My letter to Anthony Coscia, chairman of Amtrak's Board.

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Very thoughtful letter. I would be most curious as to what if any, reply you receive...hopefully more than just some 'form' letter from one of his aides.
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I acknowledge this is a well written and respectful letter setting forth the writer's positions regarding allocation of overhead costs.

Now, having been in practice as a CPA, I can assure all that there is no such a thing as a Responsibility Accounting system in any industry that will have everyone happy. Every responsibility area (Amtrakese: Responsibility Location or RESLOC) has to assume a portion of the unavoidable overhead. That's life.

Now I have to note that all the references in the letter are from pro-LD factions such as RPA, Andrew Selden, Matt Fels - and all of course hold that LD's assume a disproportionate share of that overhead.

The outside auditors, Ernst & Young at the moment, are largely concerned that the Financial Statements, are fairly stated and that systems to safeguard assets and promote operational efficiency known as Internal Control are active. Unless blatant, the Responsibility Accounting system is beyond that scope.
 
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neroden,

This is an excellent letter.

The only problem is that the board doesn't seem all that more capable or interested in Amtrak than Anderson does.
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Anyway, thank you for writing it, and we will hope that you get a "real" reply.
 
GBNorman said:
Quite simply, Amtrak should "just stay put" for any passenger convenience gained is more than offset by increased costs and operational disruptions.

Amtrak will have to pay another party for access to the Intermodal Center that they presently do not pay to access their own. The existing Miami station is "made for the convenience of the Operating Department", and no matter how much Marketing rants at now One Mass, saving additional expense is far more determinable than Marketing's dreams of additional Miami business.

Now let us consider disruption to FEC operations with eight additional "long train" moves over Iris X-ing. Yes, Tri-Rail goes over such many times a day, but those are three car "scoots" handling revenue passengers on each move. FEC already is making concessions to host additional passenger trains over their rails, as the connecting track through the NE quadrant of Iris is already built for the expectation that Tri-Rail will serve the AAF terminal - Miami Central.

Now let's consider passenger convenience. True, Mr. v.v. noted above that he and party will be arriving on 97 and plan to rent an auto at the IC. I could be mistaken, but most passengers are either going to be met by family or friends, or use taxicabs. For such meets, parking at the existing station is secure - and free. At the IC, secure yes, but hardly free. Taxicabs know when the trains are going to show up, and however absurdly expensive they are in Miami, will get fares.

All told, passenger convenience is questionable; the additional costs and potential to disrupt other railroad operations is quite determinable.

Amtrak, just stay put.
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Regarding comments made in the letter to Mr. Coscia, here are thoughts of mine posted at another topic regarding moving from the existing station to the Intermodal Center.
Why incur these additional costs that would be DIRECTLY assignable to the Meteor and Star without any expectation of additional revenue?
 
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Amtrakfflyer said:
I posted the response I got from Coscia on the other website. The gist was the board supports Andersons agenda. Very concerning and tone deaf response.
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Most governing boards will stand by people they hire, even past the point where they've lost the support of all the other stakeholders. It's a phenomenon which is not unique to Amtrak or even other corporate boards. (I've seen it happen in small, nonprofit organizations.) This is no more true than in the first year of a new hire. Any critics are derided as alarmists and whiners.

So unless the current CEO mandates something drastic, such as ordering all trains outside of the NEC to run only between the hours of Midnight-8 AM (no expansive foodservice needed---saves tons of money!) then expect no attitudes to change or changes made until well into 2019 at the earliest.
 
RSG said:
So unless the current CEO mandates something drastic, such as ordering all trains outside of the NEC to run only between the hours of Midnight-8 AM (no expansive foodservice needed---saves tons of money!) then expect no attitudes to change or changes made until well into 2019 at the earliest.
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I would tend to agree, though I think your example which includes eliminating food service, would more likely lead to a long standing ovation by the board.
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So their excuse is that they are simply following the PRIIA and their hands are tied? What about this pesky little clause in the same damn law:

"Amtrak is encouraged to increase the operation of special trains funded by, or in partnership with, private sector operators through competitive contracting to minimize the need for Federal subsidies." [PRIIA Section 216, 122 STAT. 4907 at 4930 (2008)]
 
Didnt Gardner help right the PRIIA draft?

Not giving Anderson any benefit of the doubt but it looks to me hes wrongly taken advice from his underling Gardner instead more experienced successful advisors like Moorman.

It all makes sense in a sinister way. The Board is complicit up til this point by allowing management to go against the will and intentions of this Congress and riders.

Regarding the letter there was no response to my SWC, National network or Anderson comments. Note Anderson was not even mentioned by name. That can be taken either way good or bad.

Keep the letters and calls to congress coming.
 
Regarding special trains I can almost bet that their claim is that they are in compliance. They have not found any way to reduce federal subsidies using contract operation of special trains, and whenever they find an opportunity that meets that goal they are happy to run it. Just sayin’ [emoji57]
 
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I note that the responding letter was signed by a "Senior Associate Corporate Secretary " on behalf of the Board of Directors. if this gentleman is the Senior Assistant Corporate Secretary, my guess is that there is someone who is the Junior Assistant Corporate Secretary. How many Corporate Secretaries does the Board of Directors need? And, of course, each of these people would require their own office with their own Secretary, I imagine.

