, ,

By Noel T. Braymer

Amtrak is in trouble and it can’t starve itself to success. Amtrak President Joseph Boardman recently admitted that with current trends, Amtrak could end this fiscal year $183 million dollars short of revenue forecasts . Amtrak’s solution to this problem is to “cut costs”. We’ve seen this tried before and it never ends well. The first time this was tired was back in 1979-1980 when 5 train routes, 4 of them Long Distance trains were eliminated in an effort to save money. The result was Amtrak’s losses actually increased. What these cuts were good for was political theater.

At the heart of Amtrak’s problems is a lie. A lie told so many times that many believe it. The lie is the so-called profitability of the NEC. It is likely true that most if not all of the Amtrak trains on the NEC bring in more than they cost to operate. But to truly make money running passenger trains you need to bring in more money that also covers the costs to maintain and repair the tracks of the NEC, the costs of the stations, for the general overhead of the organization and so on. These costs are not charged to the Amtrak trains on the NEC. This is why the Amtrak trains on the NEC don’t make money because they don’t cover Amtrak’s overhead costs of the NEC.

So what happened in 1979-1980? These 5 trains which according to Amtrak’s accounting would have saved it money by eliminating them instead caused it to lose more money. Why? Most of the overhead costs charged to these trains remained, but the revenue from these trains ceased. No Amtrak vice-presidents lost their jobs, the cost of the reservation system for Amtrak remained the same and the most expensive part of Amtrak, on the NEC remained the same. Only now there were fewer trains to charge Amtrak’s overhead costs to. This resulted in the “costs” of the other non-NEC trains going up. Amtrak generally doesn’t charge its overhead costs to its NEC trains. But instead charges them to the Long Distance trains and State subsidized trains. This is why the Long Distance trains “lose” so much money and the NEC trains makes a “profit”.

Every time Amtrak has cut service, it has seen revenue go down while costs largely remained, causing it to lose more money. We saw this again in the 1990’s as Amtrak was poring most of it resources into start-up of the Acela project. As the costs for the Acela strained Amtrak’s resources, it cut back on other services. This included eliminating the Desert Wind and Pioneer trains as well as cutting back service on the Palmetto to Savannah from Jacksonville in attempts to save money. The Acela trains where herald by Amtrak management in 2002 as being their glidepath to profitability. Instead by 2002 shortly after the start up of Acela service Amtrak almost ran out of cash, which is worse than just being bankrupt. Even today much of the debt run up starting the Acela program remains.

The time that Amtrak grew and reduced its operating subsidy was mostly under its President, W. Graham Claytor between 1982 to 1993. He was able to raise Amtrak’s cost recovery from 40% in 1980 up to 80% by 1993 when he retired from Amtrak a year before his death. Mr Claytor didn’t cut trains or costs. He improved Amtrak’s bottom line by expanding service, mostly on the Long Distance Trains. It was under Mr. Claytor that Amtrak ordered its last Superliner Cars for the Western Long Distance trains. As Mr. Claytor said publicly the way to reduce Amtrak’s losses was to increase service and revenues faster than it increased its costs. This was done by adding more Superliner cars to the Western Long Distance trains and extending existing trains like the Sunset to Orlando from New Orleans and the Palmento to Jacksonville. At the time of his retirement from Amtrak Mr. Claytor predicted that Amtrak could cover all its costs from revenue ( breakeven) by 2002. Instead Amtrak cut back long distance train service and assumed the Acela would be an overnight success which instead almost killed Amtrak.

Recently Amtrak is acting like they are starting to understand the value of the Long Distance trains, without admitting it. Amtrak is actively working to open more station stops on many of it long distance routes. These new stops will require no new Amtrak employees and are usually built by the local communities requesting these stops. These additional stops both increase Amtrak’s revenues and political support around the country. Amtrak is also pursuing support from local government to expand service desired by local communities. What Amtrak doesn’t have is enough equipment to add many more new trains.

The supposed profitability of the NEC and the so called losses of the Long Distance trains is the result of politics. In order to get the the votes in congress to pass Amtrak’s subsidy, Amtrak since 1979 has threatened to cut back on its “money losing” Long Distance trains from the states with Amtrak train service outside of the NEC. Amtrak already has strong bi-partisan support from the states of the NEC. The NEC states are only too happy to have Federal funding for the tracks on the NEC. These include many commuter rail services that major NEC cities depend upon which Amtrak’s ownership of the tracks saves these States money.

What can be done about relieving Amtrak of the financial burden of owning the NEC? The simplest thing to do would be to take the NEC off of the back of Amtrak and give it to a new non-profit organization to own and maintain. User fees would be charged to Amtrak, freight and commuter train operators to use the NEC to run this new organization. The NEC states will fight this idea because they know the costs of running their commuter trains will go up, which is why this idea has gone nowhere.

What should have happened 40 years ago after the NEC was dumped on Amtrak from the PennCentral Railroad that didn’t want it, was to expand and improve Long Distance train service. This would and did improve Amtrak’s finances in the 1980’s. Amtrak President W. Graham Claytor was well on his way of getting Amtrak to break even during his term between 1982 to 1993. The stations owned by Amtrak in general, but on the NEC in particular should be turned into profit generators instead of major costs. This can be done by adding commercial development at stations. Airports do this all the time and is common among train station around the world, except with Amtrak.

Amtrak also owns land in the NEC and outside of it that can be developed to make money. Profitable passenger railroads around the world make money in large part from land development. An example of this is Sunyside Yard on Long Island. This is one of largest tract of open land left in the New York Metro area. All or part of Sunnyside yard could be developed. A station could also be built in this development to connect  Amtrak with trains on the Long Island Railroad to Long Island. The funny thing is in New York politicians are fighting over how to develop Sunnyside Yard. Governor Cuomo of New York wants to build a new convention center on top of it. While New York Mayor De Blasio wants to build badly needed new housing instead. Of the news stories about Sunnyside Yard from 2015, Amtrak which owns the property is rarely if ever mentioned . Amtrak should be a major player and beneficiary of efforts to develop its property. This is no way to run a railroad.