Intercity Passenger Rail: Amtrak Will Continue to Have Difficulty
Controlling Its Costs and Meeting Capital Needs (Letter Report,
05/31/2000, GAO/RCED-00-138).
Pursuant to a congressional request, GAO reviewed the National Railroad
Passenger Corporation's (Amtrak) costs and capital investment needs,
focusing on: (1) changes since 1995 in Amtrak's operating costs,
including labor costs, payments to freight railroads to access their
track and keep Amtrak trains on time, interest on commercial debt, the
projected changes over the next five years, and Amtrak's plans to
address these costs; (2) Amtrak's short- and long-term capital
investment requirements, including investments to address "state of good
repair" issues and investments in its progressive overhaul program and
Northeast Corridor high-speed rail program; and (3) the availability of
federal and nonfederal funds for Amtrak's capital investments.
GAO noted that: (1) Amtrak's operating costs have increased since 1995,
and future increases can be expected; (2) costs in three areas--labor,
interest on commercial debt, and payments to other railroads to access
track and keep Amtrak's trains on time--have all contributed to these
increases; (3) Amtrak has attempted to control costs; (4) however, while
its performance has improved in recent years, from 1995 to 1999,
Amtrak's operating costs were, in total, about $150 million (in nominal
dollars) more than planned; (5) Amtrak has no measures of labor
productivity for its lines of business, such as intercity passenger
service and commuter service, that could help it better manage its labor
costs; (6) because future cost increases can be expected, it will be
critical for Amtrak to achieve the revenue projections for such things
as its high-speed rail program on the Northeast Corridor; (7) GAO
estimates Amtrak has short- and long-term capital investment needs
totalling about $9.1 billion through 2015; (8) these needs include
safety improvements on tunnels and bridges on the Northeast Corridor and
restoration of the Northeast Corridor to a condition that requires only
routine maintenance, among other things; (9) Amtrak will also have other
capital investment needs for which it has not yet developed cost
estimates; (10) finding the financial resources to meet these needs will
be difficult since Amtrak's identified capital investment needs are
expected to exceed available federal capital funds by nearly $2 billion
over the next 5 years; (11) Amtrak expects to share the cost for some
infrastructure investments with other railroads and will have to look
increasingly to nonfederal sources, such as states, to obtain capital
funds; (12) compounding the potential funding shortfall is the lack of a
multiyear capital plan, which Amtrak has not prepared since 1997; and
(13) development of such a plan will be critical in Amtrak's attempt to
address its capital investment needs.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-00-138
TITLE: Intercity Passenger Rail: Amtrak Will Continue to Have
Difficulty Controlling Its Costs and Meeting Capital
Needs
DATE: 05/31/2000
SUBJECT: Railroad transportation operations
Railroad industry
Cost control
Future budget projections
Federal aid to railroads
Financial management
Strategic planning
IDENTIFIER: Amtrak Northeast Corridor High-Speed Rail Program
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GAO/RCED-00-138
Appendix I: Scope and Methodology
16
Appendix II: Amtrak's Operating Costs Have Increased Since
1995, and Future Increases Will Necessitate
Revenue Growth
18
Appendix III: Amtrak Faces Short- and Long-Term Capital
Investment Needs
40
Appendix IV: Potential Funding Shortfall and Lack of Multiyear
Capital Plan Present Difficulties in Addressing
Future Capital Investments
55
Table 1: Amtrak's Short-Term Capital Investment
Requirements, 2001-04 41
Table 2: Amtrak's Long-Term Capital Investment
Requirements, 2005-15 52
Figure 1: Comparison of Amtrak's Total Revenues and Total
Expenses, 1995-99 19
Figure 2: Comparison of Planned and Actual Operating
Expenses, 1995-99 20
Figure 3: Number of Amtrak Employees, by Type, 1994-99 24
Figure 4: Amtrak's Debt Obligations, 1995-99 30
Figure 5: Amtrak's Interest Expenses, 1995-2004 32
Figure 6: Percentage of Amtrak's Future Interest Expenses by Items Financed,
2000-04 33
Figure 7: Amtrak's Payments to Other Railroads, 1995-99 35
Figure 8: Comparison of Planned and Actual Total Operating
Revenues, 1995-99 39
Figure 9: Illustrations of Current Infrastructure Conditions on
Amtrak's Northeast Corridor 44
Figure 10: Average Age of Amtrak's Car Fleet, April 2000 50
Figure 11: Capital Investments and Capital Funding Sources, 2001-04 56
GAO General Accounting Office
Resources, Community, and
Economic Development Division
B-283107
May 31, 2000
The Honorable Bud Shuster
Chairman, Committee on Transportation
and Infrastructure
House of Representatives
Dear Mr. Chairman:
Since its inception in 1971, the National Railroad Passenger Corporation
(Amtrak) has received over $23 billion in federal subsidies for operating
and capital expenses.1 Over the last 3 years, Amtrak has received over $3.6
billion, including about $2.2 billion in 1998 and 1999 from the Taxpayer
Relief Act of 1997, that it could use for capital improvements, among other
things. In December 1994, at the direction of the administration, Amtrak
established the goal of eliminating its need for federal operating subsidies
by 2002 (called "operational self-sufficiency"). To achieve this goal,
Amtrak has developed and implemented a series of strategic business plans
designed to increase revenues and control costs. However, despite these
plans, Amtrak's losses have remained high: In 1999, its net loss--revenues
minus expenses--was about $900 million.
This report responds to your request that we review Amtrak's costs and
capital investment needs. In particular, this report discusses (1) changes
since 1995 in Amtrak's operating costs, including labor costs, payments to
freight railroads to access their track and keep Amtrak trains on time, and
interest on commercial debt; the projected changes over the next 5 years;
and Amtrak's plans to address these costs; (2) Amtrak's short- and long-term
capital investment requirements,2 including investments to address "state of
good repair" issues and investments in its progressive overhaul program3 and
Northeast Corridor high-speed rail program; and (3) the availability of
federal and nonfederal funds for Amtrak's capital investments. Unless
otherwise noted, all dollar amounts in this report are in constant 1999
dollars.4
Amtrak's operating costs have increased since 1995, and future increases can
be expected. In particular, costs in three areas--labor, interest on
commercial debt, and payments to other railroads to access track and keep
Amtrak's trains on time--have all contributed to these increases. Amtrak has
attempted to control costs. However, while its performance has improved in
recent years, from 1995 to 1999 Amtrak's operating costs were, in total,
about $150 million (in nominal dollars) more than planned. Amtrak has no
measures of labor productivity for its lines of business (e.g., intercity
passenger service, commuter service) that could help it better manage its
labor costs. Because future cost increases can be expected, it will be
critical for Amtrak to achieve the revenue projections for such things as
its high-speed rail program on the Northeast Corridor.
We estimate Amtrak has short- and long-term capital investment needs
totaling about $9.1 billion through 2015. These needs include safety
improvements on tunnels and bridges on the Northeast Corridor and
restoration of the Northeast Corridor to a condition that requires only
routine maintenance, among other things. Amtrak will also have other capital
investment needs for which it has not yet developed cost estimates. Finding
the financial resources to meet these needs will be difficult since Amtrak's
identified capital investment needs are expected to exceed available federal
capital funds by nearly $2 billion over the next 5 years. Amtrak expects to
share the cost for some infrastructure investments with other railroads and
will have to look increasingly to nonfederal sources, such as states, to
obtain capital funds. Compounding the potential funding shortfall is the
lack of a multiyear capital plan, which Amtrak has not prepared since 1997.
Development of such a plan will be critical in Amtrak's attempt to address
its capital investment needs. We are recommending that Amtrak develop
measures of labor productivity for its different lines of business and a
multiyear capital plan. Amtrak agreed to these recommendations.
The Rail Passenger Service Act of 1970 created Amtrak to provide intercity
passenger rail service. Like all major national intercity passenger
railroads in the world, Amtrak has received substantial government support,
including federal capital funds. However, the Amtrak Reform and
Accountability Act of 1997 (Amtrak Reform Act) prohibited Amtrak from using
federal funds for operating expenses, except for an amount equal to excess
Railroad Retirement Tax Act payments, after 2002.5 To help accomplish this
goal, the Amtrak Reform Act provided Amtrak with flexibility to address
certain costs. It eliminated a statutory ban on contracting out work that
would result in employee layoffs (except food and beverage service that
could already be contracted out) and made contracting out work a part of the
collective bargaining process. It also abolished labor protection
arrangements that provided up to 6 years of compensation for employees who
lost their jobs because of the discontinuance of intercity passenger rail
service on a route or certain other actions. The Amtrak Reform Act required
negotiations with the unions over the new arrangements. Amtrak also
developed a series of business plans to help it achieve its financial goals.
By following these plans, Amtrak has attempted to increase revenues and
control costs by such actions as reorganizing itself into strategic business
units.6
The implementation of high-speed rail service on the Northeast Corridor and
the expansion of Amtrak's express service business are the cornerstones of
Amtrak's plans to eliminate federal operating subsidies by the end of 2002.
The Northeast Corridor high-speed rail program includes the electrification
of the track between New Haven, Connecticut, and Boston, Massachusetts, and
improvements to reduce trip times from New York City to Boston as well as
New York City to Washington, D.C.7 According to Amtrak, the high-speed rail
program is expected to generate about $180 million (nominal dollars)
annually in net revenue by 2003. Amtrak also transports mail and express to
supplement its passenger revenue. The program involves the transportation of
higher-value, time-sensitive products such as frozen foods and produce and
is expected to generate about $200 million (nominal dollars) in revenue by
2002. Also noteworthy is Amtrak's progressive overhaul program to maintain
its equipment. Under this program, passenger cars and other equipment
receive more frequent maintenance checks and repair work. This program was
implemented to keep more cars in service--thereby generating more revenues.
Railroads are very capital-intensive businesses, and Amtrak is no exception.
Amtrak has received substantial capital funding from the federal government.
Of the federal assistance that Amtrak has received from 1971 through 2000,
about $10.2 billion (nominal dollars) has gone for capital improvements and
equipment overhauls. This amount includes about $1.8 billion of the $2.2
billion that Amtrak received from the Taxpayer Relief Act of 1997.8 Amtrak
has also obtained capital funding from state and local governments,
generally for specific capital investments, and from commercial markets.
These funds support Amtrak's 22,000-route-mile passenger rail system,
including 650 route miles of track owned by Amtrak. (About 360 route miles
are on the Northeast Corridor--between Washington, D.C., and Boston.