Maybe reducing some of the administrative costs at Headquarters would assist Amtrak in having a better balance sheet.
 
jis said:
Regarding special trains I can almost bet that their claim is that they are in compliance. They have not found any way to reduce federal subsidies using contract operation of special trains, and whenever they find an opportunity that meets that goal they are happy to run it. Just sayin’ [emoji57]
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They banned charter moves categorically, so I’m pretty sure they wouldn’t be “happy to run” one even if it does rise above some threshold of profitability. And how would they choose to define profitability? I’m sure “fully allocated” costs would be involved.
 
GBNorman said:
I acknowledge this is a well written and respectful letter setting forth the writer's positions regarding allocation of overhead costs.

Now, having been in practice as a CPA, I can assure all that there is no such a thing as a Responsibility Accounting system in any industry that will have everyone happy. Every responsibility area (Amtrakese: Responsibility Location or RESLOC) has to assume a portion of the unavoidable overhead. That's life.
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Having advised businesses on *business decisions*, and having analyzed stocks based on whether their management is making sound *business decisions*, my major point is that for business decision-making, allocation of overhead is nonsense. It's an accounting convention which has no relation to actual business decision-making. For business decision-making, you actually need to know avoidable costs vs. avoidable revenues, and you need to know fixed costs *separately*.

This is what you need to know in order to make business decisions rationally,

If all you see is numbers with overhead allocations it simply gives you bad information which make it impossible to make sound business decisions.

I hope that's clear enough in the letter.

I believe that a true presentation of Amtrak's accounts would make it clear that what Amtrak needs is more network effects and more economies of scale. The errors run in both directions, too. I suspect there is a rational business case to be made for eliminating the Sunset Limited and asking for Texas to pay for the Texas Eagle, but I can't make that business case without the *real* avoidable/incremental numbers. I'm dead certain there's a business case to be made for a second train from Chicago to New York every day, but I can't make that business case without the *real* avoidable/incremental numbers.

Trying to make business decisions based on bad business data based on bogus allocations leads to cancelling the more profitable routes and retaining the less profitable routes, as the Milwaukee Road did before it drove itself into bankruptcy. I recently watched Bombardier liquidate its profitable businesses to support its unprofitable business; in that case it was sheer bad attitude by the executives, but if you have bad business data based on bogus allocations, the executive could do this while *thinking* they were liquidating unprofitable units to support profitable ones -- as famously happened at the Milwaukee Road.
 
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Acela150 said:
I support your letter. But... I don't agree with the statement of "rerouting" the SWC. I can only imagine how that could go over with the riders who use the area that is proposed to be bypassed.
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I mentioned this for the purpose of pointing out that PTC claims were being used as a stalking horse for another agenda. If the actual issue in the minds of Amtrak management was PTC, they would have proposed the reroute. The fact that they didn't means they are not interested in whether the route has PTC, and have another (hidden) agenda. (Whether you think the reroute is a good or a bad idea.)

I think there is a definite possibility that the Board does not realize that Amtrak administration (whether Anderson or Gardner) has been misleading them. If they start to realize that they're being lied to... well, nobody likes that.
 
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GBNorman said:
Why incur these additional costs that would be DIRECTLY assignable to the Meteor and Star without any expectation of additional revenue?
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Because it's blatantly clear that the relocation would lead to substantial additional revenue. I mentioned it in my letter specifically because I would have spent $1700 on a round-trip this year if the train went to the Intermodal Station, and because it doesn't, I won't. One data point, but come on, Amtrak, those $1700 tickets you're forfeiting add up quickly.

Come to think of it I should have mentioned in the letter the price of the ticket I didn't buy. Oh well.
 
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Incidentally, regarding overhead allocation in general and how it just misleads people...

The misunderstanding of the fixed costs vs. variable costs situation is why so many idiots on Wall Street think that Tesla will never be profitable. They do not understand the concept of a company with large fixed costs, where they can make money if they produce lots of cars per day, but not if they produce small numbers of cars per day.

This is business economics 101 stuff, and yet half of Wall Street seems to not understand it. If professionals on Wall Street don't understand it (and clearly many don't), then I don't expect Mr. Anderson to understand it, and I don't expect the Board of Amtrak, who don't even have much business experience, to understand it. But it's an ultra simple concept, and enough of Congress understood it to get it required by law. So maybe a few letters making the point clearly will manage to get the Board or Anderson thinking in marginal-cost/marginal-revenue terms, as they should be.
 
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Just to muddy the waters further . What fixed costs are not entirely fixed but depend slightly on the total size of the Amtrak operation(s) Maybe break that down to each route /? We know general officers, BOD, OIG, etc are true fixed. But others ? ?
 
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Well, if you did away with both of the Silvers you could probably do away with Hialeah...but cutting just one of them wouldn't save you much at all. And even if you did cut both, as long as Viewliners remain in service their work would have to be transferred elsewhere, such as Beech Grove.

(Bite your tongue, Eric!)
 

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