Amtrak:

Better Reporting, Planning, and Improved Financial Information Could Enhance Decision Making

GAO-16-67: Published: Jan 6, 2016. Publicly Released: Jan 6, 2016.

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What GAO Found

Amtrak's 2012 reorganization into Northeast Corridor, state-supported, and long-distance business lines established a structure to improve accountability for performance, but Amtrak could do more to accurately demonstrate its results. Most notably, Amtrak's new strategic management system as implemented by its long-distance line of business reflects several leading performance-management practices, such as linking line-of-business goals and initiatives to corporate-wide strategic goals, assigning personnel to execute initiatives, and tracking the results. However, Amtrak has not prioritized the implementation of this system across all of its remaining lines of business and departments. Furthermore, Amtrak's inconsistent and incomplete reporting of its financial data hinders Amtrak's ability to demonstrate the performance of its lines of business.

Amtrak and its stakeholders have developed a plan to address critical Northeast Corridor infrastructure needs, but its implementation faces significant challenges. Many of the corridor's bridges and tunnels are aging and in need of replacement to bring them to a state of good repair. The Northeast Corridor Infrastructure and Operations Advisory Commission (Commission)—which includes the Department of Transportation, Amtrak, states, and others—has developed a 5-year capital plan costing $17.7 billion from fiscal years 2016 through 2020 to begin addressing the backlog of deferred investments and make other improvements. But implementing this plan presents challenges because it lacks funding for 60 percent of its costs and would require Amtrak, states, commuter railroads, or the federal government to provide additional funding of about $2.1 billion per year through 2020. The Commission also lacks criteria for prioritizing projects; as a result, Congress and states lack information to inform their decisions about whether to provide additional funding to implement the Commission's plans.

Although requirements in the Passenger Rail Investment and Improvement Act (PRIIA) of 2008 have resulted in a methodology that increased states' share of costs on state-supported routes and reduced federal subsidies, these routes still require federal funds to support their operation. More specifically, states' increased share of operating and capital equipment costs reduced Amtrak's reliance on federal funds by about $100 million for these routes in fiscal year 2014 compared to 2013. Amtrak still required almost $86 million in federal grants in fiscal year 2014 to cover operating losses from these routes, and Amtrak reported that it will continue to require federal funding for these routes. However, Amtrak has not developed clear information detailing the specific costs and activities that this federal assistance is intended to cover. In the absence of such detailed information, Amtrak lacks critical information to help it assess its costs and is not well positioned to develop strategies to reduce the cost of its services. Similarly, many states have questioned the accuracy or transparency of Amtrak's cost information, and Amtrak has experienced challenges in finalizing fiscal year 2015 operating agreements with several states. In response, Amtrak, states, and the Federal Railroad Administration (FRA) have established a formal process for the parties to discuss states' concerns and make improvements to the cost allocation process moving forward. Some states have also sought opportunities to reduce costs by seeking alternative passenger rail providers, but the results of these efforts have yet to be realized.

Why GAO Did This Study

Amtrak provides a range of passenger services on its Northeast Corridor, state-supported, and long-distance routes, but has not consistently reported revenues and expenses for these services. In 2008, PRIIA directed Amtrak to address this and other issues. In response, Amtrak reorganized into three business lines for its services to make its finances more transparent and management more accountable. GAO was asked to review Amtrak's efforts to reorganize and implement certain PRIIA reforms.

This report evaluates: (1) the status of Amtrak's reorganization; (2) Amtrak and stakeholder efforts to address Northeast Corridor infrastructure needs; and (3) the impact of PRIIA requirements on state-supported routes. GAO reviewed Amtrak financial data (fiscal years 2010 through 2014), planning documents, and interviewed Amtrak officials and key stakeholders from the FRA, 18 states that support Amtrak routes, and 7 commuter or intercity passenger railroads selected for their scope of operations.

What GAO Recommends

GAO recommends that Amtrak (1) prioritize the adoption of its strategic management system company-wide, (2) improve its financial reporting, and (3) detail costs of state-supported routes paid by federal grants and (4) that the Commission develop criteria to prioritize planned investments. Amtrak agreed with the first recommendation and provided context about the other recommendations. GAO continues to believe its recommendations are valid as discussed further in this report. The Commission concurred with GAO's recommendation for it.

