October 19, 2005 - House T&I Railroads Subcommittee

October 19, 2005 - House T&I Railroads Subcommittee written record, Amtrak Reform Proposals

Statement of

Ross B. Capon

Executive Director

National Association of Railroad Passengers

Submitted to the

Subcommittee on Railroads

The Honorable Steven C. LaTourette, Chairman

Committee on Transportation and Infrastructure, U.S. House of Representatives

Hearing on Amtrak Reform Proposals

September 21, 2005

Statement Submitted for the Record on October 19, 2005

Thank you for the opportunity to submit this statement.

Any discussion of “Amtrak reform” needs at least two starting points – a statement of goals for what U.S. intercity passenger rail should be, and an acknowledgement of the reforms achieved at Amtrak over the three-plus years since David L. Gunn became President and CEO.

Our Vision:  Briefly stated, our vision of transportation in America includes expansion of intercity passenger rail over what currently exists, particularly when it comes to corridor development outside the Northeast and the federal-state, funding partnership needed to support it, but also selective expansion of the long-distance network.  Expansion should involve both proper development of existing routes and addition of new routes.

There is a desperate need for more rolling stock—now!  The nation is not well served by gridlock at the federal level which, despite hopeful signs this year, has yet to make possible the funding of new rolling stock under a federal-state partnership.  Moreover, it is roughly three years from placement of an order to when the new cars could make a dent in the crowded conditions that already exist on some routes, conditions that will be intensified by further ridership growth over the next few years.  President Bush has urged people to avoid driving when possible, and the price of gasoline has increased the number of people who want to take the train.

We also envision an increasingly “seamless” system, that is, a system in which it is easy for travelers to connect among different modes of transportation.  In particular, the U.S. lags far behind most other developed nations in promoting ease of transfer between airlines and intercity passenger rail.

Gunn’s Accomplishments:  Since May, 2002, the only new debt Amtrak has incurred was the $100 million DOT loan to help fill the financial hole Gunn found upon his arrival at Amtrak.  Amtrak is repaying that loan in five equal installments, starting in Fiscal 2005.

Transparency in accounting is greatly improved.  As DOT General Counsel Jeffrey Rosen—one of Amtrak’s sharpest critics—testified, “in 2005 the independent audit was completed in March instead of September and no material weaknesses were found.  While Amtrak’s auditors still find significant areas for improvement, they comment favorably on developments over the last three years.”

One area of improved financial controls visible to passengers has been institution of procedures to enable dining-car staff to distinguish accurately between coach passengers, who are required to pay for their meals, and sleeping-car passengers, whose meals come with the ticket.  Another area, visible to newspaper readers in certain regions, has been the number of employees terminated for “mishandling” of cash.

The employee headcount has been significantly reduced even as ridership has risen, and organizational charts now enable management to account for all employees.

The capital program has produced significant improvements—unprecedented in Amtrak’s recent history—in the condition of both infrastructure and rolling stock.

Reforms to Come:  The most immediate “reforms” needed would improve (a) output of some of Amtrak’s shops and reliability of the rolling stock; and (b) cost-effectiveness of on-board service and, to some extent, consistent, satisfactory performance of staff.

Amtrak trains operate in 46 states but, if the long-distance trains disappeared, service would disappear from 25 states.  In 23 of those states, long-distance trains are the only intercity passenger trains, while in two others—Oklahoma and Texas—the Oklahoma City-Fort Worth Heartland Flyer can be viable only so long as the Chicago-San Antonio-Los Angeles Texas Eagle continues.  Absent the Eagle, Flyer revenues would decline sharply, since about one-third of Flyer passengers connect with the Eagle, and Flyer costs would rise since facilities now shared between the two trains would become solely attributable to the Flyer.

In considering on-board food service on the long-distance (“national network”) trains, one needs to understand that, contrary to what DOT Inspector General Kenneth Mead has suggested many times this year, a significant proportion of passengers travel very long distances.  While it is generally understood that sleeping car passengers overwhelming take long trips, the large number and proportion of coach passengers in this category has been obscured by less informative statements about the small proportion of travelers who travel literally the entire length of a route.

