NARP Corrects Pew Study of Route Subsidies

Click here for a PDF of the letter.

December 11, 2009

Rebecca W. Rimel, President and CEO
Pew Charitable Trusts
One Commerce Square
2005 Market Street, Suite 1700
Philadelphia, PA 19103-7077

Dear Ms. Rimel:

Your “Subsidyscope” Amtrak report predictably led to a torrent of anti-passenger-train news coverage and badly misled the public.  Fully 75% of your stated per-passenger subsidy is depreciation and overhead which was allocated improperly (my items 5-8).

I appreciated the October 29 phone call from Marcus Peacock and his comment that the media coverage “is not what we would have written,” but I am disappointed that I received no opportunity to comment on even an early draft of your report.

There is a fundamental inconsistency between publishing detailed (to the penny) subsidies per passenger-mile for each individual Amtrak route and relying exclusively on “publicly available data” to the exclusion of data essential to the calculations; data Amtrak would have willingly provided on request but which Pew chose not to request.

The following observations are relevant:

1. Any discussion of subsidies needs context, in this case acknowledging:
a. huge subsidies to other modes of transportation;
b. improvement in passenger train economic performance (see point 2);
c. the reasons why trains are important.

2. Your picture is largely a rear-view mirror look.  The report was silent on improvement over the years.  For example, the Amtrak Reform Council—using 2001 data—found a subsidy per passenger (when adjusted for inflation) 19% higher than you reported ($33.09 in 2001 dollars is $39.97 in current dollars, versus $32.21 in your report).

3. “Subsidy per passenger,” the only measure noted in your release, is not a good measure of an intercity train’s economic performance because it does not reflect vastly differing trip-lengths among passengers.  Thus, airlines and media coverage of them normally use passenger-mile statistics; a passenger-mile is one passenger traveling one mile.  An even better measure is the share of costs covered by revenues.

4. It is important to accompany any “route-by-route” chart with a disclaimer emphasizing that the system works as a network both as to revenues—due to passenger transfers (many trips involve two or more trains)—and costs, since trains share facilities where fixed costs are significant.  In other words, discontinuing one route would not save anywhere near the amount you show for that route, and could have a net negative impact on other routes.

5. Over half—57%—of Amtrak’s deprecation is on property, mostly in the Northeast Corridor.  Therefore, allocating these costs evenly to routes across the nation unfairly applies Northeast Corridor costs to routes outside the Northeast Corridor.

6. In 2001, Amtrak took a loan on Penn Station in order to meet payroll.  Allocating these interest payments nationwide makes no sense; indeed, since the loan was not used for improvements at Penn Station (or anywhere else), it may not even be justifiable to allocate interest to any route.

7. Around the same time, also to meet payroll, Amtrak did sale-and-leaseback deals on most of its unencumbered rolling stock.  These deals contribute significantly to Amtrak’s depreciation expense but, again, are unrelated to the on-going costs of running the railroad.  It is not logical to represent this as a route-specific cost, whether across the board or on individual routes that happen to use the rolling stock involved.

8. Even within the context of your report, it is not logical to allocate all depreciation and overhead costs to the intercity passenger routes and none to Amtrak’s “profitable” other enterprises.

Under a federal mandate, Amtrak is working with U.S. DOT to develop a more accurate reporting method which likely will include a synthetic capital charge calculated for both routes and Amtrak’s other business lines, with overhead and capital properly allocated in part to the real estate and contract commuter operations.

The next time Pew looks at Amtrak, I would appreciate the opportunity to at least comment confidentially on the work before you put out something that creates the same kind of headlines that avowedly anti-train think tanks dream of.

Sincerely,

Ross B. Capon
President and CEO