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Delaware Valley Rail Passenger Vol 13 No 05a
The Delaware Valley Rail Passenger
Special Issue: The Future of Amtrak
May 1995
Vol. XIII, No. 5A
ISSN 1073-6859
Published by the Delaware Valley Association of Railroad Passengers
in the interest of continued, improved, and expanded rail service for
the present and potential railroad and rail transit passengers of
southeastern Pennsylvania, southern New Jersey, and nearby areas.
For more information about DVARP and good rail service, please contact
us: P.O. Box 7505, Philadelphia, PA 19101 215-222-3373
The Amtrak Crisis: How We Got Here
by Matthew Mitchell
Wasn't it just a couple of years ago when Graham Claytor said that
Amtrak was going to be able to operate without a Federal subsidy by
the year 2000? Now Tom Downs says Amtrak faces imminent bankruptcy if
service is not cut immediately. Did Amtrak's financial situation
deteriorate so quickly?
No. Amtrak's basic financial situation didn't change much at all.
What did change was management's response to the chronic problem of
disinvestment in infrastructure and equipment. In the Claytor
administration, Amtrak played along with the government's wishes to
have a nationwide passenger train service without paying for it.
Maintenance was deferred, and most importantly, Amtrak used up its
working capital to pay for everyday bills.
When Tom Downs took office in late 1993, he determined Amtrak couldn't
go on like this, as the working capital would be totally depleted by
this year. He saw immediate reductions in spending as the only way
out, but with government regulations making some moves impossible, he
chose to cut service.
The cuts are especially painful because every cut in service means a
cut in fare revenue, which can lead to a downward spiral towards a
total end of Amtrak. Much of the controversy over the present cuts
(see cover stories) is the result of how those cuts were made. Down's
goal was to make the fewest cuts possible while still balancing the
budget. That required an accounting of what each train costs to run
and what it brings in as revenue. Downs commissioned a study by a
consulting firm to give him that data.
But people who have studied this issue know that deciding which trains
are the best financial performers depends greatly on how you allocate
the costs and the revenues. Do you use the 'short-term operating
costs,' which are the immediate savings from shutting down a train?
Do you use the 'fully-allocated costs,' which include administrative
and capital costs? Or do you use another formula? Amtrak brought
much of the immediate controversy upon itself by keeping the
accounting questions private. So everyone who lost trains felt that
the process was rigged against them, and any work Downs did to make
this an objective process was wasted.
With the immediate problems covered, let's look back further to the
root causes. The real problem with our passenger rail system is the
vast government subsidies to its automobile and airline competitors.
The nationwide rail network, including the Northeast Corridor, was
built with private-sector capital. Some lines in the West received
Federal land grants, but the value of those grants was repaid many
times over in reduced-price transportation provided to the Army and
other government agencies. The railroads have to pay taxes on the
land and the rails, and pay dividends to the stockholders who supply
the capital that maintains tracks and buys trains.
Meanwhile, government capital was used to build roads and airports.
Bonds for them were further subsidized through tax-exemption. Much of
that spending came from the military budget, definitely not from user
fees as the road- and airport-building lobby claims. Exemption from
property taxes is a huge subsidy, made up for by every taxpayer
And adding insult to injury, railroads have been singled out for
discriminatory taxes for decades. A 10 percent Federal tax on
railroad tickets (now repealed) went to the general budget, hastening
the demise of private-sector passenger trains. Taxes on airline
tickets went to a trust fund for airways, while taxes on gasoline and
diesel fuel went into a highway trust fund. With this kind of unfair
treatment, it's a miracle the trains survived as long as they did.
Discriminatory rail taxes continues today: over $100 million of
Amtrak's budget goes to payroll taxes levied only on rail workers.
(See "The Hidden Subsidies" in the June 1994 DVRP)
From the Editor's Seat: Fixing Amtrak
There was some controversy within our organization when Jim Thornton
submitted his article on Andrew Selden's prescription for Amtrak's
fiscal woes. Why publish views that nearly all of us oppose? Why?
