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In Consideration of Public Managers ~
This is about reality, there is no villain, not now, not in the past. Every person in business, and railroading is no different, it is a business, is a purveyor of a product or of services. In times past, an economic transportation of freight, mail, and as an afterthought, passengers was the service provided.
Horace Scudder’s painting (1897) of The first carriage of passengers in the Baltimore and Ohio’s the Directors, reporters and their wives at Endicott Mills as the ‘Tom Thumb’ locomotive pulls into the station, memorializes what was a brilliant marketing tactic, and as long as the railroad had excesses of freight revenue, it could afford to carry passengers. That was where the politicians attacked when they refused to support the progressive, anti-capital proposals sponsored by organized labor and other.
Failure is Rooted in Scope and Political Assumptions ~
The initial assumptions, made by senators and congressman, signed and sworn to by a president were made by men who had, for the most part, never run a business in their lives. Mostly lawyers, with a few other professions among them, they were and are the political elite of our nation. A single salient factor stands out, few if any have ever faced the realities of business, the balance of assets and debits, of making a payroll or of keeping the stakeholders happy. They listen to and take their guidance from special interest subject matter “experts,” most who have their own agendas, and this guidance often creates faulty assumptions. Such is the thought that passenger rail service, the bulk of which travels less than 300 miles, can survive a Break Even Analysis.
A Brief Exposure to Railroad History ~
In the beginning railroading was driven by wild eyed entrepreneurs, and much of the funding originated with unscrupulous financiers like Jay Gould and bankers who were interested in the control of as much financial activity as they could. Men like J. P. Morgan and J. D. Rockefeller. This led to extremes of competition and foolish financial decisions that made no economic sense. Examples of this error are all over the United States, like New York City, served at one time by twelve railroads and Chicago with fifteen, and St. Louis, or Cincinnati with eleven each. This causes all to suffer because no effort makes enough money to thrive. Conversely there are Los Angeles, Portland, Seattle, and San Francisco which only had an optimal mix. Ideally a metroplex should have two, at the most three Class 1 railroads and two to four regional railroads. In this competitive environment everybody make enough to survive and prosper.
Men like John J. Hill, Edward Harriman, and Cyrus K. Holliday were entrepreneurs, financiers and railroad men. They came and built to last, make no mistake, they were all very into making money, but they sought to create a self sustaining business environment. Holliday even founded the town, Topeka, that would become the State of Kansas’ capitol.
A Word About Regulation ~
Regulations dealing with public safety and risk management among transportation utilities are an absolutely necessary, but any extension of that is restraint of trade. This is explained because the loss of revenue generated by government interference is what would lead to the perfect storm called Penn-Central. Examples of these regulations are the Interstate Commerce Act (1887) and the Sherman Antitrust Act (1890). Of themselves they were well intended legislation, but because they were ambiguously written, they begged for amendment and for supporting legislation, unfortunately they were also very subject to political manipulation, creating numerous opportunities for political chicanery. The supporting legislation laid open huge extremes of political disregard of the public’s need, of pandering to special interests, and allowing political subversion of the business model. While both the Elkins (1903) and Hepburn (1906) Acts should have been part of the initial legislation, and were legitimate additions neither were written in a way that prohibited political manipulation. The following paragraphs are an example of this.
Theodore “Teddy” Roosevelt actions against Northern Securities Company was just this kind of manipulation. Roosevelt refused to recognize the existence of a natural trust , that is a trust agreement which is formed naturally to provide a service in the absence of all financially realistic competition.
The Northern Securities Company was an agreement between James J Hill, E. H. Harriman and J. P. Morgan; “In 1901, railroad builder James J. Hill of St. Paul, Minnesota, fought off an attempt by his arch rival Edward H. Harriman for control of the Chicago, Burlington, and Quincy Railroad. Hill, who controlled the Great Northern and the Northern Pacific railroads, wanted to gain access to Chicago for his lines from the Twin Cities. After a protracted and potentially disastrous bidding war for the CB&Q, Hill and Harriman cooperated with banker J. P. Morgan and financier John D. Rockefeller to create the Northern Securities Company. Established in the state of New Jersey (which had laws favorable to this type of arrangement), Northern Securities held the majority of shares in the CB&Q, the Northern Pacific, and the Great Northern railroads, along with smaller roads associated with these three.”
