Fred Frailey Column - Trains (dot) Com

http://cs.trains.com/TRCCS/blogs/fred-f ... k-axe.aspx

This material is available to TRAINS subscribers; here is a pertinent Brief Passage lest others be unable to access:

• Joe Boardman, the president of Amtrak, penned a note to employees the other day that offers clues to what the company would do if Congress cuts its operating grant. He notes first that the best guess is that the Senate will appropriate $1.48 billion in operating and capital grants, which is far short of the $2.2 billion the company had sought. That amount included $600 million for operations, $1.3 billion for capital needs and $200 million for debt service. A House committee has approved far less in operating subsidies — a mere $227 million, while also cutting capital grants — but the full House has not acted. Once both chambers of Congress have passed appropriations, a joint House-Senate conference committee will reconcile the two measures. What Boardman said this week is, expect to get by on less....He goes on to say that Amtrak will use the strategic plan released earlier this month strengthen its bottom line (to read that plan, go here and click on "Fiscal Year 2011-2015 Strategic Plan"). If you put what Boardman says in his letter to employees together with facts contained in that plan, it becomes clear that Amtrak’s 15 long-distance routes are sitting ducks.
  
  How can I draw that conclusion? First, I have it on good authority that Boardman, in discussions with his top aides, defines Amtrak’s priorities toward train service as Northeast Corridor first, state-supported short-distance trains second, and long-distance trains a distant third. Were I in his shoes, I’d do the same thing. There was also a defining moment in a Senate hearing this year, when asked by Susan Collins, R-Maine, why Amtrak's deficit for 2011 was rising despite increased ridership, that Boardman blurted in response, "It's the long-distance trains!"
  

I think it was only inevitable that a well respected writer of contemporary industry affairs would come to hold this position (disclaimer of sorts: I've met Mr. Frailey face-to-face "along the way').

There is no point in addressing here the issues whether the Long Distance trains provide needed transportation or whether they are simply an "appendix' of a democratic system of government; there really is no new ground to break around here on that one.

But to the point now germane; fiscal responsibility is taking center stage - and that is going to include cuts to even sacrosanct programs such as Defense. There is simply no way Amtrak can expect to survive unscathed. Mr. Frailey holds that the LD's are the low hanging fruit; obviously since I have never been a 'friend' of the LD's - a position I held on A-Day, I am inclined to agree.

But do others here concur; or should Amtrak be exploring other means than killing LD's to reduce dependency on appropriations, such as transfering the Corridor to Local agencies (private sector?), aggressive "contracting out', "union busting", complete divestiture from any Locally funded services beyond holding cost-plus purchase of service operating contracts, and finally "draconian' beheadings @ 60 Mass and elsewhere.

Shall we discuss?

The discussion should also include the news about the advisory letter that Boardman sent to employees early this week that Amtrak will be offering voluntary separation payment packages to non-agreement covered employees starting November 7. If enough employees do not take the separation packages, there will be an involuntary Reduction in Force starting in January 2012. The goal is, according to another Frailey Column http://cs.trains.com/TRCCS/blogs/fred-f ... ually.aspx, is to cut costs by $100 million for FY12. So there will be some management and support staffing voluntary departures and likely some RIF layoffs to trim overhead.

While there is concern and speculation about cuts in service, the monthly and financial reports show that Amtrak is not in that bad financial shape because of the increased ridership, ticket revenue, and boost in capital funding in recent years. The September 2011 monthly report, which was just released, lists the preliminary actual cash operating loss for the FY as $457.5 million, a respectable $104 million less than the FY11 operating grant subsidy of $561.9 million. Amtrak has been successful in holding down their operating loss.

