October 30, 2009
[National Association of Railroad Passengers]
The Pew Charitable Trusts issued a "cheap-shot" report October 27 highlighting claims that Amtrak understates costs per passenger. The Pew document, part of their Subsidyscope project, is short on explanations, but predictably generated a huge amount of bad publicity for Amtrak, epitomized by the New York Post's screaming headline: "Amtrak's a wreck on rails; Loses $32/passenger41 of 44 nationwide routes lose money."
NARP and others have often stated that the best metrics for intercity service are "subsidy per passenger-mile" or "revenue-to-cost ratio" (percent of costs covered by the farebox). Pew has passenger-mile figures in its table but not in its news release, and does not mention the ratio. We also have pointed out that Amtrak's routes work together as a network, both on the cost side due to sharing of common facilities and on the revenue side due to passengers connecting between or among multiple trains. Thus the operating grant requirement will not go down anywhere nearly as much as a superficial reading of Pew's tables implies.
But the truly bizarre aspect of Pew's work is its handling of "depreciation and other overhead costs," which it says constitute "an additional $697-million in net losses" that averages out to $24.29 per passenger or 75 percent of Pew's claimed $32.31 systemwide average loss per passenger! Without ascertaining the makeup of these costs-including, for example, how much is attributed to Northeast Corridor infrastructure-Pew allocated these costs to every route according to number of riders.
Thus, the Cascades in the Pacific Northwest are assessed a portion of the interest on debt used to mortgage New York's Penn Station. Yet, since that debt was incurred to meet payroll and not to improve Penn Station, one should ask whether this interest expense should be allocated to any route. It would also be interesting to know whether Pew (or Amtrak) allocates any depreciation or interest expense to Amtrak's "profitable" contract work.
Amtrak responded to Pew in part by complaining that the leaseback deals Amtrak has done on most of its rolling stock (again, to meet payroll) means that the equipment and the related trains are being charged for depreciation as if nearly brand new when much of it is at least 15 years old.
In fact, Amtrak has not allocated depreciation and overhead costs because of the confusion it created. Interest has also been a source of disagreement. Importantly, however, in accord with the 2008 reauthorization law, Amtrak is working with the U.S. DOT's Volpe Transportation Center on a better method for allocating costs, which likely will replace "interest and depreciation" with a synthetic capital charge calculated for all Amtrak business lines-including real estate and commuter.
One last word about depreciation: it is a non-cash expense whose assessment has no logic if no effort is being made to replace rolling stock. Fortunately, or perhaps unfortunately, passenger cars last longer than cars, buses or planes. Witness Amtrak's single-level dining cars, the youngest of which is over 50.
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