Response to FRA Request for Comment on ‘Amtrak L-D Service Study’Written by Albert L. Papp Jr.
The Federal Railroad Administration has an ongoing program, the Amtrak Daily Long-Distance Service Study, implemented Oct. 28, 2002, in accordance with Section 22214 of the Infrastructure and Investment Jobs Act (IIJA), which tasks the Secretary of Transportation with conducting a study of Amtrak’s long-distance trains with the goal of re-establishing intercity rail passenger service on discontinued routes and on those currently operated on a non-daily basis (the Sunset Limited and the Cardinal). Public comment was solicited, and I submitted a letter on March 17, 2023.
(Editor’s Note: Railway Age asked Amtrak for comment. Spokesperson Marc Magliari’s response is at the end of Papp’s letter to the FRA. This is followed by a rebuttal from the Aurora Group – William C. Vantuono)
To the Administrator:
In response from your agency for comments on the Amtrak Daily Long-Distance Service Study, I hereby submit the following comments as an individual and not as a part of any association, labor union or advocacy organization.
I congratulate the FRA on its scheduling of hearings per Section 22214 of the Infrastructure and Investment Jobs Act (IIJA)—also known as the Bipartisan Infrastructure Law (BIL)—which tasks the Secretary of Transportation with conducting a long-distance Amtrak study with the goal of re-establishing intercity rail passenger service on those discontinued routes and those currently operated on a non-daily basis.
However, FRA must be made critically aware that Amtrak’s current route accounting system is fatally flawed, and that by continuing to rely on its fully allocated cost accounting procedures the passenger carrier “… grossly exaggerates the cost of operating the national long-distance passenger train system.” The adoption of a more precise, fair and avoidable cost methodology applied to evaluate each and every existing route, future route candidates, frequency and on-board service amenities options, will lead to a completely different—and much more transparent—train performance calculation. This adoption will enable FRA and Amtrak—especially during the current pendency of the critically important Amtrak Daily Long-Distance Service Study program—to more accurately identify and respond to the demands of 21st century rail travelers.
These conclusions were explained in an Aug. 5, 2018 Rail Passengers Association (RPA) White Paper entitled “Amtrak’s Route Accounting: Fatally Flawed, Misleading & Wrong.” The paper goes on to note that, “The adverse outcome of using fully allocated costs is the widespread—and incorrect—perception that Amtrak’s Northeast Corridor is financially and self-sufficient and that Amtrak’s need for taxpayer funding results entirely from its operation of passenger trains in the rest of the nation—the National Network, which consists of state-supported regional and federally supported long-distance routes.” This unsupported conclusion is echoed in numerous passenger rail related articles, TV and radio news reports, web postings, etc., that only Northeast Corridor trains services are “profitable” (“above the rail” cash-flow-positive) and the remainder of the system is “unprofitable.” Nothing could be further from the truth.
Understand that this accounting procedure conundrum does not refer to Amtrak’s audited financial statements, but rather to the information reporting system known as “Amtrak Performance Tracking” (APT) that the carrier employs to calculate revenues and costs for each of its routes and specific services. A close examination of APT reveals that it has at least three fatal flaws:
- By employing ”fully allocated costs,” it fails to adequately reflect underlying economics.
- It fails to report avoidable costs as required by statute.
- It fails to give consideration to capital consumption.
More to the point, APT costs that are allocated to long-distance routes are costs for activities shared with other routes or for fixed overhead costs that would not change. The end result is that the cost of operating National Network long-distance services are improperly recorded, giving false signals to both FRA and Amtrak planners alike in their efforts to plan a more comprehensive network to serve changing traveler demographics.
In 2005, Congress directed the Secretary of Transportation to “… develop a methodology for determining the avoidable and fully allocated costs of each Amtrak route.” Subsequently, FRA directed the Volpe National Transportation Systems Center in Cambridge, Mass. to conduct the study [that] resulted in the APT system, which was used for “… calculating and reporting fully allocated costs, avoidable costs and revenues for Amtrak’s routes and other businesses.” With some 60,000 manually crafted rules to allocate revenues and costs, the system adopted is rife for error and other manipulations. Volpe identified a critical flaw in APT: It noted that Amtrak’s trains “… function as a network, and changes in individual or multiple trains likely result in changes to revenue, not just on the affected trains but on other trains, [so] calculating the avoidable revenues is a difficult exercise.“ Volpe did not fix the flaw, and recommended that it be accomplished in “… follow-on development efforts.”
