY 2006 Budget message, and while the Administration feels some progress has been made more needs to be done. In its FY 2007 Budget Message the Administration states Amtrak can no longer maintain the “status quo,” it must reduce costs. The FY 2007 Budget Message quotes part of a December 3, 2005 editorial in the Washington Post – normally friendly toward Amtrak – with Secretary Mineta’s position to only fund passenger service that makes sense. The Administration proposes to give Amtrak to $900 million for FY 2007, and that is broken down into $ 500 million for capital costs - such as upgrading the Northeast Corridor – and $ 400 million for operating costs in discretionary grants contingent on Amtrak’s making the necessary reforms. One of the suggested cost reductions is to phase out the long distance – overnight- passenger trains while others are to overhaul the money-losing on-board food and beverage services and address Amtrak’s high labor costs.

3. My take On All of This.
First, I never knew about the DOT Railroad Rehabilitation and Low Cost Loan Program.

I agree with the proposed Amtrak funding of $900 million for FY 2007, and that, give or take $1 million, should be the limit. Anything more would presumably allow Amtrak to maintain the “status quo,” which would not lead to the necessary reforms. Amtrak is going to have to make some cuts, and eliminating the long distance (overnight) trains is a good place to start cutting because few, if any, of these trains are necessary, and as a group they contributed to a little more than 80% of Amtrak’s FY 2005 operating loss. Certainly Amtrak should try to see what can be done to reduce the on-board food and beverage service expenses, but I doubt if much can be done especially on the long distance trains. Further, I doubt if Amtrak will be able to do much about reducing its labor costs.

*The President proposes, and Congress disposes, the latter - sometimes irresponsibly.

[CSSHEGEWISCH]

Food and beverage service on passenger trains has never been profitable, and this goes back to the so-called golden age of railroading. Dining car service was viewed as a necessary amenity and may have been considered a loss leader of sorts.

[CG9602]

Rudy: The overnight trains arew needed if you want taxpayer dollars going to the NEC. No trains in places like MN & WI = no support from those states' representatives for taxpayer money towards the NEC.

From the URPA web site ( unitedrail.org ) :
"Follow the money" is the mantra of many who are trying to get to the bottom of why some people and/or companies behave in a certain way. Amtrak is no exception to this rule. Below is a brief chart of Amtrak statistics from Fiscal Year 2004, the last complete year of information posted on the Amtrak web site (It's too early for figures from FY 2005, which just ended at the end of September, 2005). Take a look at the figures, and follow below for analysis.
State Ridership Expenditures Employment Payroll Notes
Alabama 48,466 $11,477,849 24 $1,224,391
Arizona 76,424 $952,736 36 $1,561,816
Arkansas 23,814 $199,260 32 $1,802,173
California 9,332,501 $29,649,815 3,589 $154,921,344 [1]
Colorado 200,693 $18,998,202 94 $5,558,480
Connecticut 1,392,393 $9,963,185 636 $34,428,828
Delaware 753,055 $5,109,985 1,173 $53,053,041 [2]
Florida 913,553 $13,689,114 990 $43,924,411
Georgia 142,965 $8,402,900 83 $3,943,655
Idaho 4,932 $51,537 3 $162,802
Illinois 3,065,680 $56,759,840 2,016 $83,493,489
Indiana 102,754 $19,762,401 1,036 $41,356,652 [3]
Iowa 54,365 $180,321 13 $572,091
Kansas 31,549 $15,639,008 26 $1,213,867
Kentucky 6,740 $6,428,567 6 $296,870
Louisiana 180,475 $4,256,976 363 $14,212,305
Maine 161,469 $972,711 24 $1,186,968
Maryland 1,779,141 $22,142,799 2,609 $126,689,216
Massachusetts 1,962,324 $13,837,498 1,477 $41,904,152
Michigan 604,721 $2,858,461 133 $6,434,967 [4]
Minnesota 172,177 $4,325,291 72 $3,768,858
Mississippi 83,526 $868,272 102 $4,592,629
Missouri 422,063 $9,160,987 98 $4,555,647
Montana 129,044 $57,495 57 $3,293,052
Nebraska 40,305 $322,463 22 $1,348,301
Nevada 86,846 $4,910,032 47 $2,525,133
New
Hampshire 103,936 $48,136 67 $1,930,316
New Jersey 3,855,311 $37,983,222 1,687 $89,069,111
New Mexico 103,042 Not Available 72 $4,090,778
New York 10,385,357 $49,277,453 2,051 $96,624,973
North Carolina 485,459 $5,440,589 176 $8,321,782
North Dakota 89,319 $28,354 16 $691,462
Ohio 137,729 $9,567,180 88 $4,609,915
Oklahoma 58,095 $686,799 4 $226,320
Oregon 691,487 $1,166,188 112 $5,157,122
Pennsylvania 4,849,022 $122,962,838 3,061 $149,652,070 [5]
Rhode Island 616,122 $1,541,683 345 $16,801,298
South Carolina 176,300 $15,067,197 77 $3,641,213
Tennessee 50,295 $8,940,978 21 $906,524
Texas 267,568 $9,332,108 210 $11,251,208
Utah 34,914 $120,739 51 $3,106,249
Vermont 59,860 $155,762 Not Available
Virginia 803,695 $50,212,471 970 $51,446,428 [6]
Washington 1,067,768 $7,500,299 504 $23,190,224
Washington,
District of Columbia 3,744,710 $18,322,022 413 $18,137,793 [7]
West Virginia 50,699 $3,720,580 54 $2,693,082
Wisconsin 547,590 $7,788,648 104 $5,129,011
Note: The Northeast Corridor is comprised of Washington, D.C.; Maryland; Delaware; Pennsylvania; New Jersey; New York; Connecticut; Rhode Island; and Massachusetts.