What Roosevelt failed to realize was that the NSC was a ‘Natural Trust’ as described by Senator Sherman in the ‘Short Description’ of the Act. None of the three railroads (GN, NP, or WP {UP}) could provide adequate service to the Dakotas, Idaho, Wyoming or Oregon and Washington without the physical and financial resources of the others and all required the rights of way uses on the CB&Q to reach Chicago. Hill owned the CB&Q, and conveyed those rights to Morgan and Rockefeller in exchange for certain forbearances from Harriman, allowing all three roads to use CB&Q, then all three cooperated to serve the ‘Dark Territory.’ When Roosevelt railroaded the Supreme Court in 1904, gaining a one vote (5 x 4) majority, ordering the dissolution of the NPC, he only delayed the reality of a natural vacuum and the establishment of a natural trust by 70 years. This came to pass in 1970 when the ICC, refused to recognize the Justice Department’s objections, which hadn’t changed in 70 years, but failed to cite a single instance of where “restraint of trade or competition” would be created by the proposed merger. When Justice went to court, the courts denied their standing and the merger was approved and the consolidation of the Chicago, Burlington and Quincy Railroad, the Great Northern Railway, the Northern Pacific Railway and the Spokane, Portland and Seattle Railway created the Burlington Northern.
So what does all this have to do with AMTRAK in general and the Northeast Corridor in particular?
It is necessary background of the difficulty created when progressive governance attempts to control and direct the market, any market. The blight on any cooperation, shared use or even mergers, that might be seen as reducing competition, regardless of the public benefit, continued unabated for the next ten years. There were between 300 and 500 railroads existing in 1915, but records are inexact, and many of the smaller railroads, were mostly bankrupt but operating. They might have merged with the larger, more successful class 1 railroads or been bought by them, but this was prevented by a fear of predatory litigation. When WW I started, because of this fiscal uncertainty, the railroads were unable to support the war effort, forcing Wilson to nationalize the railroads, forming the United States Railway Administration.
While mostly a bureaucratic nightmare, it did largely refurbish the rolling stock, power systems, track, roadbed and right of way, but it’s most significant product, the McAdoo Plan, reducing the confused collection of railroad companies from 270 in 1919 to just 19 while guaranteeing competition, never came to fruition, as Franklin Roosevelt scrapped the plan, a bargaining chip while forming alliances with organized labor.
AMTRAK is Created ~
By 1967 political depredation to the capitalist business model, politically supporting organized labor while subsidizing foreign competition in the form of The Marshal Plans and other loan agreements had either destroyed northeastern businesses or forced their relocation to ‘Right to Work States.’ This was particularly crushing in the heavily industrialized Northeast, Middle Atlantic, and North Central states. It took more than twenty-five years for Lowell on the Merrimack River in Massachusetts to begin to recover, and Springfield in that state is still staggering. This loss of trade, combined with their already weakened fiscal state, left nearly a third of the American Railroads, fewer than a hundred by 1969, reeling. The desperation merger of the NY Central and the Pennsylvania Railroads, intended to stave off the insolvency of both, was approved by ICC dependent on their assumption of the bankrupt New York, New Haven and Hartford Railroad and all its debt. The new corporation, organized in 1969, was called the Penn-Central Transportation Company (PC) [Marking Mark: PC].
The combined weight of the national situation and of their debt, combined with the intransience of Organized Railway Labor’s work rules and the ICC’s refusal to allow several abandonments of non-profitable routes caused the PC to collapse in less than seventeen months, declaring bankruptcy in 1970. Because the PC was either a necessary thru service, a debtor, or a feeder for more than twenty other railroads, the ensuing cascading bankruptcies looked like a snow avalanche roaring down a mountain.
The financial failure threatened to effectively shut down all but local business east of Chicago and north of a line from Indianapolis to Baltimore. The collective municipal, state, and federal governments went into panic mode, but instead of reversing all the excessive and degrading legislation and often felonious ICC Rule Makings that caused the calamity, they mentally recused themselves and wrote more legislation. The National Railway Passenger Service Act of 1970, formed AMTRAK as a subsidiary of the National Railway Passenger Corporation, with the absurd requirement that it should make money or at least break even. Now forty years later, it has yet to make its first honest dime of profit. The Regional Railroad Revitalization Act of 1974 which created CONRAIL, was the second piece of absurd ineptitude. Herein we will only discuss AMTRAK, the CONRAIL difficulty has been superbly treated in Rush Loving’s “The Men Who Loved Trains” .
The absurdity that a passenger railroad can make money is a significant but failed assumption, regardless of who make that postulation. To the best of my knowledge, reading and research no railroad ever made a viable profit by operating a passenger railroad. Several of the ‘extra fare’ named, express service trains did break even in the middle twentieth century, Santa Fe’s Chiefs serving LA from Chicago, GN’s Empire Builder, from Chicago to Seattle, IC’s City of New Orleans, from Chicago to New Orleans, both NYC’s Twentieth Century Limited, and PRR’s Broadway from New York to Chicago, among them. But no less than 300 mile trip including the heavily utilized, less than 150 mile commuters like the Broker and the Congressional (PRR) made a nickel of profit. All were subsidized by the carrier’s freight operations. NRPSA’70 put paid to that idea.
