May 30, 2006—Senate Appropriations

May 30, 2006—Senate Appropriations written record, fiscal 2007 passenger rail funding

The National Association of Railroad Passengers strongly supports Amtrak’s FY 2007 Grant Request of $1.598 billion and the additional $275 million in “strategic investment initiatives” Amtrak outlined.  That $275 million includes:

• $100 million to be administered by the Secretary of Transportation, for a matching-funds program to support state efforts to improve and expand intercity passenger rail services.  This would help address rail’s longstanding competitive disadvantage with other modes of transportation, which enjoy federal funding matches of 50 to 90%.  We also support Amtrak’s call for a federal-state partnership including “reliable” federal funding (80% federal match).
• $50 million (which also could be administered by the Secretary) for “joint investment [with states and railroads] targeted to network chokepoints and linked to threshold performance improvements in intercity passenger rail on-time performance.” 
• $100 million to restructure some of Amtrak’s debt, saving money both for Amtrak and the federal government.  Amtrak says the restructuring “is intended to achieve savings of $45 million, above the initial $100 million cost, and a rate of return of 14.8% per year.”
• $25 million for Americans with Disabilities Act compliance (supplementing $22 million for this purpose in the $1.598 billion “base request”). This is the second straight year that Amtrak’s board, composed entirely of Republicans appointed by President Bush, has supported a significant increase in federal investment in Amtrak and passenger rail. 

We of course agree with this from a May 28 New York Times editorial:  “Amtrak does not need to make a profit, but it does need to work.  The government directs billions of dollars to roads and bridges.  Airports get plenty of help, but somehow very little trickles down to the rails.  Amtrak, which at one point was to have received zero federal funds after 2002, has been offered $900 million by the administration for next year.  That amount is so low it should be an insult…If President Bush really wants transportation alternatives, it is time for a strategic look at how the railroads can serve as an even more important escape valve for the nation’s overloaded transportation system.”

Viewed in the context of national need and world energy concerns, as well as the last sentence in the above quotation, Amtrak’s request, which totals $1.873 billion, is conservative.

I.  Why Trains are a Good Investment
Citizens want them!  Harris Interactive, Inc. provides the latest major poll indicating that Americans want more rail service and believe that this should be mainly a responsibility of the Federal government.  Significantly, the poll—released February 8—was taken December 8-14, 2005, before the latest run-up in gasoline prices.

Harris Interactive, Inc, asked, “In the future, as more people travel, which two of the following would you like to see have an increasing share of all passenger transportation?” Americans overwhelmingly chose commuter and long range trains (44% and 35%, respectively) compared to long distance travel by car (10%) and bus (6%).

When Harris asked “… which of the following would you like to see have an increasing share of all goods and commodities movements in the United States?” the response was even more striking: Fully 63% of respondents favored freight railroads, more than air freight (35%) and trucks (24%) combined.  The survey then asked: “Who do you think should be mainly responsible for maintaining and improving the transportation system in the nation as a whole?”  More than two-thirds (68%) of adults said the federal government.  (Full poll:

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The Traveling Public Votes “Yes”:  Amtrak ridership has risen in eight of the last nine years, with FY 2005 ridership 29% above that for Fiscal 1996. 

I will not repeat the list of “justifications” for passenger rail I recited a year ago.  However, when energy price increases are “above-the-fold” news, normal public support for passenger rail becomes even stronger, as does the public policy case for providing that service. 

In his State of the Union Address, President Bush said, “America is addicted to oil, which is often imported from unstable parts of the world.”  He was correct.  Strengthening and expanding passenger rail will help reduce the vulnerability of our citizens and our economy to high energy prices.  Strengthening public transportation in general as a response to high energy prices and concerns about long-term oil supplies is at once popular and sound policy.

The longer the federal government starves intercity passenger rail, the angrier the American people will be when they discover they do not have choices that help them adapt to higher energy costs while still preserving their freedom to travel and maintaining their quality of life.

