The little engine that can't

I never went to business school, so maybe I’m just extra-special stupid or something. But it seems to me that if a company is operating as a pure monopoly, yet is somehow losing $500 million a year, there are serious issues that need to be addressed. And if that company happens also to receive a substantial amount in state and federal subsidies, things become a little more complicated.

Generally, when a government-funded program isn’t profitable, it’s usually because it was classified as either an essential service for the good of the public majority, or an entitlement for a select minority. Amtrak has proven to be both, which brings a conundrum when debating its fate. The passenger rail conglomerate participates in virtually every major metropolitan commuter rail system, while at the same time operating sparsely traveled national and regional route systems that have hemorrhaged cash for decades.

President Bush has had enough. His proposed budget for 2006 wipes out the $1.2 billion subsidy that has allowed Amtrak to continue operations despite massive fiscal losses. He does, however, earmark a $360 million reserve to cover commuter operations (primarily in the Northeast) should Amtrak go belly-up:

"Amtrak would quickly enter bankruptcy, which would likely lead to the elimination of inefficient operations and the reorganization of the railroad through bankruptcy procedures ... Ultimately, a more rational passenger rail system would emerge, with service on routes where there is real ridership demand and support from local governments"

The reaction from his opponents has been vocal. People are actually shocked that our President is trying to practice some fiscal prudence. ''It'll be another one of these fights about how much we're cutting when we should be talking about increasing funding for passenger rail service," said former Massachusetts Governor Michael Dukakis (more on him later...)

Amtrak President David Gunn, who is paid $275,000 annually for his alleged executive management skills, termed the cuts "irresponsible and a surprising disappointment”.

You want to know what’s really a disappointment? We’ve been traveling down this road (errr, track) for 35 years.

Amtrak was created by Congress in 1970, ironically as a for-profit entity. It was granted a monopoly in passenger rail service and bequeathed national track usage, while gaining priority access to these tracks over freight trains.

Fast-forward 26 years to the passage of the Amtrak Reform and Accountability Act of 1997. American taxpayers had already fed the iron-riding behemoth $22 billion in federal subsidies, not to mention untold hundreds of millions in state funding. In April 1998, Republican Governor Christine Todd Whitman of New Jersey was elected chairman of the 11-member Amtrak Reform Council. Her first proposal was to hire professional consultants to study the long-term viability of Amtrak. The initiative fell on the deaf ears of the Democratic-led congress, who felt they knew just as much about choo-choo's as anyone else, and Whitman resigned her post six months later.

The ARC seats were eventually filled with liberal gladhanders, including the aforementioned Mr. Dukakis, who followwed the congressional conga line of extravagant spenders. Long past the time when any prudent business manager would have pulled the plug, the leadership on the left decided it would make tremendous sense to keep funneling an additional $2.2 billion per year to Amtrak.

As one can see, the results have been an overwhelming success.

With a minimal amount of digging and some rudimentary spreadsheet work, the company’s recent financials (which are available online) revealed some interesting items:

• During fiscal 2004, Amtrak had between 15% and 20% of its locomotives out of service during 11 of 12 months.

• Amtrak’s fiscal 2004 budget was predicated upon an on-time rate of 85%, a number which hasn’t exceeded 74% in any month over that period, and was as low as 63% in July.

• Amtrak’s expenses for fiscal 2004 were $1.744 billion. 65% of this cost was labor and wages for their 24,844 employees – an average of $45,673 per worker.

• For November, Amtrak reported over $10 million in aged accounts receivable past 90 days, representing 11.4% of the total. Another $5.3 million (6.1%) is aged past 60 days.

• There were 40,817,000 airline passenger boardings in October 2004, an increase of 5.6% over October 2003. Meanwhile, Amtrak boarded 2,114,000 passengers in October 2004, a mere 7,000 more than the same period a year ago.

• Of Amtrak’s 43 operating routes, 23 saw a decline in October 2004 ridership from a year ago – including 10 of its 15 long distance trains.

• Amtrak operates 24 short-distance routes, 19 of which are state-supported. Eight of these routes saw less than 10,000 passengers in October 2004 – 7 of them state-supported.

• For the fiscal year-to-date as of November 2004, Amtrak reported average ticket prices of $49.19, a drop of nearly 2% from the prior year. Yet Amtrak executives had seen fit to budget an increase of 0.4%.

• Amtrak operates in 46 of the 50 states. In 19 of them, less than 10,000 passengers boarded per month in 2004, yet Amtrak’s expenses there were over $100 million. (This figure doesn’t include the operations at a heavy maintenance facility in Indiana, one of three maintained by Amtrak nationwide). A dozen of those states had less than 5,000 riders per month, with over $60 million expended.

