To say that 2002 has been a tough year for U.S. stockholders would be an understatement.
Yet another accounting scandal rocked Wall Street when WorldCom disclosed that it concealed $3.8 billion in expenses from investors, leading the telecom giant to restate its earnings for 2001 and the first quarter of 2002. President Bush and members of Congress are demanding a Justice Department probe into WorldCom’s books, similar to the one conducted on Enron earlier in the year.
Coincidentally, another scandal emerged about the same time--with little fanfare and even less outrage. Amtrak, the government-operated passenger rail system, announced that it would be forced to discontinue service at the end of its fiscal year without an immediate influx of $205 million in "guaranteed loans" from government coffers.
A classic example of government inefficiency and a thorn in the side of taxpayers everywhere, Amtrak has been operating in the red for over 30 years. Since its inception in 1971, the federally created leviathan has consumed $40 billion in inflation-adjusted federal subsidies by ringing up losses in excess of $1 billion annually. Its banks have refused additional funding due to its poor financial condition and an incomplete audit report for 2001. I wonder how many business schools across the country are teaching the Amtrak business model to their budding entrepreneurs?
Despite Amtrak’s dismal record, Congressional Democrats and Republicans are rallying in defense of the government rail service. Key senators and House members even signed letters expressing their support of additional appropriations. Among the more ridiculous comments were those made by Senator Robert Byrd, Senate Appropriations Committee chairman and pork spender extraordinaire, whose home state just happens to be served by Amtrak.
“Amtrak has a vital homeland security role,” stated the spendthrift senator. Homeland security? Yeah, I see his point. You never know when federal law enforcement agencies might need to utilize the nation’s passenger rail system to respond to bioterrorist attacks within our borders. If the terrorists are planning another attack, perhaps it will be in a city that is serviced by Amtrak!
Senator Byrd continues: “The railroad is a viable alternative to highways and airways. To allow Amtrak to close its doors now, when the terrorist threats and attack warnings come almost daily, would be irresponsible.” A viable alternative to highways and airways? Amtrak provides a measly 0.3 percent of intercity transportation--cars, planes, and buses provide the rest. In fact, Amtrak carries fewer than 1,000 passengers a day in 34 of the 45 states that it operates. Even worse, Amtrak rail passengers benefit from enormous subsidies--around $100 per person on long-distance trains, and in excess of $300 on certain routes. It would be cheaper to provide these passengers with luxury rental cars to make the trip! The irresponsibility that Senator Byrd speaks of does not lie with those who advocate the end to subsidized passenger rail. It belongs to the politicians who have supported this taxpayer boondoggle for all these years.
Meanwhile, top officials at WorldCom are being subpoenaed as Congress looks into the company’s financial shenanigans. President Bush has deemed the accounting errors at WorldCom “outrageous,” and plans to “fully investigate and hold people accountable for misleading not only shareholders but employees as well.” To his credit, the President is right about one thing: Those who commit fraud against employees and shareholders should be held accountable for their actions and deserve to be punished accordingly. However, the WorldCom Congressional hearings appear to be nothing more than political grandstanding by self-aggrandizing politicians during an election year.
Besides, if the WorldCom debacle deserves a hearing, why isn’t Congress investigating Amtrak as well? The "company" (federal government) has defrauded "investors" (taxpayers) out of $40 billion over the last 30 years due to chronic mismanagement, incompetence, and political pandering. The "business" has never shown a profit in its entire history of operation. WorldCom’s woes, on the other hand, derived from a "paltry" $3.8 billion accounting error--ten times less than Amtrak’s staggering lifetime losses.
Being a federally funded government program certainly has its advantages. There is a seemingly endless supply of cash to bail you out, and accountability is never a concern. Despite the language of the original Amtrak legislation, the "temporary" subsidies became permanent. And just a few years ago, Congress imposed a mandate requiring Amtrak to become self-sufficient by 2002. But the rail system is no closer to self-reliance today than it was at inception.
WorldCom is already suffering the consequences of fiscal mismanagement, courtesy of the free market. From a high of $64.50 per share, its stock price has plummeted well below the $1 range. Customers are fleeing en masse, in search of more stable telecom providers. Executives who participated in the fraud will likely pay hefty fines and may face imprisonment.
Amtrak, on the other hand, will carry on--with or without passengers. The Bush administration finalized a government bailout that includes an immediate $100 million infusion to keep the trains running through August. And sometime next month, Congress will consider an additional $100 million in loan guarantees to maintain service until October 1, the beginning of the next fiscal year. It is too bad for WorldCom that the company is not part of some failing federal program. If it were, Congress would simply increase funding in order to "save" it.
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