Alaska Railroad Corporation, Anchorage- The Alaska Railroad Corporation (ARRC) released its 2016 annual report today. Audited financial statements show that during 2016, ARRC generated a net loss of $4.4 million due to continued declines in historic freight lines and an impasse on the Federal Transit Administration (FTA) split letter relating to Section 5307 grant funds.
2016 was a challenging year for the Railroad as Alaska’s economy continued to slow. ARRC saw freight revenue drop 16% from 2015 and over 44% since 2008. Refined petroleum product volumes to Interior Alaska were down 23% from 2015. The global collapse of the coal market lead to only one ship loaded for export in Seward during 2016 and the decision to put the Seward Coal Loading Facility into cold storage for the foreseeable future. Additionally, gravel volumes decreased by 11% and decreased North Slope Oilfield activities reduced interline barge service revenue by 23% from 2015.
“We’ve gone to great lengths to reduce expenses,” said ARRC Board Chair Jon Cook, “Particularly by scaling down freight operations to match the unprecedented decline in our revenue stream and by identifying initiatives for improvement and cost reduction. Unfortunately, it also led to the reduction of nearly 50 positions earlier this year.”
Overall, total revenues equaled $169.8 million, $15.2 million less than 2015, while total expenses were $174.1 million.
The other significant challenge, which resulted in a $7.4 million loss for 2016, came in the form of an impasse between ARRC and the Municipality of Anchorage (MOA) regarding the method for splitting FTA section 5307 federal funds. Both ARRC and MOA are designated recipients of FTA Urbanized Area Formula Funds under 49 U.S.C. § 5307. Under this program, formula funds flow from FTA to a local area planning organization in a lump sum. Since 2006, ARRC and MOA have agreed to split the funds along programmatic lines so that all funds generated by ARRC as “rail tier” funds have gone to ARRC and all funds generated as “bus tier” funds have gone to MOA. During 2016, MOA refused to continue this long-
standing practice and demanded instead to redirect rail tier funds earned by ARRC to MOA, which is not agreeable to ARRC. Until this impasse is resolved, the flow of funds to ARRC and MOA are delayed, and ARRC is unable to recognize $7.4 million of expected rail tier FTA section 5307 federal revenues for 2016.
“Taking the reduction of income and the cost cutting measures into account,” Jon Cook continued. ”If it weren’t for the unreasonable actions of the Municipality, which caused the delay in receiving the FTA formula funds, we would have ended the year with $3 million of net income.”
On the bright side ARRC continued to see another year of solid growth in passenger revenue in 2016 which increased by 6% over 2015 and steady year-over-year income from real estate.
“We still have a strong balance sheet with over $1 billion in assets, but what’s happening to the railroad is pretty representative of what is happening economically around Alaska right now,” said ARRC President and CEO Bill O’Leary. “Despite it all, we will face these challenges head on and will continue to provide great service to our customers and passengers through these tough times.”
A copy of the ARRC 2016 annual report and past reports can be found at: