The National Corridors Initiative, Inc.

James P. RePass - President & CEO
Phone:  617-269-5478

The Hon. John Robert Smith - Chairman

MA Office: 59 Gates Street, Boston, MA. 02127
CT Office, 8 Riverbend Drive, Mystic, CT, 06355
RI Office, 35 Terminal Road, Suite 210, Providence, RI. 02905

Fax (CT): 860-536-5482

January 28-29, 2008
St. Louis, Mo

The First Carmichael Conference
on Transportation

Remarks by James Coston, Chairman
Corridor Capital LLC, Chicago

 

First Appearing In NCI’s Destination:Freedom Weekly Newsletter
Vol. 9 No. 15 - April 14, 2008

 

Remarks, The Carmichael Conference

By James Coston, Chairman, Corridor Capital LLC, Chicago
At the Carmichael Conference

On the Future of American Transportation
January 28, 2008 at St. Louis

 

[ Publisher’s Note: This is the 11th in a series of addresses --- last week’s was by Todd Todd Litman, Executive Director of the Victoria Transport Policy Institute --- delivered at the Carmichael Conference on the Future of American Transportation held January 28-29 at the Hyatt Regency, St. Louis, MO.

Jim Coston, Chairman of Corridor Capital LLC, has been a rail and transportation advocate for more than 35 years, and a successful executive for much of that time. A critic of the present Amtrak system, he also served on the Amtrak Reform Council. His biography, and remarks, follow: ]

Biography of James Coston

James E. Coston
Chairman, Corridor Capital LLC, Chicago

Email: fplous@costonlaw.com

 

A graduate of Northwestern University and the DePaul University College of Law, a former Amtrak employee, and an entrepreneur who ran a successful rail-travel business in the 1980s, Mr. Coston founded Corridor Capital in May 2004 in order to provide the nation’s passenger-train operators with the capital needed to expand their fleets and fixed facilities.

Mr. Coston was able to organize Corridor Capital because his career has mingled three strains of professional achievement essential to the business: passenger-train operations and marketing; state and national transportation policy; and 26 years of experience in equipment lease-and-finance law, a fast-growing professional concentration in which he is a nationally recognized leader. In 2003 he became the first attorney to be elected president of a nationwide equipment-lease trade association, the National Association of Equipment Leasing.

The first strain in Mr. Coston’s professional development had its genesis even before he graduated from high school at Chicago’s Morgan Park Academy: From 1973 through 1979 he was employed by Amtrak as a relief station agent and reservations/ ticketing agent, serving at Chicago Union Station, Joliet Union Station and the Illinois Central station in Kankakee, Ill. In 1971 he founded the Twentieth Century Railroad Club, which between 1980 and 1986 operated more than 50 special excursion trains chartered from Amtrak.

Mr. Coston’s experience in delivering both wholesale and retail rail travel was interwoven from the start with a deep concern for the role of passenger trains in U.S. transportation policy. As far back as 1969, when he was only 14, Mr. Coston appeared as a witness before an Interstate Commerce Commission examiner in connection with the Penn Central Railroad’s petition to eliminate passenger-train service between Chicago and the East. Mr. Coston’s passenger-train advocacy has never waned. Since 1993, He has testified on passenger-rail policy before the U.S. Congress, has addressed many public-interest and business groups, and his guest columns and letters on rail policy have appeared in publications from the Chicago Tribune to the Washington Post, The New Republic and the Journal of Transportation Law, Logistics and Policy. In 2000, U.S. Senate Majority Leader Thomas Daschle appointed Mr. Coston to the Amtrak Reform Council, where he served until its expiration in December 2002.

In his leadership of Corridor Capital, Mr. Coston has succeeded in combining his belief in passenger trains and his experience in operating passenger trains with his professional ability to raise private-sector money for a fleet buildup in the nation’s publicly funded passenger-train industry. In May 2005 the firm concluded its first such transaction when it teamed with Sumitomo Corporation and Bank of Tokyo-Mitsubishi to supply $25 million in lease financing for 11 new bi-level gallery commuter cars to be built by Nippon-Sharyo Corporation for Virginia Railway Express.

Remarks

Thank you. I appreciate the chance to address the question of “How did we get here?” 

Rail advocates talk about history a good deal in private, but it doesn’t turn up very often as a subject at conferences.  The attitude of most activists seems to be:  “Why look backward?  Look forward. The past is dead.  Let’s move on.”

But as William Faulker said, “The past is not dead.  It’s not even past.”

And, boy, is that ever true when it comes to American passenger trains.  So let me take a few minutes to explain how the past is still at work inside today’s American passenger-rail system—and still retarding progress.