According to Amtrak, the southern end of the Northeast Corridor--between
Washington, D.C., and New York City--is the most heavily used passenger rail
link in the United States. Approximately 60 percent of all passenger-trips
on Amtrak's entire network use at least part of this segment of track.)
Amtrak also maintains an active fleet of 2,600 cars and locomotives.
Increases Will Necessitate Revenue Growth
Amtrak's operating costs increased from 1995 to 1999, and future increases
are expected. Although Amtrak's business plans have attempted to keep annual
cost growth at no more than the rate of inflation, Amtrak's total operating
costs during the period increased about 12 percent above the rate of
inflation and, in total, were about $150 million (nominal dollars) more than
planned. In particular, costs in three areas--labor, interest on commercial
debt, and payments to freight, commuter, and other railroads (collectively
called "other railroads") to access their track and keep Amtrak trains on
time--have contributed to these increases. Labor costs--which continue to
represent over 50 percent of Amtrak's total operating costs--have grown by
about 10 percent above the rate of inflation since 1995 (from about $1.3
billion to about $1.4 billion).9 In part, this reflects the fact that the
size of Amtrak's workforce has not changed substantially in recent years. In
1999, Amtrak employed about 22,500 agreement (union-represented) employees
and about 2,700 nonagreement (management) employees--about the same number
as in 1994. Amtrak has attempted to offset this cost growth by, among other
things, negotiating productivity improvements with its unions. However,
Amtrak does not have measures of labor productivity for its lines of
business (e.g., intercity passenger service, commuter service) that would
allow it to better manage its labor costs.
Amtrak's interest costs on commercial debt and payments to other railroads
have also increased. The increase in interest on commercial debt was largely
the result of Amtrak's efforts to improve its reliability and quality of
service by acquiring new passenger cars and other equipment in the 1990s.
The increase in interest costs (which went from about $50 million in 1995 to
about $83 million in 1999) is noteworthy because, although this expense only
represented 3 percent of Amtrak's total operating costs in 1999, it has been
growing at a faster rate than either Amtrak's total operating expenses or
revenues. From 1995 to 1999, it grew 5 times faster than total expenses and
about 4 times faster than total revenue. The increase in payments by Amtrak
to other railroads (which went from about $92 million to just under $100
million from 1995 to 1999) was mainly due to Amtrak's signing new agreements
to operate over other railroads' lines. In some cases this has, or will,
lead to cost increases. For example, under the new agreements, Amtrak will
pay other railroads a higher amount for track maintenance than it had paid
using a different approach contained in the old agreements.
Future cost increases can be expected if Amtrak implements planned service
expansions. These expansions could affect both Amtrak's labor costs and its
payments to other railroads. In addition, Amtrak's interest expense on its
commercial debt will increase as Amtrak continues to acquire new passenger
cars and locomotives. Such cost increases will make it critical for Amtrak
to achieve the net revenue growth projected for such things as implementing
high-speed rail on the Northeast Corridor and expanding its express service
program. As a result of these and other actions, Amtrak projects that its
revenues will increase about $166 million over the next 5 years. However,
Amtrak has had difficulty achieving its planned revenue targets, and, from
1995 to 1999, met its revenue targets only twice. As a result, Amtrak earned
$14 million (nominal dollars) less in revenue than it planned over this
period. (See app. II for additional information about Amtrak's operating
costs.)
Needs
Amtrak has significant short- and long-term capital investment requirements.
Through discussions with Amtrak officials and a review of published reports,
we identified about $4 billion in short-term capital investment needs
through 2004.10 These needs include improving the safety of various tunnels
and bridges on the Northeast Corridor (called "life safety investments"),
restoring Amtrak's Northeast Corridor to a condition that requires only
routine maintenance (called a "state of good repair"), addressing equipment
maintenance needs and backlogs, and continuing the Northeast Corridor
high-speed rail program. Although they are not the highest-cost items, the
life safety investments (with a total cost estimated by Amtrak's Northeast
Corridor engineering staff at $316 million) are of particular importance
since they are concentrated on the tunnels leading into and out of New York
City's Pennsylvania Station--a station that serves, on average, over 300,000
rail passengers each day. Amtrak and the two commuter railroads that use the
tunnels and Pennsylvania Station have reported that because of the outdated
systems and equipment there, a fire or other serious incident there could
endanger not only the lives of passengers but also the lives of those who
respond to an incident. Among the other short-term capital needs is an
additional $1.4 billion to make state of good repair investments on the
Northeast Corridor. According to Amtrak officials and reports, not
addressing state of good repair needs in the past has resulted in
deteriorating bridges and a decline in the overall quality of service.
For the longer term (through 2015), we identified through discussions with
Amtrak officials and a review of published reports at least $5.1 billion in
capital investment needs.11 These needs include investments to continue life
safety improvements and the restoration of the Northeast Corridor to a state
of good repair. They also include about $630 million to replace and
rehabilitate the Northeast Corridor's electric power system, which is
roughly 70 years old. According to Amtrak officials, the replacement and
rehabilitation of this system are critical to reliably providing power to
trains using the Northeast Corridor and to achieving the highest speeds
planned for Amtrak's Acela Express service--a key component of the Northeast
Corridor high-speed rail program.
Amtrak will also have other short- and longer-term capital investment needs
for which it has not yet developed cost estimates. These include station
repairs, the acquisition of new equipment, and the development of high-speed
rail corridors outside the Northeast Corridor. (See app. III for more
information about Amtrak's short- and long-term capital investment needs.)
Present Difficulties in Addressing Future Capital Investment Needs
The capital investment needs we identified are expected to exceed the
available federal funds by nearly $2 billion over the next 5 years.12 The
shortfall may be even higher because this estimate does not include other
investment needs, such as development of high-speed rail corridors outside
the Northeast, for which Amtrak has not yet developed cost estimates.
Federal capital grants and Taxpayer Relief Act funds should allow Amtrak to
meet its planned capital investment needs through 2000. However, beginning
in 2001, capital investment requirements will exceed expected federal
capital grants ($521 million per year). This potential shortfall will
require Amtrak to increasingly look to other funding sources to meet its
capital investment needs, including state and local governments and the
commercial debt market. Historically, state and local governments have
provided capital for specific purposes, such as for state-supported
passenger rail routes, not for general capital uses. Amtrak may also face
difficulties in funding its capital investment needs because it expects to
use a portion of its federal capital grant for expenditures other than asset
acquisition or replacement. These expenditures include equipment maintenance
and principal payments on debt. Amtrak estimates that of the over $1.6
billion in federal capital funds expected to be available from 2000 to 2002,
it anticipates using about $900 million for asset acquisition and
replacement and about $550 million (all figures in nominal dollars) for
maintenance of equipment and rights-of-way.
Compounding the potential funding shortfall is Amtrak's current lack of a
multiyear capital plan that identifies critical capital investment needs and
how they will be financed. Such a multiyear plan has not existed since 1997.
Instead, Amtrak has developed a series of capital plans covering only a
limited horizon--not more than 1 year at a time. Although these plans
present an overall picture of Amtrak's annual spending for capital projects,
they fail to fully describe capital investment requirements, how these
requirements will be funded, and their relative priority. The development of
a multiyear capital plan will be critical as Amtrak attempts to address its
capital needs. Such a plan would also help congressional decisionmakers in
deciding what the federal government's financial commitment, if any, might
be for Amtrak's capital improvements over the long term. (See app. IV for
more information about Amtrak's capital funding shortfall and multiyear
capital plans.)
Amtrak's record shows that it has had, and continues to have, difficulty in
controlling its costs and meeting its capital investment needs. Controlling
costs and making capital improvements will be important as Amtrak approaches
the end of 2002--less than 2 years from now--when it is statutorily mandated
to be operationally self-sufficient. Although Amtrak's business plans
envision significant revenue increases from such actions as implementing
high-speed rail service on the Northeast Corridor and expanding its express
business to offset cost growth and allow it to reach operational
self-sufficiency, attention to costs will be equally important. Unexpected
costs or cost growth greater than planned would jeopardize Amtrak's ability
to operate within the revenues it generates. In particular, because labor
costs represent over half of Amtrak's operating costs, the development of
measures of labor productivity for its different lines of business will be a
valuable tool in ensuring that Amtrak is efficiently managing its workforce.
Amtrak's lack of a comprehensive multiyear capital plan presents a
particular problem in light of the substantial capital investment needs the
railroad faces. Amtrak cannot be expected to improve its financial health
without fully identifying what its investment requirements are, their
priority in relation to each other and Amtrak's strategic goals, and how
these needs will be financed. This can be accomplished only through the
development of a well-thought-out multiyear plan that links specific
benefits to specific investments and that includes the priorities of these
investments. This is especially important given the critical relationship
between capital investment and quality of service--a relationship that is
necessary to attract and retain passengers--one of the foundations for
making Amtrak financially viable over the long term.
To ensure Amtrak efficiently manages its workforce, we recommend that the
President of Amtrak develop measures of labor productivity for its different
lines of business. These measures should directly measure the resource
inputs of these business lines with the corresponding outputs. Development
of these measures should also include the establishment of benchmarks
against which productivity changes can be assessed.
To better ensure that Amtrak fully identifies and adequately plans for its
capital investment needs, we recommend that the President of Amtrak
expeditiously adopt a multiyear capital spending plan that (1) fully
identifies the capital investment needs of the Corporation over a period of
not less than 5 years, (2) prioritizes these needs according to corporate
goals and strategies, (3) establishes specific measurable benefits to be
achieved from these investments, and (4) identifies the expected funding
sources available to finance the capital investment needs.
We provided Amtrak and the Federal Railroad Administration with a draft of
this report for review and comment. We met with Amtrak officials, including
the Vice President for Labor Relations, the General Counsel, and a Director
for Government Affairs. Overall, Amtrak stated that the draft report was
comprehensive, generally accurate, and useful and that it agreed with the
recommendations we made. However, Amtrak stated that the draft report
appeared to confuse dollar savings resulting from its actions to control
labor costs and measures of labor productivity. Amtrak said that it is not
the case that, as the draft report implied, Amtrak had not measured its
dollar savings achieved in controlling costs. We revised our report to
eliminate any confusion. In this final report, we discuss productivity
measures as a means of managing cost growth. Amtrak also stated that, in
discussing its short- and long-term capital needs, we should make it clear
that the reported estimates are ours and not Amtrak's. Amtrak has not
developed a comprehensive list of its capital needs, and the cost of those
needs could be higher or lower than our estimates. We clarified the source
of our estimates. Finally, Amtrak officials offered a number of technical
and clarifying comments that were incorporated where appropriate.
