Amtrak Caltrain "Low Ball" Bid?

Letter from Amtrak Reform Council Member Wendell Cox to
United States Department of Transportation Inspector General

28 October 2001

Honorable Kenneth M. Mead,
Inspector General
United States Department of Transportation
400 7th Street Southwest
Washington, DC 20590

Subject: Possible Amtrak Caltrain Revenue Reduction

Dear Mr. Mead:

I know that you are completing your latest annual report on Amtrak self sufficiency. I have just been provided with information of potential relevance to your analysis.

The November 1, 2001 meeting, the Peninsula Corridor Joint Powers Board (Caltrain) contains an agenda item to award a contract to Amtrak to operate commuter rail services for the period of November 11, 2001 through June 30, 2006. There are indications that Amtrak may have bid a lower unit cost rate than is in its current contract. This could make it more difficult to achieve self-sufficiency.

This provisional analysis below (Table) suggests that the new Caltrain contract would reimburse Amtrak at an annual inflation adjusted and service level adjusted rate 13.2 percent ($5.4 million) less than the 2001 reimbursement. This would reduce Amtrak revenues by nearly $25 million over the contract period. Depending upon the details of Amtrak's strategic plan with respect to this contract, there might be an even larger net negative impact. There is no indication that Amtrak has obtained improved labor productivity, labor concessions or "give-backs" that would justify such a cost reduction.

Provisional Analysis: Amtrak Caltrain Contract Rates      
Line 2001-2006 CONTRACT Amount   Sources and Notes
1 Total Basic Service & Mobilization (Operations & Maintenance) $178,444,000   10-24-2001 Summary of Request for Proposals
2 Annual Payment (4.64 year contract term) $38,490,813   Line 1 divided by 4.64
3 Budgeted Annual Payment: FY 2001: 100% Service Level $40,759,000   June 30, 2001 Statement of Revenue and Expense
4 New Annual Payment $38,490,813   From Line 2
5 Reduction to Account for Higher Level of Service $37,691,183   Line 4 discounted to account for 2.1 percent annual service increase from 2001.
6 Reduction to Account for Inflation: Average Year $35,367,400   Line 5 discounted to account for inflation at 2.5 percent annually
7 New Contract Rate Compared to 2001 (Average over 5 years) ($5,391,600)   Line 15 minus Line 6
8 Percentage Change -13.2%    
9 Estimated Reduction from 2001 Rate ($24,995,542)   Line 7 times 4.64

Further, such a unit cost reduction could be reflective of a federal taxpayer subsidy by Amtrak to this local commuter rail service. While this is of no relevance to self-sufficiency, it could raise public policy or even legal issues. It is possible that there is an explanation that is consistent with an Amtrak self-sufficiency scenario. Moreover, as labeled, the analysis above is provisional, and has been completed under a short time constraint. I felt it appropriate to bring these issues to your immediate attention, given their potential impact on self-sufficiency and your statutory responsibility to analyze Amtrak's financial performance


Wendell Cox,
Amtrak Reform Council

Members, Amtrak Reform Council
Executive Director, Amtrak Reform Council

Caltrain Meeting Agenda, November 1, 2001 (HTML Attachment)
Caltrain June 30 Revenues and Expenses (Efax self executing document)
Caltrain 11-1-2001 Staff Report (Word Attachment)
Caltrain 10-24-2001 Summary of Request for Proposals (Word Attachment)

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