• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
Download
 
Having found that the government-ownedpassenger rail company, Amtrak, will not be ableto break even by the end of 2002, the Amtrak Reform Council is required by the Amtrak Reformand Accountability Act of 1997 to submit a reor-ganization plan by February 7. Amtrak itself hadbeen required by the same law to develop a planfor its own liquidation, but a handful of senatorsblocked Amtrak from doing so. That congression-al action shortchanges the public of a much-need-ed discussion of liquidation, considering thatAmtrak’s financial losses continue to mount andperpetuation of the status quo cannot be justified.The plan presented here is designed to contributeto the public’s understanding of Amtrak liquida-tion issues despite the failure of Amtrak to putsuch a document on the public record.Liquidation would force Amtrak to lay beforethe public and policymakers all the informationabout its poor financial condition and operatingrecord. Liquidation would be the best way tostop the waste of taxpayers’ dollars and to giveparts of Amtrak’s passenger operations the bestchance of survival.Railroad liquidations through insolvencyproceedings were common in the 19th centurywhen railroads were the principal means of transportation in America. Amtrak’s passengerrail operations constitute a very small part of transportation today; thus bankruptcy wouldproduce very little disruption of travel.If unpaid creditors forced Amtrak into bank-ruptcy, a trustee would be appointed to managethe sale of Amtrak’s assets. In the liquidationprocess the value of assets would be determinedthrough a market process. A number of partieshave already expressed interest in purchasingAmtrak’s Northeast Corridor operations, whichinclude the rolling stock, tracks, and stations.This part of the system likely could be run effi-ciently and at a profit by private owners. Otherparts of the system might be purchased byfreight companies of other operators. Money-losing routes no doubt would be abandoned.The reforms currently being discussed by theAmtrak Reform Council are too little, too late. Itis in the public interest to use existing bankrupt-cy laws to liquidate Amtrak.
 A Plan to Liquidate Amtrak 
by Joseph Vranich, Cornelius Chapman, and Edward L. Hudgins
_____________________________________________________________________________________________________
 Joseph Vranich served on the Amtrak Reform Council from February 1998 to July 2000. He has also served as pres-ident and CEO of the High Speed Rail Association and as executive director of the National Association of Railroad Passengers. Cornelius Chapman is a member of the Boston law firm of Hutchins Wheeler and Dittmar. Edward L. Hudgins is former director of regulatory studies at the Cato Institute.
Executive Summary
February 8, 2002No. 425
 
Amtrak’s Fiscal Failures
Amtrak’s persistent financial debacles,repeated federal bailouts, and loss of $1.1 bil-lion in 2001, the most in its history, lead tothe inescapable conclusion that liquidationof the railroad is in the public interest.When Congress established the NationalRailroad Passenger Corporation, commonlyknown as Amtrak, in 1970, it anticipatedproviding subsidies for only a limited time,until Amtrak could become self-supporting.
1
In fact, Amtrak has an unbroken record of fiscal failure resulting in federal subsidiesexceeding $25.3 billion.
2
Adjusting for infla-tion, and to put this figure in perspective,Amtrak’s federal subsidies in current-yeardollars exceed $44 billion.
3
Subsidies to Amtrak are at record highs.Infusions of $4.43 billion in federal subsidiesfrom 1998 through 2001 provided Amtrak with more taxpayer funding than in any otherfour-year period in its history. The figure wouldbe higher if it included Amtrak subsidies thatare attributed to the budgets of other publicagencies such as the Federal TransitAdministration and the Federal RailroadAdministration. Moreover, Amtrak mortgagedNew York’s Penn Station for a $300 millionloan to stave off insolvency in fiscal year 2001
4
and has received an FY02 federal appropriationof more than a half billion dollars. Still, itsfinancial condition is worsening, which leads tothe inevitable conclusion that Amtrak’s finan-cial hemorrhaging is irreversible.The Amtrak Reform and Accountability Actof 1997 established the Amtrak ReformCouncil, which is authorized to evaluateAmtrak’s financial performance. The ARCmade a finding on November 9, 2001, thatAmtrak would not achieve operational self-suf-ficiency by the statutory deadline of December2, 2002, or by any reasonable later date.
5
The ARC found that Amtrak is in a weak-er financial position today than it was beforepassage of the Reform Act, that the railroadwill likely report an operating performance$185 million worse than projected in its busi-ness plan for FY01, that it has used TaxpayerRelief Act capital funds for operating pur-poses, and that it has tripled its debt in thepast five years to about $3 billion.
6
In a reportdated January 24, 2002, the TransportationDepartment’s inspector general announcedthat “Amtrak has not succeeded in imple-menting enduring financial improvementsof the magnitude necessary to attain and sus-tain self-sufficiency in and beyond 2003. . . .For every $1 Amtrak realized in additionalrevenue [since December 1997], cash expens-es increased by $1.05. . . . Amtrak’s operatingloss in 2001 of $1.1 billion was $129 millionhigher than the 2000 loss and the largest inAmtrak’s history.”
7
In 1998 the U.S. General AccountingOffice reported, “Amtrak officials told usthat using a portion of the federal capitalappropriation for maintenance will providestability for Amtrak over the next severalyears, thus averting a possible bankruptcy.”
8
That has not turned out to be the case. If Amtrak had followed generally acceptedaccounting principles and had been subjectto the traditional tests and oversight foundin the investment community, the railroadwould have been declared insolvent severalyears ago.
The ARC’s Flawed Plan
The ARC has notified the president andCongress that Amtrak will fail to becomeoperationally self-sufficient.
9
Under theReform Act, within 90 days of that finding, theARC is required to submit to Congress a planfor a restructured and rationalized intercityrail passenger system. The ARC’s February 7,2002, plan includes reorganizing Amtrak byputting its train operations into one sub-sidiary and its real estate, tracks, and facilitiesinto another and permitting Amtrak to con-trol a future rail-franchising system.
10
Unfortunately, the ARC’s recommenda-tions ignore fundamental problems and rep-resent a too-little, too-late departure fromAmtrak’s present structure. For example,
2
Amtrak’s federalsubsidies in cur-rent-year dollarsexceed $44billion.
 
