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THE FIRST ANNUAL REPORT of the Amtrak Reform Council
This year's report does not reach any conclusions or make recommendations
about Amtrak's long-term future. It provides a picture of the Amtrak
organization as it exists today, it presents our perspective on Amtrak's
performance to this juncture, and it raises questions and issues that the
Council believes should be addressed in its future efforts and, ultimately,
by the Congress.
Amtrak Reform Council
EXECUTIVE SUMMARY
A Prefatory Note
In 1997, the Congress enacted, and the President signed into law, the Amtrak
Reform and Accountability Act of 1997 (the ARAA), reform legislation
requiring, that Amtrak operate, without Federal operating grant funds by
the end of FY2002 (i.e., after September 30, 2002). The Congress also
established the Amtrak Reform Council (the Council) a bi-partisan oversight
body, charged with, among other tasks, monitoring Amtrak's progress in improving
its financial performance to achieve the goals of the ARAA.
The Council's other principal tasks include: (i) reporting to Congress
annually; (ii) evaluating Amtrak's performance and making recommendations to
Amtrak for improvement; (iii) recommending to Congress changes in the law
believed necessary or appropriate; and (iv), should the Council find, on or
before the end of FY2002, that Amtrak will not meet the financial goals of
the Act, developing an action plan to restructure and rationalize the
national system of intercity rail passenger services and submitting the plan
to the President and the Congress within 90 days of any such finding.
The principal criteria and work guidelines the Council is using are: (i)
Amtrak's institutional framework and organization must be well structured;
(ii) Amtrak must conduct its core business with efficiency; (iii) Amtrak's
financial operations must be transparent, that is, the financial performance
and condition of each of Amtrak's business units must be clearly reported and
readily understandable; and (iv) Amtrak's management and Board must be
accountable for their actions.
The Council wishes to make clear to all readers, especially the Congress,
that this is a statutorily-required annual report, and, as such, it is not in
any sense a finding, nor does it address the issue of a finding by the
Council. Were the Council to make a finding at some future date, such a
finding would be the subject of a separate report.
Summary of the Report
Amtrak Today. During a decade when the American economy and most of its
transportation system have expanded in an unprecedented manner, Amtrak's
ridership has remained virtually unchanged. Amtrak's financial losses led
the Congress to enact the ARAA in an attempt to reform the corporation.
Amtrak's legal and regulatory framework, as amended by the ARAA, prescribes,
among other things, that Amtrak:
Over the five fiscal years from FY1998 through FY2002, wean itself
from the need for federal grant funding to cover its operating losses;
Should no longer have a legal monopoly over intercity passenger rail
service, though Amtrak retains special statutory access to the track network
system of the private railroads at incremental cost and with operating
priority;
Has complete authority to determine its national system of routes and
services in response to the marketplace; and
Is no longer subject to specific statutory provisions governing its
agreements with its employees concerning labor protection and contracting
out; the disposition of these issues is now to be determined at the
labor-management bargaining table.
Under this legal framework, Amtrak, performs an exceptionally broad range of
complex functions. Amtrak is:
An Intercity Rail Passenger Transportation Operator (Amtrak's Core Business)
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1. As its core business, Amtrak is an intercity rail transportation
operating company, that moves passengers, mail and express throughout the
Continental U.S.; and Integral to its core business, it manages equipment
assets, including approximately 345 locomotives and 1,962 cars;
2. An Infrastructure Company for the Northeast Corridor
3. An infrastructure operations company, as established by statute,
principally for most of the Northeast Corridor's (NEC) complex set of tracks,
bridges, tunnels, stations, signals, and communications between Washington,
DC, and Boston, MA;
4.An engineering company, responsible for maintaining and improving most of
the NEC's infrastructure;
5. A telecommunications and signaling (process control) company;
6. A Rail Equipment Manufacturing, Maintenance, and Repair Company that
participates in the manufacture, re-manufacture, maintenance, and repair of
locomotives and passenger coaches;
7. A Contractor or Potential Contractor to domestic rail commuter
agencies;
8. to foreign rail passenger agencies (Amtrak bid on such a contract in
Australia);
9. A Real Estate Development Company for the stations and other real
estate that it owns;
10. An Entity That Functions in Certain Respects As If It Were a Federal
Agency dealing independently with the Office of Management and Budget and
the Congress on annual levels of federal appropriations; contributing to
federal policymaking, along with the Congress and the Executive Branch, for
the nation's intercity rail passenger system; at times functioning as if it
were a grant-in-aid agency, dispensing funds to states and localities for
projects that, while generally contributing to the development of intercity
rail passenger service, may not have any beneficial effect on Amtrak's
financial performance; and operating as a federally-chartered corporation,
with a Board nominated by the President and confirmed by the Senate, and with
no input from its common stockholders.
