Amtrak accounting

Take a look at the July '05 commentary from RailPAC

Amtrak really must find a better way to separate a train's direct operational costs from fixed costs. Then trains will no longer be seen by congresscritters as costs to be eliminated, but rather as sources of sales revenue. Maybe then we can start making some progress. The more I think about it, the more I am convinced that Amtrak's distorted financial reporting is what prevents the railroad from being taken seriously in DC. Perhaps as rail advocates, we should be concentrating on getting this corrected.

There is no such a thing as a "perfect' system of accounting to allocate the overhead such as Mr. Gunn's salary, cost of occupancy @ 60 Mass, etc.

However any party chooses to allocate those costs, be such train miles, passenger miles, passengers boarding, whatever; some responsibility will think that are being "adversely affected", or in the language of the street, screwed.

That's life; not only on the railroad, but in any other industry to which I have had exposure over the years.

GBN, CPA

I'm going to let Mr Norman answer this in detail; he's the CPA here.

Here's my take:

Funds in:
Transportation and accommodations
Item sales (food, beverage, souvenirs)
Item transportation (there is still some express moving, we're just back to LCL stuff).

Funds out:
Human Resource Costs: Salaries, benefits, railroad retirement. Covers the people costs on the trains, in the offices, and at the shops.
Operations costs: Fuel, oil, foodstuffs, repair parts, ad infinitum. Covers the STUFF costs on the trains and in the shops.
New equipment
Lease fees on OLD equipment (remember Mr Warrington sold/leased back the fleet??? Hmmmm???)
Taxes
Real property maintenance
Rent to the railroads (pro rata share of real property maintenance and opportunity cost of not running a freight train in lieu of the passenger train).

The details are far less simple.

John Perkowski

The trains of Mr. Toy's concern, the LD's, should not rightfully be charged with any Corridor MofW. It is just as well that their "MofW" and "Transportation" are quite definite and determinable.

Lest we note folks, I for one have never said the LD's cost all that much; I just question what economic value they provide to the regions they serve.

The biggest negative for the LD's, discounting their ostensible social worth save for the folk that refuse, or possibly cannot, fly or drive, is that all of their "Transportation" cost is avoidable. "You don't run 'em", you don't pay the roads for trackage and dispatchment.

In the late Fifties, when I was in high school, I saw that the UP was claiming a big amount for passenger losses--I think it was on the order of $50 million. At the time, railroads were complaining about passenger losses and were getting rid of trains. I thought that they couldn't possibly lose that much, since, compared to the railroads I was familiar with (Pennsy, NYC, Lackawanna, Jersy Central, etc) the UP hardly ran any passenger trains. (I dont remember the numbers, but I think the UP's passenger losses were more than the Pennsy's.)
I discovered that many railroads, including the UP, apparently charged a substantial portion of the railroad's maintenance to a small number of passenger trains. They said that if they had no passenger trains, they could maintain the railroad to a much lower standard of track, and that even 1 train a day on a line therefore cost them a fortune in MOW costs.
It's been a long time, and I may have gotten some facts wrong, and I hope Mr Norman will enlighten us here. If the same accounting rules are still in place, would we have to allow a disproportionate amount for MOW to cover the costs of, say a one-a-day passenger train? I know Guilford got a bunch of money to upgrade his RR for the Downeaster. On the other hand, the UP through Nebraska seems well-maintained on account of its very heavy traffic, and I doubt if it would cost anything extra to maintain it for passenger service.

Cost accounting was one of my favorite subjects in undergrad. I am not that familiar with Amtrak's system, but I suspect that Mr. Toy's concerns are well founded. But as Mr. Norman points out, there is no perfect way to allocate fixed overhead.

In today's day and age, however, I do not think there is any hope in seeing a more meaningful system adopted by Amtrak. I have zero confidence in the ability of Amtrak's beltway beholden management to devise an intellectually sound system. When members of the carrier's board of directors, such as Secretary Mineta, go around spewing distortions like we have seen, I would not count on them to impliment any type of reporting system that does not support their political agenda.

And then when one considers the political administration with which Secretary Mineta is affiliated, well, then, I think it is safe to assume that the true financial picture of Amtrak's operations has no role to play anyway.

Are the neocons going to like the Long Hauls any better if they are presented with accounting data regarding the facts -- with which most of us on this forum are already familiar and take for granted -- that the Long Hauls perform much better, financially, than any off-NEC, corridor-type service? I think not.

the Corridor is of course confronted with allocation of MofW and Dispatchment over the various commuteragencies and freight railroads that share its use with Amtrak, however the LD's are spared that problem.

Under Amended Agreements as I recall them, Amtrak paid an agreed sum to the roads for the dispatchment and M of W for each LD operated.

Train no go?, no dough.

Coupled with the bargain basement rates Amtrask pays for trackage over the Class Ones, as well as that they often are well patronized, it is no wonder that the LD's really do not loose all that much. The only appreciable fixed cost associated with the LD's is the capital cost of teh equipment assigned and what portion of Amtrak's overhead they bear.

Rhinecliff wrote:Cost accounting was one of my favorite subjects in undergrad. I am not that familiar with Amtrak's system, but I suspect that Mr. Toy's concerns are well founded. But as Mr. Norman points out, there is no perfect way to allocate fixed overhead.

Well, the question in my mind is why allocate overhead to trains at all? I work for a national audio/visual company that provides in-house services at various hotel conference facilities. In matters of accounting, each hotel office is treated as a separate business, each with its own budget, expenses, and income. A portion of corporate overhead is not allocated to our office. Rather the profits of our property are reported as a "contribution" towards paying overhead. I've also worked for two major movie theater chains, and the same principle applied.

