Wow!
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My Father was in the advertising business all his life. He had a humorous yet half-serious book he often enjoyed entitled "How To Lie With Statistics."
One of the funniest pages in the book said this:
This is OUR product. It is a steel, inter-fibrous, frictional fastener.
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This is our competitor's product.
It is a nail.
This Amtrak report appears to be a PERFECT example of this art.
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What's the saying: lies, ****ed lies, and statistics! All the same thing.
It is disappointing that the article doesn't provide a link to said "white paper".
Rich, doesn't it make sense to allocate the revenue and costs of a particular route to determine whether it is financially viable? How is it done for steamer?
I am sure that the long distance trains like the Empire Builder are a wonderful ride, but, long distance trains cannot be financially viable. Amtrak doesn't own it's rails, except for where? NE Corridor.
As a former accountant, it would seem that the article is guilty of interpretation. We did, however, have a saying that "Figures don't lie, but liars can figure".
Most schools put Accounting in the Business Department, but it really should be housed in Creative Writing.
Honest accounting / analysis is not creative writing. IMHO, it is likely that the whitepaper referenced by Railway Age is more biased than Amtrak's own cost allocation process.
What would be interesting to see is the true reverse subsidy truckers, buses and airlines are getting because they are getting government owned infrastructure. The freight railroads have their own ROW and make money. Except for local roads, maybe all transportation should do the same.
C W Burfle posted:Honest accounting / analysis is not creative writing.
"Allocation" is nothing but a series of choices as to how to enter transactions. "Amortization" is a fiction designed to reflect an average and provides choices as to how to assign value to an object. As soon as choice becomes involved, creativity is the inevitable result.
Want to do away with inconvenient routes? Juggle the numbers to make them look like they consume all the money.
I can’t believe the road Amtrak is going on right now... absolutely unbalanced and quite frankly, disturbing.
Ask and you shall receive, this appears to be the full white paper.
Wow, that is an interesting read. Be sure to check out the white paper.
If you're really short on time this quote kind of sums it up: Amtrak's "Fully Allocated Costs are fundamentally accounting fictions"
Farmer_Bill posted:Wow, that is an interesting read. Be sure to check out the white paper.
If you're really short on time this quote kind of sums it up: Amtrak's "Fully Allocated Costs are fundamentally accounting fictions"
And this one:
"For its entire history, Amtrak has exaggerated to Congress, to the public (and perhaps even to itself) the real cost of operating the national passenger train system, ignored the benefits it brings to the people and the communities it serves, minimized the consequences of killing it and overstated the costs of expanding it."
So basically, after reading the mumbo jumbo of the accounting whizzes, it boils down to this:
1)Currently, what Amtrak does is look at the revenue required to break even, and use that as the basis for all costs of operations. So if it costs let's say 100 million to run Amtrak that is the break even value they use for costs.
What they do then is allocate the costs to operating regions based on some formula (doesn't say in the article), but basically it is an allocation that may or may not reflect the actual cost of operating that division. So for example, they might look at route miles (hypothetically), and use a particular route as a percentage of total mileage. So if let's say a particular route is 10% of all Amtrak route mileage, and total revenue required to break even is 100 million across the company as a whole, they assign 10 million cost to that route (allocate). Then they look at the actual revenue of that line (let's say they had 2 million in ticket sales) and say "hmm, that line lost 8 million dollars". Meanwhile, let's say the northeast corridor has 5% of all route miles, it would be assigned 5 million in costs, but it does 5 million in ticket sales..so it broke even, right, where the other route 'loses' 8 million. Meanwhile, due to the amount of people it takes to maintain the NE corridor, the where and tear on the (amtrak) owned tracks, the cost of use of other companies (heavily travelled rail), etc, it could be a lot more than the 5 million they allocated, where a longer distance route, not travelled as much, requires less train crews, cost of using other track is less, could be a lot cheaper than the 10 milion to run. So basically they are using a guess based on some secret formula to allocate the entire expenses of Amtrak to the various sections/sectors, and that is all it is. Reminds me of when George Steinbrenner claimed the NY Yankees were losing money, that he needed big tax breaks from the city, yada yada, a forensic accountant went over the books, and found the "losses" were generated, not by the Yankees (that were extremely profitable), but because losses from his shipbuilding business, his race track in tampa, depreciation on business owned vehicles and planes (not the yankees) were being factored in. Or it would be like a company with two factories that each produce 10% of their total production run (same item),m and assigning 10% of the company operating costs to both those factories, meanwhile one factor might have much lower costs due to more efficient equipment, cheaper labor, lower shipping costs for needed material versus the other, one of them could produce 10% of the production run but only account for 5.5% of call costs, the other one might produce 10% of production but is 11.5% of all costs.....