In 2008, Congress directed the Office of Inspector General (OIG) to review APT to see if it accurately reported Amtrak financial performance. OIG was highly critical and said that “Amtrak’s heavy reliance on cost allocation, which requires cost estimation, reduces the precision of APT’s performance reporting.” Further, it explained that Amtrak assigned only 20% of its costs and allocated the rest, and that this was in direct contradiction to freight railroads, which assigned up to 80% of their costs to track financial performance with greater precision. The OIG thought Amtrak’s lack of such precision was due to “… current business practices [that] do not require the collection of detailed data on costs.” Importantly, it judged Amtrak’s APT methodology as seriously deficient. The ability for Amtrak to “… provide Congress with information on the financial impact associated with eliminating any route …had significant limitations because it relies to a substantial extent on statistical estimation that is not supported by economic theory; idoes not account for key factors such as wages and rents; and iis based on limited data.”
OIG opined that to its knowledge, no other rail entity used such statistical estimation to identify avoidable costs and recommended that FRA “…evaluate alternatives for addressing the requirement to calculate avoidable costs.” FRA agreed and said that “… while the adopted method fulfills the Congressional mandate for an avoidable cost methodology, FRA recognizes that alternative methods exist for avoidable expense estimation. Accordingly, within six months of OIG’s publication of its final report, we will summarize and update our prior analysis of such alternatives.” OIG replied that its recommendation was “… open and unresolved until we receive FRA’s revised response.”
In conclusion, the continued use by Amtrak of fully allocated accounting procedures continues to weaken Amtrak’s financial performance and places in harm’s way its future viability—not to mention its projected expansion to serve more of our nation’s ever-growing transportation markets. Fully allocated cost methods are accounting fictions and cannot supply FRA with accurate revenue and cost figures for planning future network growth and expansion. There is a saying: Continue doing things the same way; continue to have the same results. If FRA decides that it will continue to endorse Amtrak’s incorrect and misleading accounting procedures in your critically important Amtrak Daily Long-Distance Service Study, the inevitable and predictable outcome will be to reinforce the commonly held perception that only the Northeast Corridor is cash-flow-positive, while the long-distance and state-supported services are a drain on the carrier’s financials and, therefore, are ripe for discontinuance.
Congress should—must—compel Amtrak to comply with the law and make public the financial performance of its individual routes on the basis of avoidable cost methodology developed by Volpe (or the alternative it provided to satisfy OIG’s “open and unresolved” issue on avoidable costing). Eighteen years after Congress first directed Amtrak to develop a more reliable and transparent accounting system, passenger rail advocates—still—are awaiting concrete results to finally make transparent the true financial viability of its nationwide route structure.
Amtrak‘s response, from spokesperson Marc Magliari: “Claims regarding APT have nothing to do with the FRA’s Amtrak Long-Distance Service Study. APT was developed by DOT’s Volpe Center in response to a requirement in a 2005 Appropriations Act that DOT retain a consultant to develop a route performance system that reflects the performance of Amtrak’s existing routes. It is not a cost projection methodology that could be used to project the capital and operating costs of adding new routes. The Volpe Center’s most recent update on APT (Update on the Methodology for Amtrak Performance Tracking (APT), pages 16-20) directly responds to and addresses Papp’s criticisms.”
Aurora Group Rebuttal
Amtrak’s response to Mr. Papp’s letter proves his point that data from Amtrak’s route accounting system (APT) should not be used to project the impact that adding long-distance routes would have on Amtrak’s revenues and costs. The corollary is equally true. APT data should not be used to estimate how much route eliminations would affect Amtrak’s bottom line. Yet that is precisely how Amtrak has used APT (and its predecessor RPS) for years to 1) persuade Congress, other elected officials, policy makers, the public—and, yes, even itself—that long-distance routes are a large financial drain and 2) divert attention from the fact that continued operation of its Northeast Corridor (NEC) depends on hundreds of millions of dollars in federal funding every year.