California hosts one of Amtrak's two telephone reservations centers
Delaware hosts Amtrak's national operations center
Indiana hosts Amtrak's Beech Grove heavy maintenance facility
Amtrak owns and maintains 97 miles of mainline track in Michigan
Erie, Pennsylvania received $29,464,199 from Amtrak because GE Transportation is located in Erie, which provides locomotives to Amtrak; Philadelphia is home to one of Amtrak's two telephone reservation centers
One of Amtrak's advertising agencies is located in Virginia; over $30,000,000 was technically spent in Virginia on advertising which appeared elsewhere
Washington, D.C. is Amtrak's corporate headquarters
Who fights the hardest for "business as usual" for Amtrak? The members of Congress from the NEC states. Any attempt to improve Amtrak, its financial performance, or even financial transparency are met by yells and screams of anguish by this coalition of protectors of the Amtrak faith. Why?

More newspapers along the NEC write editorials in praise of the NEC and against the Amtrak national system than any other part of the country. Their attitude is, "we've got ours, who cares if you get yours?".

Much of this is due to Amtrak itself, which for years has erroneously plugged the NEC as the savior of passenger rail in the United States. If only the NEC could survive and prosper, the company has said over and over and over again, then Amtrak will be saved, the Republic will stand, and there will be peace and harmony throughout the land.

The really sad thing is how many otherwise rational people have believed this hogwash.

Look at the numbers for the NEC and you'll understand that to the NEC members of Congress, Amtrak is just another giant federal jobs and pork barrel project. They desperately don't want any of these costs shifted away from Amtrak, even to another federal entity which they must fear they can't control as much as Amtrak. The worst nightmare of NEC politicians is that one day, these huge costs may be put where they ultimately belong - as a burden of the states, and not the federal government. The NEC politicians want the flow of money (in the disguise of Amtrak) to keep coming as long as possible, even to the ultimate detriment of every other state in the union. Their attitude? Who cares about the rest of the country when the flow of money to the NEC is at stake?

Collective NEC state Amtrak expenditures (for all trains that serve these states, including regional and long distance trains) - $281,140,685

Collective NEC state Amtrak employees (for all trains and services that serve these states, including regional and long distance trains, and the company headquarters in Washington, D.C.) - 13,452

Collective NEC state Amtrak employee payroll (for all trains and services that serve these states, including regional and long distance trains, and the company headquarters in Washington, D.C.) - $626,356,482

When you add the expenditures and payroll figures together, Amtrak poured raw cash of $907,497,167 into these eight states and the District of Columbia for Fiscal Year 2004.

