Financially Troubled Amtrak Is Taking Taxpayers for a Ride
Last November, several news outlets reported that Amtrak, the nation’s heavily subsidized passenger rail service, was on track to break even for the first time in the company’s history. After nearly 50 continuous years of operating in the red, covering all its history, 2020 may become its first year in the black:
Amtrak said it is on track to break even for the first time in company history in fiscal 2020 as record ridership led to an improvement in its financial results.
The government-owned rail carrier said 32.5 million riders took trips on Amtrak trains during its fiscal year ending in Sept. 2019, with its northeast corridor and state-supported lines experiencing record growth. The total marked a company record and an increase of 800,000 riders compared to one year earlier.
“We are growing and modernizing Amtrak. We have an industry-leading safety program and have invested billions in improving the customer experience, resulting in more people choosing Amtrak as their preferred mode of transportation,” said Amtrak Board Chair Tony Coscia. “These changes have put us on track to breakeven in 2020, which would be a first in Amtrak’s history.”
Bloomberg‘s Justin Fox was quick to throw buckets of icy, cold water on that claim, finding Amtrak’s accountants were claiming subsidies from state governments as part of their operating revenues.
Earlier this month, Amtrak announced a smallest-ever “adjusted operating loss” of $29.8 million in the 2019 fiscal year, which ended in September, and said it is on a “path to achieve operational breakeven in fiscal year 2020.” Along with the news that Amtrak ridership had hit an all-time high of 32.5 million, this garnered some nice headlines.
There are some other, less-impressive numbers, though, that the government-owned passenger railroad disclosed this week with no fanfare. Amtrak’s net loss according to Generally Accepted Accounting Principles was $874.8 million, up from $817.2 million in FY 2018. Amtrak also reported receiving $234 million in support from the governments of states through which some of its trains run; without that money, losses would have been well over $1 billion.
Since Amtrak is not a publicly traded corporation, it can skate by many of the financial reporting requirements that real businesses must comply with. In this case, that means being able to claim it’s on the verge of breaking even, although in a more truthful accounting, it is running through a deep, dark tunnel with almost no chance of ever breaking out into the sunlight.
Writing in the Washington Examiner, the Cato Institute’s Randal O’Toole takes on what he describes as Amtrak’s Big Lie:
Amtrak’s accounting system is so full of lies that even the pro-passenger train Rail Passengers Association calls it “fatally flawed, misleading, and wrong.”
The first lie is that Amtrak counts taxpayer subsidies from the states as “passenger revenues.” According to Amtrak’s unaudited report, 17 state legislatures gave Amtrak a total of $234 million in 2019. The taxpayers in those states were never allowed to vote on these subsidies, and the vast majority don’t ride Amtrak. These subsidies are no more “passenger revenues” than the subsidies given to Amtrak by Congress. Deducting these subsidies from revenues immediately increases Amtrak’s 2019 losses to $264 million.
An even bigger lie is Amtrak’s failure to report depreciation in its operating costs. Ignoring depreciation is an old railroad accounting trick aimed at misleading investors by boosting apparent profits.
It’s the kind of accounting that’s only approved by politicians and bureaucrats in Washington, D.C., for government-supported enterprises. For what it’s worth, Amtrak does report depreciation in its audited financial statements but does not state this in its press releases about its financial performance, so the problem draws little media coverage, which is another Washington, D.C., trick.
But wait, it gets worse:
Even with federal capital subsidies, Amtrak is deferring maintenance like crazy. Amtrak passenger cars have expected lifespans of 25 years, yet the average car in its fleet is well over 30 years old. The Boston-to-Washington corridor, which Amtrak has often claimed to be profitable, has a $38 billion maintenance backlog.
Fixing just these two line items in Amtrak’s accounting shows that Amtrak did not come close to earning a profit in 2019, it won’t earn a profit in 2020, and it never will earn a profit. This is because, after counting all subsidies, Amtrak spends four times as much to move a passenger one mile as the airlines. The difference between Amtrak and intercity buses is even greater, which means Amtrak can’t compete in any market without heavy subsidies.
Since Amtrak depends upon so many federal and state government subsidies to get anywhere close to breaking even, O’Toole does propose a remedy for better directing those subsidies in ways that might actually improve its business:
Rather than give Amtrak billions of dollars to restore or build infrastructure that it can’t afford to maintain, Congress should simply agree to pay Amtrak a given amount for every passenger mile it carries. This will give Amtrak an incentive to focus on passengers, not politics.
Over time, Congress should reduce that amount until Amtrak receives no more per passenger mile than airlines or highways. Any trains that can truly be profitable will survive, but if they do, it will be because Amtrak has found ways to efficiently transport people, not because of lies in its accounting system.
Federal and state politicians and bureaucrats have spent billions of taxpayer dollars over the past five decades to make Amtrak into the train wreck it is today, with no sign they intend to stop at any time in the next five decades.
If we’re going to flush so many billions down into Amtrak’s deep, dark accounting tunnel, shouldn’t we get its flawed accounting fixed and the government-owned train service focused on serving customers?