(rshsdepot) FWD: Letter from Jim Coston of ARC: "The Big Lie"

["Kenyon F. Karl" <kenyon_@_getglobal.net>]

[northeastcorridor] Digest Number 295
Message: 1
   Date: Wed, 13 Feb 2002 23:46:57 -0800
   From: "Gene Poon" <sheehans_@_ap.net>
Subject: Letter from Jim Coston of ARC: "The Big Lie"

Courtesy of Stan Brandt of the 20th Century Railroad Club:

A letter by Jim Coston of the Amtrak Reform Council: "The Big Lie"
- --------------------------------------------

Thirty-one years ago, as a teenager in Chicago, I testified at an
Interstate Commerce Commission hearing on the Penn Central Railroad's
application to discontinue its passenger trains between the East and the
Midwest.

As I listened to the testimony of the railroad executives, I realized
why
they had decided withdraw from passenger carriage: The United States
government had got itself deeply into the transportation business and
had
gone into competition with the railroads. The government was building
and
managing a vast network of commercial airports, air-traffic control
centers, superhighways and barge canals at taxpayer expense. These
modern
systems now were nearly complete, and they were overwhelming the
helpless
railroads. Several carriers already were in bankruptcy because they
could
not obtain the capital to match the productivity gains of the new
government-owned transportation facilities.

The Interstates and the airports did not make railroad transportation
obsolete. Railroading is an evolving technology, and the railroads of
1969
- - like those of today - had the potential to achieve quantum leaps in
productivity.

But productivity gains require capital. Fresh, low-cost capital provided
by
government had made the nation's highway, civil-aviation and waterway
technologies modern and productive.
New high-speed, high-productivity technologies were being developed for
railroads, too. But the American railroads were strictly regulated by
government and privately owned. They had no access to cheap government
capital, so they could not afford to build the new infrastructure and
install the new technologies they needed to rebound and compete with the
government's expanding non-railroad transportation networks.

The railroad capital shortage had a particularly punishing impact on the
passenger business, which is capital-intensive and requires billions of
dollars in advanced track, signal and propulsion technology to become
competitive. The new Japanese "Bullet Train" line had proven passenger
trains could compete. But the "Bullet Railroad" line had been built with
a
$300-million loan from the World Bank, which did not lend to U.S.
corporations.

In order to cut their losses and relieve the strain on their freight
business before bankruptcy engulfed the rest of the industry, the
railroads
had to eliminate their passenger trains immediately and totally and
focus
solely on the freight business, which can still function economically at
lower levels of capital investment.

To make sure government did not stall the passenger-train withdrawal
process, the railroads created the Big Lie: Passenger trains were
obsolete
- - not temporarily on account of a capital shortage, but permanently due
to
inherent and incurable technological obsolescence. They had no future in
the United States.

If an annoying newspaper reporter or rail advocate brought up the
Japanese
success, the railroad executives would invoke the doctrine of American
exceptionalism and dismiss high-speed trains as an exotic innovation,
something that "won't work here" because of our "cultural problem."
A year after the ICC hearings, Congress relieved the railroads of their
passenger-train burden by creating Amtrak. In May, 1971, Amtrak began
operating a skeletal network - approximately one fourth the number of
trains that had been operated under railroad ownership.

Amtrak took on this task without conviction or a sense of mission. Why?
Because it was staffed with former railroad executives who had
thoroughly
embraced the Big Lie during the days of passenger-train elimination.
Also
implicated were non-railroaders like Amtrak's first CEO, who had bought
the
Big Lie from Amtrak's railroad veterans They believed passenger trains
were
an obsolete concept, that overseas success had no application to U.S.
reality and that Amtrak would be shut down within three years. They also
believed it was legislatively impossible for federal funds to be
invested
in the privately owned track of the U.S. rail industry.