While there is a lot of detailed financial data missing from the monthly report (which has been missing since June reportedly due to changes in their accounting software), the consolidated statement on page 34 shows why Amtrak needs to trim staff costs. The FY11 total revenue of $2.71 billion is up $200 million over FY10. Interest Expenses are down $33 million compared to FY10 with the reduction in debt and early buy-outs of leases. But the personnel costs are up $171 million. The expense category of other is up $62 million which is stated as primarily due to increased IT and passenger inconvenience costs (all the cancellations over the summer I would expect). Boardman has to get personnel cost under control, so he is going to trim staff and employee ranks where he can.

As for cuts in LD trains, well, there will be a lot of debate on that I'm sure.

Here's the actual text from Boardman's letter if you care:

Dear Co-workers,

Next week, the Senate is expected to resume debate on appropriations bills, including funding for Amtrak for this fiscal year. The latest best estimate from the Senate is about $1.48 billion for Amtrak, which would translate to a decrease in operating funding from last year, and would be significantly less than the $2.2 billion we’d requested for this fiscal year.

Once the Senate approves the appropriations bill, it will go to the House for debate. While we don’t know what the outcome will be, we do know that a House subcommittee had previously recommended a much lower number. We will need to make our capital program a priority for the future success of Amtrak. It should be clear to all of us that for now uncertain economic conditions will not allow Congress to be our sole funding solution.
Using the Strategic Plan we released earlier this month as our roadmap, we must shift our focus to strengthening the bottom line. The plan — which everyone should read — aligns organizational efforts, prioritizes resource allocation, and measures performance against goals and strategies to put us in a stronger financial and strategic position.

The truth of our finances will require difficult decisions in the weeks and months ahead. You’ll be hearing more about what this means next week, so please keep an eye out for more information. Our focus must be on the safety and service that our passengers and state partners expect.
Uncertainty about federal funding support and budget cuts are not new to Amtrak, and over the past 40 years we’ve learned to live with that kind of ambiguity. In the past, we’ve often halted or put off capital investments when federal funding fell short, which put us two steps back and left us in a perpetual state of mere survival.

But we have a great future and we cannot abandon our investments or our plans. We don’t have that luxury, and our customers expect us to get better while some of our detractors expect us to fold our tent. We will not do that. We need to create an organization and a culture that can manage the ambiguity that comes from the annually changing government support. We will not lose sight of the Amtrak our customers need us to be. We will continue to make the investments that will yield a more efficient and reliable Amtrak.

We will allocate our resources to continue long-lacking capital investments that have become critical for us in serving our customers, such as the next-generation reservation system and eTicketing; fulfilling our mandatory requirements for stations under the Americans with Disabilities Act; and proceeding with the acquisition of new equipment for our aging fleet.

I know that there have been rumors about our budget, and that can be distracting. But I ask you to stay focused on our customers. At a time of record ridership, delivering safe, reliable and customer-friendly service is the best antidote to the Amtrak funding debate.

Thank you for your support.
Sincerely,
Joe Boardman
President and CEO

Two comments:

First, the American Recovery and Reinvestment Act (ARRA) was designed specifically to create jobs. Amtrak got $1.3 billion in ARRA money, and while a significant amount went to contractors and consultants, Amtrak had to hire directly a significant number of people both to do the work and to oversee it. Now the ARRA money has run out, so it should be no surprise that many of these people have to go. Anyone hired for ARRA projects should consider themselves at the top of the list of people to be cut.

Secondly, Amtrak's recently released Strategic Plan does not set any ambitious goals for the long distance trains. The financial "goal" is for a 0% improvement in operating ratio. No specific ridership goal is set, but the plan calls for a mere 1% annual increase in passenger miles per train mile. Planning for mediocrity tends to beget mediocrity.

Well, let's be honest. Most of Amtrak's long distance trains are archaic, expensive, broken beyond Amtrak's control and has no positive effect at all on our national transportation system. Amtrak is right to focus on the Northeast and it's other corridors. I'm pleased with Boardman's statement and glad that the company will no longer be putting off investment despite tight funding. Also, it seems they'll finally no longer make relevant corridor service suffer for the joke that is long distance service.