I call my little talk “The Three Amtraks: Stopped at the Home Signal for 30 Years.”  I want to focus on the gap that opened up between the passenger-rail service that Congress intended when it established Amtrak in 1970 and the three very different types of passenger-rail service that Amtrak finds itself in charge of today.

Let’s start with what Congress originally intended at startup.  I was there—not at the very beginning on May 1, 1971, perhaps--but two years later, when I turned 18 and Amtrak said I was old enough to come to work.  Amtrak hired me in 1973 as a relief ticket-and-reservations clerk and station agent. 

I worked in the Chicago res office, at Chicago Union Station, at Joliet Union Station, and at the Illinois Central station in Kankakee, Ill. 

I was 18 years old, and when I was working at Kankakee and Joliet I was all alone.  I made reservations, sold tickets, handled checked baggage and helped load old ladies and little children and their bulky pieces of luggage onto the train.

You would not know it from what happened subsequently, but Amtrak was popular in those days. 

Passenger loads were large, and Operations was struggling to find extra cars for the trains during peak periods. 

Every night we put out an 18-car Broadway Limited.  The Zephyr and Empire Builder?  Same thing.  Each train had the longest consists the Union Station platforms could hold. 

At the ticket window and over the telephone I turned away hundreds of applicants for coach and sleeping-car space.

Out on the platforms I saw weekend trains leave for Detroit, St. Louis, and Quincy with seven cars or more.  Sometimes Amtrak borrowed extra cars from the commuter railroads around Chicago, something that’s no longer possible now that one commuter agency, METRA, owns the entire fleet.

What was happening was that the American people believed that the federal government was going to save the trains—and grow the train system.  Pre-1971, when Americans saw the railroads eliminating trains, they got the message and stayed away.  Post-1971, when they saw the federal government committing itself to saving trains and growing the service, they started coming back.

I call the Amtrak we knew at that time “Amtrak I.”  This is the period when Amtrak looked the way Congress originally designed it, as a pure Train Operating Company—a single nationwide carrier that owned trains but no tracks and had to rent track space from the privately owned railroads.  .

Shortly after startup, however, on May 17, 1971, the seeds of what I call “Amtrak II” were planted.  That’s when a new player, the Commonwealth of Massachusetts, entered the picture. 

Under Section 403 (b) of the Rail Passenger Service Act, Massachusetts agreed to become — not a railroad, or a Train Operating Company—but a “sponsor” of train service. 

This meant the state agreed to pay part of the subsidy for a new train that Amtrak itself otherwise would not have paid for and would not have operated.  The new train was a Boston-New York frequency operating over the so-called “Inland Route” via Worcester, Springfield and Hartford. 

On November 14, 1971, Illinois got into the 403 (b) game by sponsoring the Illinois Zephyr between Chicago and Quincy.

Over the ensuing 36 years 12 more states have jumped into the train-sponsorship game, especially California, which now sponsors 45 daily round trips on five different route segments. 

State-supported trains now account for 158 of the 448 weekday departures in the Amtrak timetable.  They’re now the company’s fastest-growing line of business.

In December 2007, the state-supported trains carried just under one fourth of all Amtrak’s passengers and produced about the same proportion of its revenue.  The state-supported trains represent a sort of mini-empire inside of Amtrak. 

I call this little empire “Amtrak II.”  It’s turning into a big deal.

So what exactly is Amtrak III? 

Amtrak III, as everyone in this room knows, is the Northeast Corridor.  Chronologically, the NEC was the third province to come into the Amtrak domain, but as most of the critics have complained over the years, it was so much bigger and heavier than the other two components that it became an empire in itself and almost completely overpowered the other two Amtraks that were supposed to be its partners, not its subordinates.

How did this all happen?  How did we get here?  Let me first recite the “authorized” history, and then move on to what Paul Harvey calls “The Rest of the Story.”

The authorized history tells it this way: 

When Amtrak started up in 1971, its Northeast Corridor trains operated just like all its other trains, on track slots rented from a privately owned railroad company, in this case the Penn Central.  The Penn Central went bust in 1969 in what at that time was the largest corporate bankruptcy in U.S. history.

Throughout the first half of the 1970s, a federally appointed commission known as the United States Railway Association worked very diligently to figure out how to reorganize and refinance the Penn Central and six other Northeastern railroads that had gone bankrupt.

In 1976 the USRA announced it had finished its job:  Penn Central and the other Northeastern bankrupts would be organized into a single government-owned railroad to be known as “Conrail.”  Duplicative track, yards, shops, staff and headquarters would be closed, underperforming staff would be cut loose and the cream of U.S. railroad management, the senior statesmen of the industry, would be recruited to run the new consolidated railroad.