The message to passenger-rail advocates was clear: Forget about it.
Don't
bother. The taxpayers of this country will never support a modern
passenger-train program and will not build a modern rail network to
complement the nation's advanced highways and civil-aviation
infrastructure.
While it was rarely discussed openly with outsiders and never became
official policy, the Big Lie became a tacit, semi-official doctrine
inside
Amtrak.

I first sensed it when I became an Amtrak employee in 1973 and found
upper
management uninterested in initiating new services for which the
customers
had been asking the employees.
I was always told, "There's no money for that. Congress won't support
it,
and the railroad industry doesn't want us running any more trains over
their tracks."

This doctrine has persisted over Amtrak's nearly 32-year life.

Even Amtrak's most touted initiative, the high-speed Acela Express
project
in the Northeast Corridor, did not originate inside Amtrak. It started
in
1965 as a collaboration between President Lyndon Johnson's new
Department
of Transportation and the Pennsylvania Railroad, which owned most of the
Corridor. Amtrak inherited that initiative in 1977 when Congress
restructured six bankrupt Northeastern railroads into Conrail and
awarded
the Pennsylvania Railroad's Northeast Corridor to Amtrak. The Corridor
became the first track Amtrak actually owned. A third boost came in the
early 1980s when the Coalition of Northeastern Governors pushed their
congressional delegations to support a modernized infrastructure and new
trains for the NEC.

Very little in the way of initiatives can be traced back to Amtrak's own
management. Almost all of the company's success can be attributed to
programs, subsidies and even track and rolling stock contributed by
state
departments of transportation. That was the effect of the Big Lie on
Amtrak's management.

I encountered Amtrak's no-can-do attitude again starting in 1980, when
the
organization I had co-founded, the 20th  Century Railroad Club,
literally
had to secure the intervention of the entire Illinois congressional
delegation before Amtrak would agree to operate chartered group trains
for
our customers.

Even after we demonstrated to Amtrak that it would earn large profits on
these trains, which even today are the only consistently profitable
trains
in Amtrak's repertoire, Amtrak's bureaucrats in Washington dragged their
feet and refused to explain why they were turning down lucrative
business.
Eventually one of the line managers in Chicago took me aside and
explained
Amtrak's anti-commercial behavior.

"They're nursing the fleet," he said. "They're convinced Congress will
never buy them another set of passenger cars or locomotives. We've been
told to use the equipment as little as possible so it'll last longer."

The Big Lie was still alive and well at Amtrak.

Now fast-forward to the closing days of 1997. Congress has just passed
the
Amtrak Reform and Accountability Act and has authorized Amtrak nearly $1
billion per year in annual capital and operating assistance as well as a
one-time capital grant of $2.3 billion to build up its track and
equipment.

But there's a catch: To get the annual-assistance money, Amtrak must
persuade the Office of Management and Budget to approve the full amount.
Still in defeatist mode and unwilling to engage in passenger-train
evangelism, Amtrak never asks for its full authorization and passively
accepts OMB's decision to approve an appropriation amounting to only
half
the sum authorized by Congress. This is repeated in each succeeding
year.
Amtrak's tradition of passivity now is taking a major toll on the
company's
future viability. There is only enough money to grow business in the
Northeast Corridor. All other company activities are being starved to
support it.

Now fast-forward again to December 2000. Five members of the Amtrak
Reform
Council attend an Amtrak board meeting. At the end of the meeting, the
ARC
members offer to ask Congress to grant Amtrak an extra one-year grace
period before the self-sufficiency deadline. The ARC members acknowledge
that Amtrak's new high-speed Acela Express trains are almost a year
behind
in delivery and will not generate perceptible increased revenues in
fiscal
2001.

The Amtrak board rejects this offer, chanting in virtual unison that
Amtrak
not only will be self-sufficient by the 2003 deadline but will hit its
target a year early.

Fast-forward to early 2001. Interim reports from the General Accounting
Office and the DOT Inspector General indicate that Amtrak has been
borrowing money by mortgaging virtually its entire fleet of cars and
locomotives. The company's debt, which had totaled $800 million at the
close of 1997, has swollen to more than $3 billion.