California, Florida, Illinois, Indiana, and Virginia were the next largest recipients of Amtrak largess. California has the Pacific Surfliner, San Joaquin, and Capital Corridor routes; Florida has the Hialeah maintenance facility and crew base for the Florida trains and many stations; Illinois has the Chicago hub and Midwest corridor trains; Indiana has the Beech Grove heavy maintenance facility, and Virginia has many of the corporate headquarters workers living in the northern part of the state.

Collective California, Florida, Illinois, Indiana and Virginia Amtrak expenditures - $170,073,641

Collective California, Florida, Illinois, Indiana and Virginia Amtrak employees - 8,601

Collective California, Florida, Illinois, Indiana and Virginia Amtrak employee payroll - $220,376,245

When you add the expenditures and payroll figures together, Amtrak poured raw cash of $390,449,886 into these five states for Fiscal Year 2004. This is equal to 43% of the cash poured into the NEC states.

The five bottom states, where Amtrak has operations but spends the least amount of money are Idaho, Iowa, Kentucky, Oklahoma, and Tennessee. No significant facilities other than stations are in these states.

Expenditures are high due to supply purchases Amtrak made from national vendors located in these states; not necessarily due directly to train operations in these states.

Collective Idaho, Iowa, Kentucky, Oklahoma, and Tennessee Amtrak expenditures - $16,288,202

Collective Idaho, Iowa, Kentucky, Oklahoma, and Tennessee Amtrak employees - 47

Collective Idaho, Iowa, Kentucky, Oklahoma, and Tennessee Amtrak employee payroll - $2,164,607

When you add the expenditures and payroll figures together, Amtrak poured raw cash of $18,452,809 into these five states for Fiscal Year 2004. This is equal to 4.7% of the cash poured into the top five states after the NEC states, and .02% of the cash poured into the NEC states.

Here are some observations:

FY 2004 ridership was 25,053,564 passengers. 5,557,588,000 revenue passenger miles were generated, from 37,227,000 train miles and 11,655,692,000 seat miles. Ticket yield was 22.61 cents per revenue passenger mile. It cost $74.01 per train mile to generate $42.32 in income per train mile. One obvious conclusion from these numbers is that either fares were too low, or costs were too high. A second conclusion would be a combination of those two factors.
Amtrak ticket revenue for FY 2004 was $1,256,424,267 (with an average ticket price of $50.15, a very low figure). Of the revenue, 53% was generated in the NEC. Yet, Amtrak spent $907,497,167 in the NEC states, or 72% of its ticket revenue, a very negative return on investment. Note that for FY 2004, Amtrak somehow with a straight corporate face claimed that Wondertrain Acelas made a profit of $61,100,000 on revenues of only $287,300,000, and that Metroliners made a profit of $7,400,000 on revenues of only $47,400,000, while Northeast Regional and Clocker services had a loss of $61,900,000 on revenues of $356,100,000. (The alleged profit of Wondertrain Acelas and Metroliners remains suspect because these two services shared the identical track, dispatching, stations, crew bases and other support services of the Regional and Clocker services. It's highly suspect that Amtrak assigned a high amount of losses to the Regional and Clocker services inorder to make the Wondertrain Acela and Metroliners look profitable on paper, in the best fashion of Enron and WorldCom.)
The systemwide average load factor for FY 2004 was 47.7%. Load factors of 65% are considered breakeven by most common carriers. National system long distance trains averaged load factors of 51% to 63%, while NEC trains averaged load factors of 36% to 49%. Most long distance trains operated over routes where there is only one train a day in each direction (there are 16 long distance routes; the Cardinal and Sunset Limited offer only tri-weekly service), while the NEC hosted an average of 55 trains per day in each direction (weekday service). The sparsely populated long distance system routes, with absolute minimal travel choices (and many of those only in the middle of the night) created a higher load factor for the company than the over-populated NEC, which offers too many travel choices and wastes valuable and scarce assets.
In FY 2004, Amtrak had approximately 24,841 employees when the individual state counts are totaled. Of those employees, 13,452 lived in NEC states, or 54% of the company's workforce lived in just eight states and the District. When you add the employee count in California, Florida, Illinois, Indiana, and Virginia of 8,601 to the NEC total, you reach 22,053 employees, or 89% of the total Amtrak workforce. Amtrak likes to talk about the number of employees that changes the workforce totals from year to year. In FY 1998, Amtrak had a net gain of 787 employees, a gain of 765 in FY 1999, 528 in FY 2000, a loss of 642 in FY 2001, a loss of 1,179 in FY 2002, a loss of 492 in FY 2003, and a net gain of 27 in FY 2004.
Amtrak's corporate headquarters is in Washington, D.C. This location was determined by Congress when the company was founded. Any attempts to move the company away from this highly expensive employee environment is fiercely fought by the one non-voting member of Congress who represents the District, Eleanor Holmes Norton. Non-voting Representative Norton apparently considers Amtrak more of a federal jobs program than a company which needs to show fiscal responsibility. Also, as a result of this unfortunate location, Amtrak's headquarters is peopled by professional bureaucrats who shift from one bureaucracy to another as opportunity arises versus experienced private sector workers that understand basic business principles.
Both of Amtrak's highly populated telephone reservations centers are located in high payroll and high payroll taxes states, California and Pennsylvania. While Amtrak is exempt by Congress from paying most federal, state, and local taxes, it is not exempt from any type of payroll taxes or associated costs on any level. While most common carriers and other res center-high employee count companies such as hotel chains locate their telephone reservation centers in the lowest cost locations possible, Amtrak does just the opposite.
What does all of this mean? Amtrak, which was chartered with a mission statement to be a national passenger railroad, instead concentrates the majority of its resources and efforts in the Northeast and just five other states, of which California and Illinois have a heavy concentration of commuter operations instead of Amtrak's original - and still - purpose of operating long distance trains.
While much of Amtrak's circumstances have been as a result of what it inherited at various points in the past, very little effort has been made to make changes which would have a dramatic effect on the financial bottom line. Beech Grove in Indiana is an example of this. Beech Grove migrated to Amtrak from its original freight railroad owner. Even at the time three decades ago, Beech Grove was old and antiquated, and would cost a lot of money to modernize. While the Beech Grove workforce has done exemplary work on projects such as the head end power project for the Heritage fleet inherited from the private passenger operators, it has been doing this with one hand tied behind its collective back because of the constraints of an outdated facility. Little effort has been made to either get out of the car rebuilding business and outsource this work to private firms, or to put together a new, modern and efficient facility.

Passenger rail economics have continually been ignored by past Amtrak staff managers and previous boards of directors.
As Andrew Selden has said for many years, "Amtrak gets terrible financial results (getting steadily worse, too) because of, not despite, its investment strategy and business model (both largely unchanged from the 1960s). Amtrak continues to invest the greater share of its free federal capital into short corridor markets, including the NEC, where it earns negative rates of return on investment, while it neglects its long distance markets where it earns returns in revenue and transportation output, per dollar invested, that are five to seven times greater than the corridors.

"It would be instructive for anyone to do what congress never has done: divide Amtrak's revenues in the Northeast Corridor from corridor services alone by the total federal subsidy, whether labeled 'capital' or anything else, incurred to produce that revenue, to ascertain a federal cost per dollar of revenue. Then do the same with the long distance markets as a group. Then do the same long division, but this time divide revenue passenger miles in the NEC by their total cost of production, and RPMs from long distance trains by their total cost of production. The results are illuminating, and explain completely why Amtrak is such a perennial loser in both financial results and transportation relevance."