Maybe we can finally start seeing some cuts in long distance service in the near future.

Mr. bardk321: Surely you don't think the Senators and Congressman from the states that lose
long distance service are going to support the NEC or other corridors that are many hundreds
of miles from their states. A Congressman on the route of the Empire Builder, for example,
will care less and be unlikely to support the NEC, once his train goes away. The House is
already proposing to eliminate any federal involvement in so-called 403b state sponsored
trains. Again, once these go away, there will be even less support for the NEC and other
corridor trains. Then there will be the proposal for the eight states and DC to take over the
NEC. It will be an impossibility to get them all together to run and fund the NEC.

I rarely join in broader discussions such as this one but here goes:

I'm am entirely in favor of eliminating the long-distance trains as they exist at present. Amtrak's state supported service model provides more than sufficient means to allow affected states and regions to continue service as they see fit. Obviously this would require a lot of cooperation between multiple states, some of whom may have no interest at all in having rail service. In that case so be it. If the affected communities or regions don't have enough influence in their state legislatures to get their respective state governments to fund their respective segments then just let it go.

Frankly, especially in the case of the Empire Builder I think it is very likely that the respective state government will in fact find a way to keep the trains running. Due to the boom in "tight oil" from the Bakken formation at least for once in modern history the state budget of North Dakota probably won't be a tripping point.

In short ending federally supported Long Distance trains seems to me a very good way to strengthen the state supported programs and that is in everyone's best interests.

Dick H wrote:Mr. bardk321: Surely you don't think the Senators and Congressman from the states that lose
long distance service are going to support the NEC or other corridors that are many hundreds
of miles from their states. A Congressman on the route of the Empire Builder, for example,
will care less and be unlikely to support the NEC, once his train goes away. The House is
already proposing to eliminate any federal involvement in so-called 403b state sponsored
trains. Again, once these go away, there will be even less support for the NEC and other
corridor trains. Then there will be the proposal for the eight states and DC to take over the
NEC. It will be an impossibility to get them all together to run and fund the NEC.

So long distance trains should be kept to bribe congressmen who continue to spit on Amtrak?

There are many states and congressmen who have supported Amtrak. Those are the ones that have developed their own corridor services despite such a hostile environment toward passenger rail. Those who have archaic once daily or less long distance service which they pay not a dime into, yet demand Amtrak continue to operate at a loss, are not friends of Amtrak and they'll offer no different support if with or without these relics of the past passing through their states.

That isn't to say all long distance trains should be jettisoned, but there certainly needs to be cuts and reform of the long distance network and long distance service should ALWAYS take a back seat to the Northeast and corridor service.

Hey, if Mitt Romney (the likely Republican candidate) becomes President, we won't have to worry about the NEC either:

Nov. 4 (Bloomberg) -- Republican presidential candidate Mitt Romney proposed limiting government spending to only “essential” programs in a debt-reduction plan that would slash $500 billion from the federal budget by 2016, the end of his first term if he is elected next year.

The plan as outlined by the former Massachusetts governor yesterday includes “deep” cuts in an array of programs, such as federal subsidies for public broadcasting and the arts and eliminating funding for Amtrak. He also called for ending foreign aid to countries, including China, “that can take care of themselves” and those “that don’t line up with our interests.”

http://www.businessweek.com/news/2011-1 ... -debt.html

*I'm all for eliminating aid to China, though

kaitoku wrote:Hey, if Mitt Romney (the likely Republican candidate) becomes President, we won't have to worry about the NEC either:

Nov. 4 (Bloomberg) -- Republican presidential candidate Mitt Romney proposed limiting government spending to only “essential” programs in a debt-reduction plan that would slash $500 billion from the federal budget by 2016, the end of his first term if he is elected next year.

