Equipment funding for Amtrak

One of the most efficient means of conducting mass evacuations of citizens or hospitals when disasters strike is by diverting passenger trains to the scene to come to the aid of the nation. However you can’t divert passenger trains to an emergency if they don’t exist!

Major cities such as Chicago or Atlanta need to have passenger service radiating out to other major cities on an hourly basis not once a day or every three days. Currently there is not enough equipment to field such an operation nor is there the demand. Demand comes with frequency and reliability.

Amtrak needs more passenger equipment, but they can’t count on congress or the sale of bonds or state funding to purchase the amount of passenger equipment our nations requires for responding to a major disaster, or handling the passenger overflow from over crowed airports which can’t be expanded fast enough to their finite capacity.

American Train Yard

Amtrak could find funding from private citizens using an approach similar to Tax-Credit Bonds or Certificates of Participation (COPs). (See note two below)

Individual citizens who are in the 30 to 35% tax bracket are looking for tax shelters and reliable income when they retire. Personal income tends to peak when a person is in their 50s about the time when their children have left home. This is the time when people start to have the funds available to invest in tax shelters, assuming they were unable to invest in income property or other options earlier. Having a tax shelter that will provide a positive source of income after retirement is extremely important. Once an individual retires their income drops, and they can no longer count on their corporate retirements or social security to pay off at the promised levels, to fill the income void.

Instead of selling bonds or issuing stock Amtrak could have individuals invest in passenger equipment. Allow them to accelerate the deprecation at a rate they select then once they have completed writing off their deprecation Amtrak would rent the equipment from them at a rate equal to the return on a municipal bond for fifteen years after they have reached 62 years old.

Amtrak would set up a 501 (c) 3 corporation for the express purpose of purchasing and maintaining passenger equipment for Amtrak. This could be modeled after the Las Vegas monorail project. An individual citizen would then purchase in $1000.00 increments a percentage of a passenger car. The individual would then elect the rate of depreciation. For example the individual buys $10,000.00 of a car at the age of 55, and plan to retire at age 62. They would deprecate their $10,000.00 over 7 years. Upon retirement at age 62 Amtrak via the 501 (c) 3 corp. would pay the individual rent for the car based upon the percentage they purchased not to exceed the .75% interest rate of a treasury bond for the next fifteen years. The individual would have the option of accepting the rental income or donating the income back to the 501 (c) 3 corp. in the even they desire a tax deduction.

Another approach would be for Amtrak to match the individual’s investment for investments over $100,000.00 and not rent the equipment after it has been deprecated. In this case an individual invests $250,000.00, Amtrak matches that investment and gives the individual Amtrak’s share of the deprecation. This provides the individual with twice the deprecation and Amtrak has no future financial obligation to pay rent only the maintenance cost. Amtrak could use a sliding scale to match individual investment by rewarding greater investment with a higher rate of deprecation matching.

This approach is much more cost effect than issuing Tax-Credit Bonds or Certificates of Participation because it doesn’t require the government to issue the bonds or to manage the process. Remember for our government to receive allocate and spend a dollar it cost money.

Safeguards:
Should the 501 (c) 3 corp. cease to be a going concern then the equipment would be donated to Amtrak. Individuals who invested in the equipment would still be able to write off the equipment depreciation and Amtrak could assume the responsibility of disbursing the rent. “OR” the individual investors would be allowed to write off as a deduction the amount they would have received for a treasury bond for the next 15 years.

Benefits:

  1. The individual citizen receives a tax shelter for the period they desire and a return on their investment for 15 years.
  2. Amtrak receives additional equipment funding from non-government sources.
  3. Using the 501 (c) 3 corp. Amtrak doesn’t incur direct financial liability for administering the funds or purchasing the equipment.
  4. The U.S. tax payer saves the cost of selling Tax-Credit Bonds if selling bonds were an option
  5. Funding would not be filtered through government channels
  6. Funding could not be diverted for other uses
  7. Individual citizens are allowed to opportunity to direct where they want their tax dollar to go.

Amtrak would be best served chartering their own 501 (c) 3 corp. This way funding would never have to go through Amtrak’s books.

The board of directors would consist of 2/3 appointed members and 1/3 elected by the investors. The appointed members would come from specific agencies such as Amtrak, DOT, DHS / FEMA, citizen’s advisory groups that work with Amtrak, other municipal rail transportation authorities, railroad related professional societies, and key labor representatives.

With the exception of allowing an individual to select the rate of depreciation all of the required laws are on the books. If congress can pass a law allowing corporate purchasers of HMWWVs (vehicles over 6,000 pounds) to full deprecate the vehicle in one year they can certainly do the same for citizens who desire to invest in our nation’s rail service. (See note one below)

For more information on how a more costly approach works see: www.cbo.gov/showdoc.cfm?index=5624

This is a congressional site titled “Tax-Credit Bonds and the Federal Cost of Financing Public Expenditures”

Another piece of legislation of interest would be “Financial analysis of H.R. 2329, The High Speed Rail Investment Act of 2001.

Notice that even with the above two pieces of legislation Amtrak is still fighting for every penny of support they receive.

Incorporated in the “American Jobs Creation Act of 2004 H.R. 4520” is the “Business auto depreciation limits”. This allows individuals and business who buy a vehicle weighing over 6,000 pounds to fully deprecate it in one year. Under IRS sec. 168k and IRS Reg. §1.274 5T(k)

If the taxpayer purchased a business vehicle in year 2003 that weigh more than 6,000 pounds when empty, then the depreciation limits do not apply. This means that the full business use percentage cost of the vehicle is deductible in the year of purchase.

Certificates of Participation (COPs) are often used by government agencies to avoid going to the voters for bond approval. COPs are a lease financing mechanism which an agency may borrow money without going to voters for approval. Under this process the government agency commissions a private corporation to build a facility or purchase equipment then the government agency leases it. Investors provide the capital up front and receive Certificates of Participation (COPs). The COPs specify the interest the investor is to receive. COPs are very popular with school districts some have been able to borrow as much as 800+ million. The difference in the plan I proposed is that Amtrak doesn’t borrow the money. They only rent the equipment after it has been deprecated.