We also met with Federal Railroad Administration officials, including the
Acting Associate Administrator for Railroad Development and the Director of
Passenger Programs. Overall, Federal Railroad Administration officials
agreed with our draft report and said it reflected their understanding of
Amtrak's cost and capital needs situation. However, they noted the absence
of a federal policy for the long-term funding of Amtrak, especially after
2002, when the current authorization for federal appropriations expires, and
expressed their opinion that the development of such a policy by the federal
government and of a meaningful multiyear capital plan by Amtrak are
inextricably linked. We agree with the Federal Railroad Administration and
have reflected its comments in our report. Finally, Federal Railroad
Administration officials offered several comments designed to make the
report more useful that were incorporated where appropriate.
We conducted our review from June 1999 through May 2000 in accordance with
generally accepted government auditing standards.
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days after
the date of this letter. At that time, we will send copies of this report to
congressional committees with responsibilities for the activities discussed
in this report; George D. Warrington, President and Chief Executive Officer
of Amtrak; the Honorable Rodney E. Slater, Secretary of Transportation; the
Honorable Jolene Molitoris, Administrator of the Federal Railroad
Administration; the Honorable Jacob J. Lew, Director of the Office of
Management and Budget; and Gilbert Carmichael, Chairman of the Amtrak Reform
Council. We will make copies available to others upon request.
If you or your staff have any questions about this report, please call me at
(202) 512-2834. Key contributors to this report were Angela Clowers, Helen
Desaulniers, Gregory Hanna, Richard Jorgenson, and James Ratzenberger.
Sincerely yours,
Phyllis F. Scheinberg
Associate Director,
Transportation Issues
Scope and Methodology
To determine Amtrak's costs, we reviewed Amtrak's financial reports, the
Amtrak Reform and Accountability Act of 1997, Amtrak's October 1998
strategic business plan, appendixes to Amtrak's business plan for 2000 to
2004, and the business plan's April 2000 update. We also reviewed Amtrak's
February 2000 report to the Congress on its market-based network analysis,
summaries of Amtrak's labor agreements and documents related to labor cost
control initiatives, the arbitration panel's November 1999 decision on labor
protection payments, and Amtrak documents concerning debt and the payment of
interest on commercial debt.13 We also reviewed copies of selected freight
railroad agreements and interviewed Amtrak's labor relations, financial, and
contract administration officials and representatives from unions
representing Amtrak employees. In addition, we interviewed representatives
from four freight railroads with which Amtrak has operating agreements. To
analyze Amtrak's labor productivity, we obtained information such as
passenger miles, seat miles, ridership, overhauls completed, and hours
worked from Amtrak and the Surface Transportation Board. We also discussed
the development of labor productivity measures with Amtrak officials. We
obtained commuter railroad data from the American Public Transportation
Association.
To determine Amtrak's capital investment needs and how Amtrak plans to meet
these needs, we asked Amtrak managers to identify the capital investments
they believed are needed to maintain current service levels and improve
Amtrak's service. We used this approach because Amtrak does not currently
have a multiyear capital plan. Instead, its most recent capital plan (dated
December 1999) covers through 2000 only. As a result, the investment needs
identified in this report are not necessarily those needs or priorities that
might be established by Amtrak's management in a multiyear plan.
Nonetheless, we characterize the capital investments identified by Amtrak's
managers as capital "needs" or "requirements" in this report.
To determine capital investment needs and funding, we also reviewed Amtrak's
October 1998 strategic business plan, appendixes to Amtrak's business plan
for 2000 to 2004, the business plan's April 2000 update, Amtrak-Federal
Railroad Administration reports on the Northeast Corridor's capital needs,
and the Federal Railroad Administration's 2001 budget request for Amtrak. In
addition, we reviewed fleet maintenance schedules and other Amtrak documents
pertaining to capital investment needs and projected sources of capital
investment funds. We also interviewed officials from Amtrak's finance,
planning, high-speed rail, and mechanical and mail and express departments,
in headquarters as well as in strategic business units, and Federal Railroad
Administration officials. In addition, we interviewed officials in four
state departments of transportation about their departments' relationships
with Amtrak and capital investments in intercity passenger rail.14 Finally,
we interviewed officials from five commuter railroads and four freight
railroads that do business with Amtrak on their companies' relationships
with Amtrak and their cost structures, labor productivity, and
Amtrak-related capital investment needs.15 As part of our work, we visited
Amtrak's three major maintenance facilities--Beech Grove, Indiana;
Wilmington, Delaware; and Bear, Delaware--and two secondary maintenance
facilities in New York City and Washington, D.C.
We conducted our review from June 1999 through May 2000 in accordance with
generally accepted government auditing standards.
Amtrak's Operating Costs Have Increased Since 1995, and Future Increases
Will Necessitate Revenue Growth
Amtrak's operating costs have grown in recent years and are expected to
continue growing. Although Amtrak's business plans have attempted to keep
annual cost growth at no more than the rate of inflation, Amtrak's total
costs have increased about 12 percent above the rate of inflation and, in
total, were about $150 million16 more than planned from 1995 to 1999. In
particular, the costs in three areas--labor, interest on debt, and payments
to freight and other railroads for access to their track and to keep Amtrak
trains on time--have increased since 1995. These three costs account for
about 60 percent of Amtrak's total operating costs. Amtrak has tried to
reduce its cost growth by, among other things, attempting to improve worker
productivity and refinancing its commercial debt. Amtrak expects continued
cost growth over the next several years. This will make it more difficult
for Amtrak to meet its net revenue projections and reach operational
self-sufficiency. However, Amtrak has no measures of labor productivity for
its different lines of business that would help it manage its cost growth.
to Continue Growing
Amtrak's annual operating costs have increased since 1995--about 12 percent
in total over the rate of inflation. Amtrak's costs were $2.4 billion in
1995 and $2.7 billion in 1999. The growth in costs was only slightly less
than revenue growth. (See fig. 1.) As a result, Amtrak did not materially
reduce the gap between expenses and revenues, as measured by net loss. The
1999 net loss was about $85 million (nominal dollars) larger than it was in
1995. Amtrak attributed the cost increases and larger net loss to such
things as the results of labor negotiations, expanded service levels,
increased depreciation, and implementation of the progressive overhaul
program. In addition, while Amtrak has "spent money to make money," it has
made little progress in gaining financial benefits that exceed the
expenditures it has made. For example, in 1995, for every operating dollar
Amtrak spent, it earned $0.65 in total revenue. In comparison, Amtrak earned
$0.67 in total revenue for every dollar spent in 1999.17
Source: GAO's analysis of Amtrak's data.
In an effort to control costs and increase revenues, since 1995, Amtrak has
developed and implemented a series of strategic business plans. These plans
have attempted to increase revenues and control costs through such actions
as expanding mail and express service, adjusting routes and the frequency of
service, and reorganizing the company into strategic business units.
Reorganizing the company into strategic business units was also expected to
result in better service. In general, these business plans have attempted to
hold cost increases to no more than the rate of inflation. Amtrak's record
in controlling its expenses has been mixed since 1995. (See fig. 2.) Amtrak
missed its expense targets from 1995 through 1997 by a total of about $355
million. However, in 1998 and 1999, Amtrak spent less than planned by a
total of $205 million. Overall, Amtrak incurred about $150 million more in
expenses than planned over the 1995-99 period.18 Amtrak has attributed not
meeting its expense targets to such things as missed energy savings targets
and disruptions due to weather.
Notes: This analysis does not include about $106 million in retroactive
labor payments for 1998 because they were not in Amtrak's strategic business
plans. If these payments had been included, Amtrak would have spent less
than it planned in 1998 by $47 million. Overall, including these payments
would have resulted in Amtrak incurring about $256 million more in operating
expenses than it planned from 1995-99.
For 1998, we used Amtrak's September 1997 strategic business plan rather
than the revised March 1998 plan. In our opinion, the September 1997 plan
provides a better benchmark for evaluating financial performance because it
reflects expected performance at the beginning of the fiscal year. Revising
a plan 6 months into a fiscal year significantly reduces the uncertainty
inherent in preparing an estimate of annual performance. In addition, the
primary financial revisions contained in the March 1998 plan (a reduction of
mail and express revenue) did not directly influence the factors shown in
this figure.
Source: GAO's analysis of Amtrak's data.
Just as Amtrak has attempted to spend money to make money over the last 5
years, it plans to continue to do so in the future. As a result, Amtrak's
operating costs will continue to increase as Amtrak incurs costs to further
increase ridership and improve the quality of its service. These increases
will make it critical for Amtrak to achieve the revenue growth it has
projected in its most recent business plan. According to Amtrak's operating
plan for 2000, Amtrak's total operating costs are expected to increase by a
net $60 million over the next 5 years--from about $2.91 billion in 2000 to
$2.97 billion in 2004.19 This is a net increase because it includes growth
in such costs as labor, interest expenses, and payments to freight and other
railroads as well as savings to be achieved from such things as productivity
improvements.
Continue to Grow
Labor costs represent Amtrak's single largest operating cost. In 1999,
Amtrak's labor costs, including salaries, wages, and benefits, accounted for
about 52 percent of the railroad's total operating costs.20 From 1995
through 1999, labor costs increased from $1.296 billion to about $1.420
billion--a total increase of about 10 percent over the rate of inflation
(includes one-time lump-sum payments as well as other wage increases).21
This is a net increase--that is, net of the savings achieved through such
actions as negotiated productivity improvements and savings in costs of
health and welfare benefits. Although labor costs can change for a variety
of reasons, at least part of the increase in Amtrak's labor costs is
attributable to new collective bargaining agreements. In 1995, Amtrak began
renegotiating contracts with the 13 unions and 2 employee councils
(collectively called "unions") that represent about 90 percent of its total
workforce. These negotiations were completed in early 2000. As a result of
these negotiations, Amtrak estimates that wage payments for these employees
increased by about $144 million in 1998 and 1999.22 These wage increases
included such things as negotiated general wage increases, signing bonuses,
and retroactive wage payments. For example, Amtrak's union-represented
employees received, on average, general wage increases of 2.4 percent per
year over the past 5 years.
Amtrak's labor costs reflect the fact that the size of its workforce has not
changed substantially in recent years. In 1999, Amtrak employed about 22,500
agreement (union-represented) employees and about 2,700 nonagreement
(management) employees--about the same number as in 1994.23 (See fig. 3.)
