Its Board of Directors approved Amtrak’s most recent strategic business plan in October 1998. These adjustments allow us to better compare Amtrak’s net loss and working capital positions over time. 1.) This amount is the largest net loss in the last 10 years. While an increase in depreciation—which reflects the amount of capital equipment that is consumed and must be replaced in future years—increases net loss, Amtrak points out that investments resulting in increased depreciation expenses are expected to have positive effects in the future, such as increasing revenues, reducing costs, and eliminating the need for federal operating support. Working capital measures a corporation’s ability to pay its bills when due. Amtrak’s Prospects for Achieving Operating Self-Sufficency Are Clouded by Uncertainties in Its Business Plan and by Past Performance

Amtrak’s October 1998 strategic business plan does not anticipate that the corporation will use any federal subsidies for operating expenses (other than for excess railroad retirement expenses) in fiscal year 2002—1 year earlier than requested by the administration and specified in the Amtrak Reform and Accountability Act of 1997. 3.) Amtrak estimates that its business plan initiatives will result in net financial improvements of $1.6 billion for fiscal years 1999-2002. Overall, Amtrak projects that if it achieves the financial benefits associated with these initiatives, including 100 percent of the $631 million in financial improvements it projects for fiscal year 2002, it will gradually reduce its reliance on federal operating assistance, and achieve operating self-sufficiency in 2002. Amtrak intends to achieve this net impact primarily through cost savings that it will identify on an ongoing basis. Amtrak has made some initial steps in this area. Federal Funding and Reform Legislation Will Likely Have Little Short-Term Impact on Improving Amtrak’s Overall Financial Condition

Current and planned annual federal funding and reforms contained in the Amtrak Reform and Accountability Act of 1997 are likely to have little short-term impact on improving Amtrak’s overall financial condition. This $1 billion represents nearly two-thirds of the $1.6 billion Amtrak expects to receive through annual federal capital appropriations. However, in fiscal year 1999, Amtrak has plans to use $758 million of the $2.2 billion it received through the Taxpayer Relief Act of 1997 for capital improvements in addition to the $558 million its Board of Directors approved for capital investments in fiscal year 1998. On the other hand, if Amtrak is not permitted to continue to use appropriated funds for maintenance, then it would have to look for additional ways to increase revenues and reduce expenses. First, regarding labor protection arrangements, after 10 negotiating sessions, Amtrak and its unions agreed to submit the matter to binding arbitration. Second, Amtrak has a history of not meeting its financial goals, and the current 4-year plan anticipates achieving about 5 times as much in financial improvements as Amtrak was able to achieve through its business plans over the previous 4 years. As a result, in Amtrak’s view, the costs of progressive overhauls would be excluded from the calculation of Amtrak’s progress toward achieving operational self-sufficiency by 2002.
Why GAO Did This Study

Pursuant to a congressional request, GAO followed up on its report on Amtrak's financial performance, focusing on: (1) Amtrak's overall financial performance in fiscal year (FY) 1998; (2) the prospects for Amtrak to meet its financial goals for operating self-sufficiency outlined in its most recent strategic business plan; and (3) the extent to which current and anticipated federal funding and recently enacted legislative reforms aimed at helping Amtrak better control its costs are likely to help improve its financial condition.

What GAO Found

GAO noted that: (1) Amtrak's overall losses increased in FY 1998 after several years of improvement; (2) in FY 1998, Amtrak's net loss was $930 million, the largest loss in the last 10 years; (3) by comparison, Amtrak's net loss in FY 1997 was $762 million; (4) Amtrak has made progress in reducing its reliance on federal operating support; (5) however, between now and 2002, it needs to achieve about 5 times as much in financial improvements as it has been able to achieve over the past 4 years to reach operational self-sufficiency; (6) Amtrak's strategic business plan, approved by its Board of Directors in October 1998, estimates that ongoing and planned initiatives will result in a cumulative net impact of $1.6 billion from FY 1999 through FY 2002, primarily through increases in revenues as a result of taking business plan actions; (7) however, uncertainty surrounds Amtrak's ability to achieve this net impact and to reach operational self-sufficiency by FY 2002; (8) furthermore, Amtrak's expectations to increase revenues through other initiatives are based on critical assumptions that have yet to be tested in the marketplace; (9) current and anticipated annual federal funding and recently enacted reforms aimed at helping Amtrak better control its costs will likely have little short-term impact on improving its overall financial condition; (10) Amtrak plans to use nearly $1 billion of the $1.6 billion its expects to receive in federal capital appropriations over the next 3 fiscal years for maintenance rather than capital improvements; (11) while maintenance is important for preserving assets and Amtrak's FY 1999 capital appropriation could be used for equipment maintenance, Amtrak's plans to continue to use capital appropriations in this way means it will forgo or delay capital investment projects that could increase future revenues and reduce future costs; (12) however, Amtrak's Board of Directors has approved plans for $1.3 billion of capital improvements from the $2.2 billion made available to it through the Taxpayer Relief Act of 1997; (13) in addition, while the Amtrak Reform and Accountability Act of 1997 provided Amtrak greater flexibility in its business operations, the reforms provide few financial benefits in the short term; and (14) GAO found this condition continues to exist largely because Amtrak and its unions have not completed negotiations over labor protection arrangements and reforms for contracting out work.