R.L. Banks Statement to Michigan

July 16, 2014

Statement of:
Charles H. Banks
President, R.L. Banks & Associates, Inc.

Regarding:  Section 209 of the Passenger Rail Investment and Improvement Act (PRIIA) of 2008

Before the: Michigan Senate Appropriations Committee Transportation Subcommittee

July 16, 2014

Members of the subcommittee, good morning and thank you for this opportunity to speak before you concerning the opportunities and potential benefits Michigan stands to gain by exercising the freedom granted to all States under Section 209 of the Passenger Rail Investment and Improvement Act of 2008 — (PRIIA).

I understand that subcommittee members may have a number of questions that I look forward to answering but before I field these questions, I would like to make a few brief remarks. After a personal introduction, I’d like to touch upon the current situation and difficulties facing Michigan’s state-supported intercity rail passenger operations today, followed by a summary of the advantages offered by Section 209 of PRIIA, and finally concluding with an overview of what other States have done both in the pre- and post-PRIIA eras to improve service on their respective state-supported routes, paying particular attention to recent developments in Indiana, with which I was deeply involved.

I am Charles H. Banks, President of R.L. Banks & Associates, Inc. (RLBA), a multidisciplinary consulting firm providing economic, operational and engineering counsel solely with respect to intercity, high speed passenger, commuter/regional, light rail and freight nil transportation. Founded by my father, Robert Banks, in 1956, RLBA has emerged as the consultant of choice to public bodies contemplating the institution/revival of passenger rail systems nationwide as shown on the illustrative map which follows these remarks. My firm is on the leading edge of PRIIA Section 209 issues, having conducted a study for the Association of Independent Passenger Rail Operators (AIPRO) and having worked extensively with the Indiana Department of Transportation, the first State to select a service provider other than Amtrak under PRIIA Section 209. I have worked my entire adult life in the rail industry since the summer of my freshman year at Haverford College, from which I earned a BA in economics, including, having worked for five railroads as well as the United States Railroad Association before joining RLBA in 1985. I also earned an MBA at the Wharton School of Business.

Currently, Amtrak provides thirteen trains a day between various Michigan communities and Chicago, of which only eight provide service between Chicago and Detroit, along three routes, the Wolverine, the Blue Water and the Pere Marquette, which join together in the western part of Michigan. In all three corridors, passenger trains compete directly with travel by private automobile, bus and airplane. While those train operations meet the bare minimum of Amtrak requirements under its contract(s) with Michigan, may not be perceived as “services” to the passengers who ride them. Trains from Detroit generally arrive in Chicago at undesirable times, making them unattractive options to business travellers. Many, if not, most trains from Thursday through the weekend are oversold, inconveniencing potential customers and discouraging repeat business. Amtrak – provided equipment is antiquated, poorly maintained and unreliable, especially in cold weather and, while replacements are promised, the delivery timeline remains cloudy and riddled with questions.

The bottom line is that Amtrak is not responsive to the needs of Michigan passengers or to the State itself. The three Michigan corridors appear to serve merely as feeder lines to Amtrak’s major hub in Chicago, providing Amtrak with little incentive to improve or expand service, especially now that Michigan must “foot the bill” for these trains under PRIIA. Unless action is taken by the State, there perhaps is no reason to expect anything better than the status quo from intercity rail passenger service in Michigan operated exclusively by Amtrak. Given the hundreds of millions dollars invested by the State to acquire and improve the Detroit-Chicago rail corridor and the 213% expense increase in payments made by Michigan to Amtrak during the first year of PRIIA, one would expect more.

As the accompanying table demonstrates, to date, Michigan only has experienced the negative side of PRIIA; large increases in funding to Amtrak even though the suboptimal level of service remains unchanged, particularly on the Wolverine. However, utilized properly, PRIIA Section 209 gives Michigan the keys to not only greatly improve the service of such trains but also to decrease intercity rail costs.

Fortunately, provisions granted under PRIIA Section 209 give States a previously unavailable level of freedom and control over their state-supported intercity trains by allowing competition. Although Amtrak is the current contract operator, Michigan no longer is beholden to Amtrak as the state’s sole rail passenger operator option. If Michigan isn’t satisfied with the level of service provided by Amtrak, it can and should, choose another operator. The benefits of injecting competition into Michigan’s state-sponsored trains should be substantial. A for-profit, private operator would make the necessary time and capital investments to make intercity rail much more competitive; improving on-board services to include the modern amenities we’ve come to expect while traveling, introducing more equipment to better meet ridership demands and increasing train frequency while establishing more attractive arrival and departure times and much better and more responsive customer service. All this
equates to more jobs and economic development in Michigan. On top of these obvious service benefits, assuming Michigan awarded a contract through a competitive bidding process, Michigan could expect to incur lower costs while experiencing significantly more passenger rail revenue.

I can assure you that private investors and operators are interested in entering the intercity passenger rail market today. The practice is common internationally in heavily rail-dependent countries like Japan and England, and gaining popularity largely among America’s newest commuter rail agencies. Just last month, the Indiana Department of Transportation announced that four private sector teams, curiously not including Amtrak, submitted bids to assume operation of the Indianapolis-Chicago Hoosier State operation, a train, that is relatively unattractive to bid on for many reasons. The fact that that RFP attracted such a large response speaks volumes about the level of private section interest in exploring the intercity passenger rail market.

