A Progressive Privatization Plan for Amtrak

...As a former president of the United Airlines Pilots union once said in discussing the employee buyout of United, "United is simply a bunch of flying aluminum tubes, a pile of computers, and tens of thousands of employees who make it work...

...Pleasing passengers should be the goal of this new organization...

...The restructuring of Amtrak should proceed according to the following steps...

...Social" Privatization Amtrak can only be saved if its need for subsidies is reduced drastically and an incentive provided to its management and employees to participate in its restructuring...

...In the new Amtrak, unnecessary supervisors can be moved into sales, ticketing, and other jobs related to making money and providing services...

...Is This For Real...

...Financial restructuring will include raising funds from the sale of Amtrak's properties and deciding on other ways to employ Amtrak's assets...

...In the past, that money had gone to reduce the federal deficit, but it was scheduled to shift into the account that funds mass-transit subsidies on Oct...

...The idea of using employee ownership to help restructure a company was notably and successfully applied in the rescue of the Chrysler Corporation in the eighties...

...They do not help customers get service, they do not encourage management to manage, they do not create a future for employees...

...Amtrak management's compensation should be heavily in stock that goes up if the company does well...

...Amtrak needed $2.5 billion to operate in 1995...

...Clearly, subsidies will not continue in their current form...

...This bill should legalize the privatization of Amtrak according to a plan that ends subsidies in two years as an incentive for all concerned parties to move quickly...

...Amtrak can rent these assets...

...A portion of the ownership of Amtrak should be provided in stock to some households within and below the middle-class income range as a form of tax cut...

...If the restructuring plan calls for any downsizing, this should be implemented before the company is privatized as part of the new labor agreement...

...The Senate measure would transfer half a cent of the federal tax on each gallon of motor fuels to a new Amtrak account, one reserved for capital investments such as new engines and train stations...

...To be fair, despite recent accidents, passenger safety has improved over all and grade-crossing accidents are down...

...If investment funds are necessary after the privatization plan is implemented, then Amtrak should receive a subsidy similar to that given to the highway system, and the transfer of money should be structured in one or both of the following ways...

...But all those capital assets should be grouped into a Railroad Capital Assets Leasing Corporation whose stock, again, should be distributed to American citizens...

...I do not know if it is better management or higher subsidies that make the state-run passenger railroads of Western Europe more pleasant and more efficient than Amtrak...

...Second, the railroad unions should also hire an investment banker and begin their own design of a restructuring plan...

...Meanwhile, conversations with regularAmtrak employees suggest that they feel demoralized, abandoned by Congress, picked on by angry passengers, deeply critical of Amtrak management...

...the loan is paid back out of profits...

...Yes, other countries manage to subsidize their railroads and get good management, on-time performance, and a generally higher standard of service...

...But they must wake up and realize that they are not going to solve the railroad's problems simply by protecting their existing turf and attempting to increase subsidies...

...But for that kind of money, for a subsidy amounting to more than $42,000 per employee per year, for compensation costs that exceed the expenses of the company by 50 percent and equal its entire revenue, Amtrak must be more accountable...

...When the agreement with Amtrak's unions is complete, the Amtrak board should be restructured to include union representatives...

...If anything, the gasoline tax is worse than a subsidy that is debated each year by Congress because, as a permanent funded tax, it never needs debating...

...Congress in a new piece of legislation initiated by the president— a bill for Privatizing Amtrak Through Employee Ownership and Citizen Equity...

...Amtrak's on-time performance has gone down significantly since 1984 on both long-distance and short-distance runs...

...I don't question the right of workers to a good union salary and benefits and health care...

...Since that's not likely, it needs instead to be managed for accountability as a private or social corporation by a truly independent board of directors that will hire and fire its senior management based on performance...

...But this challenge is also an opportunity—to work out what I want to call a social form of privatization...

...The expense to take a passenger one mile did not go up only between 1993 and 1994...

...In 1994, Amtrak spent $1.3 billion on employee wages, benefits, and retirement, while all train operations accounted for only $510 million...

...Its equipment 88 • DISSENT Amtrak malfunctions and passenger delays have drastically increased...

...Amtrak is no good to anyone unless it is efficient in serving its passengers, accountable to the American public, and fair to its workers...

...92 • DISSENT...

...Amtrak owns only 770 miles of track, mostly in the Northeast...

...What should be done if the most cogent financial experts agree that Amtrak cannot exist without some infusion of federal capital...

...The success of the employee buyouts at United Airlines and Northwest Airlines and the use of employee ownership in Chrysler bode well for the Amtrak privatization...

...It is strange that in the guise of opposing privatization, Amtrak's unions are really putting control over their members' future into the hands of a radically inefficient management...

...Union participation in the governance of Amtrak is both the right of the new employee shareholders and an economic necessity to make sure that the new board is in touch with reality and supports labor-management cooperation...

...To the greatest extent possible, it should rent its yards and space in its stations...