As a lawyer with a practice concentrated in equipment lease transactions
and lease enforcement, I am extremely interested in learning the details
of
all of these equipment-sale/leasebacks. It appears at this point that
Amtrak has been doing a better job of providing business for the
nation's
lenders than mobility for its travelers.

Fast-forward again to the summer of 2001. Amtrak suddenly announces it
is
mortgaging its crown jewel, Pennsylvania Station in New York, for $300
million to raise immediate cash for operations. The happy-talk press
releases predicting self-sufficiency stop, but when interrogated Amtrak
continues to tell the media the company remains on the "glide path" to
self-sufficiency in 2003.

Finally, flash forward to where we find ourselves today. Amtrak
announces
that despite its nearly $4 billion in borrowed cash, it lacks the money
to
keep even its skeletal national system of trains running. Virtually all
non-NEC operations will cease October 1.

Interestingly, the one part of the system it says it will keep open is
the
part that it owns - the NEC. To justify this regional discrimination,
Amtrak issues a series of news releases in which it claims that the
Northeast Corridor is - in its words - "profitable," while all train
operations outside the NEC - in its words - "lose money."

Even more interestingly, Amtrak never issues any financial breakouts
documenting the alleged "profits" in the NEC and "losses" outside it.
Amtrak simply asserts the profits and losses as fact, and the nation's
news
media fail to challenge this latest version of the 1969 Big Lie.
Instead,
they assist Amtrak in propagating it and begin placing the words
"money-losing" in front of the words "long-distance trains" in the same
Pavlovian way they place "Libyan strongman" in front of "Mohammar
Khadafy."
The nation's transportation reporters seem to have forgotten the lost
art
of making that extra phone call. Amtrak would like us to believe its
system
has two parts: cash cows and dogs. But a review of internal Amtrak data
indicates that virtually all of its trains belong to canine rather than
bovine species.

As part of its draconian cost-cutting effort, Amtrak says it will lay
off
300 managers and 700 unionized employees. But many months ago Amtrak
announced a cost-containment program that promised a reduction in the
management force from 2,800 to 2000, and it followed that announcement
with
a complex musical-chairs exercise in which hundreds of managers had to
re-bid for the remaining jobs. Thousands of hours of productivity were
lost
as demoralized managers struggled to guess how Amtrak would decide their
futures.

In the end, no jobs were lost, and the management ranks actually grew by
300 to a total of more than 3,000.

Nor has Amtrak documented how the proposed shutdown of the non-NEC
trains
actually will save money. Most of the passenger cars involved in that
operation are double-decked long-distance Superliners built for
long-distance service. They are being leased back from lenders to whom
they
were sold for operating cash. Amtrak has not explained how it will keep
up
the lease payments if those cars are not running and earning revenue.
The
Superliners cannot be switched to the Northeast Corridor because they
are
too tall to fit through the Corridor's tunnels. They cannot be sold
because
there are few alternate markets for such unusual rolling stock, and the
large number offered would depress any sale price to the point where
Amtrak
would have to sell them at a loss.

It is 2002, and the1969 Big Lie of passenger-train non-feasibility is
still
alive and well at Amtrak - but with one modest change. Amtrak believes
America now will accept and support rail travel - but only on about 600
miles of track in the Northeast. That tells me Amtrak as we know it has
reached the end of the line.

Last year, in yet another expensive effort to mask its deteriorating
finances and organizational drift, Amtrak offered its customers a
"Satisfaction Guarantee" program.

Today, the only Americans Amtrak is satisfying are the aging railroad
defeatists of 1969 and their contemporary progeny who continue to claim
that America will not meet the challenge of providing its citizens with
swift, safe, comfortable, modern passenger-rail mobility.

Thanks to Amtrak, that hoary prediction has been fulfilled.

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End of RSHSDepot Digest V1 #288
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