Is Amtrak Misleading America?
Route accounting practices misrepresent train performance, could complicate Biden rail renaissance
For decades, Amtrak has peddled the narrative that the passenger trains it operates over the 457-mile Northeast Corridor (NEC) between Boston, New York, and Washington are profitable while routes in the rest of the country, especially the long distance trains, incur large deficits and are the financial drain on the system. In reality, the NEC does not earn a profit. It requires substantially more taxpayer funding than Amtrak claims and the routes in the rest of the country require substantially less. This false narrative has misled Congress, the media, and the American people. The result is that Amtrak today provides fast, frequent service for the 12% of Americans who live along the NEC but only slow, infrequent service on a skeletal network for the rest of the country.
How do we know this? Amtrak uses a software program called Amtrak Performance Tracking (APT) to assess the financial performance of its trains. APT has two serious shortcomings: it is badly flawed in how it assigns costs to trains and routes, and it is inherently incapable of determining the financial performance of any given train or route because it is not a financial accounting system. In 2018 the Rail Passengers Association (RPA) obtained APT-generated data from Amtrak, analyzed it, and published an eye-opening report describing how it is misleading.
One of the problems with APT is that Amtrak is only able to accurately identify 20% of the costs incurred by each of its individual routes. It must guess about the rest. That guesswork relies on roughly 60,000 different rules in APT to assign the other 80%. Those rules are based on Amtrak’s professional judgment, not actual cost data that is traced to each route. According to a 2013 report by the the US Department of Transportation, Office of Inspector General, this is outside the norm in the industry as other railroads are able to directly trace 80% of their costs.
Amtrak claims the rules APT uses are proprietary and won’t disclose them, but thanks to RPA, we have some examples (from 2017) of the absurd results the system produces:
* $67,000 in track maintenance for the Wolverine Corridor (Detroit to Chicago) charged to the Capitol Limited (Chicago to Washington, DC) and Lake Shore Limited (Chicago to New York City with a section to Boston splitting at Albany), which don’t use the corridor
* $430,000 in yard and equipment moves in New York and Chicago to routes that don’t serve either city
* $3 million in expenses for maintenance of NEC electric infrastructure charged to routes that do not use the NEC
* Nearly $300,000 for Acela maintenance costs charged to routes other than Acela
* More than $10 million in track maintenance charged to state-supported and long- distance routes, but less than $90,000 charged to the NEC
* Snow removal costs charged to Amtrak’s Miami station [1]
* The Lake Shore Limited charged three times more for Empire Corridor (New York City to Albany) track maintenance than the Maple Leaf (New York City to Toronto), even though the Lake Shore Limited uses the same amount of Empire Corridor track.
* Treating the Boston section of the Lake Shore Limited and the Portland section of the Empire Builder (Chicago to Seattle with a section splitting at Spokane, WA for Portland) as separate trains, doubling the costs charged to each route.
Amtrak claims, based on APT, that the long distance trains lose about $500 million per year. According to the Rail Passengers Association’s analysis, APT exaggerates those losses by at least $311 million per year. At the same time, APT hides over $1 billion in annual losses on the NEC. Perhaps the most succinct way to sum up how APT works is expressed by a common phrase used in the world of computer programming: “Garbage in, garbage out”.
An August 2020 Amtrak Office of Inspector General report revealed information about Amtrak’s inability to accurately determine costs that would give anyone concern. Regarding state-funded Amtrak trains, the report said: “For example, one state representative told us the company cannot tell a state how much it would cost to add a car to a train. Another representative told us they did not know how much it would save the state if it reduced the frequency of some routes.” Given information like this and the data APT is producing, a reasonable person would conclude that Amtrak’s route accounting is a mess, and what they say about route performance cannot be trusted.
Congress is catching on. In April 2019 several senators signed a letter to Amtrak that, among other things, questioned Amtrak’s route accounting practices. The letter referenced a January 2019 Trains Magazine article that exposed the problem and asked Amtrak for answers. Richard Anderson, who was Amtrak’s president at the time, responded with what could be described as defensiveness and deception. He said, “Amtrak is audited every year by Ernst & Young in accordance with Generally Accepted Accounting Principles” (GAAP). What Ernst & Young audits every year is Amtrak’s corporate financial statements, which are completely separate from APT. APT does not follow GAAP, and again, it is is not a financial accounting system.