2)The other option is to try and determine the actual expenses a division costs, based on the actual expenses (avoidable costs means basically how much you save by shutting down an operation as a company, how much less it costs with the labor for that line that would be laid off, the cost of supporting it through central Amtrak, cost of maintainance for that division, etc)...it can be difficult to do this, for example maintainance costs could be the a project that covers multiple regions and may be hard to set the costs to a particular region).
I don't necessarily think this represents deliberate falsehood, it sounds more like they did what is called satisfying, they took the easiest option. It also might be they haven't tried to change it because the current model fits some agenda, one that sees long distance rail travel as a frill or an expense we can't afford for example, wouldn't surprise me, but I think the root cause is likely they wanted the easiest way to do this.
There is only one way to know the truth, and that would be to have a real study done with a goal to come up with real numbers, congress could do it as part of their fact finding. The other way is to shut down the various pieces and see what falls out, problem with that is you can do that, then find out it was all a lie all along, kind of like jumping out of an airplane then finding out your assumption someone else packed the parachute wasn't true.....
Reminds me of an old joke, an engineer, a scientist and an accountant apply for a job. The interviewer asks the engineer "What is 2+2". Engineer responds "4". Interviewer asks the scientist "What is 2+2". Scientist responds "4.0000000000000......". Finally, interviewer asks the accountant "what is 2+2?". Accountant responds "what do you want it to be?"
Actually, 4.00 = 3.999999..... (Really!) But figures can be wrongly used. Too much feeling, not enough gravitas. Too imaginary. And not i or j, the square root of negative one.
Many of us may recall that Amtrak used to attach express box cars to the end of the trains in order to earn additional revenue. Heavy haul shippers loved the service because it was the only regularly scheduled freight service. Amtrak trains had to maintain their schedules. The basic economic model in railroading has always been that it costs very little additional money to add more cars to a train. Hence, it makes sense to run the longest train as possible.
New Amtrak management arrived with he philosophy that the company should focus on passenger service. There was also a lot of opposition from freight railroads and truckers to Amtrak running box cars.
In any case, the new management wanted to kill the express freight. Therefore, Amtrak commissioned a study that proved that the express freight service lost a lot of money. A friend inside Amtrak told me that they did this by allocating all the of the route's and train costs to the freight service. My friend told me that with a fair allocation the study would have shown that the freight service was very profitable. This is similar to passenger trains that made money when the Post Office sent letters by rail. Passenger service became unprofitable when the Post Office shifted to air planes an trucks.
You can do almost anything with numbers to achieve a desired goal. Unfortunately, this game is played by most organizations and people.
NH Joe
Snow removal costs in Miami. 'nuf said. 
What was it Mark Twain said about lies, dammed lies and statistics? Same applies to acccounting. It is one of the few fields whose 'recommended' standards (used to be called GAAP) allows for a lot of variance (based on my tortured required accounting courses), so for example, it can allow for different types of costing like this, and often when someone finds a discrepency in accounting the response is "well, technically under GAAP it requires X, but that is within the spirit of it". When the accounting crisis hit the fan in the early 2000's, when there were some serious questions with books that had been certified by a CPA firm, a lot of them came under that heading (some of them, though, were outright fiction; it is why the accounting firms were forced to spin off their consulting units, because of conflict of interest and duties between the CPA side and the consulting side...). A lot of it can come down to who is looking at it, the standards are just that flexible.
With Amtrak, I don't know if this is a case where they chose a method that doesn't tell the true story or they simply were lazy and didn't want to change. While I don't doubt there is the idea that for example, long distance trains are not cost effective and certain corridors are (like the NE), I don't know if they cooked the books to make it look like this is true and use it to justify what they are doing, or if they are looking at an accounting method Amtrak has stuck with because they don't want to change, too much inertia, and see those figures and say "See, we need to get rid of the long distance routes". I have always assumed the long distance trains cost more to run because they are less heavily traveled, but it was just that, an assumption based on what they generally tell those reporting on Amtrak. I am not sure they cooked the books to fit an agenda, there is a lot of political pressure to keep the long distance trains going, every time Amtrak wants to gut long distance train travel or get rid of lightly travelled routes there is major political pushback, so I suspect it is more that the people running Amtrak read the current costing methods output and believe that the long distance routes are what make them need so much in the way of subsidies, it is easy (if fallacious) to assume with the more passengers, a densely populate line is less likely to need subsidies, given that for example if variable costs are high, as opposed to fix costs, it could be they are very expensive to run...we don't know. What congress should do is hire an outside accounting firm to analyze the books, hired by congress and reporting back to them, not to find a better accounting method , but rather as an independent auditor of the data. The minute you have a consulting firm hired by Amtrak or they are told "work with Amtrak", their bread and butter is making Amtrak people happy, rather than do what they should, put a critical eye towards how they report costs today and see if they can what the real costs are, so decisions can be made on facts, not assumptions or bias.