...The company pays a fee to use these tracks...

...And passengers will be both riders and stockholders...

...Amtrak says that it has an agreement with Congress that its subsidy will be ended by the year 2002...

...First, this plan will challenge what is likely still to be a Republican Congress— whose members believe that privatization must be anti-union—to come up with a plan that includes employees as important participants...

...Management should be hired to develop a business culture whose goal is the attainment of Swiss efficiency and constantly improving performance...

...This is what the unions did in the Conrail, United, and Northwest Airlines employee ownership reorganizations, and unions now know how to do this...

...Maybe Amtrak should be contracted out to a French, German, Swiss, orAustrian railroad...

...The current board of directors should immediately be replaced by a new independent board committed to this plan, chosen from the world's top experts in the technologies, systems, and management of railroads and transportation services...

...It wants to persuade the Congress to take a half-cent gasoline tax out of the highway trust fund and give it on an annual basis to Amtrak...

...This is not a pipe dream...

...The two most difficult challenges are more explicitly political...

...it does not own thousands of acres of land and lots of trackage...

...government, and investment bankers privatized and restructured Conrail with a 25 percent employee ownership and the largest initial public offering of stock in U.S...

...A well-managed company is a company whose performance is constantly improving...

...This board should engage an investment banker and railroad consultant who will design the details of the restructuring...

...The employee culture should be one of accountability and participation, so that employees recognize themselves as stockholders who have a role in the company and whose stock increases in value if the company succeeds, and as managers whose compensation is based on their performance...

...The subsidy will be cut to $403 million in 1999...

...Amtrak's own measures of its economic efficiency are not encouraging...

...This is exactly what the United Airlines board is doing today...

...Funds that collect large amounts of shares will be able to seek seats on the Amtrak board and nominate professional money managers who will monitor the investment and continue the work of restructuring the railroad...

...Years of subsidized bureaucracy have made Amtrak's employees and unions absolutely necessary participants in the company's reorgaFALL • 1996 • 89 Amtrak nization...

...Conrail turned out to be moderately profitable...

...The public never hears their views...

...It is people and technology that make this airline...

...This capital will be used to help renovate the railroad...

...Seeing these figures helps explain why Amtrak equipment feels so bumpy and out of date...

...The total number of hours of en-route delay has almost doubled since 1988...

...taxpayers and Amtrak employees received for a subsidy that amounts to $1 for every $1.50 Amtrak takes in and $42,372 for each of Amtrak's employees...

...In the late eighties, the railroad unions, the U.S...

...And the delays specifically due to Amtrak, as against those due to freight trains or other causes, have skyrocketed...

...It will also create an interest in the company and encourage the use of its services by a large part of the population...

...Second, Amtrak's labor costs are quite high relative to the impact on the customer and the level of subsidies...

...And the half cent gasoline tax should never be allowed to replace subsidies for a poorly managed railroad...

...Because Amtrak rents its tracks, it should operate with a minimum of real estate...

...Although its trains travel over 23,800 route miles, most of the tracks belong to the big freight railroads...

...Here is a plan to rescue Amtrak that takes account of the interests of citizens, the riding public, Amtrak's employees, and their unions...

...it is entirely divorced from the regular democratic process...

...From 1993 to 1994, the money it spends to carry a passenger one mile went up and the money it makes on a sale of one passenger mile went down...

...Taxpayers contributed $392 million to keep the railroad operating, $230 million for its capital improvements, $200 million to upgrade the Northeast corridor, $150 million to help the railroad retirement fund, and about $40 million for a special project involving a reorganization of activities in New York...

...What Is Amtrak's Problem...

...One important change in the employee culture should be the cutting of supervision where it does not have an impact on safety...

...The average age of the system's locomotives at the end of last year was an astounding 13.4 years...

...Amtrak employees' future wage increases should be tied partly to the performance of the stock and partly to productivity improvements...

...And the average age of passenger cars was 22.4 years...

...FALL • 1996 91 Amtrak The data show that their impact, under American conditions, is negative...

...Third, labor and the transitional board of directors should agree on a restructuring plan to make Amtrak into a for-profit corporation...

...Nor will the campaign succeed in the current political climate...

...On September 21, 1995, the House Transportation Committee approved a $712 million annual subsidy for Amtrak until 1998...

...This stock can be sold on the market for cash or held as an investment...

...it is not governed properly...

...Amtrak's managers and its culture of management are not up to the job...

...Amtrak's employees should also be allowed to borrow capital to buy additional stock through a leveraged Employee Stock Ownership Plan (ESOP: this is simply an employee trust that borrows money from a bank backed up by a company guarantee...

...Congressional Quarterly has reported: This move is vehemently opposed by road builders, car and oil companies, as well as trucking companies...On the Senate side, the Senate Commerce Committee on July 20 approved an unnumbered bill that would scale back Amtrak's subsidies while attempting to find new sources of revenues...