We urge that all Amtrak routes be continued—and the New Orleans-Orlando segment restored—while Amtrak improves its cost-effectiveness in various ways, many of which are discussed below.

II.  Amtrak Efficiency Concerns

We share the concern of the subcommittee—and every responsible, interested party—that   Amtrak use its revenues (both commercial and taxpayers) efficiently. 

Mechanical:  Some of the biggest opportunities to improve Amtrak’s bottom line while maintaining and even expanding service involve updating Amtrak’s maintenance practices.  The much-quoted GAO report on Amtrak management cites an important report by the Amtrak Inspector General.  A key passage from the Amtrak IG’s report reads:  “Both of our consultants independently commented that Amtrak’s maintenance operations are being performed similar to the way the other major railroads in North America did maintenance over 20 years ago.  The other Class I railroads have since moved on to more sophisticated approaches to maintenance to improve reliability and reduce costs.”

Thus, Amtrak is updating and improving its practices, with an expectation that its Mechanical Department can boost output and quality while reducing costs.

Dining cars:  Amtrak is well underway with projects that will significantly reduce the net cost of on-board food and beverage services.  On long-distance trains, Amtrak is revising dining car processes and reducing on-board staff; reductions began before Christmas and are scheduled to be complete before the end of May. 

Reducing food losses is a reasonable goal; eliminating them is not.  Carriers worldwide consider on-board food and beverage service not as a profit center but as a necessary expense to attract and retain business.  In a November 2005 speech, Jonathan Metcalf, Chief Operating Officer of Britain’s Great Northeastern Railway, said that food service on his trains “probably loses £2-£3 million a year, if we didn’t do food, we’d lose passengers…it’s a key reason why they travel with us…we probably would have lost £20-£30 million in ticket revenue (without food service).”

Mail:  Our Association repeatedly testified in support of David Gunn’s work to improve Amtrak.  We believe Amtrak is much better off for his having served there.  Nonetheless, we have urged Amtrak to look seriously at undoing one ill-advised step that he took.  He completely eliminated mail carriage even though every study of which we are aware indicated mail was profitable for Amtrak.  Amtrak invested in the mail business and still owns relevant infrastructure and a sizable number of cars with good life expectancy.  I have written to Amtrak urging a careful review of opportunities to restart mail carriage where this would be incrementally profitable. 

Fares and Technology:  Amtrak is not buying market-share with low prices.  Amtrak ridership has grown in spite of fare increases.  Amtrak’s yield (average fare per passenger-mile) has increased every year since at least FY 1994 with the sole exception of FY 2003.  (A passenger-mile is one passenger traveling one mile.)  FY 2005 yield was 65% above that in FY 1994. 

Through the first seven months of FY 2006 (October-April), the yield was 9.8% above the same period in FY 2005.  If anything, Amtrak arguably has been too aggressive in raising fares.

Amtrak does offer good deals on-line where this makes business sense—i.e., handling “distressed inventory” (that is, seats that otherwise would go empty and where eliminating their operation is impractical or would not achieve savings).  This is also important for cultivating tomorrow’s revenues, since some of the people who have time to search the internet for elusive good deals are young people who may become tomorrow’s “full fare,” loyal customers.  If Amtrak was not doing this sort of thing, others would criticize its fare-setting practices as out-of-date. 

Creative use of the internet is not new at Amtrak.  It offered full booking capability on-line starting in February, 1997, at about the same time as Continental Airlines and well before the other major airlines.  Another indication of Amtrak’s on-line sophistication is the interactive route map Amtrak recently introduced. 

The DOT Inspector General, incidentally, criticized GAO’s report for its glass half empty approach, that is, for not giving “equal time and space [to] ‘what works’ at Amtrak, and what has been improved at Amtrak.” 

Fares and Public Policy:  Sound public policy should encourage low fares.  Lower fares mean higher ridership, and help America and its people deal more effectively with scarce oil.  California’s financial support for its three Amtrak corridors helps support lower fares than are found in many other parts of the Amtrak system.  This should be encouraged!   

