Wednesday, December 18, 2019

Amtrak's return to Mobile will be expensive and risky

If left alone to sink or swim on its own financial viability, Amtrak would have gone under long ago and we would never be having a discussion over whether the City of Mobile should commit scarce resources to an Amtrak station here.

Amtrak is not a profitable enterprise. It never really has been, either. At the end of Fiscal Year 2019, the national passenger rail service reported its lowest ever adjusted operating loss of $29.8 million. That followed operating losses of $194.1 million in FY 2017 and $170.6 million in 2018. Under Generally Accepted Accounting Principles (the standard that publicly traded companies use in reporting to the Securities and Exchange Commission), net losses for 2018 and 2019 would have been $817 million and $875 million. Amtrak has just one route that would be profitable under real-world accounting rules--the Northeast Corridor. This route serves the country's most densely populated region and most closely resembles places like Japan and Germany with dense, high-income population centers.

The national rail service receives about $234 million in subsidies from state and local governments it serves. Without those subsidies, losses would have been well over $1.0 billion. In addition, Amtrak receives $1.3 billion annually in federal allocations, without which Amtrak would have been broken up and sold for scrap years ago. President Trump initially proposed a complete elimination of federal subsidies, then acquiesced and requested $611 million for FY2020, only to have Congress restore the $1.3 billion from prior budgets. Trump is likely to propose cuts in FY2021 and beyond.

Which brings us to the decision faced by the Mobile City Council on New Year's Eve. From John Sharp's excellent reporting at
City Council members were asked Tuesday to subsidize a local match to a federal grant that passenger rail advocates believe will not cost more than $3 million over three years. ...

“This investment is totally an offset for operational costs,” said Wiley Blankenship, president & CEO of the Coastal Alabama Partnership and chairman of the 21-member Southern Rail Commission that is charged with prompting passenger rail service and pursuing funding opportunities to support its mission. ...

As proposed, the three-year commitment under what rail commissioners call a “worst-case” scenario -- where annual ridership is around 38,000 people who spend an average of $18.33 per trip – would cost city taxpayers $3 million from 2023-2025. Over five years, the subsidy would rise to $7.7 million.

Rail commissioners, however, are proposing what they believe is a more realistic “conservative” estimate of around 86,400 riders per year who spend an average of $30 per trip. Under that proposal, it would cost Mobile around $2 million to subsidize the train’s operations, and about $5.4 million over five years.
Under the "worst case scenario" from Sharp's report, the route would generate gross receipts of about $3.96 million annually, the city's annual subsidy tab would be $1.0 million and Amtrak collects about $5 million total. Under the "conservative" estimate, annual gross receipts would be about $20.45 million, the city ponies up $1.67 million and Amtrak collects $22.1 million.

Amtrak collects all of this revenue. Ticket fare, food, beverage and sundry services all go to Amtrak and none go to the city or the state.

The city will also be on the hook to secure funding for capital improvements that could cost as much as $7.7 million. This will be needed for railway modifications west of the city and a new train station at Brookley, which is destined to become Mobile's consolidated commercial and industrial air traffic center.

Under neither of the two scenarios does the city's obligation fall below $1 million annually for the three-year planning scenario (years 2026 and 2027 do, presumably due to discounting). Keep in mind that both of the scenarios are "what if" imaginations of proponents. It's entirely possible that either scenario plays out or reality plays out somewhere in between. If we're honest about the City of Mobile's history in projecting usage of its grand ideas, even the worst case scenario is a tad on the optimistic side. A hard question with an unpleasant answer: "What is our cost if we get 5,000 riders a year and they only spend $10.00 each?"

Sharp's reporting also touches on the impact to Mobile's bona fide cash cow--The Alabama State Port Authority. The State Docks has said that moving any Amtrak station to Brookley would be preferable to having it located downtown near the Outlaw Convention Center on Water Street. However, it would still represent a significant and costly disruption to rail traffic through the port. We all hate it when rail cars are stacked up along Water Street and cut off access to the waterfront along Mobile River. That gets worse and costlier for both port traffic and tourism if the port's rail operations are disrupted for the twice (at least) daily arrivals and departures of the passenger train.

All of the above is not to say that passenger rail service with stops along the Gulf Coast from Mobile west to New Orleans doesn't have tremendous economic, cultural and historical appeal. This stretch of the Gulf Coast has a magnetic draw on tourists from elsewhere in North America and abroad. The State of Alabama is celebrating its bicentennial this year. The communities along this rail route have already celebrated their tricentennials.  The culture of this region is unlike anything found elsewhere on the continent. A visit that encompasses the 150-ish miles between the cuisine of Louisiana and the pristine beaches of South Alabama with fun and gaming along the Mississippi coast is unique. History, fun, food, charm, hospitality, mild climate... It's a moneymaker. But the infrastructure to support that recreational order of magnitude is... expensive.

The City Council has a big decision to make on New Year's Eve. The cost of putting Mobile at the eastern edge of the proposed rail route is much more than just the $3 to $5 million dangled by the Coastal Alabama Partnership and the Southern Rail Commission. Ridership is probably going to be lower than projected (at first) and fares are probably going to be higher than the $25-ish estimate. Capital costs for railway improvements and station construction will go up because they always do. The disruption of business at the port will cost millions and probably a lot of jobs. Plus, Amtrak's finances are an unmitigated disaster and President Trump could scrap the whole system before 2023 even rolls around. There should be no misunderstanding that going forward will be costly and risky.


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