Amtrak Reform Council

 Minutes
August 31, 1999

The Amtrak Reform Council (ARC or the Council) held its business meeting at the Port of Seattle Commission Chambers, at 2711 Alaskan Way, Seattle, WA, on Tuesday, August 31, 1999.

Council Members present: Gil Carmichael, Chair; Paul Weyrich, Vice-chair; Bruce Chapman; Wendell Cox; S. Lee Kling; Federal Railroad Administrator, Jolene Molitoris; Clarence Monin.  Participating via conference call:  John Norquist and Joseph Vranich.

Mr. Carmichael chaired the meeting and Deirdre O’Sullivan served as secretary.

I.  Opening Remarks by Gil Carmichael & Approval of the Minutes

Following a welcome by Seattle host Mr. Chapman, the Council noted several informational items before taking up the official agenda.  The Council extended its thanks to Bill Loftus, as he leaves his position as the Part-time Director of Administration for the Council.  Mr. Monin also noted that while he is no longer the president of the Brotherhood of Locomotive Engineers, he remains a consultant to them and continues on the Council.

Mr. Carmichael called the meeting to order and asked for a motion to approve the minutes.  Mr. Chapman so moved and was seconded by Ms. Molitoris.  The minutes of June 29, 1999 were approved unanimously as submitted.

II.  Approval of FY2001 Budget

Tom Till, Executive Director, stated that the staff had prepared the FY2001 budget proposal request (Budget), and it was informally reviewed by the Chair and Vice-Chair.  He further stated that while the Council has the authority to submit its Budget directly to the Congress, it is acting at this time so the Budget can be considered by the Administration as it begins the FY200l budget preparation review cycle.  The Budget is for $1.4 million and the breakdown is as follows:  the increased request is primarily for staff ($860,000 an increase from the previous $710,000 request) for an additional professional staffer and other salary increases; small increase in staff travel; technical/consultants support for $500,000, and expenses for 12 Council meetings.  Mr. Till also stated that this Budget is prepared for the year beginning October 2001.  In addition he stated that action on the FY2000 request of $1.3 million was still pending.  The House had approved a budget of $450,000, but the Senate included $950,000 in its appropriations bill as it goes to the floor for action.

In discussion on the Budget, members raised a number of concerns: the extent of Council meetings and travel, the need for expert consultants outside the expertise of Council members and ARC staff, and a request so much greater than is being considered by the Congress for FY2000.  Mr. Till noted that the proposed increase is minor over the original FY2000 budget request.  In addition, he stated that the requirements for meetings and related expenses are difficult to specify since they are approximately 13 months in the future.  Mr. Carmichael stated that it is important for Council members to have personal experience with the emerging corridors, that Amtrak operates in different cultures across the nation, and that state governments and the railroads are being asked to invest more in the nation’s intercity passenger rail system.  Mr. Monin stated that his position is that each member of the Council was appointed for their expertise, and therefore, the ARC does not have a need for outside consultants.  Ms. Molitoris noted that she cannot comment on the Budget since the Administration has not set its FY200l budget.

In regards to the Budget, Mr. Chapman noted that the ARC is charged to address Amtrak reform; if Congress does not want Amtrak reform, it can reduce the budget.  The Council should move forward; if the Council performs, millions of taxpayer dollars will be saved.  While the Council has expertise in its members and staff, it does not have the capability to analyze the massive amounts of sometimes conflicting data.  Mr. Chapman then moved to vote and approve the Budget.  Mr. Weyrich concurred with Mr. Chapman’s sentiments and seconded the motion.

Mr. Carmichael, Mr. Chapman, Mr. Cox, Mr. Kling, Mr. Norquist, Mr. Vranich and Mr. Weyrich all voted in the affirmative.  Mr. Monin voted in the negative, and Ms. Molitoris abstained from voting.

Mr. Carmichael asked Mr. Till to bring to the next meeting additional detail on meeting activities for both FY2000 and FY2001.  Mr. Till then noted that the Budget would be submitted to the Secretary by September 14^th for inclusion in the US DOT budget submittal.

This was the only action item that the Council voted on at this meeting.

III.  Presentations from Washington and Oregon State Dept. of Transportation

Ken Uznanski, Manager of the Rail Program spoke on behalf of Washington State Department of Transportation, while Ed Immel of the Oregon Department of Transportation spoke of the unique aspects of corridor service in Oregon.  Their written remarks are attached to the minutes.

The Council members asked several questions about Amtrak costs and how they are charged back to the states and corridors.  Mr. Uznanski noted that Amtrak overhead costs are now almost 50 percent of their bill from Amtrak; but it is difficult to get adequate line-item detail which will allow them to explain to their state legislature what these costs are, and why they keep increasing.  Mr. Chapman noted the significance of this problem — that passing on increasing costs to states without adequate explanation could jeopardize the state partnership.  He further stated that states could begin to look outside the Amtrak system for a service provider and that, if the states, which are also sensitive to the bottom line, feel they are being expected to carry a national responsibility, they may become less supportive of the partnerships which contribute to improved passenger rail. 

Mr. Monin asked the states to further explain their remarks that Labor needed to be more realistic about how costs are determined and allocated.  He asked the states for some specific examples of this problem.  Mr. Uznanski stated an example of this was that Talgo trains are currently maintained by Amtrak employees but older versions of the Talgo trains were maintained by the Talgo company and that equipment never missed a day of service in almost five years.  Once Amtrak employees took over the maintenance, the states paid a much higher cost for the same kind of maintenance.  The states recognize this need for Amtrak to handle maintenance, but expect the same level of reliability experienced with Talgo maintenance.