Amtrak attempted to reduce its management staff in 1994 and 1995 by offering
management employees early retirement and buyouts to leave the company. As a
result of these buyouts and early retirements, Amtrak's management staff
declined by a total of about 15 percent between 1994 and 1995. But, by 1999,
the number of management employees was almost the same as it was in 1994.
Union-represented employment declined 7 percent from 1994 through 1996. But
union-represented employment has also grown since then, and, in 1999, Amtrak
had more union-represented workers than in 1994. Amtrak officials attributed
the employment increases to such things as service expansion, Federal
Railroad Administration safety regulations, and capital investments. The
company does not plan to reduce the size of its workforce in the future with
the exception of positions that may be eliminated as a result of negotiated
productivity and work rule changes. In fact, Amtrak's recent report to the
Congress on its plans to expand service on 11 routes and increase train
frequencies on 3 other routes indicated that additional employees
(especially train and engine crews) would be needed.24
Source: GAO's analysis of Amtrak's data.
We were unable to determine how Amtrak's actual labor costs have compared
with planned labor costs prior to 1998. This is because Amtrak's business
plans did not enumerate planned labor costs before the September 1997
business plan (which covered the 1998 to 2000 period). In 1998, Amtrak's
actual labor costs were about $11 million less than planned.25 In 1999,
Amtrak's actual labor costs were less than planned--by about $28 million.
This was primarily due to lower than expected benefit costs, not lower wages
or salaries. In 1999, expected benefits costs were about $35 million less
than planned. In contrast, actual wages and salaries exceeded planned wages
and salaries by about $7 million. Amtrak officials said the wages and
salaries target was missed because of adverse weather conditions (such as
Hurricane Floyd) and increased progressive overhaul work.
of Business
Amtrak does not have standard measures of labor productivity for its
different lines of business (e.g., intercity passenger service, commuter
service). We attempted to develop four corporatewide labor productivity
measures for Amtrak--passenger miles per employee hour worked, seat miles
per employee hour worked, passengers transported per employee hour worked,
and overhauls per employee hour worked--to determine the trends in Amtrak's
productivity since 1995. However, discussions with Amtrak officials
identified limitations in its data needed to calculate these measures.
Specifically, Amtrak's data included hours of employees involved in Amtrak's
capital projects, commuter passenger service, contract equipment repairs,
and mail and express business.26 According to Amtrak, this type of
information should not be included in the measures because those employees
do not directly influence the number of passenger miles, seat miles,
passengers transported, or overhauls Amtrak records annually. As a result,
Amtrak said that these data would inaccurately portray its labor
productivity. Amtrak could not provide data without these limitations.
The Amtrak Reform Council (the Council) has also experienced difficulties in
measuring Amtrak's productivity. As we did, the Council encountered problems
with the data required for measuring productivity. In its January 2000
report to the Congress, the Council developed and reported seven
productivity measures. These included seat miles per employee, passenger
miles per employee, and passengers transported per employee. Although the
Council reported the results of its productivity measures, the Council noted
that its measures had similar data limitations to those discussed above. In
its report, the Council stated that it was working with Amtrak to obtain
additional productivity data and to agree with Amtrak on acceptable
methodologies for monitoring general labor productivity so the Council could
comply with its statutory reporting requirement.
Labor productivity measures are important because they indicate the
efficiency with which labor is being utilized. Although Amtrak does not have
measures of productivity for its different lines of business, others in the
rail industry do. For example, many officials of the commuter and freight
railroads we spoke with stated that, in general, they track labor
productivity with a variety of measures including employees per passenger
mile and gross ton-miles per employee. It is especially critical that Amtrak
determine the efficiency of its labor force. Amtrak has had difficulty
controlling the growth of its labor costs, and labor costs are Amtrak's
largest operating cost. Finally, Amtrak incurs a fairly high amount of
overtime to provide its services, which may suggest some level of
inefficiency in its utilization of its labor force. From 1995 to 1999,
overtime represented, on average, about 11 percent of Amtrak's total
employee hours worked. The amount of overtime hours also increased steadily
during this period--from about 4.2 million hours in 1995 to about 6.3
million hours in 1999. In commenting on a draft of this report, Amtrak
speculated that overtime hours may have increased because of an increase in
capital spending and/or decisions not to hire additional employees to cover
increases in its business. However, Amtrak did not know specifically why
overtime had increased.
Amtrak has employed a variety of strategies to control labor costs. One of
these strategies is to negotiate productivity improvements with its
agreement workforce. Amtrak set a goal of offsetting, through productivity
improvements, 20 percent (about $49 million) of the $248 million in wage
increases it negotiated in the latest round of collective bargaining.27
Amtrak officials told us that the goal was set at 20 percent because it
allowed sufficient flexibility to overcome implementation problems. This
goal is to be achieved by September 2000--only a few months away. In 1998
and 1999, Amtrak estimated that it saved $21.2 million in work rule and
productivity savings--$1.7 million in 1998 and $19.5 million in 1999. This
leaves about $28 million in savings to be achieved in 2000 to realize the
goal. According to Amtrak documents and discussions with Amtrak officials,
achieving these savings will require, among other things, that Amtrak
continue to selectively reduce its workforce and realize savings from
contracting out its food service functions.28 To help ensure that this goal
will be met, Amtrak has for the first time linked productivity cost savings
with strategic business unit and service center budgets. In general, these
budgets were reduced by the amount of the projected cost savings from the
specific productivity changes negotiated.29
In addition to negotiating productivity changes, Amtrak has used other
strategies to help control its labor costs. In 1997, because of rising costs
for health care coverage and payments for coverage seldom used by its
employees, Amtrak opted out of the railroad industry's health care plan.
Instead, Amtrak established its own plan (called "Amplan"). Amtrak estimates
that this new plan saved over $3 million during the first year it was in
effect. In 1999, to reduce absenteeism and increase worker productivity,
Amtrak introduced its "presenteeism" program. Under this program,
union-represented employees who maintain perfect work attendance for at
least 6 months are eligible to win an automobile.30 Amtrak expects to save
approximately $6 million per year as a result of this program.31 According
to Amtrak, preliminary analysis indicates that the presenteeism program
reduced the number of unexplained absences by about 10 percent during the
first 6 months it was in effect.
Amtrak's projections, after accounting for inflation, show about a $20
million net decrease in its labor costs through 2004. This takes into
consideration such things as planned work rule and productivity changes. We
do not believe Amtrak's projections are reasonable. This is because Amtrak
has entered into a new round of collective bargaining with its
union-represented employees. If the new round of collective bargaining
follows the pattern of past negotiations, Amtrak's labor costs can be
expected to increase. This is illustrated by the results of the last two
rounds of collective bargaining. As the result of the 1988 to 1994 round of
collective bargaining, Amtrak estimated that wages increased between $120
million and $140 million. As a result of the most recently completed round
of bargaining (1995 to early 2000), Amtrak has estimated that wage payments
have increased by $144 million through 1999.32
Railroads Have Also Increased and Are Expected to Continue Increasing
As Amtrak has acquired new cars and equipment (called "refleeting"), it has
taken on significant debt, and its interest costs have grown
accordingly--over 60 percent over the past 5 years. In addition, over the
past 5 years, Amtrak has experienced modest increases in its payments to
freight and other railroads as a result of signing new agreements to use
their lines. About 95 percent of Amtrak's operations are over track owned by
other railroads. Together, these costs represent a relatively small portion
of Amtrak's total operating costs--about 7 percent. However, they are
important because these costs are projected to grow faster than Amtrak's
overall costs in the future.
New Equipment and Future Increases are Expected
To renew its fleet of passenger cars, locomotives, and other equipment,
Amtrak has borrowed heavily in recent years in the commercial markets. We
reported in 1995 that about 31 percent of Amtrak's cars and 54 percent of
its locomotives were beyond their useful life.33 To improve service, reduce
maintenance costs, and increase customer satisfaction, during the 1990s,
Amtrak embarked on a large-scale refleeting effort. For example, it invested
about $312 million (nominal dollars) to acquire approximately 120
locomotives. Amtrak borrowed most of the money needed to acquire new rolling
stock (i.e., locomotives and passenger cars). According to Amtrak officials,
it made better financial sense to borrow funds to lease this equipment and
use the capital funds for other purposes. As a result, Amtrak's debt
obligations increased dramatically--more than doubling from about $890
million in 1995 to about $1.9 billion in 1999. (See fig. 4.) In making these
investments, Amtrak expected the actual and potential benefits, such as
increased ridership, to outweigh the costs of additional borrowing.
Source: GAO's analysis of Amtrak's data.
As a result of increased borrowing, Amtrak's interest expenses also
increased by over 60 percent over the past 5 years. (See fig. 5.) As the
figure shows, Amtrak's interest expenses increased from about $50 million in
1995 to about $89 million in 1998 before declining somewhat to about $83
million in 1999. Amtrak expects interest expenses will be about $86 million
in 2000. Although interest expenses represented only about 3 percent of
Amtrak's total operating costs in 1999, they have been gaining importance in
Amtrak's cost structure because this expense is growing at a faster rate
than either Amtrak's total operating costs or revenues. From 1995 to 1999,
Amtrak's interest expenses increased about 5 times faster than total
expenses and about 4 times faster than Amtrak's revenues. Amtrak has tried
to control its interest expenses by refinancing its debt to get the best
interest rates possible. According to Amtrak, it can secure favorable
interest rates because it is able to pass the depreciation and interest
payments back to investors through "sale-lease back" arrangements.34
Source: GAO's analysis of Amtrak's data.
Amtrak expects that the annual interest expense on its commercial debt will
increase as the railroad continues to acquire new equipment, including 20
trainsets (cars and locomotives) for its high-speed rail program. Over the
next 5 years, Amtrak projects that its annual interest payments will
generally increase by over 50 percent--from $86 million in 2000 to about
$130 million in 2004. Amtrak projects that it will pay a total of about $640
million in interest in the next 5 years as part of the over $2 billion in
debt that Amtrak has incurred or will incur primarily to acquire new
equipment. Over 60 percent of this total interest represents debt for
Amtrak's high-speed rail program and the acquisition of new passenger cars.
(See fig. 6.) The other 40 percent represents such things as the acquisition
of locomotives and mail and express equipment. As previously discussed, both
the high-speed rail and mail and express programs are cornerstones of
Amtrak's plans to improve its financial health.