Because these views are out there, and responsible advocates have to
respond to them, not hide from them. I'd like to thank Jim for
analyzing this point of view and letting me edit his original article
for this feature. Thanks also to long-time DVARP and NARP member John
Dawson for his forceful critique.
I'm pleased to put this special edition of the DVRP together for you,
in the interest of stimulating constructive discussion and fixing
Amtrak's problems once and for all. Fixing Amtrak is a big job:
balancing the budget in the short run, finding a source of capital so
Amtrak can maintain and replace its assets in the medium-term, and
restoring balance to the nation's transportation policies in the long
run, so the free market can work. DVARP is working at all those
levels; your part of the task is to write or call elected officials,
to tell them you want a level playing field for trains, planes, and
automobiles.--MDM
DVARP President: Donald Nigro
Newsletter Editor: Matthew D. Mitchell
Amtrak Committee Chairman: John Dawson
entire contents copyright (c) 1995 DVARP
Opinions expressed in The Delaware Valley Rail Passenger are not
necessarily those of DVARP or its members.
We welcome your comments: call 215-222-3373
DVARP Statement on Amtrak's Future
presented at Amtrak public forum, Philadelphia, May 3
The service cuts recently enacted, as well as those still pending, may
help Amtrak resolve its short term financial problems, but they can
only exacerbate its long-range problems. The problem is not that
Amtrak's network is too large and needs to be pruned in order to
achieve maximum efficiency, but rather that it is too small and thus
suffers from a diseconomy of scale and connectivity insufficient to
achieve full market penetration. Indeed, Amtrak found itself in a
similar predicament during the late 1970s. A study conducted by the
U.S. Department of Transportation at that time showed that an expanded
network reduced the subsidy required per passenger-mile. Shrinking the
system can only lead to loss of ridership, revenue, and political
support.
The first round of cuts as proposed by Amtrak hit this region fairly
hard. Amtrak service to Atlantic City was to be eliminated and that
to Harrisburg severely reduced. Long-distance cuts included one-third
of the Florida service and the overnight train to Montreal, as well as
reduced frequencies to New Orleans and elimination of the spur to
Mobile.
As it turned out, the full impact of these cuts was mitigated by
actions taken by the states. The Atlantic City Expresses are gone,
but New Jersey has increased its own rail service to Atlantic City,
including extending more trains through to 30th Street Station in
Philadelphia, and has agreed to honor Amtrak tickets. Pennsylvania
stepped in with $2.6 million to keep most of the Keystone Service
running another year. And with the Adirondack extended to Washington
and Vermont's support of a daytime train along the Connecticut Valley,
Philadelphia has retained direct service to Montreal and Vermont.
The second round of cuts, scheduled for implementation this summer,
will greatly reduce the carrying capacity of the national system.
Service between the East Coast and Chicago will be reduced from 24
round trips per week to 14, and Philadelphia will lose all direct
service to the Midwest. There will not be enough seats or berths to
meet demand, and the overall utility of the system to travel ers will
be reduced.
The states cannot be expected to help preserve long-distance service.
Their funds are limited, and as a practical matter, it would be almost
impossible to get multiple states to agree on the terms of support.
Even with respect to corridor service involving more than one state,
the record of cooperation has not been good. The New York-Detroit
Niagara Rainbow (NY, MI), the Philadelphia-Washington Chesapeake (PA,
MD), and the New Orleans-Mobile Gulf States
(LA, MS, AL) have all failed. If the states are going to assume
greater responsibility for corridor service, the quid pro quo must be
that the federal government accept full responsibility for a fully
connected national system.