There is evidence that Amtrak’s current leadership wants to eliminate Amtrak’s long-distance routes. CEO Richard Anderson attempted to kill one long-distance route—the Southwest Chief—with an overnight bus bridge in 2018. That same year, Amtrak management told the Board that it intended to “convert” other long-distance routes to short distance corridors so it could replace federal with state funding using “incrementally improved state reimbursement” formulas. This information was not public but obtained only by a Freedom of Information Act (FOIA) request for Amtrak Board minutes. Amtrak’s ConnectUS campaign is just the latest iteration of its scheme to offload funding of the National Network from the federal government to the states.
Amtrak has started down a path that, unless reversed soon, could force significant curtailment of its long-distance services: the lack of a sufficient amount of serviceable equipment. This is apparently a sensitive subject. Amtrak has been cutting its mechanical forces for the past ten years, yet CEO Stephen Gardner claimed at the public Board meeting last December that Amtrak had not furloughed any mechanical workers because they were “essential.” While technically correct, this statement was misleading. According to Amtrak board meeting minutes (another FOIA request), Chief Mechanical Officer George Hull advised the Board in August 2022 that 133 mechanical employees had left Amtrak because of financial incentives offered by management.
The decline in the size of Amtrak’s mechanical force mirrors a similar decline in capital overhauls. Amtrak’s audited financial reports show that Amtrak invested only $40 million in FY 2022 to overhaul its bilevel long-distance cars—a record low. Its grant request for FY 2024 asks for $50 million with another $3 million for wreck rebuilds—an increase from FY2022 but far from adequate given limited expenditures in the past, the current shortage of equipment, the ongoing studies to restore previously discontinued long-distance services and the continued delay in ordering new equipment.
CEO Stephen Gardner told Congress in December 2021, a month after the Infrastructure Investment and Jobs Act (IIJA) became law, that Amtrak would use these funds to replace its long-distance fleet. Yet, Amtrak’s Legislative and Grant Request for FY 2024 did not earmark any money for new long-distance cars, making it clear that Amtrak management does not anticipate ordering any new long-distance equipment for at least another two years, even as it keeps funding for repairing and rebuilding existing bilevel equipment at low levels.
The continuing delay in ordering new equipment increases the probability that a new car order for long-distance equipment may never materialize. The Washington Post just reported that Virginia is struggling to fund the rising cost of building a new rail bridge across the Potomac. The Gateway Project in New York—as well as major (and expensive) bridge and tunnel replacements in Maryland—are subject to the same cost pressures, putting the needs of the Northeast Corridor in direct competition with those of the National Network. The past actions of Amtrak’s current board and executive leadership lead reasonable observers to the inevitable conclusion that they will prioritize the NEC over the National Network. The FY 2024 grant request provides further evidence. Because NEC revenue is “underperforming,” Amtrak has threatened to transfer funds from the National Network account to the Northeast Corridor account if Congress does not fund its FY 2024 grant request in full.
APT is just one piece of a complex political Kabuki dance. The most important point for Congress and policy makers to understand is that Amtrak’s existing management and board will do nothing to reverse the steady decline of the long-distance network unless specifically directed to do so by Congress, or until they are replaced.
– George L. Chilson and James M. Tilley, Co-chairs, The Aurora Group. Tilley is also President of the Florida Coalition of Rail Passengers
Download the full 285-page Volpe report:
Download pages 16-20 only:
Albert L. Papp Jr. has been involved with rail advocacy for more than 50 years, beginning with his testimony in Sacramento, Calif., opposing the discontinuance of the iconic California Zephyr. After he received his undergraduate B.S. degree in Electrical Engineering from the Newark Institute of Technology and his M.S. degree from Rensselaer Polytechnic Institute, he served four years (1966 to 1970) as an electronics officer in the U.S. Air Force, and was recalled in 1990 for Operation Desert Shield/Desert Storm. Papp worked on Wall Street for 30 years as an equity and bond research analyst as well as an investment banker specializing in the energy and transportation fields with Moody’s Investors Service, Argus Research and Shearson Lehman Brothers. He is the immediate past Rail Passengers Association (RPA) Vice Chair of Legislative Policy & Strategy and remains a Council Member of that organization. He served several terms as President of the New Jersey Association of Railroad Passengers (NJ-ARP) and remains a Director. Papp co-authored RPA’s “Modern Passenger Trains: A National Necessity” white paper, and contributed to the group’s more recent publication, “Amtrak’s Route Accounting: Fatally Flawed & Misleading.” He lives in Maplewood, N.J., and is now retired.