2000-04
Source: GAO's analysis of Amtrak's data.
Likely Continue Increasing
Amtrak's payments to freight, commuter, and other railroads (collectively
called "other" or "host" railroads) have also generally increased since
1995, largely as the result of renegotiating operating agreements with these
railroads. (See fig. 7.) Although Amtrak has a statutory right of access to
other railroads' tracks to provide service, the implementation of Amtrak's
access rights is handled through negotiated agreements. Most of Amtrak's
initial 25-year agreements signed in 1971 with other railroads expired in
1996. Amtrak has been renegotiating these agreements over the past several
years, and as of February 2000, it had renegotiated 17 of its 21 operating
agreements. For the most part, the renegotiated agreements have resulted in
cost increases. From 1995 through 1999, Amtrak's payments to other railroads
generally increased about 8 percent--from a total of $92 million to $99
million per year. This includes both base payments and incentive payments.
In general, base payments are the incremental costs35 incurred by a railroad
that result from Amtrak's use of the railroad's tracks and infrastructure.
Base payments also include any additional services (such as emergency
repairs) provided to Amtrak by a host railroad. Incentive payments are bonus
amounts earned by a host railroad to keep Amtrak's trains on time.36
Source: GAO's analysis of Amtrak's data.
The new operating agreements have increased Amtrak's payments to other
railroads because of increased track maintenance costs, changed incentive
payment structures, and restructured liability provisions, among other
things. For example, under the old agreements, Amtrak paid a lower amount
for track maintenance than it will pay using a different approach contained
in most of the new agreements. Although these new agreements increase
Amtrak's payments, Amtrak believes they encourage host railroads to improve
services provided to Amtrak, including on-time performance of its trains.
According to Amtrak, better on-time performance will increase its ridership
and revenues. Amtrak has attempted to control its payments to other
railroads by aggressively enforcing the statutory provisions requiring other
railroads to provide access to their tracks at incremental costs.
Amtrak's payments to other railroads are expected to increase in the future
for several reasons. First, Amtrak still has to negotiate new agreements
with four railroads. If these agreements follow the pattern of the 17
previous agreements, the payments to these 4 railroads can be expected to
increase. Second, Amtrak believes that railroads will earn larger incentive
payments by improving Amtrak's on-time performance. Amtrak estimates its
total incentive payments will increase, on average, about $7 million
annually over the next 5 years. Finally, Amtrak potentially faces higher
payments to other railroads if the planned service expansion called for in
its market-based network analysis and expansion of the mail and express
program occur. For example, as its mail and express program expands, Amtrak
is likely to operate longer trains to accommodate the additional mail and/or
express business.37 Railroads whose tracks Amtrak operates over may seek
additional compensation for these longer trains.
To meet its expected cost growth, it will be critical for Amtrak to achieve
its projected net revenue growth. Amtrak projects that its total revenue
(adjusted for inflation) will increase about $166 million over the next 5
years--from $2.09 billion in 2000 to $2.25 billion in 2004. According to
Amtrak, this will be accomplished by such things as implementing new
high-speed rail service between Boston and Washington, D.C., expanding its
mail and express service, and realigning its route network more closely with
customer demand. For example, Amtrak's recent market-based network analysis
calls for expanded service on 11 routes and increased train frequencies on 3
routes, among other things. Amtrak believes it can generate more than $65
million (nominal dollars) in net revenue over the next 3 fiscal years by
implementing the actions called for in its market-based analysis. Because of
the Amtrak Reform Act and an arbitrator's decision, Amtrak now has
additional flexibility in testing the financial viability of expanded routes
called for in its market-based network analysis without liability for labor
protection payments. Prior to the Amtrak Reform Act, the elimination of
routes or reduction of intercity passenger rail service on a route below 3
times per week could trigger labor protection payments to displaced or
dismissed employees. The Amtrak Reform Act also abolished labor protection
requirements as of May 31, 1998, and made them subject to collective
bargaining. Since November 1999, as the result of an arbitrator's decision,
Amtrak has been able to end train service on new routes within 2 years of
inception without incurring labor protection liability.38
Historically, however, Amtrak has had difficulty in achieving its planned
revenue targets. For example, Amtrak achieved its planned revenue targets
only twice from 1995 to 1999. As a result, Amtrak earned $14 million
(nominal dollars) less in revenues than planned over the 5-year period. (See
fig. 8.) Additionally, our recent reports, and those of the Department of
Transportation's Inspector General and the Amtrak Reform Council, have
questioned some of Amtrak's future revenue targets as being uncertain or
unrealistic.39 For example, in July 1999, we reported that Amtrak's business
plan claimed about $160 million (nominal dollars) in revenue for actions
that had yet to be identified. In addition, we reported that Amtrak's
expectations for increased revenues from high-speed rail service in the
Northeast Corridor and from its express service were based on critical
assumptions that had yet to be tested in the marketplace.
Note: Data for 1998 are based on Amtrak's September 1997 strategic business
plan rather than the revised March 1998 plan.
Source: GAO's analysis of Amtrak's data.
Amtrak Faces Short- and Long-Term Capital Investment Needs
On the basis of discussions with Amtrak officials and our review of
published reports, we estimate that Amtrak has over $9.1 billion in capital
investment needs through 2015 to maintain and improve its operations.40
These investments are critical for Amtrak to attract and maintain revenue
and to provide high-quality service. These needs include both short-term
needs, such as addressing infrastructure needs on the Northeast Corridor and
maintaining equipment, and long-term needs, such as replacing bridges and
tunnels and the electric system that supplies power to trains between
Washington, D.C., and New York City. In addition, Amtrak will have other
capital investment requirements for which cost estimates have not yet been
developed, such as acquiring new equipment and technology.
Our discussions with Amtrak officials and our review of reports show
Amtrak's capital investment requirements over the next 4 years (through
2004) to total about $4 billion. These requirements focus mainly on
infrastructure and equipment. (See table 1.) Infrastructure investment needs
account for over $2.5 billion of the total and are targeted toward
addressing deferred maintenance and improving the quality of service on the
Northeast Corridor. Amtrak plans to share the costs for some of these
infrastructure improvements with other railroads that use the Northeast
Corridor. Amtrak's Chief Mechanical Officer estimates that Amtrak's
short-term equipment maintenance needs total over $1 billion. These
investments are designed to eliminate backlogs in Amtrak's progressive
overhaul program and to increase the efficiency of maintenance facilities.
The remainder represents principal payments on commercial debt incurred to
finance past equipment acquisitions. In addition to these investments,
Amtrak will have other capital improvement requirements for which cost
estimates have not been developed. These include the acquisition of new
equipment and technology, station improvements, and investments in
high-speed rail programs outside of the Northeast Corridor.
Constant 1999 dollars in millions
Investment Estimated cost
Infrastructure investments
State of good repair investments $1,415
Completion of Northeast Corridor high-speed rail program 792
Life safety investments 316
Infrastructure subtotal $2,523
Equipment investments
Equipment maintenance, repairs, passenger car upgrades 1,100
Debt service principal payments 346
Maintenance facilities 42
Equipment subtotal $1,488
Total $4,011
Source: GAO's analysis of Amtrak's data.
The short-term capital investment needs that Amtrak officials and reports
have identified focus largely on the Northeast Corridor. In particular,
Northeast Corridor officials have estimated that about $316 million will be
needed over the next 4 years to continue life safety investments at various
locations on the Northeast Corridor. While not one of the highest cost
investments, Amtrak officials have said that safety to passengers,
employees, and others is of paramount importance. An analysis conducted by
Amtrak's Northeast Corridor business unit of life safety improvements shows
short-term investment needs concentrated primarily on the tunnels leading
into and out of New York City's Pennsylvania Station. This station serves,
on average, over 300,000 intercity and commuter rail passengers each
weekday. The tunnels were built in the early 1900s and, according to Amtrak,
are in serious need of modernization. According to Amtrak's assessments,
these tunnels have outdated ventilation systems, emergency exits, and
communications equipment, among other things. In June 1997, Amtrak, along
with the Long Island Rail Road and New Jersey Transit--the two commuter
railroads that use these tunnels--reported that a fire or other serious
incident in these tunnels or in Pennsylvania Station could endanger the
safety of passengers and those who respond to the accident.41 According to
this report, necessary improvements include adding improved exits, emergency
power sources, tunnel lighting, better communications systems, structural
repairs, and fire protection. Amtrak will be working with New Jersey Transit
and the Long Island Rail Road to identify what specific work remains to be
done and how this work will be funded.42 Amtrak is also studying the life
safety needs of other tunnels and stations, such as those in Baltimore and
Philadelphia.
Amtrak officials estimate that about $1.4 billion will need to be invested
to address several state of good repair issues on the Northeast Corridor.43
This amount includes $1.2 billion to eliminate deferred maintenance and
restore the infrastructure to a condition where only routine maintenance is
required. We,44 the Department of Transportation's Inspector General,45 and
Amtrak itself have all stated that the corridor is not in a state of good
repair and that this issue needs to be addressed soon. Amtrak has invested
about $530 million (nominal dollars) from 1994 to 1999 in routine
maintenance in the Northeast Corridor and believes that additional funds
will be needed to bring the Corridor up to a state of good repair. Amtrak
officials estimate that restoring the Northeast Corridor will require, among
other things, the rehabilitation of interlockings (crossovers allowing
trains to move to different tracks), modernization of communications and
signal equipment, and replacement of rails and ties. These improvements also
include about $180 million to replace bridges and replace and rehabilitate
portions of the electric power distribution system that supplies power to
trains between Washington, D.C., and New York City. According to Amtrak
officials and reports, not addressing state of good repair issues on the
Northeast Corridor has resulted in deteriorating bridges, increased trip
times, and a decline in overall ride quality. These officials and reports
maintain that if this situation is not addressed soon, it will start to
seriously affect the company's ridership and financial health, particularly
since over half of Amtrak's passenger trips are on the Northeast Corridor.
(See fig. 9 for illustrations of current infrastructure conditions on
Amtrak's Northeast Corridor.)
Northeast Corridor
Note: Amtrak provided the above illustrations to show the types of
infrastructure deterioration that can occur over time. According to Amtrak,
in the short-term, it addresses such problems with frequent inspections,
short-term spot repairs, slower train speeds, and removal of infrastructure
segments from service. These measures allow Amtrak to maintain a safe
railroad. However, over the longer term, Amtrak said, such actions are
costly and result in the gradual loss in the infrastructure's ability to
support Amtrak's operations.
Source: Amtrak.