All this continues to be aggrandized by congress and by AMTRAK propagandizing the political line, as we taxpayers continue to be billed more than 875 million dollars a year in addition to other fiscal support legislation and the various transportation bills that support the continuation of this difficulty. Having a viabal nationwide passenger rail service is an extreme necessity. However, supporting an organized labor and political featherbedding effort on a scale this extensive is illogical. AMTRAK and the states commuter services provide about 48 percent of the passenger services once provided by the Commercial ‘for profit’ Railroads, and by comparison, employs about 20 percent more people to do that work.
Talking About the Northeast Corridor . . .
The home of the cooked books, AMTRAK has become an expert in the government art of favorable fiscal reporting and projection. The company’s pride, its Northeast Corridor redesigned from a functional format in 1970 to a chewed up mass of parts pretending to be one, from South Boston Massachusetts to Washington D.C. is in reality, it’s biggest weakness. The infrastructure, including the catenary, is an average of eighty years old. There are two tunnels under the North River and three bridges before you get to Newark New Jersey that are a hundred year old and they are showing their age. Having a few thousand temporary patches installed in the last forty years and a power grid that is undependable does not help either. All this is exacerbated by seven less than cooperative state tenants and two limited ROW freight railroad running on it. The entire operation is supposed to be controlled from three Centralized Electric Control Centers (CECC), unfortunately, much of the corridor is not fully linked and is still under local control by about twenty towers.
The NEC, Boiling Water and Books, to Generate Favorable Reports and Forecasts ~
AMTRAK cooks the books in many varied ways, but the most egregious are timeliness and NEC Profitability. The only NEC trains that regularly runs reasonably close to on time is the ‘Acela’ an extra fare HSR express, and though some short distance regional’s are getting better, most are abysmal. Deficiencies begin the instant they roll off AMTRAK rails. Claims of 97 percent on time are based on the Acela and reports almost everything else as a long distance train, claiming their off corridor locations as origins or off corridor destinations.
Financially, the water in the pot is even hotter. On the Northeast Corridor 2007 independent studies report that the Acela is 0.871 cents per mile (CPM) to run and the regional trains cost about 0.633 CPM while most “Long Distance Trains” are on the average of half that. AMTRAK will not report actual numbers to the public only statistical generalities. Much of this is abetted by charging every train entering the corridor or passing through it twice what it charges itself for its own corridor trains, producing a false revenue entry and reports a false bottom line, making the corridor appear more profitable.
The reality of this is a product of the system environment, organized labor, despite being only an operational element is largely driving the train. Work rules are set by labor in a way that is only beneficial for the worker, not a shared benefit for the work provider and the worker as it should be, i.e.: Riding to Washington a while ago I counted eight conductors on a six car Acela Train when at most there should be three. This is just the tip of the Iceberg, but it is no one’s fault, it is the center of an appropriations managed storm.
Turn AMTRAK’s Difficulty into Tremendous Success . . .
There is an old adage buried somewhere in some obscure management manual that says, “Only criticize when offering a positive suggestion or solution.” A Prescription for AMTRAK’s Health is offered in the five following alternatives, they are ranked, in order by likelihood of success, with success, not likelihood of selection, the final one being the status quo ante.
1. The necessity of saving the system is unquestioned.
a. To do this AMTRAK and the National Railway Passenger Corporation (NRPC), since they have a single purpose, must be merged eliminating one set of management expenses.
b. The new corporation’s federal funding must be changed from an appropriations based argument to a fixed allocation of 900 million dollars with a provision to increase the allotment by the annual cost of living increase.
c. Further waste must be trimmed by expanding the current business units and converting them to semi-autonomous operational regions. All metropolitan, state and regional passenger systems must voluntarily join the operating region accepting the loss of autonomy and excepting the reality of the regions choice of personnel and equipment accepted for transfer to the region with NRPC accepting fiscal responsibility for the equipment transferred.
i. All metropolitan, state and regional passenger systems will immediately, upon the NRPC’s startup cease operation, any presold local tickets or monthly passes will be valid for the period covered, unused tickets will be turned in to the servicing NRPC ticket office/agent for dollar for dollar credit.
ii. All federal money used to fund metropolitan, state and regional passenger systems will be paid to the NRPC from the 90th day following startup. This is intended to give the intrastate agencies sufficient time to legally furlough, buy out or to retire individuals not selected for transfer.
iii. All NRPC personnel, regardless of position or duty will treat every customer, no matter how rude or disgruntle, like they were their best friend who had something they needed badly, they do, their continued patronage.