For more information, contact Susan Fleming at (202) 512-2834 or flemings@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: In May 2017, Amtrak officials indicated that Amtrak was rolling-out its strategic management system in several departments and plans were in place to extend the roll out over time. According to Amtrak officials, senior management meets monthly to discuss progress being made in the company's various strategic initiatives, however the officials noted that full implementation of the strategic management system would take time, and did not provide an estimated completion date. We will continue to monitor Amtrak's progress in adopting the strategic management system across its various business lines and functional departments.

    Recommendation: To ensure that planned improvements to Amtrak's routes are implemented and their outcomes can be evaluated, the President of Amtrak should prioritize the adoption of Amtrak's strategic management system in all of Amtrak's remaining lines of business and functional departments.

    Agency Affected: National Railroad Passenger Corporation

  2. Status: Open

    Comments: In May 2017, Amtrak officials confirmed that Amtrak disagrees with this recommendation and has not taken action to implement it. Officials reported that much of Amtrak's business takes place in an environment that is increasingly competitive and prefers to keep its deliberation on these initiatives confidential. As we reported in January 2016, while we agree that there is value to keeping business proprietary information and deliberations confidential, Amtrak should be able to externally report progress without disclosing confidential deliberations or information to show how its initiatives are meeting the goals established under its strategic management system. Without this reporting, it is difficult for the company to demonstrate to Congress and other stakeholders how Amtrak is improving its financial and operating performance, and whether it is making the most efficient use of federal funds. Thus, we continue to believe that our recommendation is valid and that Amtrak should fully implement it. We will continue to monitor any steps taken by Amtrak to report outcomes of initiatives taken under Amtrak's strategic management system.

    Recommendation: To ensure that planned improvements to Amtrak's routes are implemented and their outcomes can be evaluated, the President of Amtrak should externally report how Amtrak's initiatives meet the goals established under the Amtrak's strategic management system.

    Agency Affected: National Railroad Passenger Corporation

  3. Status: Open

    Comments: In May 2017, Amtrak officials confirmed that Amtrak disagrees with this recommendation and has not taken action to implement it. According to Amtrak, the 5-year financial plan and monthly performance reports serve different purposes and their utility would be lost if it attempted to "standardize" them. As we reported in January 2016, we continue to believe that it is important to improve the consistency and completeness of Amtrak's financial reporting and to provide Congress with accurate information to use in making funding decisions. The intent of our recommendation is that Amtrak provide a mechanism to show how its financial results in its monthly performance reports are comparable to the financial targets by line of business that are in its 5-year financial plan. Because Amtrak has not taken action to implement this recommendation, the inconsistency between the two reports makes it difficult to compare Amtrak's past results with its future forecasts. As a result, Congress and the states lack a clear view into the financial performance of the company that they help fund. Thus, we continue to believe that our recommendation is valid and that Amtrak should fully implement it. We will continue to monitor steps taken by Amtrak to improve the consistency and completeness of Amtrak's financial reporting.

    Recommendation: To improve the consistency and completeness of Amtrak's financial reporting and to provide Congress with accurate information to make funding decisions, the President of Amtrak should make the format of its monthly performance reports and its 5-year financial plan consistent to show all of Amtrak's revenues and expenses by major function for each line of business.

    Agency Affected: National Railroad Passenger Corporation

  4. Status: Open

    Comments: In May 2017, Amtrak officials confirmed that Amtrak disagrees with this recommendation and has not taken action to implement it. According to Amtrak, reporting of depreciation costs is of limited use for management accounting for several reasons, including that many of Amtrak's key assets, such as bridges and tunnels on the Northeast Corridor are fully depreciated, and that Amtrak's financial system includes a synthetic capital charge, which serves as a proxy for depreciation and is currently allocated across routes. As we reported in January 2016, we agree that given the long-lived nature of Amtrak's capital assets, depreciation calculated for financial reporting purposes may not provide an appropriate measure of the economic costs of using the related assets. While Amtrak may be capturing depreciation or economic costs through its synthetic capital charge (which serves as a proxy for depreciation and which Amtrak does not publicly report), as we also mention in this report, Amtrak may be misstating its line-of-business financial results by not allocating depreciation costs to its lines of business. There are a number of methods or models used to calculate depreciation or economic costs. However, regardless of the method used, it is important that the data used to calculate depreciation or the economic costs of using long-lived assets--historical cost, useful life, residual value--are complete, accurate, and timely. Thus, we continue to believe that our recommendation is valid and that Amtrak should fully implement it. We will continue to monitor steps taken by Amtrak to improve the consistency and completeness of Amtrak's financial reporting.