Currently the airlines are engaged in ruinous competition with each
other. Not only has this destroyed their financial viability, it has
impacted Amtrak's revenues. Low airfares both capture passengers that
might otherwise travel by train and limit Amtrak's ability to charge
compensatory fares. Further, Amtrak is forced to pay 6.8c tax on
every gallon of fuel it consumes. The proceeds of this tax go toward
for deficit reduction, and it was originally intended to be applied on
most fuel consumed for transportation purposes. Ironically, the
airlines received a waiver on grounds of financial distress. [The
airlines' distress is not caused by their cost structure, but rather
by the competitive position in which they find themselves.] Either
Amtrak should receive a waiver or the airlines should also pay the
tax. Both should be subjected to the same rules.
While it is true that federal appropriations to support Amtrak have
increased since 1990, they are only now approaching the point where
they were in 1980, and this is when measured in constant dollars.
After allowing for inflation, federal support still lags behind what
the railroad received 15 years earlier. Particularly telling was the
drop in capital support that occurred in the early 1980s. For most of
the decade, new investment fell far short of depreciation. The result
was steadily deteriorating service. Had Amtrak received a steady flow
of capital payments, it would not be in the position it finds itself
today.
Both the aviation and highway infrastructures benefit from the
existence of trust funds, but in contrast Amtrak must live on
year-to-year appropriations by Congress. This certainly makes
long-term planning more difficult, and it subjects Amtrak to the
vagaries of the political process. It has long been suggested that a
trust fund be established for Amtrak. One way to do this would be to
use 1c of the portion of the federal fuel tax currently dedicated to
deficit reduction. This portion is now scheduled for reduction at the
end of FY 95, and 1c could be held back. This would have no impact
either on the federal deficit or on highway trust funds, and its
impact on families would be measured in cents per week. This would
generate over $1 billion per year and would provide all the capital
and operating funds Amtrak needs to expand into a healthy railroad
that meets the nation's needs for the 21st century.
There is a dangerous misconception circulating that there is a healthy
core to Amtrak that, with efficient management and the proper
incentives, could be operated free of federal subsidy. This most
definitely is not true. There is not a passenger railroad anywhere in
the world that is able to do this. While the operating cost recovery
can always be improved, it probably cannot be eliminated, and to
improve the cost recovery requires a modern railroad supported by a
steady stream of capital investment.
The Delaware Valley Association of Railroad Passengers believes that a
national passenger railroad system is a strategic asset that provides
important economic and societal benefits. Instead of simply trying to
reduce Amtrak's costs, we should be seeking ways to increase the
return on our investment.
Perspectives: Northeast Corridor
Cut Service in the Corridor? by James Thornton
Amtrak's service cuts for February and April 1995 are but 'phase I' of
its program to shrink its railroad to match its budget. It includes
21 percent of its operations eliminated and 5,500 of its employees,
4,600 of them unionized, being shown the door.
In the January California Rail Passenger Review, Minnesota ARP
president Andrew Selden's article "Disaster Strikes Again" summarizes
Amtrak's latest cash crisis. It describes possible savings, mainly in
cutting Northeast Corridor operations. He states that $100 million
can be saved by cutting the top speed from 130 [the actual top speed
is 125] mph to 110 mph, but gives no specifics
Selden also proposes that Metroliners and conventional trains be
combined into a single hourly service with multiple classes of
service. This is supposed to save another $100 million.
I assume savings would come in reduced track maintenance, energy
consumption, and wear and tear on equipment etc. from running 125 mph
trains. Selden claims no revenue would be lost in such
reorganization of operations. Some excerpts from the article:
Amtrak's failure to build up its business in some markets, and its
failure to build up business in capture available, hugely profitable
traffic in under-served, high-revenue markets, are a direct result of
14 continuous years of Claytor-Norman-NARP fixation on
semi-high-speed Northeastern corridor markets that are inherently
incapable of financial success however many short-distance riders they
carry. At the same time, the regime neglected high-revenue
long-distance markets in the west due to their relatively lower
ridership counts (as compared to the NEC). The NEC by itself would
cost, according to Amtrak and the Congressional Budget Office, $350
million a year in subsidy. That amount virtually equals Amtrak's
total national operating subsidy. And the NEC still consumes 95+% of
Amtrak's scarce capital resources.
