Monday, July 29, 2013

Whatever can they be thinking?

Written by  Frank N. Wilner, Contributing Editor
Blame it on phases of the moon, a drop on the head as a baby, or a genetic disorder—but, whatever the cause, there seemingly is an increase in self-destructive and even wacko behavior among some decision makers that threatens the railroads’ capacity to meet growing customer demand, Amtrak’s ability to survive, and almost a million active railroaders’ quest for job security.

Recent examples include Long Island Rail Road retirees fraudulently draining reserves of the Railroad Retirement Trust Fund for undeserved disability benefits, labor leaders refusing to accept that Amtrak is not an ATM machine with infinite cash for disbursement, and electric utility executives seeking to snuff out competition in their own industry while demanding artificial railroad competition to lower their own coal rates.

Let’s begin with the Long Island Rail Road, a New York State-owned commuter carrier whose employees have a most rare benefit of retiring at age 50 (more recently, age 55) with a company-paid pension—until eligible for Railroad Retirement benefits—paid by taxpayers and riders who are the source of the railroad’s revenue stream.

Alas, the company’s interim pension wasn’t enough in the eyes of many of those employees, who fretted that their early-retirement pension payments were less than their prior wages or what they would receive had they worked to the full retirement age (as early as age 60 for those with at least 30 years of service).

So hundreds participated in a scheme involving corrupt physicians to claim they were disabled and eligible for Railroad Retirement disability benefits that upped the payout to the equivalent of what they were paid while employed. Inexplicably, no flags were raised at the railroad or the Railroad Retirement Board even though more than 75% of the railroad’s early retirees were claiming disability upon retirement that fraudulently drained more than $100 million from the Railroad Retirement Trust Fund.

It wasn’t until The New York Times, doing what newspapers do best, blew the whistle with pictorial evidence of alleged disabled early retirees playing sports and engaging in manual labor that the fraud was revealed. Some Long Island Rail Road labor leaders had the audacity to assert that it was none of the public’s business, asserting that the Railroad Retirement Trust Fund is financed solely through employee and employer payroll taxes.

One of the corrupt physicians and many of the early-retirement fraudsters have been sentenced to prison and steep fines—or face the same—following The New York Times’ series on the corruption.

Lost in the scandal is that such fraudulent payments threaten the long-term health of the Railroad Retirement Trust Fund, which pays significantly higher pensions and disabilities than Social Security. It is true that Railroad Retirement is funded entirely by railroad workers and their employers, but as fraudulent payments rise, future workers and their railroad employers face higher payroll taxes, a ruinous deterioration of the Railroad Retirement Trust Fund, and the resulting likelihood that Railroad Retirement could be eliminated by Congress and folded into Social Security. The innocent victims then would become honest railroad retirees and all current rail employees.

The pregnant question is thus, “What were LIRR management, the Railroad Retirement Board, and union officials thinking all these years while the fraud continued—and why did it take The New York Times to shine the disinfectant of sunlight on this scheme?” From editorials in New York newspapers and subsequent published comments, we know what the fare-paying passengers—few of whom are able to retire before age 65, even fewer who have defined benefit pension plans, and all of whom recently were stuck with a 15% fare increase—are thinking.

Let’s move on to Amtrak, which perennially struggles to keep its passenger trains running and its Northeast Corridor in a minimum state of normalized maintenance—a railroad whose labor costs exceed 50% of revenues vs. under 25% for freight railroads, with labor costs absorbing 90% of Amtrak’s ticket revenue.

While all but two of Amtrak’s more than a dozen labor unions have ratified a new agreement allowing for a $30 monthly increase in employee healthcare cost-sharing—a total cost-sharing of $230 monthly that is exceptionally low compared with what is paid by federal employees and most in the private sector—two unions are refusing to accept in a new contract the $30 per month increase to $230.

This is despite the fact that while the median income of all Americans has declined by 12% since 2000, and healthcare costs have risen dramatically, all of Amtrak’s unionized employees have received a 35% wage increase since 2000, with another 15% increase, over five years, on the table for the balking two unions (a wage increase already accepted by Amtrak’s other unions that also accepted as equitable the $30 monthly increase in healthcare cost-sharing).

The Brotherhood of Maintenance of Way Employes and the Brotherhood of Railroad Signalmen base their hardline bargaining demand on a demonstrably faulty argument that Amtrak employees should receive the same wages and benefits paid by profitable freight railroads.

These two unions want the same $200 per month healthcare cost-sharing as is paid by profitable freight railroad employees, even though Amtrak barely survives on existing state and federal subsidies, faces a dramatic reduction in federal subsidies beginning Oct. 1, and has billions of dollars in deferred maintenance, a unit-train length of infrastructure improvement needs, and staggeringly expensive new equipment requirements.

Equally crucial to this elevated sense of entitlement is that among Amtrak’s principal competitors in the Northeast Corridor are low-cost bus operators whose employees receive but a fraction of Amtrak employee wages and generally have no—or substantially inferior—healthcare benefits. Elsewhere there are airlines whose employees accepted wage reductions and reduced or eliminated pensions following bankruptcy filings. On some short-distance air carriers, pilots are paid less than $25,000 and have limited benefits.

One need only look at the City of Detroit’s bankruptcy to understand that when the dollars run out, the jobs disappear and the pensions evaporate. Demanding every last crumb on the bargaining table—and threatening a work stoppage that has a high probability of Amtrak shutting down much of its operations permanently—is nothing less than shortsighted, riotous greed and an express track to calamity.

As for coal-burning electric utilities, whose lobbyists have made a 33-year assault on Staggers Rail Act reforms that restored freight railroads to the cusp of revenue adequacy and restoration of world-class service, they now face a Ricky Ricardo (I Love Lucy) moment, where Ricky declares, “Lucy, you got some ’splainin to do.”

Indeed. As electric utilities, out of one side of their mouth, lobby for reregulation to create artificial competition in contravention of Staggers Rail Act objectives, the industry’s lobbying arm—the Electric Power Research Institute—is complaining from the other side that home owners and businesses using competing solar power are disrupting their profit margins.

Consider the recent statement of a vice president with Pacific Gas and Electric: “If the costs to maintain the [electricity] grid are not being borne by some customers, then other customers have to bear a bigger and bigger portion.”

Former Association of American Railroads President Bill Dempsey once read for a congressional committee a policy statement from the electric utility industry. He substituted, however, the word “railroad” for each mention of electric utilities. And, by gosh, the statement was as strong a defense of Staggers Rail Act freedoms as has been written.

If these three examples weren’t so serious a threat to the future of railroads, their employees, and customers, we might laugh and offer them as future ideas for the comic-strip Dilbert. But it is no laughing matter and we can only hope that more sane and sober heads among rail management, lawmakers, regulators, Railroad Retirement Board officers, union officials, and shippers will collaborate to declare, “Enough is enough.”