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65–451 PDF 2011

SITTING ON OUR ASSETS: 

REHABILITATING AND IMPROVING OUR 

NATION’S RAIL INFRASTRUCTURE 

(112–7) 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

RAILROADS, PIPELINES, AND 

HAZARDOUS MATERIALS 

OF THE

COMMITTEE ON 

TRANSPORTATION AND 

INFRASTRUCTURE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

FEBRUARY 17, 2011 

Printed for the use of the 

Committee on Transportation and Infrastructure 

( 

Available online at: http://www.gpo.gov/fdsys/browse/ 

committee.action?chamber=house&committee=transportation 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

JOHN L. MICA, Florida, Chairman 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

JOHN J. DUNCAN, JR., Tennessee 

FRANK A. LOBIONDO, New Jersey 

GARY G. MILLER, California 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

BILL SHUSTER, Pennsylvania 

SHELLEY MOORE CAPITO, West Virginia 

JEAN SCHMIDT, Ohio 

CANDICE S. MILLER, Michigan 

DUNCAN HUNTER, California 

TOM REED, New York 

ANDY HARRIS, Maryland 

ERIC A. ‘‘RICK’’ CRAWFORD, Arkansas 

JAIME HERRERA BEUTLER, Washington 

FRANK C. GUINTA, New Hampshire 

RANDY HULTGREN, Illinois 

LOU BARLETTA, Pennsylvania 

CHIP CRAVAACK, Minnesota 

BLAKE FARENTHOLD, Texas 

LARRY BUCSHON, Indiana 

BILLY LONG, Missouri 

BOB GIBBS, Ohio 

PATRICK MEEHAN, Pennsylvania 

RICHARD L. HANNA, New York 

STEPHEN LEE FINCHER, Tennessee 

JEFFREY M. LANDRY, Louisiana 

STEVE SOUTHERLAND II, Florida 

JEFF DENHAM, California 

JAMES LANKFORD, Oklahoma 

NICK J. RAHALL II, West Virginia 

PETER A. DEFAZIO, Oregon 

JERRY F. COSTELLO, Illinois 

ELEANOR HOLMES NORTON, District of 

Columbia 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

BOB FILNER, California 

EDDIE BERNICE JOHNSON, Texas 

ELIJAH E. CUMMINGS, Maryland 

LEONARD L. BOSWELL, Iowa 

TIM HOLDEN, Pennsylvania 

RICK LARSEN, Washington 

MICHAEL E. CAPUANO, Massachusetts 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

RUSS CARNAHAN, Missouri 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

MAZIE K. HIRONO, Hawaii 

JASON ALTMIRE, Pennsylvania 

TIMOTHY J. WALZ, Minnesota 

HEATH SHULER, North Carolina 

STEVE COHEN, Tennessee 

LAURA RICHARDSON, California 

ALBIO SIRES, New Jersey 

DONNA F. EDWARDS, Maryland 

(II) 

SUBCOMMITTEE ON RAILROADS, PIPELINES, AND HAZARDOUS MATERIALS

BILL SHUSTER, Pennsylvania, Chairman 

GARY G. MILLER, California 

SAM GRAVES, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

JEAN SCHMIDT, Ohio 

CANDICE S. MILLER, Michigan 

TOM REED, New York, Vice Chair 

JAIME HERRERA BEUTLER, Washington 

RANDY HULTGREN, Illinois 

LOU BARLETTA, Pennsylvania 

LARRY BUCSHON, Indiana 

BILLY LONG, Missouri 

PATRICK MEEHAN, Pennsylvania 

RICHARD L. HANNA, New York 

STEPHEN LEE FINCHER, Tennessee 

JEFFREY M. LANDRY, Louisiana 

JEFF DENHAM, California 

JOHN L. MICA, Florida (Ex Officio) 

CORRINE BROWN, Florida 

JERROLD NADLER, New York 

RICK LARSEN, Washington 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

JASON ALTMIRE, Pennsylvania 

TIMOTHY J. WALZ, Minnesota 

LAURA RICHARDSON, California 

ALBIO SIRES, New Jersey 

PETER A. DEFAZIO, Oregon 

JERRY F. COSTELLO, Illinois 

NICK J. RAHALL II, West Virginia 

(Ex Officio) 

(III) 

(V) 

CONTENTS Page 

Summary of Subject Matter .................................................................................... vi 

TESTIMONY 

Callison, William, President, Wheeling and Lake Erie Railway ......................... 30 