d. All freight and passenger rail operations within a region will be conducted by the dominant Class 1 railroad in that region, i.e.: east of the Mississippi River there are two major carriers, CSX Transportation and Norfolk Southern Corporation. They will be required to decide between them how they will provide the necessary service to deliver the passengers and freight on time and budget as they once did.
i. Reimbursement for service will be based on passenger miles served. This will be based on the actual cost of operations per passenger, plus any special services required plus a allowed profit of 6 percent. Initially this rate will be determined, for the first two years, by dividing the total cost of AMTRAK and the applicable state or states federal and state aid and the total revenue divided by passengers served [Rate=(((Fed Aid + State Aid + Total Revenue) / Passengers Served) x .06)]. In year three that formula will be applied to the NRPC Region’s year 1 factors.
ii. Any validated ticket sold in any region of the nation will be accepted for service in any other region, i.e.: A passenger traveling from San Diego to Huntington Station, Long Island, NY via San Francisco, Chicago, St. Louis, and New York City shall be accepted on every train necessary to complete their journey.
iii. Conductors on any train can electronically sell any ticket to anywhere.
iv. Because operations are the predominant purpose of the system’s purpose, organized labor bargaining units will negotiate with the Class 1 carrier operating the specific route.
v. There will be a single nationwide set of operating rules, local conditional adjustments will be supplied to foreign operators from other regions ½ hour prior to going out after clocking in.
vi. When trans-regional trains will change crews crew members will be authorized to bid one, two or three turns before returning to home dispatch. No crew will make a run across new territory without a regional safety check ride.
e. Additional reforms as they become necessary.
2. The necessity of saving the system is unquestioned.
a. To do this AMTRAK and the National Railway Passenger Corporation (NRPC), since they have a single purpose, must be merged eliminating one set of management expenses.
b. The new corporation’s federal funding must be changed from an appropriations based argument to a fixed allocation of 900 million dollars with a provision to increase the allotment by the annual cost of living increase.
c. Further waste must be trimmed by expanding the current business units and converting them to semi-autonomous operational regions. All metropolitan, state and regional passenger systems must voluntarily join the operating region accepting the loss of autonomy and excepting the reality of the regions choice of personnel and equipment accepted for transfer to the region with NRPC accepting fiscal responsibility for the equipment transferred.
i. All metropolitan, state and regional passenger systems will immediately, upon the NRPC’s startup cease operation, any presold local tickets or monthly passes will be valid for the period covered, unused tickets will be turned in to the servicing NRPC ticket office/agent for dollar for dollar credit.
ii. All federal money used to fund metropolitan, state and regional passenger systems will be paid to the NRPC from the 90th day following startup. This is intended to give the intrastate agencies sufficient time to legally furlough, buy out or to retire individuals not selected for transfer.
iii. All NRPC personnel, regardless of position or duty will treat every customer, no matter how rude or disgruntle, like they were their best friend who had something they needed badly, they do, their continued patronage.
3. The necessity of saving the system is unquestioned.
a. To do this AMTRAK and the National Railway Passenger Corporation (NRPC), since they have a single purpose, must be merged eliminating one set of management expenses.
b. The new corporation’s federal funding must be changed from an appropriations based argument to a fixed allocation of 900 million dollars with a provision to increase the allotment by the annual cost of living increase.
4. AMTRAK’s federal funding must be changed from an appropriations based argument to a semi-fixed allocation of 900 million dollars with a provision to increase the allotment by the annual cost of living increase.
5. Status quo ante remains in effect, maintenance of the system will continue to decline and in spite of increasing ridership, the variable and fixed expenses will continue to exceed the system’s total income. Eventually mechanical and safety deficiencies will combine to cause a catastrophic accident, hope fully involving only the railroad, because that will limit the casualties. If such a thing involves a city the casualties will be extreme.
In Summary~
Our nation has, since the inception of railroads, and trains, has come to depend on rail transportation, facts cannot be denied, it is, in reality, a requirement of our way of life.
Without our rail system, carrying both freight and passengers, and despite the mightiest efforts by government and all other modes of transportation and delivery system, the commerce and inter and intrastate trade would grind to a halt. Our economy, weak as it is, would be reduced to 1835 levels. The majority of us would be as challenged by our circumstances as a Pashtun peasant in the Hindu Kush.
Our only solution is to force the issue, pushing up against the progressive political glass, forcing the adoption of one of the top three options, rolling back the government of industry. Only in this way will the America we know and love survive. We must learn and live by JFK’s words, “Ask not what your country can do for you . . .” be self reliant, go out and do it yourself.
Liberty, Freedom, and Common Sense 