The plan as outlined by the former Massachusetts governor yesterday includes “deep” cuts in an array of programs, such as federal subsidies for public broadcasting and the arts and eliminating funding for Amtrak. He also called for ending foreign aid to countries, including China, “that can take care of themselves” and those “that don’t line up with our interests.”

http://www.businessweek.com/news/2011-1 ... -debt.html

*I'm all for eliminating aid to China, though

If Amtrak is able to come close to paying for itself through a combination of revenues, state funding and the elimination of money hemorraging LD routes which the states aren't interested in supporting I highly doubt any administration would shut them down.

That's one of the easiest things to forget when statements like this come out. Amtrak has very substantial revenues and state support which cover a lot of their budget.

One thing we need to keep in mind - a politician, your side or the other - can talk all they want about "doing this" or "doing that". What it takes to accomplish such measures is entirely different. The sacred cows of politics have ridden the roller coaster over the years, but they never get eliminated.

To follow-up on Mr. Figgat's comments, I think it's a little early to contemplate what trains might be cut. Folks may have been reading too much into Mr. Boardman's letter. Moreover, if the Senate appropriation numbers for Amtrak hold in conference (a big "if," granted, but that's where I'd place my bet), Amtrak should be ok for FY '12. As for the spending cuts that would ensue beginning in FY '13 if the "Super Committee" can't reach an agreement, those cuts are, of course, automatic--unless Congress decides they're not. My guess is that the House won't stomach the defense cuts, and the Senate won't stomach the non-defense cuts, so they'll compromise and call the whole thing off. Which will leave us with just the usual annual appropriations battle.

While it died yesterday in the Senate, I note that the transportaion portion of the president's jobs bill contained $6 billion for intercity rail--$2billion more in capital for Amtrak, and $4billion for the states to spend on "high speed" and/or "intercity" rail.

I'm not a big fan of LD trains but I wanted to throw some points out there.

1) A lot of LD trains operate over routes as almost a precursor to corridor service. The best example I can think of is the Silver Service, especially in the state of Florida. Banking possible future corridors on LD trains allows there to be some semblance of a ridership base to be maintained.

2) LD trains provide valuable passenger service to rural areas and communities with very little connection to the outside world. The best example of this is the Empire Builder.

3) Scenery. This is probably the weakest defense for the maintenance of a transportation route by the federal government but it's still one nonetheless and a reason that people will actually ride these trains.

While we all know that the long distance routes lose money, I believe Mr. Boardman's letter is more aimed at people not working in the operating departments but in various overhead positions. About 3,300 people are not in the operating departments according to the last available information (May 2011). By descending headcount, here are Amtrak's 'overhead' departments:
Marketing and Sales 1,254
Procurement 486
Police and Security 463
Amtrak Technologies 311
Finance 272
Human Resources 181
General Counsel 131
Office of Inspector General 83
Policy and Development 50
Government Affairs 39
Real Estate 26
Labor Relations 25
President's office 5
High Speed Rail 2

While it is true the Long Distance trains lose money, I think it would help to look at why they do,
A) They run in very low density areas. B) Most run longer than 24 hours, half the time they run at night.
Neither of the above maximizes these trains potential.

Take the Sunset Limited as an example, it travels between Houston and San Antonio westward in the dead of night, travels over 200 miles without even stopping to take on or drop off passengers. In the eastward direction, it travels between El Paso and San Antonio in the dead of night. And that's just looking at what happens in Texas. All the long distance trains experience stopping in major cities in the dead of night.

Few corridor trains do so, most of them are running in the light of day. I suggest if half the corridor trains ran at night only, they wouldn't get nearly the same number of passengers they get during the day. Additionally, no State provides subsidizes to regional trains running between 1 am to 3 am - why should States be asked to subsidize long distance trains running through them very late at night?

Amtrak's mandate since its begining is to provide a "national" intercity train service. Dropping long distance trains means dropping "national" train service. You might as well just kill Amtrak altogether. Regional trains services can be performed by regional agencies, a "national" train organization wouldn't be needed.