Fenton, John E., Chief Executive Officer, Metrolink ............................................ 30 

Loftus, Thomas P., Jr., Chairman, Public Private Investment and Project 

Financing Council, American High Speed Rail Alliance ................................... 30 

Porcari, Hon. John D., Deputy Secretary, U.S. Department of Transportation . 17 

Sussman, Michael, President, Strategic Rail Finance .......................................... 30 

Timmons, Richard F., President, American Short Line and Regional Railroad 

Association ............................................................................................................ 30 

PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS 

Barletta, Hon. Lou, of Pennsylvania ...................................................................... 56 

Landry, Hon. Jeffrey M., of Louisiana ................................................................... 57 

Mica, Hon. John L., of Florida ................................................................................ 59 

Petri, Hon. Thomas E., of Wisconsin ..................................................................... 60 

Reed, Hon. Tom, of New York ................................................................................ 61 

Shuster, Hon. Bill, of Pennsylvania ....................................................................... 62 

PREPARED STATEMENTS SUBMITTED BY WITNESSES 

Callison, William ..................................................................................................... 64 

Fenton, John E. ........................................................................................................ 67 

Loftus, Thomas P., Jr. ............................................................................................. 72 

Porcari, Hon. John D. .............................................................................................. 76 

Sussman, Michael .................................................................................................... 83 

Timmons, Richard F. ............................................................................................... 86 

SUBMISSIONS FOR THE RECORD 

Federal Railroad Administration, response to question from Hon. Lou 

Barletta, a Representative in Congress from the State of Pennsylvania ........ 81 

Hon. John L. Mica, a Representative in Congress from the State of Florida, 

and Hon. Bill Shuster, a Representative in Congress from the State of 

Pennsylvania, joint letter to Hon. Ray Lahood, U.S. Department of Transportation, regarding the RRIF loan program ..................................................... 50 

Kansas City Southern, written testimony ............................................................. 4 

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(1) 

SITTING ON OUR ASSETS: 

REHABILITATING AND IMPROVING OUR 

NATION’S RAIL INFRASTRUCTURE 

THURSDAY, FEBRUARY 17, 2011 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON RAILROADS, PIPELINE

AND HAZARDOUS MATERIALS, 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 11:28 a.m., in room 

2167, Rayburn House Office Building, Hon. Bill Shuster (Chairman 

of the subcommittee) presiding. 

Mr. SHUSTER. The subcommittee will come to order. Thank you, 

Mr. Secretary, for being here with us today, and all of our other 

witnesses. I look forward to hearing from all of you. 

This is the first subcommittee hearing—Railroads, Pipelines, and 

Hazardous Materials—and we have got a number of new members, 

and I want to quickly introduce the—or go through the list of the 

Members, and then, of course, introduce some of our freshmen that 

are here, which—I’m sure they are going to make a significant contribution to not only the full committee, but the subcommittee. 

We have a vice-chair, and our new vice-chair is Tom Reed from 

New York, former mayor of Corning, New York. We appreciate having you here. Also, Gary Miller from California is on the subcommittee; Sam Graves from Missouri; Shelley Moore Capito from 

West Virginia; Jean Schmidt from Ohio; Candice Miller of Michigan; and our new freshman, our Jaime—it’s Jaime Herrera 

Beutler, someone has got this reversed. And it is ‘‘Beutler,’’ not— 

that’s what I thought. 

But Jaime Herrera Beutler, from Washington; Randy Hultgren, 

from Illinois—he is—Randy is not here; Lou Barletta from Pennsylvania, former mayor of Hazelton, Pennsylvania—Lou, good to have 

you here; Larry Bucshon from Indiana—Dr. Bucshon, good to have 

you on the committee; Billy Long from Missouri—Billy, welcome; 

Pat Meehan from Pennsylvania, who is not here at the moment; 

Richard Hanna of New York—Richard, a successful businessman, 

and great to have his insights on the committee; Stephen Fincher, 

who is not here, from—where is he from, Frog Jump, Tennessee, 

so—interesting place to be from; Jeff Landry from Louisiana, coastal Louisiana, and Jeff Denham, who is from California, and also he 

is going to—he chairs the Subcommittee on Economic Development, 

Public Buildings, and Emergency Management—Jeff’s on the committee. 

2 

I would also like to welcome my good friend Corrine Brown, as 

the ranking member. We worked together for the past four years, 

and I look forward to continue to work closely with her on a bipartisan manner to improve rail, pipelines, and, of course, the movement of hazardous materials in the country. 