But the USRA left one big part of the Penn Central out of Conrail—the Northeast Corridor.  The NEC was almost exclusively a passenger railroad, while Conrail was designed to be a pure freight railroad.  Conrail didn’t need the NEC for its freight trains, because the USRA included in Conrail a series of Lackawanna, Jersey Central and Reading lines which when linked up end to end created a parallel all-freight main line across New Jersey and Pennsylvania that made the NEC redundant.

So the USRA in its wisdom gave the NEC to Amtrak.  Actually, Amtrak had to pay $78 million for it, but compared to the NEC’s true value to the communities and states it served, the price was a mere token.  The NEC was given away.

Now Amtrak wasn’t just a Train Operating Company anymore.  It was a real railroad, with an owned-and-operated network of tracks, stations and yards.  And the part of the passenger network that Amtrak now owned was bigger, busier and more expensive than all of its other lines of business and commanded far more of management’s attention, staff and budget. 

Essentially, Amtrak became the NEC, the NEC became Amtrak, and both the company’s behavior and its treatment by Congress and the media have become problematic and fraught ever since.  All of Amtrak’s meager capital budget goes into the investment-hungry NEC.  The long-distance network fails to grow and is even scaled back, while the non-NEC corridors grow only by virtue of state funding.  The NEC tail wags the Amtrak dog.

O.K., that’s the end of the authorized history.  Now let’s play Paul Harvey and revisit “The Rest of the Story.”  It’s never been told before, and it explains why Amtrak’s absorption by the NEC turned out so badly.

Let’s go back to 1967 and the disastrous and doomed Penn Central merger that turned into the nightmarish 1969 Penn Central bankruptcy.

Although the Penn Central was represented as a merger of equals, in fact it was more of an absorption of the smaller New York Central into the much larger Pennsylvania. 

And while the New York Central was a relatively healthy railroad for its time, having been slimmed down and built up to profitability by its dynamic and reform-mind president, Alfred E. Perlman, the Pennsy was a much larger and very troubled railroad, a huge, bloated and sick corporate dinosaur run by the largest collection of brain-dead managers ever assembled in a single American enterprise.

Remember, the Pennsylvania Railroad first lost money in 1946, the busiest year in the history of the U.S. railroad industry. Demobilized soldiers and sailors were jamming the trains to reach home, and industry was returning to peacetime production.  It was virtually impossible for an American railroad to lose money in 1946, yet the Pennsy managed to do it.

AND it kept paying dividends.  This was one big, sick dumb railroad—and as the ‘50s turned into the ‘60s the Pennsy got dumber and sicker.  The Penn Central bankruptcy kept the Pennsy on life support until the mid-70s, but when Conrail was established and staffed with an elite corps of the nation’s top railroad managers, the last vestiges of the Pennsylvania Railroad were expected to go away. 

But they didn’t.  At the very moment when the Pennsy was scheduled to die, the USRA preserved its DNA and injected it into Amtrak.  When the Northeast Corridor was given to Amtrak, a whole phalanx of Pennsy managers and Pennsy thinking went with it, and inside Amtrak they got a whole new lease on life. Or life support.  In effect, Amtrak got a Pennsy transplant.  The dead got up and walked, and because the Pennsy-run NEC was the biggest and busiest part of Amtrak, the whole company became something of a three-headed zombie.

But the real villain here is not the ghost of the Pennsylvania Railroad, nor is it the planners at USRA who shed the corpse of the Pennsy onto Amtrak while they built the world’s most successful freight railroad, or even the Pennsy managers themselves.

The real villain is Congress, and a succession of presidential administrations, both of which, then as now, refused to consider the idea of transportation planning and transportation policy as a national responsibility.

Instead, Congress has focused on starting up individual transportation programs solely as ad hoc responses to particular emergencies. 

  1. The federal highway and waterways programs were started in 1916 because the nation wanted government-owned backup systems after the railroads melted down and had to be nationalized during World War I.

  2. The FAA was created and the modern air-traffic control system developed in the 1970s because during the 1950s and ‘60s too many airliners were crashing during landing or takeoff—or into each other in flight. 

  3. The Interstate highway program was launched in the 1950s because President Dwight Eisenhower was terrified another Depression was coming and wanted to have a massive federal jobs program in place to prevent it.

  4. Amtrak was created in 1970 not to provide the nation with strong passenger rail service, but to relieve the rail industry of the terrible passenger-train deficit that had been contributing to bankruptcies, especially at the Penn Central.

  5. Amtrak was given the Northeast Corridor in 1976 not because it was good transportation policy but because the panel that was solving the Penn Central emergency needed a place to dump a huge asset Penn Central’s successor didn’t need.

Do you see a pattern here?  Emergency -- followed by rescue.  Emergency--followed by rescue.  Emergency--followed by rescue.