The Council members’ overall discussion noted that Amtrak will have to reduce its overhead costs if it is to be competitive.  Mr. Cox asked to states to provide any existing reports they have on plans, operations and costs to the Council, and Mr. Kling asked Amtrak to respond to the information provided by the states regarding Amtrak’s cost allocation system.  Amtrak responded that it will do so.  Mr. Uznanski ended the discussion by noting that the states had looked at other service provider options, but, on the whole, Amtrak has more positives than negatives, while still having areas for improvement.

IV. Amtrak’s Mail and Express Service

In general discussion that followed Amtrak Vice President, Ed Ellis’presentation on Mail and Express (M/E), Council members brought up several issues, including the concern that passenger service not be sacrificed to M/E.  Mr. Ellis stated Amtrak is working on this; noting that for cross-country trains, delays at a specific interim stop (e.g., Chicago) do not necessarily mean that the train is late at its destination.  Amtrak is instead adjusting schedules of these trains (which are not high-speed service).  Mr. Kling then asked how long will it take before M/E will make a profit.  Mr. Ellis stated that M/E will run a profit this year, and M/E will contribute to Amtrak’s bottom line.

V. Amtrak’s Financial Performance for FY1998 as Reported by the Inspector General and GAO

Michael Mates, ARC’s senior financial analyst, provided a brief overview of the two reports, noting that the GAO report looks at activity to date while the IG’s report focuses on the future.  He concluded that overall, progress has been made towards self-sufficiency but significant improvement is still needed, and the trend of improvements must be greatly accelerated.  He also stated that Amtrak has promised to have additional improvements in its new business plan which is scheduled for release this fall.

In response to a question by Mr. Monin on what goes into Amtrak s labor costs, Mr. Mates noted that the reports look at total operating expenses, not individual elements. 

Mark Dayton of the IG’s office provided additional insights on the IG’s report, including its comments on TRA funds and use of capital.  He noted that Amtrak’s use of TRA monies is legal, including “borrowing” and then paying back those funds or applying these funds to certain eligible repair expenditures such as Progressive Overhauls and thus “repaying” the funds against another internal account.  (This internal borrowing was undertaken in light of Amtrak’s commitment to Congress to only receive capital funds.)  He also noted that the IG has been a critic on the overhead costs issues.  Amtrak contends it has minimum staffing and that these overhead costs are fixed -- if it can increase passenger ridership and revenues, then the per-passenger cost of overhead would be reduced in theory.  He further added that the IG’s staff has not looked in detail at overhead, but it also has not found “deep” departments in the overhead categories; so major savings in these areas are not assured.  It is clear that Amtrak is looking at other partnerships as the federal government pulls back, but it has not yet been determined whether these partnerships are for direct operations, capital or overhead.

Mr. Dayton also provided some context for Amtrak’s high operating costs and losses. He pointed to the low level of capital appropriations in the 1980s which has contributed to higher operating costs.  He also noted that, as a result, Amtrak has financed $800 million in high-speed rail costs, contributing approximately $100 million annually in additional interest costs over the next four years.  Without such costs associated with financing recently acquired equipment, Amtrak would be $400 million ahead -- which is almost the budget gap to be closed.  When Mr. Carmichael noted that Amtrak received a very low interest rate for its high speed rail program, Mr. Dayton concurred that Amtrak’s high-speed rail financing arrangement is a very fine financial arrangement.

In response to a question about Amtrak needing an overhead rate as good as Southwest Airlines, Mr. Dayton noted that the IG is looking at Amtrak’s strategic plans, forecasts of revenues and operating costs, capital and requirements, and the general economic outlook.  This is a major effort by itself; so the IG has not taken a management-consulting role with Amtrak on what it could do to reduce costs.  In response to a question from Mr. Carmichael about whether the IG could “benchmark” Amtrak to a comparable entity, Mr. Dayton noted that the IG had the capability but had not seen it as its role.  Ms. Molitoris noted that this is a good opportunity, and she would talk with the IG about undertaking such a benchmark assessment and the associated costs. 

In response to a question about Amtrak’s progress in implementing recent labor agreements and their implications, Mr. Dayton noted that the Amtrak labor agreement was approximately 90 percent of the freight rail labor agreement; and Amtrak projected that productivity would offset approximately 20 percent of the increased costs of the 1997 to 1999 labor agreement settlements.  These agreements are almost completed and the IG is evaluating them and will make its findings of such agreements in its 2000 assessment.  If the IG believes that these productivity savings will not materialize, it will alert Amtrak, but it understands that Amtrak and labor have a cooperative understanding that these productivity savings must be achieved.  Mr. Monin concurred that Amtrak and labor have a good relationship now.

VI.  Analysis of Lengthening Trip-Times on Selected Services Provided by Amtrak

Mr. Vranich provided an analysis that was distributed to the Council members concerning Amtrak’s lengthening schedules on selected routes.  In the general discussion that followed, the Council discussed reasons for the schedule extension, including the possiblities that delays might be due to increasing M/E operations or to congestion due to increasing freight traffic.  Mr. Weyrich stated that he had spoken to Mr. Ellis, who indicated that the schedule extensions were not due to M/E operations.  Ms. Molitoris indicated that traffic congestion due to the mergers of freight railroads was almost certainly a contributing factor in the delays, and Mr. Carmichael agreed with that assessment.  Ms. Molitoris said that she would raise the issue with Amtrak and report back to the Council.

VII. Presentation from Northwest NARP and Adjournment

Mr. Lloyd Felm of the Northwest National Association of Railroad Passengers spoke about the success of the Cascadia Service contributing to crowded trains on weekends, and about his concern regarding privatization due to its implications for rail’s future in light of the short-term focus of the investment community.

As there was no further business, the meeting adjourned.