Amtrak: $25 Million Revenue Reduction
28 October 2001
Honorable Kenneth M. Mead,
Subject: Possible Amtrak Caltrain Revenue Reduction
Dear Mr. Mead:
I know that you are completing your latest annual report on Amtrak self sufficiency. I have just been provided with information of potential relevance to your analysis.
The November 1, 2001 meeting, the Peninsula Corridor Joint Powers Board (Caltrain) contains an agenda item to award a contract to Amtrak to operate commuter rail services for the period of November 11, 2001 through June 30, 2006. There are indications that Amtrak may have bid a lower unit cost rate than is in its current contract. This could make it more difficult to achieve self-sufficiency.
This provisional analysis below (Table) suggests that the new Caltrain contract would reimburse Amtrak at an annual inflation adjusted and service level adjusted rate 13.2 percent ($5.4 million) less than the 2001 reimbursement. This would reduce Amtrak revenues by nearly $25 million over the contract period. Depending upon the details of Amtrak's strategic plan with respect to this contract, there might be an even larger net negative impact. There is no indication that Amtrak has obtained improved labor productivity, labor concessions or "give-backs" that would justify such a cost reduction.
Provisional
Analysis Amtrak
Caltrain Contract Rates Line 2001-2006 CONTRACT Amount Sources and Notes 1 Total Basic Service & Mobilization (Operations &
Maintenance) $178,444,000 10-24-2001 Summary of Request for Proposals 2 Annual Payment (4.64 year
contract term) $38,490,813 Line 1 divided by 4.64 PREVIOUS CONTRACT 3 Budgeted Annual Payment: FY
2001: 100% Service Level $40,759,000 June 30, 2001 Statement of Revenue and Expense RECONCILIATION OF NEW RATE TO
OLD 4 New Annual Payment $38,490,813 From Line 2 5 Reduction to Account for Higher Level of Service $37,691,183 Line 4 discounted to account
for 2.1 percent annual service increase from 2001. 6 Reduction to Account for
Inflation: Average Year $35,367,400 Line 5 discounted to account for inflation at 2.5 percent
annually 7 New Contract Rate Compared to
2001 (Average over 5 years) ($5,391,600) Line 15 minus Line 6 8 Percentage Change -13.2% 9 Estimated Reduction from 2001 Rate ($24,995,542) Line 7 times 4.64
Further, such a unit cost reduction could be reflective of a federal taxpayer subsidy by Amtrak to this local commuter rail service. While this is of no relevance to self-sufficiency, it could raise public policy or even legal issues.
It is possible that there is an explanation that is consistent with an Amtrak self-sufficiency scenario. Moreover, as labeled, the analysis above is provisional, and has been completed under a short time constraint. I felt it appropriate to bring these issues to your immediate attention, given their potential impact on self-sufficiency and your statutory responsibility to analyze Amtrak's financial performance
Sincerely,
Wendell Cox,
cc:
Enclosures:
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