Mr. Downs' actions are acceptable only as a very short-term response
because in the intermediate to long term, they won't work. Cutting
long-distance trains has never worked to stem loses-- revenues
disappear much faster than costs.
Viewing the crisis in an objective, long-term perspective, we are
witnessing the end result of 14 years of a steady, systematic
controlled liquidation of Amtrak--its equipment run into the ground,
depreciation vastly greater than capital replacement, its physical
facilities steadily eroding, its financial reserves exhausted.
The crisis at Amtrak is not over. Still more route and frequency cuts
will occur later in 1995, with virtually all long distance routes
going to tri- or quad-weekly schedules, but only token reductions in
the NEC.... No new services will happen. [not true: Piedmont and
Vancouver services started last month] Almost all Heritage Fleet cars
will be removed from service. Unions will be asked for work rule
changes for greater productivity. And fares will be going up again,
but no plan to expand Amtrak's sales or market share in non-NEC
markets. Tom Downs has taken steps that should have been taken eight
or more years ago--slashed and decentralized a management bureaucracy,
redeployed assets, begun outsourcing programs to slash costs to true
market levels, and eliminated many of the executives who created the
mess in the first place. But he has also cut trains which should not
have been cut.
Selden addresses NEC speeds, but doesn't mention that only Metroliners
are allowed 125 mph. Conventional Amfleet-equipped trains are allowed
110 mph; long-distance trains powered by older six-axle E60 units and
diesel-hauled Atlantic City trains must travel at lower-than-Amfleet
speeds in many locations. Some under 100 mph segments could be
speeded up, if only incrementally by 5-10 mph.
Dwell times at Penn Station in New York, now 20 minutes or more on
through trains, could be shortened, easing station congestion. Speed
afficionados who still want 125 mph capability would have it, if at
all, on two segments: New Brunswick--Trenton, NJ and Wilmington,
DE--Perryville, MD, the latter the only stretch of the Corridor not
shared with commuter trains.
Changes to the Northeast Co rridor Operations need not be limited to
those listed above. Schedule patterns could be changed, replacing
Boston/Springfield to Washington combined trains and New
York-Washington trains with hourly service alternating between
Boston and Springfield. Dwell time at New Haven would be reduced and
switching eliminated except for the locomotive change.
One Metroliner each way could be extended to Albany, replacing an
Empire Corridor turn. Ditto for Richmond, VA, supplementing existing
service south of Washington. No new equipment need be used save for
an extra car on each train and diesel units for off-corridor use.
These would be a step toward logical extensions of the corridor to
cover a greater portion of the Eastern seaboard. The revised Boston/
Springfield-Washington service would include existing Virginia trips.
These changes should be implemented as part of the second phase of
Amtrak's economy moves. A third phase, if Congress relents and funds
Amtrak for another year, could be restoring some service lost in years
past, or starting new routes.
One long-distance change Selden and RailPAC favor, but which Amtrak
should not undertake, is to terminate eastern long-distance trains at
Washington or Albany instead of New York, forcing passengers to
transfer to regular Corridor trains. Would the Postal Service accept
delays caused by switching mail cars between trains? Could
long-distance trains thrive without the mail contracts? Also,
clearances in the Capitol Hill tunnel haven't been increased yet.
Turning trains in Washington, according to Selden's source, would
save 892,010 gross train miles and $17.8 million, annually. On the
Crescent, a set of equipment could be saved and used elsewhere. But
the all-change-at-Washington idea doesn't mention lost ridership
resulting from the forced transfer. It may be a ploy to thwart
Amtrak's ploy of burdening long-distance trains with disproportionate
Northeast Corridor operating costs.
Instead, trains like the Silver Star and the Crescent could be
diverted from the Corridor to parallel CSX and Conrail lines. It
should be practical to use Superliners on the Lake Shore Limited,
provided clearances permit.