III. Statutory Directives (including Report Language)

We urge Congress to hold Amtrak accountable for the bottom line, but to be as restrained as possible with regard to specific directives as to how to get there. 

The history of Amtrak is replete with examples of “good legislative intentions” which sometimes have resulted in higher costs rather than reform—including directives in the 1980s regarding food service. 

The more the law contains specific directives about how to manage the company, the greater the danger that management focus would be distracted from doing what is best for the bottom line, and that responsibility for results would shift from management to the sources of the specific directives.

IV. Funding Levels

The Bush Administration’s request of $900 million—30% below the current level of $1.3 billion—would not keep the trains running.  The Administration characterizes its budget request as a “reward” for progress that Amtrak has made on reforms, but the numbers are clear. 

• Debt service is estimated at $295 million.  Amtrak has taken on no new debt since June, 2002.  From September, 2002, to December, 2005, total outstanding debt fell by $300 million—from $3.9 billion to $3.6 billion.
• The operating grant requirement is estimated at $498 million, which Amtrak’s Board says “represents a significant stretch goal…$42 million below the approved FY 2006 budget [of $540 million] and $88 million below the DOT Inspector General’s baseline operating budget.”
• Amtrak seeks $730 million for capital (not counting $177 million in non-federal funding), and $75 million for working capital.

If a $900 million federal grant did not cause an immediate shutdown, it certainly would begin a visible, downward spiral in service quality and reliability, due to elimination of rolling stock heavy overhauls and of work on infrastructure.  Chances would grow that the failure of a moveable bridge would end Boston-New York service.

After debt service and operations (the first two bullets above), only $107 million would remain for capital.  This would be almost totally consumed by the $90 million Amtrak seeks for “investment required to address legal and regulatory requirements, including NY tunnel life safety program, environmental remediation and pollution control, police and security, FRA-mandated rolling stock investment, and initial ADA station compliance work.”

V. Long-distance Trains

Amtrak’s long-distance and shorter corridor services both are important, complementing each other and other U.S. transportation. 

• Long-distance trains continue to show strength.  In Fiscal 2005, they carried an average 356 passengers per run, and the number on board at any one time (passenger-miles-per-train-mile) was 171.  Sleeping car ridership was up 30,000 (or 6%) from Fiscal 2004.  Sleeping car passengers accounted for 15% of ridership but 39% of revenues on these trains.
• A substantial number of coach passengers on long-distance trains travel very long distances—55% traveled at least 400 miles, 25% at least 800 miles.  These FY 2005 figures understate trip length since they are “unlinked trips,” that is, for example, a Washington-Milwaukee passenger must change trains in Chicago and thus is recognized as a Washington-Chicago passenger and a Chicago-Milwaukee passenger.
• Therefore, elimination of dining cars would hurt coach ridership.  Any analysis that assigns 100% of dining-car costs to sleeping car passengers is wrong.  Amtrak reports that usage of dining cars by coach passengers has been increasing with the new “simplified dining service” Amtrak has introduced on most trains in the past several months.
• Sleeping cars and food service are needed to attract discretionary travelers.  If trains were operated only for those without any other option, “bottom fishing” would produce lower volume, higher unit costs and lower economic efficiency. 
• On a passenger-mile basis, corridor and long-distance trains require similar levels of operating support.  [A passenger-mile is one passenger traveling one mile.]  In FY 2004, the “fare box loss” per passenger-mile actually was higher (“worse”) for short-distance trains (25 cents) than for long-distance trains (15 cents). 
• Long distance trains are the only intercity passenger trains in 25 states.
• One cannot simply “buy everyone a plane ticket cheaper than running an Amtrak train” because hundreds of cities that Amtrak serves have no access to discount airline service.  In addition, many Americans cannot or chose not to fly.

Thank you for considering our views.  We stand ready to help the subcommittee as we are able, including by providing such further information as you may request.