Finally, Amtrak officials and reports also estimate that about $792 million
will need to be invested to continue implementing its Northeast Corridor
high-speed rail program. This program is expected to generate over $180
million (nominal dollars) annually in net revenue starting in 2002 and is
critical to Amtrak's efforts to increase its revenue and reach operational
self-sufficiency. From 1995 through 1999, Amtrak invested about $1.5 billion
(nominal dollars) in the high-speed rail program. According to Amtrak,
short-term infrastructure investments for this program will focus on
completing high-speed rail improvements between New York City and Boston
(including straightening curves and improving bridges) and reducing trip
times between New York City and Washington, D.C. The latter effort will also
include, among other things, improving signal and communications systems to
handle more trains moving at faster speeds and station platforms and signs.
In January 2000, Amtrak issued a report further assessing its capital
investment needs on the south-end of the Northeast Corridor.46 According to
this report, a total of $12 billion (in constant 2000 dollars) will be
needed over the next 25 years, including about $3.2 billion through 2005, to
address south-end infrastructure needs. This includes bringing the south-end
of the Corridor between Washington, D.C., and New York City up to a state of
good repair, replacing the electric system that supplies power to trains,
making life safety improvements, and replacing selected bridges and tunnels.
Amtrak estimates that its portion of the total cost will be about $6
billion, including about $1.8 billion over the next 5 years. Amtrak believes
that other users of the Corridor--commuter and freight railroads--should be
responsible for the remaining $6 billion. However, cost-sharing arrangements
are still being negotiated.
Maintenance Backlogs and Making Debt Payments
Other short-term capital investment needs include addressing equipment
maintenance backlogs in the progressive overhaul program. Amtrak established
a progressive overhaul program to more efficiently maintain passenger cars
and other equipment. Instead of only performing intensive maintenance
(called a "heavy overhaul") every 4 years, under this program, a less
intensive and more frequent maintenance step was introduced in addition to a
heavy overhaul.47 Although this program was designed to increase the number
of cars that received maintenance, a lack of funding led to a backlog in the
number of cars maintained. In 1995, we reported that nearly 40 percent of
Amtrak's passenger car fleet was overdue for a heavy overhaul. Our analysis
of data from Amtrak's Chief Mechanical Officer shows that, as of November
1999, the heavy overhaul backlog on Amtrak's active fleet of passenger cars
was about 15 percent.48 Although the heavy overhaul backlog has declined,
Amtrak is facing a significant increase in the number of cars that will be
coming due for overhaul. This will necessitate capital investment. Based on
our analysis, Amtrak will need to increase its overhaul production by over
85 percent over the next 5 years--or overhaul about 735 more cars and other
equipment per year--to meet its future overhaul needs and eliminate the
existing heavy overhaul backlog for some types of cars.49 The Chief
Mechanical Officer estimates that Amtrak will need about $1 billion in
capital funds alone through 2004 to meet this need plus repair wrecked cars
and locomotives and continue the equipment upgrades it performs at its
maintenance facilities. The Chief Mechanical Officer told us that Amtrak is
in the process of developing a new maintenance plan to address, among other
things, its overhaul needs in light of service expansions envisioned by the
recent market-based network analysis.
Amtrak's short-term capital investment needs include the repayment of debt
principal for past and future acquisitions of cars and locomotives. Amtrak
data show that Amtrak expects its debt principal payments to total about
$346 million through 2004. About two-thirds (67 percent) of these funds
(about $232 million) will repay debt that was incurred for past equipment
acquisitions. The remaining one-third (about $115 million) will be used for
debt incurred for such things as current and/or future equipment
acquisitions or facility improvements. The latter includes about $45 million
to repay the principal on the construction of Amtrak's high-speed rail
trainsets and facilities and about $69 million for future equipment
acquisitions (such as cars and locomotives).
Short-term capital investments further include maintenance facility
upgrades. For example, the Chief Mechanical Officer anticipates changing the
progressive overhaul program for a part of Amtrak's fleet to shift some of
the progressive overhaul work to selected secondary repair
facilities--facilities located throughout Amtrak's system that perform
routine maintenance as well as "as needed" repairs--and to increase the
frequency at which the work is done.50 The Chief Mechanical Officer
estimates that up to $5 million (nominal dollars) will be required to
upgrade the secondary repair facilities selected to perform this increased
workload. In addition, Amtrak has investment needs at its three main
maintenance facilities. He estimated that these facilities would require
over $40 million in capital investments over the next 5 years to meet future
production requirements and to modernize the facilities. This amount is in
addition to the $30 million (nominal dollars) that Amtrak has invested in
these facilities since 1995. Finally, there will be other upgrade needs as
well. For example, Amtrak officials believe that production at the Beech
Grove facility could be increased substantially if it could purchase or
build a warehouse building and install an automated parts inventory system.
The estimated cost would range from about $6 million to $8 million (nominal
dollars).
Estimates Have Not Yet Been Developed
In addition to its identified short-term capital investment needs, Amtrak
will have other short-term capital investment needs for which cost estimates
have not yet been developed. These include the acquisition of new technology
and additional equipment. For example, while Amtrak acquired large numbers
of new passenger cars and locomotives during the 1990s, certain portions of
its fleet may need to be replaced because they are reaching the end of their
useful lives. A good illustration is Amtrak's switch locomotives
(locomotives used to move cars in a rail yard) and auto carriers (railroad
cars that carry automobiles). As of April 1999, Amtrak had 68 switch
locomotives and 64 auto carriers. On average, both of these equipment types
are over 35 years old and, according to Amtrak officials, need to be
replaced. Overall, Amtrak's entire fleet (including cars and locomotives)
is, on average, about 15 years old. (See fig. 10.)51 About 13 percent (276
cars) of Amtrak's fleet of passenger cars and about 16 percent (68
locomotives) of Amtrak's locomotive fleet are 26 or more years old and are
at, or near, the end of their useful lives.
Note: The average age of Amtrak's fleet is 15 years. The figure does not
include 5 Turboliner and 2 Talgo trainsets as they constitute less than
one-quarter of 1 percent of Amtrak's fleet. However, they are included in
the average age calculation.
Source: GAO's analysis of Amtrak's data.
It is likely that Amtrak will also acquire new cars, locomotives, and other
equipment to support any expanded service it might offer, including corridor
service as proposed by the Midwest Regional Rail Initiative,52 or proposed
by Amtrak's recent market-based network analysis. The latter strategy
includes not only an expansion of passenger service but an expansion of
Amtrak's mail and express program as well. Amtrak's planned expansion of the
mail and express program will require some business partners to provide
their own equipment. For example, in two recent agreements, two partners
agreed to provide Amtrak with over 900 refrigerated cars to transport
various food products. However, Amtrak itself will still need to purchase up
to 1,100 more pieces of equipment to expand its mail and express business to
reach the planned target of $214 million (nominal dollars) in revenue by
2002. Ultimately, Amtrak plans to acquire about another 2,000 pieces of
equipment to meet the service expansion envisioned by its February 2000
market-based network analysis.53
and Other High-Speed Rail Corridors
Amtrak's long-term capital investment needs are also focused largely on the
Northeast Corridor. We estimate that about $5.1 billion in investments may
need to be made from 2005 to 2015. (See table 2.) As with the short-term
investments in the Northeast Corridor, Amtrak expects to share some portion
of these capital investment costs with other railroads that use the
Corridor. The capital needs identified in the Corridor consist of making
further life safety improvements to tunnels, including the tunnels into and
out of New York City's Pennsylvania Station; continuing to restore the
Corridor to a state of good repair; completing the high-speed rail program;
and continuing other investments begun earlier. Long-term capital investment
needs also include items for which cost estimates have not yet been
developed, such as the development of high-speed rail corridors outside the
Northeast Corridor. In addition, Amtrak officials and reports have also
identified about $3 billion in capital investments that should be made in
the 2016-27 period. These needs represent continuing investments in state of
good repair and high-speed rail improvements in the Northeast Corridor,
among other things.
Constant 1999 dollars in millions
Investment Estimated cost
State of good repair investments $4,462
Completion of Northeast Corridor high-speed rail program 262
Life safety investments 376
Total $5,100
Source: GAO's analysis of Amtrak's data.
Restoration of the Northeast Corridor
As with Amtrak's short-term investments, one of Amtrak's highest priorities
in the long term is life safety improvements in the New York tunnels and
other structures. While these improvements are not the largest single
long-term capital investment, they are one of Amtrak's most important
investments. An Amtrak Northeast Corridor engineering analysis estimates
that a total of $376 million in life safety improvements will be needed from
2005 to 2015. These improvements include the structural rehabilitation of
the New York tunnels, construction of an emergency power system, and the
study and design of possible ventilation and communications systems for
other tunnels and stations on the Northeast Corridor.
Most of the long-term capital investments we identified are concentrated on
continuing the restoration of the Northeast Corridor's infrastructure to a
state of good repair. This effort represents almost 90 percent--about $4.5
billion out of the total of $5.1 billion--of Amtrak's total identified
long-term capital investment needs. This estimate shows Amtrak continuing
its short-term Northeast Corridor restoration program, including the
rehabilitation of interlockings, modernization of communications and signal
equipment, and replacement of rails and ties. In addition, other projects
would be continued or initiated as well, such as replacing and
rehabilitating the electric power distribution system from Washington, D.C.,
to New York City and replacing several bridges and tunnels. These projects
alone account for almost $1.2 billion of the 2005-15 total.
One of the major components of these long-term capital investments is the
electric power distribution system on the south-end of the Northeast
Corridor--a system that dates from the late 1920s to the 1940s. Amtrak's
recent report on the south-end estimates that it will cost about $630
million over 25 years to replace and rehabilitate this system.54 According
to Amtrak officials, replacing and rehabilitating this system will minimize
electric failures, provide additional power for future growth, and
facilitate higher train speeds. Amtrak is currently completing a program to
allow higher speeds (from 125 mph up to 135 mph) using existing wires and
installing a new electrical frequency converter to provide for future
traffic growth. However, Amtrak officials believe that the replacement and
rehabilitation of certain parts of the system are necessary to reliably
supply power throughout the network and achieve the highest speeds for its
planned Acela Express service.