To fund Amtrak, the Congress has appropriated since 1971 more than $23
billion, an average of about $790 million per year. Amtrak's funding has
actually been provided in a very erratic fashion, and with significant
political influence over how and where it spends its money, making it
difficult for Amtrak to plan effectively, and, on a system-wide basis, to
implement the most beneficial major capital expenditures.
Measuring and Monitoring Amtrak's Financial Performance. There are two
approaches to monitoring Amtrak's financial performance: (i) financial
statements prepared under generally accepted accounting principles (GAAP),
which the Council believes that ARAA prescribes, and which measure the
financial performance of for-profit corporations (which Amtrak ñ under the
law ñ was established to be); and (ii) Amtrak's test for operating
self-sufficiency. Amtrak believes that federal legislation and historical
practices in place in FY97 result in an implied test of operating
self-sufficiency that excludes certain items that are included in GAAP
financial statements. These differences are summarized below.
Amtrak's Financial Performance in 1999. The preliminary financial results
for FY1999 (ended September 30, 1999) are $8 million better than projected in
Amtrak's 1998 Strategic Business Plan. But this positive variance is more
than fully attributable to higher than projected net earnings from Commuter,
Reimbursable and Commercial activities, which were $19.6 million ahead of the
projections, due to renegotiated contracts for easements, flagging costs to
contractors on the NEC, and increased charges to state and local governments
and commuter authorities. Amtrak's core business of providing intercity rail
passenger service actually performed marginally worse than anticipated in the
FY1999 Plan. Amtrak needs to achieve step-level improvements in operating
and financial performance during the two key years of FY2000 and FY2001 to
meet its Plan goal by the end of FY2002. Amtrak projects approximately $125
million of improvements in both FY2000 and FY2001 due primarily to the
introduction of the new Acela Express Service. The Council cannot determine
the impact of the Acela delay until it receives additional information from
Amtrak, including Amtrak's Strategic Business Plan for FY2000 to FY2004,
which Amtrak has not yet released.
Risks And Opportunities Amtrak Faces in Achieving Operating Self-Sufficiency.
As in any endeavor, Amtrak's planning, and its implementation of its plans,
involve certain risks and opportunities:
Risks faced by Amtrak include: (i) revenue shortfalls, primarily in Amtrak's
Intercity operations; (ii) schedule delays, or lengthening, due to freight
railroad congestion; (iii) NEC revenue shortfalls due to delayed introduction
of Acela trainsets and potential resistance to the fare premium anticipated
for Acela Express trains over other NEC Amtrak trains; (iv) the possible
difficulties with continuing to increase the financial support received from
states and commuter agencies; (v) possible increases in airline competition,
particularly in the NEC; and (vi) political interference with its network,
operations and funding.
Opportunities available to Amtrak include: (i) improving capital productivity
through programs to repair equipment faster and keep fewer spares; (ii)
increasing revenue-generating capacity by selectively increasing density of
seating in certain equipment types, possibly creating additional train sets;
(iii) earning higher revenues through better yield management practices; (iv)
earning higher revenues from additional profitable Mail & Express business;
and (v) earning revenues from higher ridership due to increasing traffic
congestion and air traffic control delays in select, short, high-density
corridors.
Statutorily Assigned Tasks. The ARAA charges the Council with three specific
tasks on which it is to report each year:
Amtrak's Use of Taxpayer Relief Act of 1997 (TRA) Funds: Because Amtrak had
executed more than 81,000 financial transactions from its TRA account,
conducting a thorough assessment of Amtrak's use of TRA funds was beyond the
resources available to the Council. The Congress, therefore, assigned a
review of Amtrak's use of TRA funds through June 30, 1999, to the General
Accounting Office (GAO), which is scheduled to issue its report in February
2000. While the Council will await the GAO's analysis before making its
final evaluation, from data available at this point, the Council is concerned
that Amtrak has not used a significant portion of the funds for the kinds of
high-priority, high-return investments that will help its bottom line.
Other issues related to Amtrak's ongoing financial operations include its use
of TRA funds and its investment planning. Based on preliminary information,
significant amounts of the TRA funds are being borrowed temporarily for
maintenance expenditures rather than being immediately invested by Amtrak in
high priority, high return capital projects necessary to achieve the
improvements in financial performance initially anticipated when Section 977
of the TRA was enacted. If these temporary loans are not repaid, such
expenditures for maintenance (which are permitted under the TRA) will likely
result in the need for increased capital investment funding by the federal
government and others in the future. In addition, Amtrak has not produced a
long-term capital expenditure plan for several years. The Council, the
Congress, and other governmental agencies need Amtrak's long-term capital
expenditure plan to carry out their statutory obligations.
Productivity Improvement: Section 203 (h) of the ARAA specifically charges
the Council with monitoring and evaluating Amtrak's management efficiency and
its progress in achieving labor productivity improvements. Accordingly, the
Council requested that Amtrak provide certain information. Amtrak and the
Council are working together to define additional productivity data
requirements and to agree on acceptable methodologies both for measuring cost
savings achieved through work-rule changes and for monitoring general labor
productivity. Agreement is essential if the Council is to be able to meet
statutory reporting requirements of the ARAA.
