November 01, 2005

A Deal for You! Don't miss this train!

Suppose I offered you an investment deal to get on board with a company that has lost a billion dollars a year since 1971 and has no prospects of making a profit in the future. It has overpaid workers, its equipment is run down, most of what it sells is at a loss, and the company is in debt up to its eyeballs. Would you take this great offer? Not likely, unless you were a fool. Well, why does the United States Congress keep appropriating billions of dollars to this company--billions that belong to the taxpayers? This company is your national railroad--Amtrak. You did know that you already owned it, didn't you--or does it own you?

What's going on? You see, the left likes to tell the rest of us how to live, and the left insists that we take trains instead of more convenient and cost-effective methods of transportation. Why? Well, when the left wants something in this country, there are three things that you can count on. First, it will help them to feel good. Second, it won't make any sense. Third, it will cost a lot of money. Amtrak fits that bill.

If you would like to know more, read this: CFO Magazine - Is This Any Way to Run a Railroad?

Here are some excerpts from the article:

Last February, for example, the White House announced it intended to cut off Amtrak's billion-dollar-plus annual subsidy — which covers about half the railroad's total budget — unless the carrier agreed to a radical restructuring. Both the House and the Senate defied the Administration, calling for subsidies ranging from $1.17 billion to $1.45 billion for 2006....

Whatever the scale, Amtrak employees appear to be doing just fine. Based on the carrier's most recent figures, the average worker at the railroad receives $70,000 in annual compensation. Moreover, certain work rules — some call them featherbedding — pump up the number of employees required to perform specific tasks. ...Cutting worker-related costs won't be easy, though. Smith must deal with 14 different unions and 26 bargaining units.

The on-time performance on many of Amtrak's overland lines hasn't helped matters. Overall, Amtrak's 13 long-distance lines (excluding the Northeast Corridor) recorded a 43.5 percent on-time rate for the first nine months of the railroad's 2005 fiscal year.

In May, Standard & Poor's placed the railroad's BBB- rating on CreditWatch, with negative implications. "Without the [government] subsidy, the numbers wouldn't support the current credit rating," notes S&P analyst Lisa Jenkins. A drop of just two notches would reduce Amtrak's debt rating to non-investment-grade, driving up the cost on future borrowings. That's worrisome, considering the railroad paid $203 million last year just to cover the interest expense on the mountain of debt taken on during the previous administration.

"We can do a reasonable rate of return, but it's not going to be a rate of return that most people understand," (CFO David Smith) insists. "A large component of the return is going to be the social good we do."

Smith shakes his head. "I tell you, it's a hell of a way to run a railroad."

Well, with that last statement, we can agree on something.

But, from our friends on the left, linked above, comes this:

What’s next? President Bush wants to push Amtrak into bankruptcy, and end its rail services. He proposes to set aside $360 million for a new train system to someday run only in the country’s northeast corridor. Bush wants to “privatize” the rest of Amtrak by selling its assets, and let multiple corporations make profits as they see fit.

The leading House Democrat on transportation, Minnesota Rep. Jim Oberstar, predicts a “test of wills.” “This is serious” he said. “They really intend to eliminate Amtrak.” Said Rep. Bill Pascrell (D-NJ),” They’re about to run Amtrak off a cliff…. We’re gonna fight it, and we’ll see who blinks first.”

What makes sense to you? Taxpayers are being railroaded as Amtrak proponents steam along. The company jumped the tracks long ago and it's time to stop the train. Privatize Amtrak or close it. The experiment has gone on long enough.

Posted by GM Roper at November 1, 2005 04:00 PM | TrackBack
Comments

1. I REALLY hate to see our money get thrown away.

2. I REALLY like well run train systems. Europe, generally has great trains. It is way more relaxing and enjoyable to ride a good train than to have to drive on endless freeways, seeing nothing of the country, and being beat upon arrival.

3. I wonder why America cannot come up with efficient, well run and profitable trains.

We are killing ourselves paying for all the gas we consume, which also has to do with how we plan our cities and suburbs around the automobile.

Posted by tad at November 1, 2005 05:49 PM

Tad, I'm not an expert on European or Japanese train systems, but I tend to think that our transportation requirements are different because of the amount of land and distances that we cover.

Most of our living patterns are not a factor of the automobile as much as it is government policies, taxes, and crime--which tend to drive people to the suburbs and away from the central cities.

People don't want to be told where to live and they like their conveniences. As long as that is the case, then train systems will only be successful in crowded population centers.

The waste in Amtrak and any government program will continue as long as politicians give in to special interests--no matter how unjustified the expenditures.

Posted by Woody at November 1, 2005 06:34 PM

Great post Woody. Tad, is correct regarding European trans, on the other hand, the "old" europe cities were not designed around cars and trains were perforce, the best system for transportation. Plus, Europeans kept up with technology to run their rail systems. We haven't. Instead of fixing problems, we through money at the wrong things. $70,000.00 huh? I wonder if they will let me blog while I'm a conductor!

Posted by GM Roper at November 1, 2005 08:08 PM

If we simply privatize, we lose control of the land as there would be nothing to stop the buyers from throwing in the towel on railroad service in order to sell off the property for a higher return on investment. There's also the question of who is capable of successfully running a private rail system, as I don't who in the U.S. has any kind of track record. I don't think we want to sell to foreigners; are there possible security issues with the locations of some of the property?

What about the option of abrogating the union contracts, etc. and contracting out the management to the private sector? That way, we keep control of the right-of-ways, while giving the private sector an opportunity to run things right. We also have more bites at the apple if the first try doesn't work out well. The big if, though, is whether the politicians can stay out of the way enough to make it workable.

Posted by civil truth at November 1, 2005 10:41 PM

I am in your camp on this, especially about the awful waste of money. Side Note: I've only ridden Amtrak (long distance) 4-5 times, but it has been over a period of 40 years. Each experience is less pleasing. The service gets worse and worse. One would think that the employees (rather seeing the the proverbial ship is sinking) would be offering BETTER and better service to entice greater ridership. I rather guess they don't are are more rude and less helpful as time goes by.

Well, I don't have the answer. I enjoy having the independence of my car, but I suspect we all drive way more than is necessary AND we could, given safe, inexpensive, fast, enjoyable public transportation, save mega amounts of money on fossil fuels. Training can be great fun and...well, think of all those folks that do the RV deal. Maybe, they'd do the training deal instead.

Well, I am just rambling (not unusual) about the Norman Rockwell America that I wish we were.

Posted by tad at November 2, 2005 07:36 AM





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