No way to run a railroad - financial management suggestions for Amtrak - Brief Article

Railway Age, August, 2001

The American people like passenger trains. American politicians like to get re-elected. That, in the end, could be the key to the future of Amtrak, which has gone through so many near-death experiences that it's hard to judge how serious the current financial crisis really is.

The current doomsday scenario has Amtrak failing to meet Congressionally-mandated operational self-sufficiency by fiscal year 2003, a requirement that many observers say is unrealistic. Strapped for operating cash, Amtrak has mortgaged part of Penn Station New York for $300 million, just to get itself through the current fiscal year. Staff and unionized employee reductions of 10-15% and service cuts may be forthcoming. Amtrak has hired consultant McKinsey & Co. to advise top management on a restructuring plan, should it become necessary.

In July 25 testimony before the House Transportation and Infrastructure Committee Subcommittee on Railroads, U.S. DOT Inspector General Ken Mead said, "Amtrak's ability to meet its self-sufficiency mandate is in serious jeopardy.... [F]ailure to show incremental improvement now presents Amtrak with few options outside of far-reaching actions such as across-the board service cuts or personnel reductions. Such actions may improve Amtrak's bottom line in the short term, but not without long-term consequences." But even if self-sufficiency is realized, Amtrak will still require "substantial" federal appropriations to stay afloat, said Mead.

The remedy for Amtrak's financial woes, said Amtrak Reform Council Chairman Gil Carmichael, involves "a major restructuring of our nation's program for intercity rail passenger service, including a corporate restructuring." Such restructuring would involve, at the very least, separating Northeast Corridor operations ("at minimum, from an accounting standpoint") from the rest of the national system. Combining the two "seriously degrades the financial performance and ultimate accountability of train operations."

But more important, said Carmichael, Amtrak "needs to be insulated from direct political influence by consolidating [its] existing governmental program functions in the FRA or another appropriate federal agency or oversight entity.... Amtrak's long term failure to improve performance is due to its fundamentally flawed institutional structure."

Amtrak President and CEO George Warrington, while saying that the railroad is still "working diligentiy to achieve operational self sufficiency," stressed that Congress needs to decide what it wants Amtrak to be. He zeroed in on "mission conflict." Trying to combine a "national public service mandate" with running at a profit "are not compatible goals," said Warrington. "If you're a business, you go where the money is. But if you're Amtrak--which way do you go?"

Warrington said Congress needs "to forge a clear consensus about Amtrak's mission, and then determine the appropriate modes and levels of federal capital investment to support that mission.

"This country still has no dedicated source of federal funds for investment in intercity passenger rail, unlike other transportation modes," said Warrington. "So our ability to modernize the existing infrastructure--much less invest in the high speed rail services that so many communities want and are willing to help pay for--is uncertain. And our effort to attract investment from non-federal partners is hindered by the unpredictability of the annual appropriations process."

"Clearly," said Warrington, "this is no way to run a rail.... It is not how we run any other part of our national transportation system."