Do you see another pattern?  No planning.  No goals or guidelines, just emergency responses which then become institutionalized.  The U.S. develops its transportation resources piecemeal and by accident, as a by-product of trying to solve other, non-transportation problems, like Ike using highways to fend off a depression. 

Someone once said the British Empire was acquired “in a fit of absent-mindedness.”  The U.S. seems to have acquired its “transportation empire” the same way.  

And nowhere have the effects been more serious than in passenger-rail transportation.  Congress created Amtrak to treat one emergency, gave it the NEC to treat another, and never bothered to spell out what exactly it expected Amtrak to do or what kind of a role it ought to play in a balanced nationwide passenger-transportation system—which in any case it also neglected to plan.

As most of you know, I served for several years on the Amtrak Reform Council, which recognized this policy vacuum and addressed it.  In its 2002 Final Report to Congress [brandish copy here], the ARC recommended that Congress create a small administration-and-oversight commission that would develop and implement passenger-train policies and programs.  The ARC said it would be this commission, not the train-operator, which would seek and obtain federal funding and establish budgets for the respective train services.

Had the ARC’s proposal been adopted, Amtrak would have been freed to be what it was designed to be – a rail passenger carrier to run trains and address market demand--rather than a hermaphrodite running trains while trying to make transportation policy. A policy board and its staff would determine routes and levels of service and would become the arbiter of the three Amtraks.

The term the ARC used to identify this missing policy-planning role was “Federal Program Management and Oversight,” and the Final Report called for a “Federal Program Management Agency.”

This suggestion by the ARC’s was never embraced.  The federal government still lacks a transportation-policy development entity, and passenger rail lacks one of its own.

In the absence of such an entity, Amtrak has become the closest thing we have to a national passenger-rail policy commission, a job it clearly cannot do.  Amtrak is unable to prioritize its products—long-distance, commuter, NEC, state-supported corridors,--and it is unable to price its products properly—because there is no public planning commission or oversight board to assign values to its products or to prioritize its initiatives.

You might even say we have an “Amtrak IV,” an unfunded, unappointed and unelected passenger-rail policy commission inside a federally chartered railroad company and struggling to get out.

Amtrak is ill-suited and ill-structured to perform this stealth role.  Because there is no policy office for Amtrak to report to, Amtrak itself has become the default policy-maker, a task that conflicts with its commercial role as a train operator.  Because no other body determines how much funding each of the three Amtraks requires, the boss-dog, the NEC, grabs the choicest cuts first.  Because there are insufficient financial resources to fully fund each, the battle for the last dollar never ends. 

The result of this dysfunctional arrangement?  The Law of Unintended Consequences kicks in: 

  1. State-supported corridor trains are stuck with 4-car reserved consists of antiquated equipment, regardless of demand, because the “best and the brightest” rolling stock is needed elsewhere.

  2. Communities served only by long-distance trains must defend their right to this mobility choice annually, as these trains are continuously in the cross-hairs.

  3. Overnight trains are no longer marketed or viewed as transportation; instead, they are operated as tour trains connecting to other long-distance tour trains and scheduled for the convenience of the Operating Department rather than for the convenience of the short- and medium distance riders who make up most of their market.

  4. New York and Michigan don’t pay a nickel for their major corridors, and Wilmington, Delaware, a town of 80,000, gets to be the best-served medium-sized city in the nation, with 64 weekday departures, or one for every 1,100 residents, for free. (If Springfield, Illinois, were to enjoy this same ratio it would have over 90 departures per day.)

  5. Meanwhile, cities much larger than Wilmington in Illinois, North Carolina, California, Washington, Oregon and Oklahoma can obtain Amtrak service only if their state governments pay for it. And other large cities such as Columbus, Nashville, Knoxville, Phoenix, Scranton, Amarillo and Duluth have no service at all and no federal policy office represent their interests.

So long as Congress retains direct access to and control over Amtrak the operator, receiving no counsel or policy input from a neutral third-party, it will continue to keep Amtrak on a short and twisted leash.   That leash represents Congress’s only tool for assuring the taxpayers that passenger-rail funds are being managed wisely. 

Until passenger rail enjoys an intermediary at the federal level to run interference between the budget-builders and the train operators, there is little likelihood that Amtrak itself will be able to advocate successfully and impartially for all classes of train service, all regions of the country, all types of routes and all types of communities.  These are distinctions and interests that can be reconciled only at the federal policy level—and there is no policy level when it comes to passenger rail.  This is as good as it gets.

What should be done about that?  I will leave that to the other speakers at this conference.  Rick asked me to speak only about “what happened” and “how we got here,” not about how to get passenger rail to a new and better place. 

I look forward to hearing those ideas as the conference unfolds.  But as the various speakers address that topic, I ask that they remember Faulkner’s wise words:  “The past is not dead.  It’s not even past.”

Thank you.


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