Recommendations for Closures or Realignments of Amtrakës Routes or Services:
Amtrak's management commissioned a new analytical and network planning tool,
called the Market-Based Network Analysis (MBNA). Though the Council has
received information about the capabilities of the MBNA methodology, the
products of the analysis that Amtrak has conducted using the MBNA methodology
have not yet been made available to the Council.
Recommendations for Improvement that the Council has forwarded to Amtrak:
The ARAA requires the Council to evaluate Amtrak's operations and to make
recommen-dations for improvement to the corporation. In November 1999, the
Council recommended that Amtrak's Board consider:
ï Conditional upon receiving confirmation from Amtrak of the
profitability of Mail & Express (M/E) traffic: (i) augmenting Amtrak's M/E
staff; (ii) adding M/E equipment to its fleet; and (iii) setting up the M/E
business as a separate strategic business unit for planning and financial
reporting purposes, with transparent accounting of its revenues and expenses.
ï Setting up the operations of the NEC fixed plant as a profit center
within the NEC Business Unit, with its own clear and accurate income
statement, balance sheet, and capital plan. The NEC fixed plant, which is
critical to the successful operation of the Acela Express service, requires
substantial sums, as much as $5-7 billion according to the Department of
Transportation, to fund deferred maintenance and delayed capital expenditures.
ï As part of its normal annual strategic business planning processes,
identifying risks of not achieving, along with opportunities to exceed, its
business plan objectives, and develop contingency plans for corrective
actions that would be approved by its management and Board within its overall
business plan.
ï Implementing a program for annual cost savings from reductions in
Amtrak's corporate overhead, bench-marking the size of Amtrak's corporate
overhead compared to its overall business volume. Lowering costs would
assist Amtrak in retaining and expanding its net revenues from commuter and
subsidized intercity passenger business.
ï Identifying annually in its Strategic Business Plan readily
measurable, minimum business plan objectives, including service objectives,
operating objectives and financial objectives, and reporting and comparing
its actual performance against its minimum business plan objectives.
Issues and Next Steps. This report highlights concerns and issues for the
Congress concerning Amtrak. Looking at such issues now will foster public
discussion and debate, allowing time for more coherent public policy
development if the Congress determines that changes are needed. This section
also describes the Council's expected activities in the coming year.
Issues. Intercity rail passenger service, in our country's longest sustained
period of economic expansion, is not growing. Amtrak in 1998 carried about
the same number of passengers that it did in 1990, and its service levels
have essentially remained static during this period. If intercity rail
passenger service is to thrive, what steps might be taken? The following issu
es should be thoroughly examined:
ï Is Amtrak's institutional structure adequate, based on Amtrak's
performance and lessons learned from structural models used in other
industries or other countries?
ï Given the long-term concerns about the adequacy and transparency of
Amtrak's financial disclosure and reporting, including long-term capital
planning, are there steps that should be taken to improve the clarity of
Amtrak's financial reporting?
ï Regarding passenger service's quality and its responsiveness to the
marketplace, does Amtrak's effective monopoly over passenger service promote
delivery of high-quality, efficient, and economical service? If not, how
could competition be introduced into the provision of rail passenger
services? If competition is not introduced, what is the implication for
public funding requirements?
ï In the funding context, has funding for operating and capital needs
been adequate? If not, by how much, for how long, and for what purposes has
it been inadequate, and for what purposes should Congress provide additional
funds? Should the future funding be for just capital investments, or will
operating subsidies also be required? What means will ensure that future
funding mechanisms incorporate transparency and accountability? And to what
extent should future funding mechanisms promote competition in the provision
of rail passenger services?
Next Steps. The milestones for calendar year 2000, as of the date of this
report, are listed below, though the dates are subject to change:
January The Council submits its first annual report
February GAO releases report on Amtrak's use of TRA funds
May GAO releases report on Amtrak's capital needs and cost control
June-July DOT's Office of Inspector General releases its analysis of
Amtrak's MBNA Process and new Strategic Business Plan
December Preparation of the Council's second annual report
Over the coming year, the Council will further examine such key issues as:
(i) changes in institutional structure that might improve the quality,
economy, and efficiency of intercity rail passenger services in the US; (ii)
Amtrak's capital structure including issues pertaining to its stock and the
US Government's mortgage lien on the NEC; (iii) potential improvements in the
structure for providing financing for the federal investment in Amtrak and
intercity rail passenger service; (iv) options for implementing the
provisions of existing law that permit the introduction of competition into
the provision of intercity rail passenger service; (v) possible improvements
in Amtrak's financial reporting requirements, to include its train
operations, the NEC fixed plant, and its Mail and Express service; and (vi)
measures to improve the productivity of Amtrak's assets, employees, and use
of energy and materials.