...Amtrak is a similar case—but it's not working...

...The goal of all these exchanges is to reduce compensation as a percentage of Amtrak's annual budget by turning managers and employees into owners who can share in its success...

...The general outline for the restructuring of Amtrak should be provided by the U.S...

...The plan did not turn Amtrak around...

...They have a responsibility to join in a public debate that extends far beyond the question of subsidies...

...Amtrak's management spends a lot of time playing politics to increase its subsidies, but this does not require the same skills that help customers or build railroads...

...Privatization is no longer a theoretical subject for right-wing economists or young Republicans...

...First, Amtrak should take the United Airlines or the Northwest Airlines employee buyout as its general model for privatization, and it should give all parties incentives to run an efficient operation...

...Job security, potential growth, the very possibility of a passenger railroad in the United States—all depend on finding a different way of structuring Amtrak...

...And second, Amtrak's current management is now trying to hide its incompetence behind a new subsidy...

...One: every dollar provided to Amtrak should be an investment in newly issued stock that is then distributed to American citizens as an extension of the middle- and workingclass tax cut already described...

...This income should be 90 • DISSENT Amtrak used to create a capital investment fund that can be used to renovate the railroad...

...The members of the new board should be well compensated, but at least half of their compensation should be tied up in Amtrak stock so that they have the same incentive as workers and managers to make the railroad succeed...

...This will partially pay them back...

...Before Amtrak's privatization, the board should sell whatever fixed assets and properties are not absolutely necessary for the operation of the railroad...

...American taxpayers provided subsidies for years to Amtrak and thus earned some ownership of its assets...

...it has been rising since 1985...

...Whatever the answer, the current level of very high subsidies for Amtrak has definitely not yielded a railroad of European standard, and subsidies here are sure to decline...

...its sales amounted to about $1.5 billion and it had federal subsidies of about $1 billion...

...True, the contribution to Amtrak's sales of one passenger traveling one mile has risen, but this may reflect nothing more than Amtrak's ability to raise its prices—because many passengers have no alternative transportation...

...It is not a railroad in the traditional sense...

...There cannot be a better incentive to make Amtrak succeed than to tie every dollar of future subsidy to the disappearance of the greatest opportunity to own capital assets that Amtrak's managers and employees will ever have...

...From 1993 to 1994, employee injuries went up, passenger miles went down, and the railroad's yield—its revenue per passenger mile—went down...

...Government...

...Another portion ofAmtrak's stock will be sold to the public for cash in order to raise more funds for renovation...

...1. Amtrak's managers cannot be expected to make the railroad more efficient while they are campaigning to get $600 million in new subsidies...

...First, Amtrak is mismanaged...

...Obviously, the more subsidies Amtrak receives under this system, the more the stock ownership of Amtrak's board members, managers, and employees will be diluted...

...Fifth, the business and employee and customer cultures of Amtrak should be changed by the new board and the unions...

...Unions especially must recognize that allowing free rein to the entrenched Amtrak management is simply giving up on job security and future income flow...

...Two: no subsidies should be given for operating costs or compensation, but the government may have to help with capital improvements such as railbeds or equipment...

...Union leaders should be involved in choosing a new management team that can take workers with good salaries and benefits and help them build a great railroad...

...Fourth, the other 49 percent to 70 percent of Amtrak should be distributed to the American public...

...Members of the United Auto Workers and managers received 25 percent of the company's stock in return for flexibility in wages and work rules...

...And the rail unions worked with these same ideas at Conrail...

...And where are Amtrak's unions...

...Leaving aside any detailed comparison with other companies, if a customer service like a railroad spends almost three times more on its employees than on the cost of its actual product, I would expect them to provide the very best service...

...They distort the incentive to run the railroad properly...

...The idea that spinning Amtrak off as a passenger line would allow it to operate as a semi-private corporation and make money, improve services, become more market-oriented, has ended in failure...

...The employees of the railroad should be offered 30 percent to 51 percent of the new private company in return for a collective bargaining agreement that trades some current compensation, future wage increases, flexibility on work rules and employee staffing (not related to safety), and retirement benefit increases for Amtrak stock...

...Unionized workplaces are traditionally over-supervised because of distrust between labor and management...

...history to date...

...it is mainly an owner of train stations, yards, and trains...

...Amtrak As It Is Amtrak has 23,600 employees and serves 530 cities in 45 states...

...These citizen shareholders will be required to group their shares in Amtrak Investment Funds licensed by the U.S...

...Third, Amtrak is a poorly structured organization...

...What have U.S...

...If one accepts the notion that the United States will certainly not have a more liberal president than Bill Clinton before the year 2001, and recognizes that increased funding for Amtrak has not been a priority even for the Clinton administration, then one arrives at a tough conclusion: we had better start talking about the future of Amtrak or there will be no future...

...The ultimate amount of employee ownership should depend on the value of employee investments...