before 1997 Amtrak was required by federallaw to operate a specific route system—basi-cally the same network it had been runningsince it was created in 1971. The Reform Actrepealed that mandate, as well as otherimpediments to Amtrak’s redeploying itsresources on current-day routes to fit actualmarket conditions. Yet, in the last five years,Amtrak has not discontinued service in anyof its long-distance markets so as to reassignequipment to serve more promising short-distance markets. In fact, Amtrak has workedin Washington to preserve the status quo. Itis unclear how the ARC’s recommendationswill change that failed paradigm.Worse, the ARC’s recommendations havethe potential to inhibit innovation and pri-vate-sector participation by granting Amtrak authority over rail-franchising arrangementswhile at the same time granting an Amtrak subsidiary authority to operate trains underfranchises. Amtrak could exercise authorityto approve operation of its subsidiary’s trainsand obstruct proposals from newcomers. Itexhibited such behavior when the GuilfordRail System, a private freight carrier, offeredto purchase or lease Amtrak’s NortheastCorridor line and to operate private passen-ger service as a “responsible approach to theinevitable failure of Amtrak”
11
and when theRailway Service Corporation, also a privatecompany, offered to take over Amtrak servicebetween Harrisburg and Philadelphia.
12
States have begun to consider a private-sector role in converting Amtrak routes intolocally controlled operations. A WashingtonState Transportation Department officialcommented in January: “What we’d reallylike to do is take the best from Amtrak, andturn it into a program that really allows us agreat deal of flexibility and a whole new set of opportunities. . . . We think there’s a futurefor rail, and we would like to determine ourown future.”
13
According to the GAO, Illinoishad been subsidizing regional Amtrak servicefor years. In 1996, when Amtrak requestedmore money for the service, state officialsindicated that they would be interested inarrangements with other parties to continueservices should Amtrak go out of business.
14
Hence, the ARC’s proposal appears to beanti-competitive; it sets up a bidding systemin which Amtrak is guaranteed to win despitethe quality of other proposals.
The Dangers of LimitedReforms
Recent lawsuits filed against Amtrak underscore the conclusion that Amtrak hasconducted itself in ways that jeopardize thefuture of rail passenger service and injure thepublic interest.Egregious Amtrak actions include manip-ulating the public competitive biddingprocess, disrupting the efficient constructionof the high-speed Acela express trains, andattempting to sway public opinion by with-holding critical information about itsaccounting system and operating losses.
15
Those actions have in the last six monthssparked significant litigation from a varietyof sources.Bay State Transit Services filed suitagainst Amtrak and rail labor organizationsin November 2001 for restraint of trade inviolation of antitrust laws. Amtrak had beenoperating and maintaining trains under afranchise from the Massachusetts BayTransportation Authority. Noting thatAmtrak was inefficient in maintaining com-muter train equipment, MBTA put the con-tract out for bid in a fair, open, and rigorouscompetitive procurement pursuant toFederal Transportation Administrationrequirements. Four companies bid, three of which came in between $175 million and$195 million for the five-year contract;Amtrak’s bid was a staggering $291 million.
16
Bay State’s complaint outlines the coordinat-ed action of Amtrak and the rail unions toundermine the award process and forceMBTA “to terminate its agreement with BayState despite Bay State’s vastly superior bidand enter into another contract withAmtrak.”
17
That occurred even though BayState’s bid was $116 million less than
3
Amtrak hasworked inWashington topreserve thestatus quo.
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...