Another major component of the long-term capital investment requirements is
Amtrak's bridges and tunnels in the Northeast Corridor. Amtrak officials
estimate that replacing the three major bridges (Bush, Gunpowder, and
Susquehanna in Maryland) and one tunnel (the Baltimore and Potomac tunnel in
Baltimore) that have been identified as being in greatest need of
replacement will cost a total of about $816 million. All three of the
bridges are critical to Amtrak's New York City to Washington, D.C., service,
and some accommodate commuter and intercity trains as well as the river
traffic that passes under them. According to Amtrak officials, these bridges
have undergone regular maintenance and inspections but are all approaching
100 years of age and need to be replaced in order to avoid mechanical
failures that could disrupt both rail and river traffic. Amtrak Northeast
Corridor officials estimate the total cost to replace these bridges and
their approaches to be $326 million. Amtrak and the Federal Railroad
Administration have also identified the Baltimore and Potomac tunnel in
Baltimore as being in need of major structural repairs or replacement. This
tunnel is over 130 years old and is also critical to Amtrak's Northeast
Corridor service. Among the current problems with this tunnel are
substandard life safety conditions, poor drainage, and structural defects.
Amtrak's preliminary cost estimate for replacing this tunnel is about $563
million.
Been Developed Center on High-Speed Rail Service Outside the Northeast
Corridor
Our discussion with Amtrak officials and report reviews indicate that there
will be other long-term investment needs for which cost estimates have not
yet been developed. These include the continuation of short-term investments
such as equipment maintenance and the acquisition of new equipment and
technology. They also include the development of high-speed rail corridors
outside the Northeast. To date, Amtrak's role in developing these corridors
has primarily been to provide state and local organizations with
encouragement and seed money as they study the feasibility of high-speed
rail service. However, Amtrak officials have stated that in the future,
Amtrak plans to take a more prominent role, including making some capital
investments and/or operating such service. Amtrak is currently working with
various states and other entities to identify the investments required to
bring high-speed rail service to corridors designated under the Intermodal
Surface Transportation Efficiency Act of 1991 and the Transportation Equity
Act for the 21st Century. Most of these corridors are on track and other
infrastructure now owned by freight railroads. An Amtrak official estimates
that making this track and infrastructure suitable for high-speed rail
service will require, among other things, increasing speeds in curves and
through interlockings; improving safety at highway-rail grade crossings; and
upgrading track capacity and communications equipment. While Amtrak has no
firm long-term cost estimates for this work, Amtrak officials estimated that
a total of about $13 billion (nominal dollars) or more would be needed from
a combination of sources--including Amtrak; federal, state and local
governments; and freight railroads--to make these improvements.
Potential Funding Shortfall and Lack of Multiyear Capital Plan Present
Difficulties in Addressing Future Capital Investments
Amtrak faces two difficulties in addressing its short- and long-term capital
investment requirements--a potential shortfall in capital funding and the
lack of a multiyear capital plan. Through our discussions with Amtrak
officials and report reviews, we have identified capital investment needs
that could exceed expected levels of federal capital funding by nearly $2
billion through 2004. In addition, Amtrak officials anticipate that Amtrak
will use a substantial portion of its expected federal funding for needs
other than asset acquisition and replacement. These needs include track and
equipment maintenance, principal payments, and mandatory expenses (e.g., the
cleanup of contamination, called "environmental remediation costs"). The gap
between capital investment requirements and available funding could increase
even more if those investments currently without cost or scope estimates
(especially in the long term) are considered. Amtrak has not yet identified
the funding sources to meet these latter investments. In addition, Amtrak
has no current multiyear capital plan designed to identify or prioritize its
future capital investments or identify funding sources.
Investment Requirements
The capital investments we identified will exceed expected levels of federal
capital funds by nearly $2 billion over the 2001 to 2004 period.55 Since
Amtrak has never covered the cost of its operations, it has relied solely on
external funds for capital investments. Historically, these funds have come
from the federal government as well as from state and local governments and
the commercial debt market. Amtrak should be able to meet its planned
investment requirements through 2000 from the Taxpayer Relief Act funds and
the 2000 federal capital grant. However, beginning in 2001, these capital
investments will begin to exceed expected available federal funding. (See
fig. 11.) The deficit in funds assumes that Amtrak will receive federal
capital grants of $521 million through 2004.56 Amtrak's funding shortfall
will be even higher than that shown because the projection does not include
investment requirements for which cost estimates have not yet been
developed. These include improvements to stations and secondary maintenance
facilities, the development of high-speed rail lines outside of the
Northeast Corridor, and acquisitions of new technology or additional
equipment.
Note: Figures include only investments for which Amtrak has developed cost
estimates.
Source: GAO's analysis of Amtrak's data.
Not only will Amtrak face funding shortfalls but Amtrak also anticipates
spending a portion of its federal capital grant for things other than asset
acquisition and replacement. Amtrak's projections show that nearly one-third
of its available federal capital funds in 2000 will be used for maintenance
and debt service principal. Only about $5 million57 (nominal dollars) will
be available for asset acquisitions and replacements in 2000--the remainder
will be used for maintenance of way and equipment, legally mandated expenses
(such as environmental remediation), and debt service principal payments.
Amtrak's projections also show that of the over $1.6 billion (nominal
dollars) expected to be available in federal capital grants from 2000 to
2002, it anticipates using about $900 million (nominal dollars) for asset
acquisition and replacement and about $550 million (nominal dollars) for
maintenance (both equipment and way).
Other Than Federal Capital Grants to Meet Future Capital Investments
Potential shortfalls in federal capital funds will require Amtrak to
increase its reliance on sources other than federal capital grants to meet
its capital investment requirements. Historically, Amtrak has received funds
from such sources as state and local governments and commercial borrowing
for specific capital investments. For example, since 1996, Amtrak has
received about $857.4 million (nominal dollars) from state and local
governments for specific capital investments in certain states and borrowed
about $1.6 billion (nominal dollars) from the commercial markets to acquire
new equipment and other assets. In 2000, Amtrak plans to receive about $220
million (nominal dollars) from state and local governments and to borrow
about $520 million (nominal dollars). These funds will be used for such
investments as capital improvements to state-supported passenger routes and
refleeting, respectively. However, through 2004, Amtrak may need to obtain
nearly $2 billion in additional funds from these and/or other funding
sources for such things as restoring the Northeast Corridor to a state of
good repair, continuing the implementation of the Northeast Corridor
high-speed rail program, and maintaining equipment. This potential shortfall
does not include funds that will be needed for investments for which Amtrak
has not yet developed cost estimates.
Other sources of capital funds may be available to Amtrak. For example, the
administration has proposed $468 million (nominal dollars) for an Expanded
Intercity Rail Passenger Service Fund, supported by the Highway Trust Fund,
in its fiscal year 2001 budget. Funds would be available to Amtrak, a state,
and/or a consortium of states to improve passenger rail service across the
country. States would be required to pay for any operating losses incurred
by Amtrak in any joint state-Amtrak projects. The projects can be on either
current or potential intercity passenger rail corridors. In addition, two
bills are pending before the Congress that would permit Amtrak to issue $10
billion (nominal dollars) in bonds over 10 years to, among other things,
acquire, finance, or refinance equipment or rolling stock on the Northeast
Corridor or other high-speed rail corridors.58 The holders of these bonds
would receive tax credits. States would be required to contribute at least
20 percent of the cost of projects. Although each of these proposals could
increase the amount of capital funds available to Amtrak, the Secretary of
Transportation and states will also play roles--along with Amtrak--in
determining how these funds will be spent.
Compounding Amtrak's potential lack of funds to meet its capital investment
needs is the fact that Amtrak lacks a multiyear capital plan that identifies
its short- and long-term capital investment requirements, prioritizes them
for funding, and identifies funding sources.59 A multiyear capital plan is
important, as Amtrak has significant capital investment requirements and
many capital investments will take years to complete. For example, Amtrak
officials told us it could take over 10 years to design, construct, and
replace a bridge. However, since 1997, Amtrak has developed a series of
capital spending plans that cover only a limited horizon--not more than 1
fiscal year at a time. Although these plans detail Amtrak's spending for
individual capital projects and describe the criteria used to fund projects,
they fail to fully describe Amtrak's current and future capital investment
requirements, how these requirements will be funded, and the relative
priorities of the requirements. The effective use of capital funds depends
on whether they are invested to meet priority needs and whether they meet
expected benefits. Without a multiyear plan, Amtrak is incapable of ensuring
the effective use of these funds. Finally, such a plan would help
congressional decisionmakers in deciding what the federal government's
financial commitment, if any, might be for Amtrak capital improvements over
the long term.
(348177)
Table 1: Amtrak's Short-Term Capital Investment
Requirements, 2001-04 41
Table 2: Amtrak's Long-Term Capital Investment
Requirements, 2005-15 52
Figure 1: Comparison of Amtrak's Total Revenues and Total
Expenses, 1995-99 19
Figure 2: Comparison of Planned and Actual Operating
Expenses, 1995-99 20
Figure 3: Number of Amtrak Employees, by Type, 1994-99 24
Figure 4: Amtrak's Debt Obligations, 1995-99 30
Figure 5: Amtrak's Interest Expenses, 1995-2004 32
Figure 6: Percentage of Amtrak's Future Interest Expenses by Items Financed,
2000-04 33
Figure 7: Amtrak's Payments to Other Railroads, 1995-99 35
Figure 8: Comparison of Planned and Actual Total Operating
Revenues, 1995-99 39
Figure 9: Illustrations of Current Infrastructure Conditions on
Amtrak's Northeast Corridor 44
Figure 10: Average Age of Amtrak's Car Fleet, April 2000 50
Figure 11: Capital Investments and Capital Funding Sources, 2001-04 56
1. Unless stated otherwise, all years are the federal and Amtrak fiscal
years (October through September). Amounts in this paragraph are in nominal
dollars.
2. Amtrak has not comprehensively identified its short- and long-term
capital investment needs. Therefore, to identify these needs, we asked
Amtrak managers to identify capital investments they believed are needed to
maintain current service levels and improve Amtrak's service and reviewed
Amtrak and non-Amtrak reports addressing capital investment needs. As a
result, the investment needs identified in this report may not coincide with
those needs or priorities that might be established by Amtrak's management
if it had comprehensively assessed its capital needs.
3. "State of good repair" is defined as the capital investment needed to
restore Amtrak's right-of-way (track, signals, and auxiliary structures) to
a condition that requires only routine maintenance. Progressive overhauls
are maintenance checks and repairs of passenger cars each year in addition
to comprehensive overhauls every several years.
4. See app. I for a more detailed discussion of the scope and methodology
used to perform the work for this report.
5. Amtrak participates in the railroad retirement system, under which each
participating railroad pays a portion of the total retirement and benefit
costs of the industry for employees.