This all adds up to several factors working against Amtrak becoming a financially healthy company that provides more than incidental transportation in the total scheme of America's domestic transportation network.
Amtrak concentrates far too much of its resources in one area of the country, which provides a regional focus, not a national focus. While many cite the philosophy of federalism and how national resources can help individual problems, this concept does not explain how Amtrak can so heavily favor one part of the country over the rest of the country, which provides heavy annual doses of free federal monies running into the billions.
Politics play too large of a role in Amtrak's decision making process. Often, decisions are made to placate politicians, versus making sound business decisions.
Until now, Amtrak has had a deeply flawed business plan that guarantees failure. Hopefully, the current board of directors, which seems to be moving quickly away from continuing this flawed plan, will move the company back to its original mission, of providing a relevant national passenger railroad, not a set of disjointed, non-profit corridors.
Where does following the money lead? Apparently, not very far away from Washington, D.C., especially if you're in Idaho, Iowa, Kentucky, Oklahoma, or Tennessee. If you're snuggled up against Washington, D.C. like an NEC state, you're OK. If you're part of the rest of America, in Amtrak's book you must not be very important."

Also:
"MYTH: The longer distance services are "lightly used."

REALITY: The load factors on these trains are double the load factors of the short corridors, in California and the Northeast alike. The aggregate ridership, for example, of the few long distance trains that serve Chicago exceeds the ridership of all of the short corridor trains that serve Chicago. Much more importantly, the output of those long distance trains, measured by revenue passenger miles, exceeds the output of the Chicago-hub corridor trains by a factor of about 700%. In California, the output and revenue of the one long distance train operated by Amtrak West, the Coast Starlight, substantially exceeds the output and revenues of ALL of the Pacific Surfliners between San Diego and San Luis Obispo.

So, one can hardly characterize the long hauls as "lightly used." In fact, the greatest single shortcoming of the inter-regional trains today is that their capacity has declined steadily over the last decade due to management neglect (bordering on overt hostility) such that their ability to accommodate latent demand has declined as well.

MYTH: Rail's appeal is in the 300 mile corridors, and this is where new development should be concentrated.

REALITY: The average trip length on the western long hauls already exceeds 800 miles. And rail's aggregate market share for intercity passenger trips is the absolute lowest in the 200 to 300 mile markets but highest in the 800 to 1000 mile distances. What rational investor would undertake to invest billions of dollars in new capital into an enterprise's weakest segment?

MYTH: Short corridors offer the biggest return on our infrastructure funds.

REALITY: In addition to mere dollars, we must take opportunity costs into account. One thing we certainly have learned by now is that high speed or low speed corridor development projects such as what we see in the Northeast Corridor (NEC) with semi-high speed, or in California with more modest speeds, require vast amounts of scarce, finite, public capital."

For an analysis of the long distance trains versus the corridor trains, see
http://www.unitedrail.org/pubs/longdistance/index.htm. I would offer, for that sake of argument, that the long distance trains are necessary if only as "placeholders" for any sort of higer speed service or corridors. Once the long distance trains disappear, the infrastructure to support passenger rail along that particular route disappears as well.

[Anonymous]

I am surprised they gave any $ to Amtrak they must of been sick of all the ciritizim during there attemt to kill it in the FY2006 Budget.

[jeaton]

I would be interested in knowing how many forum members have been able to make use of the student loan program for post secondary education. (college, tech or trade schools). Cuts are proposed for that program, medical assistance, Medicare and just about every domestic program in existance.

Be careful what you wish for.

[dldance]

QUOTE: Originally posted by jeaton

I would be interested in knowing how many forum members have been able to make use of the student loan program for post secondary education. (college, tech or trade schools). Cuts are proposed for that program, medical assistance, Medicare and just about every domestic program in existance.

Be careful what you wish for.

three of my children are currently in college thanks to the student load program. All chose to go to school after working in other careers - a baker, a warehouse worker, and a nanny. They plan to become , respectively, an electrical engineer, physical therapist, and an engli***eacher.

dd

[dldance]

There is one more railroad related item of interest - according to the local paper, the '07 budget includes authorization to spend $490 million over the next 12 years to implement commuter rail between Ogden and Salt Lake City. UP and BNSF will benefit as some monies will be used to correct operational issues in Salt Lake and Ogden yards that would prevent commuter rail operations through those yards. This was one of 5 project funded. I don't know what the other projects are.

dd

PS - thanks for the great information and analysis

[StillGrande]

I always thought they should contract out the food service on the trains anyway. Can you imagine a Starbucks franchise on the an Acela train, or McDonalds on the Autotrain? It could be a short menu like some of the airport venues. You could even put a couple of small ones in the current food service car with a little remodeling.