Why Corridor-Bashers Are Wrong by John A. Dawson
One of the more vociferous and persistent critics of Amtrak's
Northeast Corridor (NEC) Is Andrew Selden, who is a Minneapolis lawyer
and, though not opposed to rail passenger service, apparently
believes that this area receives more than its fair share. Selden
believes that NEC costs can be reduced considerably, without adverse
effect on ridership or revenues, by combining Metroliners with
conventional Corridor trains, reducing top speeds from 125 to 105 mph,
running three-class trains on an hourly basis, and operating more
run-through trains to points beyond Washington and New York.
While the equity issue is certainly debatable (there are many other
programs which disproportionally benefit Midwest states), it behooves
us to question the validity and consequences of Selden's program, and
the impact it would have on the national Amtrak system, as well as the
NEC. First, it is not likely that any rail resources freed through
scaling back operations on the NEC would be redeployed to Midwest and
Western services; and second, showcase operations on the Corridor have
strengthened the case for Amtrak service expansion in new corridors
across the country by demonstrating the value of rail service.
While much of Selden's statements are only opinions, they are
sometimes based on erroneous and misleading facts. Selden's basic
argument is that while the NEC carried half of Amtrak's passengers,
they are short-haul passengers who contribute relatively little to
operating revenues, so Amtrak could improve its financial performance
by cutting service on the Corridor and increasing it elsewhere.
Though his service figures are roughly correct, his revenue estimates
are grossly underestimated. NEC passengers pay 50 percent more per
mile traveled than long-distance passengers, even when revenue from
sleepers is counted. The revenue yield for Metroliner passengers is
more than double that of the national system.
All of this is not intended to denigrate the national system, or to
say its passengers are paying too little, but rather to demonstrate
that the NEC is contributing more than its fair share to the overall
system. We should be wary of any attempts to lessen its effectiveness.
Selden argues that his recommendations would add only seven minutes to
the New York-Washington travel time, and this would have little effect
on marketability. This is patently ridiculous. Station stops would
have to be added to many trains, and all those stops would be longer
as passengers are directed to the right part of the train.
Lengthening trains would slow acceleration, and further lengthen the
trip. If Metroliner travel time is considered as the baseline, it
would increase about sixty minutes under Selden's plan. The
speed-restricted trains traveling today on the NEC take about four
hours to cover the distance between New York and Washington.
With its Metroliner service, Amtrak has demonstrated its ability to
reach different market segments and attract a business clientele away
from the airlines. This gives passenger rail service important
ammunition to ward off criticism. The operational and marketing
success of the Metroliners is based on frequency, reliability, and
speed. It would be foolish to destroy this market.
With respect to one of Selden's other points, Amtrak has increased
run-through service, but some of those branches do not perform as well
as the main Boston-Washington axis, and were cut just as midwest and
western trains were. Passengers in Lancaster PA, Atlantic City NJ,
and Worcester MA are likely to dispute the claim that Amtrak is biased
in favor of Northeastern states. It is disheartening to see
statements like this coming from someone who claims to promote rail
passenger service. Selden's facts are often wrong or stated in a
misleading way. Pitting one part of the Amtrak system against the
others plays right into the hands of Amtrak's opponents in Congress.
As rail advocates, we should be supporting the service wherever the
market exists, not attacking the other guy's service. Let's use the
good service of the Northeast Corridor as a model to support and
expand rail service nationwide.
Long-Distance Train Bashers Are Wrong, Too
The sniping about which part of the Amtrak system pays the bills and
which doesn't is not a one-way phenomenon. Rep. Susan Molinari (R-NY)
is one of the people who claims that the Northeast Corridor could be
profitable if they were cut off from the rest of the system and
privatized. As one of the leaders of the House railroad
subcommittee, she may try to force this breakup and privatization of
the system.