While I believe we all can agree that the benefits of exploring a private operator of Michigan’s intercity trains are many, fear of risk and the ‘unknown’ have combined to slow the rollout of improved intercity and passenger services. Since private railroads were relieved of their common carrier requirement to carry passengers in 1971, no entity other than Amtrak has had that responsibility or authority. It may appear that states on the cutting edge of PRIIA Section 209 face great uncertainly about what to expect. But this is not the case, as several states have made great headway in improving service and efficiency on state-supported routes even before PRIIA. North Carolina began running the Piedmont service in 1995 with state-owned equipment and stations, with on-board food service and some station staffing responsibilities spun off to third party, for-profit contractors. In Maine, state-supported operations began in 2001 with the Northern New England Passenger Rail Authority managing onboard services on the Downeaster, as well as contracting out select maintenance services. California, which has been at the forefront of advancing state-supported services since 1992, owns the majority of the locomotives and coaches used on the State’s three highly successful services, in addition to sharing in-state maintenance facilities with Amtrak.

While it may be human nature to take a “wait and see” approach to something new like Section 209, there is a less obvious but a very real concern raised by Section 209. As more states opt out of Amtrak-provided corridor service, the remaining states presumably will be left to cover Amtrak’s significant overhead charges. The nature of railroading makes it very difficult to accurately allocate costs to specific causal factors and Amtrak historically has been criticized repeatedly by independent reviewers about its performance of this challenging task. One need only to look at the changes in charges to each state after the enactment of PRIIA to fully understand the complex nature of Amtrak’s cost allocations. As previously mentioned, Amtrak calculated that Michigan warranted an increase of 213% in payments to Amtrak from fiscal year 2012 to 2013. Over the same period, Amtrak calculated that Illinois should pay an increase of only 32% while Wisconsin actually enjoyed a decrease of 11.4% in fiscal 2013 as compared to the previous year. Not surprisingly, many states are concerned that a potentially large amount of the money paid to operate specific, state-supported trains is, in fact, going towards covering the carrier’s expenses and programs elsewhere. One must believe that as States pull even partially out of Amtrak’s orbit, the unlucky and slow-to-move States left behind will experience increases in their expenses, solely to cover Amtrak’s overhead.  Section 209 of PRIIA will encourage other states to follow in the footsteps of early innovators to take a more active role in their State’s intercity rail and decide on what entity or entities will operate their trains. One State already has “taken the plunge.” As I previously mentioned, just last month, the State of Indiana announced its selection of Corridor Capital, LLC to operate the Hoosier State in conjunction with Amtrak, becoming the first State to take advantage of the freedom granted in PRIIA. My firm was fortunate to be intimately involved from the beginning in Indiana’s efforts to find a better option for arguably one of the worst performing trains in the Nation. Working closely with state officials, RLBA executed the following tasks deemed to be essential to the successful selection of a new, better operator of the Hoosier State;

  1. Development of a clear and specific Vision Statement;
  2. Performance of a survey of passengers to determine what riders want to see improved about the service;
  3. Meeting with representative members of partner communities to incorporate their views into the Vision Statement;
  4. Analyzing ridership data;
  5. Examining what roles INDOT and partner communities should have in the future;
  6. Evaluating the benefits of outsourcing all rail passenger service into one or multiple contracts;
  7. Drafting a Contract Services RFP;
  8. Assisting in pre-bid meeting and
  9. Assisting INDOT and partner communities in reviewing bidder’s proposals.

As with anything tried the first time, I certainly expect there to be growing pains as the situation develops in Indiana. Shortcomings in the language of PRIIA have left many questions unanswered, particularly when it comes to the interaction between a third party operator and both Amtrak and any host railroads. But those concerns aside, thus far I believe Indiana has served as an excellent trailblazer and example to demonstrate the potential benefits of enacting Section 209. I look forward to great progress being reported out of Indianapolis over the next several months.

With RLBA at the forefront of Section 209 issues, I have learned many lessons working in Indiana. The Indiana bidding process was very competitive, with all third party operators proposing better service, more ridership and the lower costs than the continuation of the status quo. While Section 209 is a good start, I believe legislation needs to go further to fully realize the benefits of competitive bidding. Unfortunately, Section 209 leaves the relationship between third party bidders and Amtrak very undefined. Under Section 209, third party bidders need Amtrak because Amtrak enjoys sole operating rights to access freight railroads. In effect, Amtrak “holds all the cards” with respect to getting over freight railroad-owned track, so third party operators must team with Amtrak. In the future, states interested in PRIIA reform should lobby to establish clear guidelines on a number of issues. There should be distinct guidelines as to how much freight railroads can charge third party bidders and guaranteed access to freight rail tracks on terms reasonable to all parties. In addition, Amtrak’s role in PRIIA should be more clearly defined. I believe that with these and other proposed changes, the future of state-supported corridors is extremely bright. States are in a better position now than ever before to improve and customize their corridor services. I hope Michigan will take as much advantage of Section 209 provisions as possible and simultaneously, work with other states to amend Section 209 to give States even more control and opportunities in the near future. I thank you for your time and would be happy to answer questions you may have.

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