The hearing today, though, is dealing with the RRIF program, 

the Railroad Rehabilitation and Improvement Program, known as 

the RRIF program, which was originally created in 1998 as a dedicated source of loan funding for railroads’ infrastructure needs. It 

was limited to $3.5 billion in total outstanding loans. At that point 

the Congress recognized the need for strong freight railroad improvement program, and increased that amount to $35 billion. 

We also strengthened the RRIF program in the Passenger Rail 

Investment and Improvement Act of 2008, by increasing the repayment period from 25 years to 35 years. 

It’s also important to note that in the history of the program, we 

have not had a single default of any of the RRIF loans, and I think 

there has been one payment that was delayed, and that was because of a flood or some natural disaster occurred. 

Despite the efforts of the committee, the RRIF program is in serious need of improvement. Chairman Mica has indicated he is interested in pursuing improvement to a number of rail issues, and a 

rail title to the transportation and reauthorization bill, and addressing the issues in the RRIF program are a top priority. 

Let me point out these loans cost the U.S. Government nothing. 

Loan applicants pay credit risk premiums, and full collateralize the 

loans. The cost of the RRIF program to the taxpayer, again, is zero. However, only $400 million is currently out in loans, utilizing 

just a little more than 1 percent of the program’s capacity. And we 

must improve access to this program. In 2010, the Department of 

Transportation approved only 2 loans in 2009—2 loans. And in 

2008, only 1 loan. Despite require for Department of Transportation to consider and approve a loan application in 90 days, the 

average loan processing time for the FRA is 13.5 months. That 

needs to be improved. 

Additionally, the FRA released guidance for the RRIF loan program last September that could further hinder the program. Chairman Mica and I have expressed our concerns to this new guidance 

last October. 

I look forward to exploring the concerns of the programs with our 

panelists today. At a time when our Nation is doing all that it can 

to spur economic activity, the RRIF program stands out as a potential model for how government can encourage economic growth. Because RRIF is an innovative loan program, not a grant program 

where the government merely hands out cash, the private sector 

has the incentive to invest money in projects that will pay a financial dividend down the road. 

At today’s hearing I am interested in exploring ideas for improving this important program. Specifically, I am interested in ways 

we can reform the program to leverage Federal funding with private sector resources. I am also interested in ways that we might 

be able to apply the RRIF program to improve the eligibility for 

high-speed rail projects. To quote Chairman Mica, ‘‘We must stop 

sitting on our assets.’’ 

3 

I look forward to working with the chairman and the members 

of the subcommittee to improve and better utilize the RRIF program, and look forward to the testimony of today’s witnesses. 

And I should have started out by saying I apologize for us being 

late, but a pesky little thing about votes we had to take, so—and 

I don’t think—we’re going to be good for votes for a couple of hours, 

so we should be able to move through that. 

I have a—I ask unanimous consent to insert in the record a 

statement by Representative Petri. Without objection, so ordered. 

And a statement—or testimony for the record—by the Kansas 

City Southern Railroad. And without objection, we will put that 

into the record. So ordered. 

[Hon. Petri’s statement is on page 60; testimony for the record 

by Kansas City Southern follows:] 

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16 

Mr. SHUSTER. Secretary Porcari, we’re going to have him up first, 

by himself, and get some questions. I know you have got a very 

busy schedule. 

So we will let him go, and then go to questions. But first—and 

then the remaining witnesses—we will excuse the Secretary and 

then have you come forward. 

And with that, I yield to my good friend from Florida, Ms. 

Brown. 

Ms. BROWN. Thank you, Chairman Shuster. It’s very difficult to 

turn this gavel over again, but you know how things go around 

here. 

Mr. SHUSTER. It’s democracy. 

Ms. BROWN. This is going to be temporary. I have been on both 

sides, and I think I like your side better, but we’ll work on it. 

Mr. SHUSTER. Which side is that, the Republican side? You could 

come on over if you want to. 

[Laughter.] 

Mr. SHUSTER. We’ll make room for you. 

Ms. BROWN. No, the chairman side. But I am looking forward to 

working with you this session to make sure that we continue to 

have the best freight rail in the country, and that we improve our 

passenger rail network in the world. 

