Cash-strapped Amtrak let millions in overpayments slip away

By Sean Reilly | 03/16/2015 12:40 PM EDT

For Amtrak, the findings of a 2012 audit might have led to a minor windfall: Over an approximately four-year period, the passenger railroad had overpaid BNSF Railway Co. more than $9 million for use of the freight railroad’s tracks. But in the end, however, Amtrak settled for $1.4 million.

For Amtrak, the findings of a 2012 audit might have led to a minor windfall: Over an approximately four-year period, the passenger railroad had overpaid BNSF Railway Co. more than $9 million for use of the freight railroad’s tracks.

But in the end, however, Amtrak settled for $1.4 million.

That pattern has played out repeatedly over the years, according to data provided by Amtrak’s inspector general to Greenwire. Audits would uncover excessive payments to "host" railroads that control most of the track used by Amtrak trains. Amtrak, although perpetually hungry for cash, has regularly agreed to take significantly less than what the inspector general had concluded was due.


Of $3.5 million in overpayments to Union Pacific Corp. flagged in a separate 2012 IG review, for example, Amtrak recouped $1.2 million. A 2013 audit found another $2.1 million in overpayments to BNSF; while negotiations are continuing, according to a spokesman for the Fort Worth-based carrier, none of that money has so far been recovered.

In all, Amtrak has regained barely half of about $91 million in excess payments found by the inspector general since the mid-1990s.

Although the balance is a small fraction of the railroad’s $4 billion-plus in annual expenses, Amtrak "can’t afford to lose a dime," Rep. Elijah Cummings of Maryland, the top Democrat on the House Oversight and Government Reform Committee, said in a recent interview.

Amtrak would not permit an interview with anyone in its Law Department, which bears responsibility for negotiating the settlements.

While Amtrak maintains that it seeks repayment in every case, many of the claims dated back to the early 1990s and lacked proper supporting documentation, spokeswoman Christina Leeds said in an email. Contracts with the host railroads "offered differing interpretations," she added.

The contracts, technically known as operating agreements, set the terms under which Amtrak can use thousands of miles of track owned and controlled by freight and commuter railroads. In 2014, they cost Amtrak about $99 million.

Contributing to the excess payments was Amtrak’s willingness to pay its bills with few questions asked, the audits indicate. Also in contention was a bonus system intended to reward host railroads for helping Amtrak trains stay on schedule.

By law, freight carriers are already supposed to give Amtrak preference in using their tracks. The bonuses, known as "on-time performance incentives," are intended to complement that preference "to produce the best possible performance from the host railroads," Leeds said.

But the freight carriers sometimes interpreted those provisions to their advantage, with little pushback from Amtrak, the inspector general repeatedly found.

Amtrak, for example, left it up to BNSF to calculate each passenger train’s on-time performance record and the amount due in incentives, according to the 2012 audit.

Although Amtrak employees found almost $42,000 in overbillings, they missed another $9.1 million in invoice miscalculations over little more than four years, the audit says.

The mistakes didn’t stop there: A separate review found that Amtrak had paid BNSF hundreds of thousands of dollars for utility expenses at as many as 16 stations even as it was paying for those same services directly.

In general, "there really wasn’t a billing review process," then-Inspector General Ted Alves told the House Transportation and Infrastructure Committee at a hearing in late 2012. For years, Alves said, Amtrak instead relied on the IG to come in "years after the fact and reconstruct the payments and identify overpayments."

When Amtrak finally created a formal mechanism for reviewing invoices, responsibility for that job was handed to the same group that drafted the contracts with the host railroads, Alves said.

"We thought that was too close and needed to be a separation of duties," he told lawmakers. Amtrak agreed to that change, as well, he said. Alves, who stepped down as inspector general last year, did not respond to phone and email messages seeking further comment.

If properly implemented, the new framework should address the issues raised in the audits, David Warren, the assistant inspector general for audits, said an interview this month.

But until his office takes a look at how the implementation process is faring — a step that is planned but not yet underway — "I can’t speak with confidence that the controls are working efficiently or are being applied and implemented effectively," Warren said.

The biggest single amount owed was uncovered in a 2010 audit of CSX Transportation Inc., which found that the Florida-based railroad had overbilled Amtrak by more than $20 million over an 11-year period.

The overbillings all stemmed from misapplications of the on-time performance bonuses. CSX not only failed to document its claims for more money but turned in inaccurate information on arrival and departure times, auditors concluded.

CSX management contested "the entire matter," according to a summary of its response contained in the audit. Nonetheless, the company eventually settled for an amount exceeding the total overpayment, although the bulk of the reimbursement came in the form of a credit to Amtrak rather than through straight repayment, according to the inspector general.

Neither Amtrak nor CSX would explain the rationale for structuring the agreement that way. Of more than 60 audits carried out by the inspector general on overpayment issues since the 1990s, only one is unresolved: the 2013 review which found that BNSF owed some $2.1 million.

Although the two sides are working to reconcile the differences, BNSF spokesman Mike Trevino said, he had no estimate on when that process will conclude.

At Union Pacific, which repaid less than half of $26 million in overpayments identified by the inspector general over the years, "our relationship with Amtrak is sound," said Lance Fritz, the railroad’s president and CEO, in an interview following a congressional hearing earlier this year.

"We have mechanisms in place where we work with Amtrak to ensure that their payments to us are accurate, and I have no reason to believe that they’re not," Fritz said.

In general, Amtrak’s relationship with the freight railroads remains complicated, marked by areas of friction and cooperation.

Last week, for example, the U.S. Supreme Court effectively sided with Amtrak in a lawsuit that challenged its authority to set performance yardsticks affecting other sectors of the rail industry (Greenwire, March 9).

The suit was filed by the Association of American Railroads (AAR) on behalf of large freight carriers; Amtrak officials had blamed a lower-court ruling in the association’s favor as a factor in driving passenger train punctuality to its lowest point in years (Greenwire, Oct. 31, 2014).

Throughout several years of litigation, however, Amtrak has remained an AAR member. As a large Class I railroad, "we … find it beneficial to engage with the major host railroads that many of our trains operate over," Leeds said.

Asked last October how much Amtrak pays in yearly dues to the association, Leeds said Greenwire had to file a Freedom of Information Act request for the data. Five months later, that request is still pending.