Now why can't Amtrak do the same with each train? Each route could be treated as a separate business, with its own budget, expense sheet, and income. Only those expenses directly related to running that route, such as crew labor, fuel, cleaning, supplies, etc should be reported as expenses.

I expect that the people who criticise Amtrak's "loss per passenger" figures for individual routes are assuming that this IS how Amtrak's reporting works, because it is the norm for most large companies with multiple sales outlets. It is actually a very reasonable assumption, which I would probably make if I hadn't researched the matter in more detail. So, In the absence of anyone telling them otherwise, what reason do they have for not making that assumption? Heck, Amtrak's own reports do not even indicate that they represent fully allocated costs, so critics are forced to make their own assumptions about what these numbers represent.

Aim at foot. Pull trigger. Repeat.

It does not matter.

The fact is: Annually, the American citizen ponies up ONE THOUSAND ONE HUNDRED MILLION DOLLARS to cover the difference between earnings and expenses of Amtrak.

Each train has some shared services:

At LAUPT, as one example, the terminal and coach yard services are covered by:
- SW Chief
- Pacific Surfliners
- Starlight
- Rent from metrolink (station operations and ROW maintenance only)

Now, Salinas, California is a different story. Every penny of that station should go against the Starlight. No Starlight, no need for that station.

The cars on the Starlight need to go to shop, periodically. The cost of shopping them (salaries, parts, and pro-rata share of facility costs at the shop) should be charged to the Starlight.

Ditto such advertising as Amtrak gets.

Ditto the management.

At the end of the day, this is one Agency/DC Corporation, not hundreds of little ones.

John Perkowski

As a measure of Amtrak's overall financial health, I agree with you, Mr. Perkowski. However, this method of accounting is very misleading when it comes to measuring the financial performance of an individual train. I agree that it is difficult to know where to draw the line, that's why I think individual train expenses need to be clearly itemized. The "above the rails" costs should be separated from station costs, for example. The cost of Beech Grove shouldn't enter into it at all, because it will always be there even if a given train is not.

Amtrak's RPS separates costs into train costs, route costs, and system costs. Amtrak's foes use the total (train + route + system) to paint the worst possible picture of trains' finances. Unfortunately, Amtrak makes no (apparent) attempt to make this information readily available to the public so people can see for themselves what the breakdown in costs is.

Our job is to help advocate no less than One Thousand, Nine Hundred Million Dollars: Shall we get to the State of Good Repair, please?

We cannot have it multiple ways. ONE TRAIN does not a National System make. Now either each element of the National System shares the common costs, or we have pieces and parts. If we have pieces and parts then we ourselves have blown away the need for National passenger service. If WE blow that away, then let's file STB notice to train off all the LDs, shut down Amtrak, and let CA, WA, and the NEC fend for themselves.


John Perkowski

Mr. P, I don't disagree with anything you have said. I'm not interested in ONE train. I'm interested in ALL trains. MORE trains, even. I fully realize there are shared costs, and that they are interconnected.

However, I don't think think the critics in Congress realize is that these shared costs are fixed costs that will remain fixed if a train goes away. THEY genuinely believe, based on AMTRAK's reports, that these costs WILL go away if one or more trains, such as the Sunset Limited, are eliminated.

That is precisely why they are calling for the elimination of most or all long distance trains. They don't realize that the losses attributed to them are the result of shared fixed costs, not direct operational costs. For that reason, they truly believe that eliminating long distance trains will solve Amtrak's financial problems, and it is the reporting method that Amtrak uses that leads them to believe this.

If they dug a little deeper, they would understand this. But they also have to worry about homeland security, defense, other transportation programs, health care, taxes, NASA, the FCC, the FDA, entitlement programs, etc, etc, etc. Their attention is diverted every which way, and when an Amtrak report is put in front of them, they undoubtedly don't go much beyond the bottom line figures unless they're really really really interested in studying the matter in greater detail. I am aware of only a handful of Congressmen have made that effort.

Heck, even many Amtrak supporters in the capitol don't understand the financial issues very well. They understand the concept that rail is good, but they don't understand it well enough to defend it from critics. Amtrak needs to give Congress something easier to understand so that both its supporters and critics can make better judgements. Until Amtrak shows how trains bring in income that help pay fixed costs the critics will continue to have the upper hand.

In several topics Amtrak accounting seems to be a major theme.

For example, many members like to cite figures from Amtrak's monthly reports to justify their arguments.

Other members, though, prefer to draw from the list of GAO and congressional reports that are critical of Amtrak accounting.

Perhaps we all need a course in passenger railroad accounting...

My own confusion comes from several analyses from both this forum and other web sites

Amtrak uses something called the Route Profitability System (RPS) to assign income and especially expenses to various routes. Amtrak inherited RPS from the private railroads and has used it with few changes since 1971.

Amtrak has admitted that RPS makes LD routes look financially worse off than corridors because costs are assigned proportionally by route.

The Federal Railroad Administration and earlier the Interstate Commerce Commission created categories called avoidable and non-avoidable costs. I have not found a detailed explanation of what goes into each category.

Food and beverage service apparently operates at a loss. At the same time, NARP has issued a report suggesting that F & B is not the drain so many people think it is and that reducing F & B service would hurt more than help. See http://www.narprail.org/cms/index.php/r ... e/fb_econ/ for details.

I think Amtrak accounting is of vital importance to discussions about the efficacy of LD trains, funding NEC projects, dining car, and sleeping car service.

Questions:
- Is there a member of the forum willing to offer a course in passenger railroad accounting?

- Since that is a tall order, are there any resources available on the web or a library that would provide the needed information?

Thanks!

I think GBN is your man, if he is willing to be drafted.