The Department of Transportation estimates that freight rail 

transportation demand will increase 88 percent by 2035. Recent 

studies show that the investment of $148 billion for rail infrastructure expansion over the next 28 years is required to meet the DOT 

projected demands. Without this investment, 30 percent of rail 

miles in primary corridors will be operating above capacity by 

2035, causing severe congestion that would affect every region of 

the country, and potentially shifting freight to an already heavy 

congestion highway system. 

For passenger rail, a working group for the national surface 

transportation policy and review study commission reported that 

the total capital cost estimate of establishing a national inter-city 

passenger rail network between now and 2050 is about $357 billion, or $8.1 billion annually. 

However, the ability of railroad shippers and states to meet the 

rail infrastructure investment needs is becoming increasingly difficult in the current economic climate. And it nearly is impossible 

for anyone to get a traditional bank loan today. Congress made a 

big mistake when we bailed out the banks but did not stipulate 

that they had to lend it out. Now, instead of lending money, banks 

are calling in notes. The RRIF program can help railroads, shippers, and states meet their rail infrastructure investment needs. 

But I don’t think we are taking full advantage of the program. 

I meet with the railroads and others all the time, and they tell 

me time and time again how difficult it is, the application process, 

to navigate, how time consuming it is, how expensive. And, in the 

end, many of them tell me it’s just not worth it. Well, we are working to do better, and we are doing better, and I am looking forward 

to hearing how much better we are doing. 

The Draft Surface Transportation Authorization Act of 2009 

makes significant changes in the RRIF program, which I proposed. 

The bill authorized the Secretary to reduce the interest to be paid 

17 

on direct loans provided to railroad, states, and local government, 

and eligibility for the sole purpose of installing Positive Train Control system, allowing applicants to use private insurance, in lieu of 

the credit risk premium, and allow applicants to pay the credit premium over the life of the loan. 

The draft bill also authorizes appropriations to assist the Secretary in reducing the interest rate for loans using—for installing 

PTC (Positive Train Control). 

I look forward to hearing from the witnesses on these proposals 

and other suggestions for improving the RRIF loan program. 

Thank you very much. And I turn it back over to the chairman. 

Mr. SHUSTER. I thank the gentlelady from Florida for her statement. And again, we’re going to proceed with the Deputy Secretary, 

Mr. Porcari. Again, glad to have you here today. 

And for those of you that don’t know the Secretary—I think most 

people are familiar—he was a former secretary of Maryland’s department of transportation, so he’s somebody who’s got real-world 

experience out there, and knows the problems and the hurdles that 

we face. 

So, with that, Mr. Secretary, go ahead. 

TESTIMONY OF JOHN D. PORCARI, DEPUTY SECRETARY, U.S. 

DEPARTMENT OF TRANSPORTATION 

Mr. PORCARI. Thank you, Chairman Shuster, and good morning, 

Ranking Member Brown and members of the subcommittee. 

On behalf of Secretary LaHood, I am honored to be here to talk 

about the RRIF program. RRIF has helped expand the Nation’s 

freight capacity, preserve small town and rural rail connections, 

and improve our urban transportation capacity. 

So, I would like to briefly focus my comments on three different 

areas: first, how RRIF has been used to increase freight capacity, 

improve rail connections, and generate new jobs and economic 

growth; second, the purpose of the RRIF notice that we published 

in the Federal Register on September 29th of last year; and third, 

the role of the Department of Transportation credit council, and the 

importance of innovative financing. 

On item number one, the Department of Transportation has been 

working with freight providers to improve infrastructure, expand 

operations, and create jobs. Mr. Chairman, you mentioned one example, which was Iowa Northern, which received a $25 million 

RRIF loan to better serve ethanol producers near Fairbanks, Iowa. 

When the Iowa Northern railroad was severely damaged during a 

flood, the Department approved the railroad’s request to defer loan 

repayments. That kept them in business, in part, because of the 

flexibility that we have in the RRIF program. Iowa Northern is 

now back on its feet, it has more than 160 miles of track and 100 

employees. 

But RRIF isn’t only a benefit for freight; it’s also helping to meet 

our urban mobility needs. Recently the Denver regional transportation district approached the Department about redeveloping the 

historic Denver Union Station, and the Department approved both 

a RRIF loan and a TIFIA loan together for Denver. And today, 

hundreds of people are at work right now on this intermodal 

project. 

18 

On the second point, to build on these successes the Department 

published guidance on the RRIF program last September for the 

first time. The intent was to provide transparency to the review 

process. We wanted to make it easier for interested parties to determine whether RRIF was the right fit for their needs. The notice 

does not endorse the previous administration’s policy of constricting 

or eliminating the availability of credit through RRIF. To the contrary, we were trying to get the word out that we were back in 

business, and we want to promote and educate potential applicants 

about the RRIF process. 

