Quotulatiousness

November 25, 2013

Amtrak even manages to lose money on food services

Filed under: Economics, Railways, USA — Tags: , , , — Nicholas Russon @ 11:08

As I’ve said several times before, long distance passenger rail service is an economic dead-end, and the latest story on Amtrak’s financial situation just reinforces that:

As any popcorn-stand profiteer posing as a movie house operator can attest, captive eaters create golden opportunities to supersize profits. But on the Southwest Chief — and Amtrak trains in general — food and beverages are a financial drain. Last week, the inspector general revealed at a congressional hearing that Amtrak lost $609 million on its meal services over the past six years, citing all kinds of eye-popping details about giveaways to staff, spoiled food, and service workers earning about four times the standard industry wage. Defenders of Amtrak argue that the report was just a headline-grabbing jab that distracts from the larger story of the organization’s resurgence.

But the food service fiasco is just the tip of the iceberg. Amtrak has a chaotic management culture, routinely misappropriates funding, and is hamstrung by insane union work rules, as has been described in great detail by its former president, David Gunn.

Amtrak’s been running red ink since its founding in 1971, and tales of its financial imprudence are nothing new. But the 2008 law that authorizes it to operate is set to expire, so Congress is once again mulling what to do with this rolling money-gusher. The Brookings Institution has come out with a major study claiming that in the last five years Amtrak has finally gotten on the right track. The study, titled A New Alignment: Strengthening America’s Commitment to Passenger Rail, characterizes the 2008 legislation as a success that should be tweaked and renewed.

By glossing over facts, the Brookings report obscures the real story. In the last five years, Amtrak has grown increasingly reliant on public subsidies at all levels of government. Between 2007 and 2011, it received a record $8.4 billion in federal funding — a 50 percent increase over the prior five-year period. States have now become major contributors to Amtrak’s bottom line, kicking in an additional $842 million over the same timeframe. Amtrak’s ridership gains in the past few years are a nearly undetectable blip when placed in the context of the larger U.S. transportation network.

I’d often heard that the only profitable portion of the Amtrak network was the Northeast Corridor, but even that heavily used section is only profitable if you play accounting games:

So what about the Northeast Corridor (NEC), which is the busiest section of rail in the U.S.? Contrary to Brookings’ assertions, the NEC is also a giant money pit. The study claims the NEC generated a $205.4 million operating balance in 2011, but that figure was arrived at using Amtrak’s own selective bean counting methods. In violation of generally accepted accounting practices, routine maintenance expenses are counted as capital expenditures, according to O’Toole, while real capital expenditures never appear on Amtrak’s books because the federal government picks up the tab. According to calculations arrived at by Andrew Selden, an attorney and vice present of the United Rail Passenger Alliance, the federal government has poured roughly $40 billion into capital projects for the NEC since 1975. Now Amtrak says it needs another $151 billion to bring high-speed rail to the corridor by 2040.

1 Comment

  1. I would say stop the subsidies and let it fail. Some bright person will step in and buy it up and turn a profit that will pay taxes. A win – win for the tax payer. Of course, the union folks who are in the jobs now will be rehired at a more nominal salary, but why should tax payers pay subsidize the union? Oh, right, Obama.

    Comment by Dwayne — November 25, 2013 @ 15:21

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