Anderson went on to say that APT was developed in collaboration with US Department of Transportation’s John A. Volpe National Transportation Systems Center, which is true, but Anderson left out an important detail: In 2008, when Congress passed the Passenger Rail Investment and Improvement Act (PRIIA), it included a mandate that Amtrak fix its route accounting system, and that the system must include an “avoidable cost methodology”. An avoidable cost is one that relates solely to a given train or route and would not be incurred if that train were no longer operated, but the definition isn’t important. What’s important is that Amtrak never did what Congress asked.
The Volpe Center raised this issue in a 2009 report stating that Amtrak’s route accounting system did “not calculate and report avoidable costs by route as required by statute”.
It’s not just the long distance routes that are victims of APT. It’s hitting the state-funded corridors as well. Stacey Mortensen, the executive director of the San Joaquin Joint Powers Authority, which pays for Amtrak’s San Joaquin Corridor between Bakersfield and Oakland in California, questioned Amtrak’s cost structure and route accounting when she testified before Congress in November 2019.
Ms. Mortensen also oversees the Altamont Commuter Express (ACE) commuter trains which operate over a portion of the San Joaquin route. ACE is not operated by Amtrak but by Herzog Transit Services, a unionized company. She told Congress that Amtrak charges three times what Herzog does. She also said Herzog has an open, collaborative relationship and is willing to find ways to control costs; but Amtrak lacks transparency, is resistant to data sharing and collaboration, claims its cost data is proprietary, and cannot rationally tie costs to actual service. She asked Congress to take steps to ensure state dollars “do not subsidize Amtrak’s other business segments”.
Mortensen is still pushing. On November 30, 2020 she sent a letter to the House Transportation & Infrastructure Committee asking the committee to take action on Amtrak’s accounting practices. The letter states: “As you are likely aware, Amtrak does not follow Generally Accepted Accounting Principles (GAAP) practices and instead utilizes complex cost-allocation formulas that have limited relationship to the actual service we receive on the ground” and suggests that states “be charged their direct cost of service by Amtrak on an avoidable cost basis”.
Current Amtrak president Stephen Gardner responded, claiming to be “caught off guard”, which is not very believable because Amtrak representatives were present when Mortensen gave her congressional testimony. They had to know she was going to push the issue. Gardner also got defensive and tried to obscure the issue: “Amtrak performs accounting both in compliance with GAAP and according to the APT process developed and regularly verified by a neutral third-party, DOT’s Volpe Center, in conjunction with Amtrak and the FRA [Federal Railroad Administration] as was required by law.”
Again, it’s not Amtrak’s corporate financial statements that are the problem. APT is the problem. It’s APT that does not follow GAAP, and that’s what Mortensen was questioning. But Gardner was even more misleading, because Amtrak’s failure to produce and implement an avoidable cost methodology has been identified in reports from the FRA and the U.S. Department of Transportation Office of Inspector General. That being the case, how can Gardner say Amtrak’s route accounting complies with the law?
California isn’t the only state that has complained. A 2016 Government Accountability Office report highlighted several complaints from other states about Amtrak’s cost and transparency issues.
Why Amtrak continues to provide inaccurate route accounting data in defiance of Congress is not clearly known. Nor is it clear why Amtrak, a tax-payer funded enterprise, has been getting away with claiming APT’s cost allocation rules are proprietary and won’t disclose them. Whatever the reasons, they aren’t as important as the need to fix the problem. This is especially important now with the Biden administration’s push to invest in intercity passenger rail. Because Amtrak is obscuring operating losses on the NEC and exaggerating them on the long distance and state-supported routes, taxpayers do not have an honest and clear picture about what Amtrak services really cost. Without that honest and clear picture, how can the country properly target all a that new money?
[1] Amtrak claims this charge has been removed from APT.