But like the arguments of the Corridor-bashers, this argument is also
based on a misinterpretation of the facts. Corridor trains may be
profitable if only operating costs are considered, but the new
operator would have to bear the expense of maintaining and upgrading
the infrastructure too. This could amount to a hundred million
dollars or more per year, even if the Federal government completes the
investment in electrification from New Haven to Boston. The only way
any business running the trains, Amtrak included, could make a profit,
would be by running the system into the ground!--MDM
Amtrak Budget at a Glance
amounts in millions
Operating expenses (approx.) $1,970
Operating revenue (approx.) 1,480
Reimbursement for taxes[1] 137.0
Federal subsidy[2] 351.7
Capital Investment (systemwide) 195.0
NEC Improvement Program 225.0
Penn Station (N.Y.)[3] 10.0
Total Federal funds (FY 94) 918.7
Federal highway spending[4] 19,938
Federal airway spending 4,582
1-Paid directly to IRS
2-19 percent of budget
3-Earmarked funds for conversion of old post office
4-25 times higher than rail spending, does not include hidden subsidies
Quotable
"Limited remaining capital funds are generally committed to short-term
projects that enable Amtrak simply to keep its equipment operating and
complying with Federal laws. Very little is left over to invest in
projects that might increase revenues [or] improve the efficiency of
operations...."
--U.S. General Accounting Office
"Ampenny" Could End Reliance on Congress
The budget resolutions now pending in the U.S. Congress will doom
Amtrak and greatly reduce the level of transit services in our cities
and towns. Amtrak simply will not survive without Federal funding;
not even the Northeast Corridor. And the shift to highway and air
travel will be accelerated if the Federal match for rail and transit
projects is reduced from 80 to 50 percent, and highways remain at 80
percent. Given that a budget resolution along these lines will
probably pass and that it will serve as the budget blueprint for the
next several years, how can Amtrak service be preserved?
Two years ago, Senator Rick Santorum, then a member of the House of
Representatives, came to the regional meeting of the National
Association of Railroad Passengers, held in Pittsburgh. There he
suggested that a trust fund be established for Amtrak, similar to the
trusts funding some of our highway and airway investments. The trick,
of course, is funding a trust fund for Amtrak. Obviously, it cannot
come from something as simple as a tax on rail tickets. If that would
work, Amtrak could simply increase its fares and forget the trust
fund. But perhaps there is a way a trust fund could be established.
Amtrak currently pays 6.8c federal tax on each gallon of fuel it
consumes. This is the portion of the tax used for deficit reduction
which is levied on most transportation users [but not the airlines],
and it is scheduled to be reduced by one-half at the end of this
fiscal year. Instead of reducing the tax by the full 3.4c, we could
hold back one penny and use it to establish a trust fund to support
intercity passenger rail service. This would provide adequate capital
and operating support for Amtrak, as well as for future high-speed
rail projects. Had this been done in the 1980s, Amtrak would not be
in the fiscal bind it finds itself in today. And if Rep. Bud Shuster
from Altoona is successful in taking the trust funds 'off-budget,'
Amtrak could continue to maintain its full national system without any
impact on the U.S. Treasury. These funds would not come at the
expense of highway spending, nor would they constitute a new tax. We
would simply not reduce an existing tax by as much as previously
planned. Considering that few households consume more than 20 gallons
of gasoline per week, the average cost per household would be pennies
per week.
This appears to be a workable concept, and it may be the only way
intercity rail service can be saved. We should push for it. The
alternative is the loss of a valuable transportation asset, one which
has served our region and our country well.--JAD
Support Amtrak: Support DVARP
Yes, I want Amtrak to survive, and I want DVARP to work for me!
Here are my DVARP membership dues for 1995!
Name
Address
City, State, Zip
Please choose a category below, enclose check and mail to:
DVARP, PO Box 7505, Philadelphia, PA 19101
( ) Regular: $16.00 ( ) Family: $20.00 ( ) Supporting: $25.00
( ) Sustaining: $50.00 ( ) Patron: $75.00 ( ) Benefactor: $100.00
( ) under 21 or over 65: $10.00
( ) I'm already a DVARP member: here is an extra contribution for our
fight to keep and expand Amtrak service nationwide
