Workin' on the Railroad

Huge operating losses, poor on-time performance and a maintenance backlog sets Amtrak on an alternate route.

It's been an awful autumn for Amtrak. Since September, America's only intercity passenger rail system has been scolded for mismanaging its money, ordered to give up its most profitable route, and relieved of its popular president.

David Gunn, who challenged a Bush administration plan to end federal subsidies for Amtrak, was fired Nov. 9 in the wake of a bleak and blunt Government Accountability Office assessment of the railroad's prospects. Six days earlier, GAO predicted Amtrak's $1 billion annual operating loss would increase by 40 percent in the next four years. The auditing agency made its report public several weeks after Amtrak's politically appointed board of directors voted in secret to let a wholly owned subsidiary take control of railroad infrastructure along the busy Northeast Corridor.

After a two-year investigation, GAO identified financial reporting and management weaknesses, the absence of a meaningful strategic plan, lackadaisical or limited oversight by Amtrak's board of directors and the Federal Railroad Administration, and other "systemic" problems. Amtrak recently has cut some costs, but GAO noted that revenues are declining faster than spending and the taxpayer-supported company doesn't have an effective strategy for curtailing the losses. They exceed $400 per passenger on some trains, more than the cost of an equivalent airline ticket.

GAO's uncomplimentary evaluation prompted Transportation Secretary Norman Mineta to strengthen his department's oversight of the quasi-public company. In a series of statements, the secretary characterized the report as "unusual, if not unprecedented, in the scope of its review and the severity of its indictment," adding, "I hope this . . . will be a turning point for Amtrak."

Joseph Vranich, author of End of the Line: The Failure of Amtrak Reform and the Future of America's Passenger Trains (AEI Press, 2004), isn't as hopeful. He was Amtrak's earliest spokesman before becoming one of its fiercest critics. Rising costs, a rigid route structure and management's reluctance to abandon unprofitable routes, Vranich says, have doomed the railroad company he helped create. "I see Amtrak's direst days ahead," he says.

The GAO probe was ordered by the chairman of the House Transportation and Infrastructure Committee, Rep. Don Young, R-Alaska, who promptly appointed a bipartisan working group of committee members to determine whether a formal congressional task force to dig even deeper is warranted. The group, which is looking at the GAO findings and additional information from Amtrak and Transportation Department inspectors general, will report in February.

"In light of the heavy federal subsidy used to keep Amtrak solvent, I am specifically interested in allegations of wasteful spending, poor business practices, inadequate record-keeping and the lack of a comprehensive strategic plan," Young said in a statement on Nov. 3. "The GAO report has raised very serious questions about the planning, acquisition procedures, cost controls and financial management at Amtrak."

Amtrak is in the Bush administration's cross hairs because it hasn't turned a profit in 34 years. Established by Congress in 1971 to bail out failing private passenger lines, the rail company consumes almost $2 billion a year in federal and state funds and carries $35 billion in long-term debt. Servicing that debt costs about $300 million a year. The White House has proposed zeroing funding for Amtrak, giving states control over rail service and schedules, splitting infrastructure investments 50-50 with the states, and opening operations up to private competition.

Members of Congress are fighting the administration's attempts to derail Amtrak. The conflict crosses party lines. Sen. Trent Lott, R-Miss., for instance, lamented Gunn's firing as "a step backward" for the railroad. In November, the House and Senate appeared ready to keep the trains chugging for as long as five more years, despite GAO's doubtful forecast.

The two chambers were preparing for conference on bills demanding certain reforms in return for funding the railroad's capital and operating needs. They were $280 million apart on appropriations for 2006. The House-approved subsidy was on the low side of last year's $1.2 billion; the Senate's was on the high side. An authorization bill was awaiting consideration in the House; the Senate companion would shrink subsidies 40 percent over time, but establish an 80 percent federal match for capital projects.

GAO's appraisal came on the heels of a stunning decision by Amtrak's board of directors to spin off the railroad's busiest route, the Northeast Corridor. Stretching from Washington to Boston, the line carries two-thirds of Amtrak's 25 million annual ridership. It is one of only two profitable Amtrak routes. Earnings were $51.3 million in 2001. The Northeast Corridor also serves trains operated by seven freight rail companies and eight commuter rail systems. A resolution quietly adopted on Sept. 22 calls for a separate company to take title to Amtrak's infrastructure-tracks, bridges, tunnels, rights of way, signals and stations-along the 450-mile line as early as January. Amtrak would own the company and continue to own and operate the intercity trains.

After news of the board's decision leaked to a trade newsletter in mid-October, Chairman David Laney explained that creating a company to manage infrastructure would help Amtrak isolate costs associated with running trains in the corridor before it asks eight states and the District of Columbia to increase their subsidies for badly needed repairs and maintenance. The backlog is about $4 billion. "We are ultimately headed toward an environment in which states will end up covering some portion of state [rail] operations," Laney told the Associated Press.

Critics of the move see it differently. "It's transparent that they [couldn't] care less whether any trains run or not," says Ross B. Capon, executive director of the National Association of Rail Passengers, which lobbies Congress for more Amtrak funding. His organization argues that spinning the Northeast Corridor off to a subsidiary would be the beginning of dismantling Amtrak. Critics littered Laney's mailbox with letters of complaint.

Former Amtrak board member Tom Carper, now a Democratic senator from Delaware, scolded, "This is the first step in a major structural reform that should not be attempted without the involvement of stakeholders and policymakers. Certainly, it should not be something that those of us in Congress . . . first learn about from the press."

Spinoff proponents say it's prudent to make Amtrak's finances transparent and let the people who run most of the trains own the track. But even Transportation Department Inspector General Kenneth Mead is skeptical. "It is unlikely competition will become a viable option until the passenger rail system is restored to a state of good repair," Mead told lawmakers in September.

That the spinoff decision was made behind closed doors sparked conspiracy talk. That it came one day after Brown's subcommittee held a hearing on Amtrak's future-and heard no mention of the pending vote-added fuel to the fire of controversy.

At the hearing, Laney said returning Northeast Corridor infrastructure to a state of good repair and operational reliability was one of four essential objectives in Amtrak's strategic reform initiative. All users gradually would assume greater financial responsibility for their share of corridor operating and capital requirements. He alluded to the need for a competitive marketplace and more efficient rail service alternatives, and called on Congress to help address impediments, including access rights to rail infrastructure and labor and retirement reforms, with legislation. "Some of the legislative decisions in this area will be difficult and will encounter predictable resistance from entrenched interests. Yet," Laney said, "I believe it is a debate worth having."