Quarterly Report on Cost Savings Accrued by Amtrak Operational Reforms
Our first quarterly report, issued January 5, 2006, established an FY 2006 operating subsidy baseline of $586 million. That is, Amtrak’s planned operational reforms reflected in its Board-approved FY 2006 budget would result in a projected operating loss of $586 million. To live within its FY 2006 operating subsidy of $485 million, Amtrak needs to reduce this projected operating loss by an additional 17 percent, or $101 million. Accordingly, our analysis will distinguish between reforms relied on to reduce losses to the baseline level (in the baseline) and those reforms Amtrak will rely on to close the $101 million budget gap (not in the baseline). Savings from Operational Reforms. Amtrak’s efforts to implement operational reforms in 15 areas are expected to reduce costs and increase revenues in 2006 and beyond. All the reforms are described in Appendix A. Our certification in July on whether or not Amtrak has achieved savings from operational reforms will focus on those reforms, not included in the $586 million baseline, that will help Amtrak operate within its appropriation and reduce long run operating costs. Amtrak expects to achieve $6.9 million in savings from these operational reforms. Amtrak estimates that through the end of January, it achieved only $214,000 in savings from them. Our analysis relies on data generated by Amtrak’s current revenue and cost accounting systems which do not readily support reporting and analysis of financial data on an initiative-level basis. We caution that the data provided by Amtrak and relied upon for this report are unaudited. We continue to work with Amtrak to ensure that the savings estimates are reliable so that we can properly express our opinion in July on whether Amtrak has achieved savings from operational reform. Overall Financial Performance. Amtrak’s overall financial performance through February has been better-than-expected. It has achieved $70.3 million of the $101 million in savings it must realize to live within its FY 2006 appropriated operating subsidy (see Figure 1). However, it is too early to tell whether Amtrak can sustain this improved performance through the end of the fiscal year. Further, it would be a mistake for Amtrak to allow its improved performance to lessen the attention and commitment it makes to achieve long-term operational reforms. Amtrak plans to close the remaining budget gap with operational reforms, one-time actions and budget adjustments, by spending from the FY 2005 year-end cash reserves, and through better-than-projected revenue and cost performance. Significantly, only a small portion of the $101 million in needed FY 2006 savings is expected to come from operational reforms. Short-term gap-closing actions will not reduce Amtrak’s need for subsidies in FY 2007 or beyond. Rather, only sustainable reforms, which require structural changes in the way passenger rail service is delivered, can accomplish that goal. As part of its operational reforms, Amtrak needs to reduce the cost of providing long-distance service, particularly, sleeper service. Based on what Amtrak has achieved to date, significant savings in FY 2006 through operational reforms in this area should not be expected. Amtrak is not required to submit a “Get Well” plan for improving the performance of the bottom third performing trains (based on performance metrics to be agreed on by both parties) to the Federal Railroad Administration until July 1, 2006. In July 2005, we reported that the operating loss per sleeper class passenger on some routes was more than $300 per passenger. We concluded that Amtrak could save between $75 million and $158 million in annual operating losses by eliminating sleeper car service, outsourcing food and beverage service, and eliminating other amenities on long-distance trains. We recommended that Amtrak experiment with reforming its long distance sleeper service through pilot projects.