6. Amtrak has three strategic business units: Northeast Corridor, Intercity,
and Amtrak West. It also has a Corporate/Service Center.
7. The program includes the introduction of Acela Express service. Acela
Express trains are expected to reach speeds of up to 150 miles per hour and
have trip times of about 3 hours between New York City and Boston and 2-
hours between New York City and Washington, D.C.
8. In nominal dollars. The remaining Taxpayer Relief Act funds have either
not been spent or were used for another purpose, such as debt service.
9. Includes one-time lump-sum payments as well as other wage increases.
10. This figure may not represent the cost to Amtrak. Amtrak expects that
other railroads (commuter and/or freight) will contribute to projects with
mutual benefits.
11. Amtrak expects that other railroads (commuter and/or freight) will
contribute to projects with mutual benefits to help meet these needs.
12. Some portion of this shortfall may be paid by other railroads that
contribute to capital projects that provide mutual benefits.
13. We did not independently verify financial or other data provided by
Amtrak or others. We used the Gross Domestic Product price index from the
Department of Commerce and projected inflation data from the Congressional
Budget Office to convert Amtrak's financial data to constant 1999 dollars.
14. The state departments of transportation were California, Illinois, North
Carolina, and Washington state.
15. The commuter railroads were the Long Island Rail Road, the Massachusetts
Bay Transportation Authority, Metro-North Railroad, New Jersey Transit, and
the Southeastern Pennsylvania Transportation Authority. The freight
railroads were Burlington Northern and Santa Fe Railway Company, CSX
Transportation, Norfolk Southern Corporation, and Union Pacific Railroad
Company.
16. In nominal dollars. Unless otherwise noted, all dollar amounts in this
report are in constant 1999 dollars.
17. Although the slight improvement in the amount Amtrak earned for every
dollar it spent might appear to suggest that it has been closing the gap
between revenues and expenses, this is not the case. The slightly better
performance in 1999 over that of 1995 reflects that even though, on an
absolute basis, expenses increased more than revenues (resulting in a larger
net loss), revenues increased at a greater rate than did expenses.
18. Data on Amtrak's expense targets are in nominal dollars.
19. This includes the costs of progressive overhauls. Amtrak funds
progressive overhauls through its capital program. However, under generally
accepted accounting principles, the costs of such overhauls are considered
operating expenses.
20. In comparison, in 1998, labor costs represented about 33 percent of the
total costs for all major U.S. carriers in the air transportation industry
and, according to a bus company official, about 47 percent of total costs
for the largest intercity bus company.
21. In comparison, labor costs for commuter railroads increased about 1.5
percent over the rate of inflation from 1995 to 1998 as reported by the
American Public Transportation Association. Data for 1998 were preliminary.
22. In nominal dollars. Total negotiated wage payments (including general
wage increases, signing bonuses, and retroactive payments) were $260
million. The balance of this amount ($116 million) is expected to be paid in
2000.
23. Employment figures are as of September 30 of each year.
24. Report to Congress: The Market Based Network Analysis of the National
Railroad Passenger Corporation, Amtrak (Feb. 28, 2000).
25. In nominal dollars. Excludes $106 million in retroactive labor payments
because they were not in Amtrak's strategic business plans.
26. In commenting on a draft of this report, Amtrak noted that the fact its
workers can and do work on more than one line of business is a positive
aspect of its labor productivity.
27. The wage increase has since risen to $260 million; however, the
productivity savings goal has remained at $49 million. Data on wage
increases due to collective bargaining and productivity savings are in
nominal dollars.
28. In January 1999, Amtrak contracted out part of its food service function
to Dobbs International Services. This included preparing the food and
beverages served on board trains.
29. Amtrak officials told us that productivity savings were not a function
of budget cuts. Rather, in general, productivity savings were actually
calculated by subtracting the current cost of an activity (under the new
work rule or other change) from the cost that would have been incurred for
that activity on a historical basis. Amtrak has tasked its strategic
business units with calculating and tracking the specific cost savings.
Amtrak officials told us that they do not confirm the productivity savings
information provided by the strategic business units. Therefore, it may not
be clear how much savings is attributable to productivity changes compared
to savings from budget cuts.
30. Twice a year, Amtrak randomly selects two union-represented employees
who have maintained perfect attendance for the past 6 months, for a total of
four winners a year.
31. Data on estimated savings from Amtrak's Amplan and presenteeism programs
are in nominal dollars.
32. Total negotiated wage payments (including general wage increases,
signing bonuses, and retroactive payments) were $260 million. The balance of
this amount ($116 million) is expected to be paid in 2000. Data on wage
increases due to past collective bargaining rounds are in nominal dollars.
33. See Intercity Passenger Rail: Financial and Operating Conditions
Threaten Amtrak's Long-Term Viability (GAO/RCED-95-71 , Feb. 6, 1995).
34. In a sale-lease back arrangement, a lending institution funds the
construction of rolling stock. When construction is complete, Amtrak takes
delivery of the equipment, but the legal title is turned over to a
third-party investor who pays the lending institution. Amtrak then makes
lease payments to the investor for the life of the loan (usually the
estimated useful life of the rolling stock). The rolling stock, however,
belongs to Amtrak for accounting purposes and is reported in Amtrak's annual
financial statements as an asset. Amtrak benefits by obtaining the equipment
and a relatively lower interest rate. The investor benefits by paying
interest and by taking depreciation on the equipment, thereby lowering the
investor's taxes.
35. Incremental costs are the short-term avoidable costs incurred by a
railroad to support Amtrak service. They do not include allocations of
overhead or fixed costs. Avoidable costs include such things as wear and
tear on the track.
36. Most operating agreements generally stipulate that the host railroads
shall keep greater than 80 percent of Amtrak trains on time to receive an
incentive payment.
37. In May 1998, the Surface Transportation Board required Amtrak to observe
a self-imposed limit of 30 cars for its mail and express business over the
lines of the Union Pacific/Southern Pacific Railroad. If Amtrak wanted to
use trains longer than this, it would have to negotiate with the railroad.
38. Under the arbitrator's ruling, dismissed employees are eligible for up
to 5 years of wages, as opposed to 6 years of wages under the previous
arrangements. In addition, workers have to work longer (25 years) to receive
the maximum payment. Under the old arrangement, workers could obtain 5 years
of wages if they worked 5 years.
39. See Intercity Passenger Rail: Amtrak's Progress in Improving Its
Financial Condition Has Been Mixed (GAO/RCED-99-181, July 9, 1999); Report
on the 1999 Assessment of Amtrak's Financial Needs Through Fiscal Year 2002,
Office of Inspector General, U.S. Department of Transportation, CE-1999-116
(July 21, 1999); and A Preliminary Assessment of Amtrak, Amtrak Reform
Council (Jan. 24, 2000).
40. We asked Amtrak managers to identify capital investments they believed
are needed to maintain current service levels and improve Amtrak's service
in the future and reviewed Amtrak and non-Amtrak reports addressing capital
investment needs because Amtrak has not comprehensively assessed its capital
needs.
41. See Life Safety Effort, Pennsylvania Station and the New York Tunnels:
An Improvement Program for the North and East River Tunnels, Amtrak, Long
Island Rail Road, and New Jersey Transit (June 1997).
42. In commenting on a draft of this report, both Amtrak and the Federal
Railroad Administration noted that work is being done on these tunnels, and
according to the Federal Railroad Administration, $40 million (nominal
dollars) has been budgeted for this in 2000.
43. This estimate is predicated on infrastructure investments to be made
under the high-speed rail program. According to Amtrak, if these investments
are not made, this estimate could increase.
44. See Intercity Passenger Rail: Financial and Operating Conditions
Threaten Amtrak's Long-Term Viability (GAO/RCED-95-71 , Feb. 6, 1995) and
Northeast Rail Corridor: Information on Users, Funding Sources, and
Expenditures (GAO/RCED-96-144 , June 27, 1996).
45. See Summary Report on the Independent Assessment of Amtrak's Financial
Needs Through Fiscal Year 2002, Report No. TR-1999-027 (Nov. 23, 1998).
46. See The Northeast Corridor South End Transportation Plan, Washington,
D.C. to New York City, Phase II Letter Report (Jan. 2000).
47. Not all of Amtrak's fleet undergoes a heavy overhaul every 4 years. For
example, cars that carry automobiles are considered freight cars and are not
overhauled on the same schedule.
48. While progress has been made in reducing the overhaul backlog, the Chief
Mechanical Officer said there will always be a backlog because capacity
constraints at Amtrak's maintenance facilities and the scarcity of certain
types of cars in Amtrak's fleet make it hard to take cars out of service to
meet maintenance schedules. The Chief Mechanical Officer stated that a
10-percent overhaul backlog rate is "acceptable."
49. This production rate includes passenger cars, locomotives, and mail and
express equipment.
50. In commenting on a draft of this report, Amtrak said that this change is
still in the planning phase and has not yet been approved.
51. Amtrak's car fleet, excluding the recent additions of Roadrailer and
Express cars and all locomotives, has an average age of over 21 years.
52. The Midwest Regional Rail Initiative is an ongoing effort to develop an
improved and expanded passenger rail system in the Midwest. It is sponsored
by Amtrak, the Federal Railroad Administration, and transportation agencies
from nine Midwest states.
53. Amtrak's report on its market-based network analysis indicated that
about 4,000 total pieces of equipment would be required for the mail and
express program. This total includes about 1,100 pieces of equipment
provided by third parties.
54. The current system is designed to convert commercially generated power
for train use. If Amtrak decides to use unconverted power in a new system,
the design time and costs will be higher.
55. As noted earlier, Amtrak expects that some portion of this shortfall may
be paid by other railroads that contribute to capital projects that provide
mutual benefits.
56. Our analysis is based on Amtrak receiving $521 million in capital
appropriations beginning in 2001. Amtrak's most recent business plan update
(April 2000) also generally assumes Amtrak will receive $521 million in
federal capital support through 2003. No estimate was available for 2004.
57. In addition, Amtrak expects to have available for capital projects about
$412 million of Taxpayer Relief Act funds it previously borrowed for
equipment maintenance expenses.
58. S. 1900, the High-Speed Rail Investment Act was introduced on Nov. 10,
1999, and H.R. 3700, the High-Speed Rail Investment Act of 2000, was
introduced on Feb. 29, 2000.
59. Amtrak stated that it is preparing a multiyear capital plan.
*** End of document. ***