In fact, 1.7 million (59%) of coach passengers on national network trains in FY 2004 traveled on segments 400 miles or longer, and 0.8 million (28%) traveled on segments 800 miles or longer.  These travelers were responsible for 78% and 44%, respectively, of national network coach revenues.

Thus, restructuring national network routes into short-distance corridors means largely abandoning the existing riders.  Nonetheless, the national network trains are relevant to corridor development because the station facilities and track conditions they require lower the level of investment needed to establish corridor service.  To cite one example, imagine trying to have a Virginia Railway Express (or Washington-Richmond service) if the New York-Florida trains had not run continuously, keeping open the First Street Tunnel underneath the Capitol, and preventing the commandeering of that tunnel for non-railroad use.

The national network’s existence also makes it easier to run special evacuation trains.  Two such trains carried 738 evacuees from Amtrak’s Houston station to Dallas or San Antonio in advance of Hurricane Rita; far more could have been handled there (and in New Orleans) if rail was part of emergency planning.

The July 22 report by DOT Inspector General Kenneth Mead helped focus attention on food service and sleeping cars.  His recommendation to eliminate sleeping cars everywhere except on Auto Train is tantamount to eliminating the system; we do not believe a national network of coach-only trains is sustainable.  However, his conclusions about the extent of subsidy to sleeping-car passengers is based on faulty assumptions, which include assigning 100% of both checked baggage and dining-car costs to sleeping cars.  When one considers the significant proportion of long trips by coach passengers on national network trains, as described above, the fallacy of assigning all dining-car costs to sleeping-car passengers becomes clear.  His report also fails to consider passengers who ride coach on part of their journey and sleeping-car on the other part.  We strongly disagree with the notion that all existing coach revenues could be preserved in the absence of sleeping cars and checked baggage service, and with food service that breaks even.  In short, a nationwide network of coach-only trains would not be sustainable.

That said, we recognize the need to improve the cost-effectiveness of Amtrak food and beverage operations.  At your June 9 hearing, witnesses were unanimous in agreeing that the Amtrak/Gate Gourmet contract should be significantly revised or replaced.  In a lengthy October 3 report which did not mention Amtrak, The Washington Post said Gate Gourmet “serves 220 carriers and is the world’s second-largest airline caterer behind money-losing LSG Sky Chefs, owned by Lufthansa…Gate Gourmet, which is private and doesn’t disclose many financial details, says that its overall revenue is down 35% since 2000 and that its operation at London’s Heathrow Airport alone has lost more than $100 million over that period.”

This implies that Amtrak should be looking at controlled experiments with other vendors, or at least competitively bidding the contract.  If that does not happen, Gate Gourmet might lack incentive to give Amtrak the better deal your June witnesses believed is warranted, if indeed Gate Gourmet’s finances are such that it is able to offer a better deal and remain in business.

On certain smaller trains, Amtrak has instituted single-car diner-lounges, replacing the separate dining and lounge cars that remain necessary on the major trains.  Amtrak should also be negotiating with its labor unions an expansion nationwide of the more flexible working agreements that have long been in place on Auto Train.  Southwest Airlines’ greatest strength is flexible work rules, and Amtrak and its unions have every incentive to emulate that strength.

Funding Reform—Amtrak:  Mr. Chairman, everyone who cares about the survival and future health of intercity passenger rail owes you and your colleagues—especially Reps. Brown and Oberstar—a debt of gratitude for the key roles that you played in saving Amtrak on the House floor in July.  The resulting funding, while of course short of what we hope the final Fiscal 2006 level will be, has already made a crucial difference, by setting Amtrak’s funding in the continuing resolution high enough to permit operations to continue.

Funding Amtrak’s national network (long-distance trains) is a federal responsibility.  Given the number of states each route serves, we believe the practical effect of trying to shift this funding responsibility elsewhere would be to kill the system.  Therefore, we do not agree with complaints that states do not have enough influence over service decisions; they are not paying so their influence is understandably limited, unlike with corridor development (see next section).  In fact, we have not heard such complaints directly from any state.

That said, a considerable amount of local and state funding have gone into many stations served only by national network trains, and this trend will continue so long as the federal government does not shirk from its responsibility to run these trains.

