Amtrak profit seems awfully fishy
There are few things that government cheerleaders love more than great, big high-speed rail plans. Articles like this one pop up all over the place. Although I’m of course skeptical of claims that high-speed rail will make the wolf live with the lamb and make all the children above average, I usually don’t pay much attention to such articles, but I read this one as an act of procrastination. In the article is a link to another Slate article that claims that one or two of the Amtrak routes actually generates a profit, citing a Brookings Institution report in support of this statement.
All those lines, and only two of them in the NE corridor actually turn a profit? Not exactly something to get excited over, and as such, I wasn’t at all inclined to question the claim. And then I read this part
and that the Acela line on its own was actually turning a profit of $178 million in 2011.
I’m far from an expert (in anything), but my skeptic alarm went off when I read this. It just seems too high. So I busted out my Google-Fu and found this page, which states that
A recent Washington Post story quotes Amtrak president Joe Boardman as saying the Northeast Corridor, between Boston and Washington, is making its owner money. In fact, Boardman goes on to say, the Acela Express service enjoys a profit margin of 40 percent.
Now I was really skeptical. That’s an awesome return by any reasonable standard. You can read it yourself, but that article goes on to do some arithmetic and concludes that 40 percent is an exaggeration but that the line in question still does very well, returning 20-30% depending on the year. I was still skeptical, but I sure as hell wasn’t going to read the entire Brookings Institution report myself. I can’t excuse that much procrastination.
So, a little more Google-Fu, and I found this little gem by Sean Davis, which brought clarity. The Brookings report listed total Amtrak costs as $2.7 billion (see the bottom of page 11). However, this is at odds with Amtrak’s own report, which tallies them at $4 billion (top of page 44). (Again, these are all 2011 numbers.) Why the difference? In Davis’s words:
The hitch? The Brookings report excluded roughly 30% of Amtrak’s annual costs that are not directly attributable to the specific routes, to the tune of $1.2 billion. In accounting parlance, these expenses are generally referred to as “overhead” and are incurred every year. One of the very first accounting courses required of most finance and accounting students is called Managerial Accounting or Cost Accounting and involves the allocation of overhead to products.
If you allocate the overhead to each route, either as a percentage of total costs incurred or revenue generated by route, the “operating surplus” from Amtrak’s NE corridor disappears. In fact, the allocation of overhead for 2011 turns a $46.6 million “operating surplus” into an $800 million deficit. Those “operating surpluses” are an accounting fiction.
This makes much, much more sense. And as you can read at the link, Matt Yglesias does a piss poor job of responding to Davis’s critique.
If only the Amtrak president had claimed a 5% or maybe even a 10% return, I would never have delved deeper, but 40% was way too much to swallow.
As I said, I’m quite skeptical of rail projects and all their proponents’ crazy claims. However, I’m not really making a broad argument against rail here. All I’m saying is that Amtrak doesn’t make a profit. Not even a little bit, not even in its vaunted NE corridor. If you want to advocate for Amtrak, go right ahead, but you can’t build your argument on current Amtrak profits.
Nonetheless, I’m sure I’m going to hear and read this claim all over the place from now until the end of time. Like the lore that women use more words than men this is going to become one of those “truths” that nobody ever bothers to fact check. This post is my small attempt to fight the inevitable.
(That said, if I’ve made any errors here, please feel free to correct me in the comments, and I will promptly eat my shorts on this matter.)