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July
2, 2002, 10:20 a.m. By Wendell Cox |
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magine
this. WorldCom announces a $3.8 billion restatement of earnings due to
accounting irregularities. WorldCom had booked operating expenses as capital
expenditures, which had the effect of reporting profits rather than losses.
The auditor, Arthur Andersen, of Enron fame, had asked no questions in
return for its lucrative fees. The financial markets are uneasy, as the
share price plummets and bankruptcy looms. The Bush administration, seeking
to avert a crisis, sends the Secretary of Commerce to meet with WorldCom's
board of directors to keep the company afloat. After days of meetings,
the Commerce Secretary and the WorldCom chairman emerge, all smiles, to
issue a joint press release detailing how the Department of Commerce will
provide a loan guarantee to cover half of the loss, while Congress will
be asked for the rest of the money as either a loan or an outright grant.
In exchange, WorldCom promises to provide a monthly accounting and begin
outsourcing work to lower costs, and makes vague promises to begin serious
financial and operational reform. But there is a glitch. A day after the
joint statement is released, WorldCom executives announce that, despite
their board of director's commitment, they cannot deliver on the outsourcing
provision. The Commerce Secretary capitulates and revises the agreement.
Far fetched? Not really. Just about the same thing happened in the case of Amtrak. Barely one month ago, new Amtrak President David Gunn discovered and announced a surprise shortage of $200 million, an amount similar in proportion to Amtrak's revenues as the $3.8 billion is to WorldCom's revenues. While it is not clear what went wrong, what is clear is that previous Amtrak reports indicated no hint at such a crisis. Former Amtrak President George Warrington had told Congress in February that Amtrak had enough money to complete the fiscal year. Worse, last summer, both Mr. Warrington and Amtrak Vice Chairman Michael Dukakis, leading the board after the resignation of former Chairman and Health and Human Services Secretary Tommy Thompson, announced that Amtrak would reach the congressionally mandated objective of operating cost self-sufficiency by 2002. They won't even be close. The earlier rosy results, as different as night from day as the later admissions, must surely have arisen from financial shenanigans. Further, the Amtrak Reform Council found that Amtrak had charged at least $500 million in operating expenses to congressionally earmarked capital funds in prior years, the ruse copied by WorldCom and its Enronist auditors.
In the real-life Amtrak story, the fictional role of the Secretary of Commerce above was played by the Secretary of Transportation. There were meetings with the Amtrak board of directors, a joint statement with the Amtrak chairman and a subsequent secretarial climb-down. Amtrak got most of what it asked for, and the taxpayers pay the bill. Amtrak's board of directors, who in league with President Warrington deceived both Congress and the American people, remain in place. Warrington is now comfortably installed in a better job as executive director of New Jersey Transit. Meanwhile, various members of the Senate and the House of Representatives issue fawning press releases about how American needs a world class passenger rail system. Then there are the outright lies like "there is no profitable passenger rail system in the world," so graciously supplied by Amtrak's K Street Corps and labor unions, whose lucrative tax supported incomes ensure a strong lobby for yesterday.
But when WorldCom pulled an "Amtrak," Washington's reaction was much different. In barely 24 hours subpoenas were issued for WorldCom officials to appear before congressional hearings, while congressional press releases were rightly unanimous in condemning the improprieties.
Amtrak-WorldCom shows that a double standard operates in Washington. Misreport private financial results and the consequences begin with subpoenas. Misreport public financial results and the rewards begin with photo-opportunities. But in a government of laws, not men, similar improprieties would be punished similarly. Both public and private misconduct should be sanctioned. Indeed, government agencies should be held to a higher standard than private companies, because their funds are compelled from the taxpayers, not provided voluntarily by private investors.
Not all of Washington has bought into the situational ethics of "who you are determines how you are treated." Senator McCain called for resignation of the Amtrak board of directors some weeks ago. Director of the Office of Management and Budget Mitch Daniels noted that if Amtrak had been a private company, the directors would have been forced to resign and would be facing "severe" sanctions. And, at the end of last week, 14 senators signed a letter to the president calling for tough and meaningful reforms.
Forget about world-class passenger rail. Washington's insider games have given us a WorldCom-class Amtrak, but without the accountability.
— Wendell Cox is a member of the Amtrak Reform Council, principal of Wendell Cox Consultancy and a visiting professor at Le Conservatoire National des Arts et Metiers (CNAM) in Paris.