"Capital Spending" vs. Other Spending

[George K]

Talking with someone at work yesterday, he mentioned the recommendation of the House Appropriations Committee last week which cuts, what $252M from the capital spending budget of Amtrak, but leave the "operations and safety" side untouched.

In light of last week's tragedy, what's considered "capital spending." I would assume things like rolling stock, maintenance of way repair, improvements, things like that.

If PTC is going to be system wide, which area would that fall under?

 

[neroden]

PTC is 100% capital spending.

Basically, anything which you install and then it lasts for decades is capital spending.

Anything you spend money on which is used up in less than a year is operations spending.

There's some debate over things which last a couple of years.

So as you see, the House Appropriations Committee is absolutely cutting money which is spent on safety, and thereby endangering passengers. Capital spending goes to PTC; it goes to replacing the 100-year-old bridges which are falling apart; it goes to replacing other obsolete 80-year-old equipment.

 

[George K]

Thank you for the response. That's sort of what I thought, but I wanted a confirmation from someone more knowledgeable than I.

So....

How can they make the claim that the cuts are not for safety?

Could it be they're lying? Wait....they're politicians. That's what they do.

 

[NW cannonball]

Neroden's definition is correct.

But in a budget-starved situation and even more in a capital-starved situation, what would make economic sense as a 5-10-or-80 year investment becomes more and more expensive short-term fixes. That is - higher operating costs.

Example - I know that my main drain connection to the city sewer is wearing out, infested by tree roots, and possibly mostly collapsed in parts. Do I keep paying a few hundred dollars a year for roto-rooting, and put up with occasional sewer backups, or do I pay the few thousand dollars I haven't got, and will eventually have to pay anyway, to get the thing fixed for the next 50 years?

On the NEC - Pay a few billion (divide by the number of users) soon? or keep paying more short-term for small fixes, delays, the occasional train-wreck -- and then also pay a whole lot later?

In the present low-interest-rate environment - it's a no-brainer. Borrow cheap, get the benefits up-front, get more revenue sooner. Congress seems to disagree with the obvious win-win for infrastucture improvements. GRRH

 

[neroden]

In the present low-interest-rate environment - it's a no-brainer. Borrow cheap, get the benefits up-front, get more revenue sooner. Congress seems to disagree with the obvious win-win for infrastucture improvements. GRRH

Amtrak, unfortunately, entered the current low-interest-rate environment saddled with long-term, high-interest-rate debt (thanks to the Downs and Warrington periods).

Some serious effort has been made recently to clean up the balance sheet and refinance. Very recently, Amtrak got access to short-term commercial bank lines of credit for the first time in over a decade. Hopefully that will make it possible for Amtrak to take out some more long-term low-interest loans; Amtrak has already done so for the ACS-64s.

As for Congress, a bunch of them are in thrall to voodoo economics (as the elder George Bush called it), which is a strange cult with the following beliefs:

-- infinite military spending is good, regardless of whether it's effective

-- any spending on useful domestic infrastructure is bad

-- taxes on the poor are good

-- taxes on the rich are bad

I've read a number of differing pscyhological analyses of why this cult believes what they do (the most interesting theory traces it back to the 'prosperity gospel' and Calvinism, though I'm not sure I believe that entirely). The key point is that the cult beliefs have nothing to do with reality and do not respond to evidence.

Paul Krugman has written a lot of articles about this for the last *15 years*.