The on-time performance data in the reports is particularly intriguing. Despite the chronic downtime of its own equipment, Amtrak officials place primary blame for their frequent tardiness on the freight lines that share the limited track space. But freight carriers certainly experience similar delays on their end due to Amtrak, and at a much higher cost. At least rail passngers have other options. Meanwhile manufacturers and distributors, which are dependent on rail and have no viable alternative for what are often high-density liquids and bulk materials, are left with operations idle or lagging behind as they await replenishment of stocks. Such delays have a direct economic impact on American industrial productivity. The rail passenger, on the other hand, might be a little late for the start of their vacation, or for Aunt Mabel's funeral.

It’s not too difficult to see what’s happening here. For over a third of a century, Amtrak has been systematically flushing taxpayers’ money down the toilet in the hope of saving an outdated, outmoded, and lightly traveled national transit system. On top of this, funds continue to be appropriated for long-distance train routes that aren’t just loss leaders – they’re losers, period.

Each and every one of the 14 long-distance routes operates in the red, and has done so from the outset. In 2004, the combined bloodletting was nearly $600 million, and total ridership was less than 300,000 passengers per month. Thirteen routes are losing $100 or more per passenger. In 2001, the Texas Eagle route, running from Chicago to San Antonio, was receiving a per-passenger subsidy of $258. Said Democratic Senator Kay Bailey Hutchinson in 2003:

"We've never given Amtrak a real chance. We've starved it to death."

Her fellow Texan, Republican Pete Sessions, replied:

"It's a lot cheaper to send a limo to someone's house, take them to Love Field, fly them to El Paso or Phoenix, and have a limo waiting for them on the other end," Mr. Sessions said. "It does not even pass a smell test of common sense."

Let’s take a look at one of the railroad's most renowned and romanticized cross-country routes. On Amtrak’s “Facts” page, they proudly trumpet the Sunset Limited which “at 2,768 miles...between Orlando and Los Angeles is the longest Amtrak intercity passenger train route.” What they don’t tell you is that only 6,135 passengers rode this train last October. That’s less than 200 per day paying a $218 one-way fare. Meanwhile, the route lost $2.7 million that month, which amounts to a loss of $440 per passenger. Rather than charge riders for their tickets, the conductor could’ve just handed them each a check for 222 bucks and sent them back home. Hell, I’d take that deal.

Not that there aren’t worthy elements of Amtrak’s operations. The Acela Express profited nearly $100 million in fiscal 2004, a margin of nearly $30 per passenger. The Metroliner, while less profitable, nonetheless ran in the black last year. Both are in the northeast corridor, which has 47% of Amtrak's riders. And that's where the President’s $360 million reserve comes in. These routes are profitable due to the strong regional demand, and not because of how Amtrak is running them. Rather, they're succeeding in the face of egregious mismanagement and corporate waste.

So what would happen if Amtrak comes to an end? Well, for one thing, the nation’s airlines and bus services would be tickled pink. Peter Picknelly, chairman of Peter Pan Bus Lines in Springfield, Mass., recently stated “the intercity bus industry could easily pick up that slack and we would do it with zero taxpayer assistance.” So instead of having empty trains and half-full buses criss-crossing the nation, we’d have mostly full buses operating at greater efficienies. The bus lines would turn higher profits, which would mean more federal tax money to help pay down the debt -- or fund the next Democratic boondoggle.

Meanwhile, rail operations would be refocused where there's sufficient demand to justify the expense – in the BosNyWash corridor, along the West Coast where ridership is fairly strong, and in metropolitan commuter lines. This is clearly the most sensible approach. The days of Arlo Guthrie happily singing about the train they call “The City of New Orleans”, while riding it at the colossal expense of taxpayers, would be over.

As with many federally created and funded programs, there's never much incentive to improve on things. The adolescent, whose requests for an increase in his allowance are granted without batting an eyelash, becomes conditioned to maintain the status quo and keep on tugging on Dad's pantleg. The time to draw a line in the sand with Amtrak and enforce some discipline is well overdue.

Yes, it’s sad to see trains losing their once-prominent role in American transportation. I’ll bet the demise of the stagecoach and the Pony Express were equally discouraging. But time marches onward, demographics shift, and technologies become more efficient and affordable. Let's leave the nostalgia for the museums, and for companies like Lionel.

President Bush is clearly on the right track.