    Recommendation: To improve the consistency and completeness of Amtrak's financial reporting and to provide Congress with accurate information to make funding decisions, the President of Amtrak should ensure that Amtrak's depreciation expenses are appropriately allocated to its lines of business once the underlying capital asset data are determined reliable.

    Agency Affected: National Railroad Passenger Corporation

  5. Status: Open

    Comments: In March 2017, Amtrak provided GAO with financial reports that Amtrak had submitted to the Federal Railroad Administration that provide details of the revenues, costs, state payments, and operating losses for each of the state-supported routes for fiscal year 2016. Although these reports include some information on the costs of state-supported routes that are covered by the federal government, Amtrak has not provided this specific information to Congress to help with assessing Amtrak's need for federal assistance for these routes, as GAO recommended. Amtrak officials told us that the company plans to report to Congress information on the expected revenues and costs for state-supported routes in the Five Year Business Line Plans required by the Fixing America's Surface Transportation Act. According to Amtrak officials, they plan to submit the Five Year Business Line Plans to Congress on June 2, 2017. GAO will review those plans when published and continue to monitor Amtrak's efforts to delineate and report to Congress the specific costs and activities for state-supported routes that are covered by the federal government.

    Recommendation: To help Congress in assessing Amtrak's need for federal assistance for state-supported routes and to help Amtrak to develop strategies to reduce the costs of its services, the President of Amtrak should delineate the specific costs and activities for state-supported routes that are covered by the federal government and communicate this information to Congress, such as in Amtrak's annual budget request.

    Agency Affected: National Railroad Passenger Corporation

  6. Status: Open

    Comments: In May 2017, the Northeast Corridor (NEC) Commission published the Northeast Corridor Capital Investment Plan, Fiscal Years 2018-2022 which documents planned capital investments to the NEC over the five year period. The plan identifies criteria for Commission members (Amtrak, states, and commuter railroads that operate on the NEC) to use in selecting and prioritizing certain projects that could be advanced over the coming five years. However, the plan does not establish such criteria for all investments in the plan. Specifically, the plan establishes criteria for selecting "unfunded projects"--including major bridge and tunnel projects and basic infrastructure improvements--that could be advanced if additional funding became available. These criteria are (1) shared use by commuter and intercity rail; (2) age and condition, with priority for replacing the oldest assets beyond their useful lives; (3) critical need for continued operation of existing service; and (4) project readiness to begin construction in the next five years. However, these criteria do not cover "funded projects," or those for which a funding source has been identified, including projects funded by Amtrak and the commuter railroads through their required contributions to the NEC Commission's Baseline Capital Charge program. According to the NEC Commission officials, the Commission members have yet to establish specific criteria for funded projects due to challenges in working with Amtrak's legacy capital planning process. Amtrak has traditionally allocated funding amounts to the various segments of the NEC where the company plans to make improvements, but its planning process does not identify the specific assets to be repaired in the coming year, or the criteria for selecting these assets. NEC Commission members said they would continue to work with Amtrak to develop clear criteria for selecting and prioritizing funded projects for inclusion in future editions of the NEC's 5-year capital improvement plan. We will continue to monitor progress made by the Commission and Amtrak in this area.

    Recommendation: In addition, to better inform congressional decision making regarding the funding of Northeast Corridor infrastructure improvements, the Northeast Corridor Commission should work with its members to establish criteria for its members to use in selecting and prioritizing capital projects to be included in future editions of its 5-year capital plan.

    Agency Affected: Northeast Corridor Commission

 

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