We do not agree that Amtrak lacks incentive to be efficient, or that the threat of budget cuts is insignificant.  Amtrak is thoroughly familiar with the unfriendly relationship between the expectations Congress places upon the railroad, and the amount of resources provided.  Amtrak’s accomplishments, particularly in the past three years, reflect a commitment to making the best use of those relatively scarce resources, and on more than one occasion we have urged Amtrak not to implement service cuts which management sees as forced by the funding levels.

Funding Reform—State Corridor Development:  We agree that states will largely determine future development of short-distance corridors, but such development will only be feasible if a true, federal-state funding partnership is developed, preferably with 80% federal match as recommended by the Amtrak Board in its April grant request.  The most significant “reform” needed is actual creation of the federal share of this funding.  It is unacceptable to argue that “the Amtrak problem” (however one chooses to define it) must be fixed before funding can flow.  The funding, after all, would go to the states, and part of the outcome in most cases would improve Amtrak finances because train operations would be faster, more reliable, with higher ridership, and thus would be more cost-effective.  It is bad public policy to hold state corridor development hostage to a particular view of what constitutes Amtrak reform.

Other Operators Outside the Northeast:  The freight railroads have made clear their opposition to the transfer of Amtrak’s right of access to freight railroad tracks to any other operator.  Other theoreticians have argued vigorously for competitive passenger access.  We think S.1516, which the Senate Committee on Commerce, Science and Transportation approved on July 28, probably strikes an appropriate balance, by effectively limiting alternate access to the owning freight railroad.

Reorganizing the Northeast Corridor:  Given the record of the current Department of Transportation, we are uneasy with any significant reorganization.  We are concerned about the impact any major shake-up would have on the political balance that has kept both Northeast and national service running.

On May 11, I met with Secretary of Transportation Norman Y. Mineta and his passenger rail specialists.  In discussing Amtrak’s national network, he asked if it could be replaced by a series of corridors.  As part of my answer, I carefully explained that certain segments of railroad, such as across Montana, could never support frequent corridor service.  Nonetheless, just 20 days later, on May 31, evidently seeking to blunt the impact of a bipartisan, pro-Amtrak campaign in Montana supporting Amtrak’s Empire Builder, Secretary Mineta said in a “telephone news conference” with Montana reporters that long-distance (national network) trains prevent “Amtrak from providing shorter distance, more frequent corridor services in states like Montana.”

It is notable that the Amtrak Board in April said that “separating infrastructure management from operations for planning, accounting and financial reporting and analysis purposes” would permit Amtrak to realize “much of the benefit of ownership separation” (page 13 of Amtrak’s report).

One argument against Amtrak ownership of the Northeast Corridor is that “no one expects Greyhound to own the New Jersey Turnpike and put it on the corporation’s balance sheet.”  While no one expects a bus company to own a highway, it is standard for railroads—whether Union Pacific or Metro-North Commuter—to own their own tracks.  Existing Amtrak ownership of the Northeast Corridor is not unreasonable.  Amtrak is the dominant operator in terms of train-miles, the only high speed operator, the only operator that runs the length of the corridor, and therefore the operator with the highest stake in schedule coordination.  In other words, if commuter railroads gained greater control—something it is not clear that they are prepared to pay for—the ability to schedule hourly, memory-pattern Acela Express service, or attractive intercity schedules of any type, could be put at risk.

There is widespread agreement that one of the biggest mistakes in the U.K. was privatization of infrastructure ownership, a mistake that has been reversed.  This lesson should not be lost on those considering big changes in Northeast Corridor ownership; Amtrak may technically be a private company but it is controlled by the public.

A Comment on Subsidies:  Some federal agencies consider only “federal” funding when they analyze transportation subsidies by mode.  This is a “blinders on,” misleading approach, since federal aid to highways and aviation is designed to encourage huge state and local subsidies (often called “investments”), whereas federal aid to intercity passenger rail is not.  Thus, the results of a “federal-aid-only” analysis of public support for intercity passenger rail are entirely predictable and not very useful.

Thank you for considering our views.