That brings me to my final point, which is the Department of 

Transportation’s credit council. As it was restructured by Secretary 

LaHood, it also helps promote the RRIF program, and ensures consistency and predictability among the Department’s credit programs. We have regular meetings of the credit council, where we 

peer review potential loans. By adding that kind of predictability 

to the process, we think it helps the timely decision-making on loan 

applications. 

Under Secretary LaHood’s leadership, the council strongly believes that credit-based financing can help address the Nation’s infrastructure investment needs. We also believe, by the way, that 

the President’s proposal for a national infrastructure bank will 

help promote further innovative credit-based financing. And in the 

current budget environment, credit programs enable the Department to leverage our dollars and finance more projects with the 

help of private investment. 

If enacted, many of the RRIF-eligible activities will be able to 

compete for financing in the national infrastructure bank without 

paying that credit risk premium that the RRIF program currently 

requires. 

In conclusion, credit-based financial assistance programs such as 

RRIF will grow in importance in the years to come. We will continue to work with the committee, with stakeholders, with industry, to ensure RRIF’s future success. We share some of the frustration in marketing the program and getting the word out, and we 

are looking forward to collaboration and good ideas on how to do 

that better. And I am happy to answer any questions that the subcommittee might have. 

Thank you, Mr. Chairman. 

Mr. SHUSTER. Thank you, Mr. Secretary. I guess we’re going to 

have an opportunity to ask you a few questions, and then you’re 

going to be replaced as we go forward with Mr. Yachmetz, who is 

the associate administrator for railroad policy and development, 

so—and if I could start off, the 131⁄2 months that it takes, I mean, 

are we—are there efforts going forward to get that down to 90 

days? What kind of—what can we expect to see that significantly 

reduced? 

Mr. PORCARI. It’s a fair question, Mr. Chairman. We are committed, as you know, to a 90-day process, from a completed application. And the front-end time has been the one that we really want 

to work on to shorten. 

One of the purposes of the credit council is, rather than sequentially going back to applicants with a number of questions, to get 

everyone around one table, look at the application before it’s actuVerDate Aug 31 2005 13:55 Aug 26, 2011 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 P:\HEARINGS\112\RR\2-17-1~1\65451.TXT JEAN
19 

ally an application, before it’s formally submitted, try to understand all the nuances of it and all the variables, ask all the questions at once before a railroad, for example, puts hard money at 

risk through an independent financial advisor, and do that all at 

once. 

So, we have regular meetings of the credit council to do that. We 

are dedicated to streamlining this process. We want to make it 

more consistent, predictable, and transparent. 

Mr. SHUSTER. The other question that I have is that there are— 

some of the applicants have complained that the Department of 

Transportation’s credit council has hijacked the RRIF process, has 

added to it a lot of time and effort that has slowed it down. Can 

I get your views on that? Are you looking at anything to try to 

streamline that? 

Mr. PORCARI. Yes. As I mentioned, the credit council meets 

monthly. If the RRIF loan process is not sequenced so it fits in with 

the meeting schedule, we can also have meetings out of cycle—by 

phone, if we need to. 

The credit council came about under the previous Secretary of 

Transportation, when some of the other department loan programs—the title 11 shipbuilding program, in particular—was in 

real trouble, where loans were made that, with a little more scrutiny, would have been either made differently or not at all. What 

we are trying to do is apply a consistent approach to evaluating 

these programs, so that applicants know up front whether they are 

likely to qualify for the program or not. 

Mr. SHUSTER. Well, thank you. And one other question. And, you 

know, I discussed this the other day when we met, and you said 

in your testimony that the RRIF program can be used for passenger rail. So high-speed rail, if that were something that we were 

to move forward, is that—the potential is there for the northeast 

corridor to loan money for those—to that type of project? 

Mr. PORCARI. Yes. The RRIF program can clearly be used for 

passenger rail. It can also be used, by the way, for Positive Train 

Control. It’s not an application yet, but there is a very large 

project, DesertXpress, which will go from east of Los Angeles to 

Las Vegas, that we’re in discussions with right now. 

The credit council has looked at that and had some questions 

that the DesertXpress private operator is answering now. They’re 

not yet eligible, because they need to complete their NEPA process 

and get Surface Transportation Board approval. Once they do that, 

if that goes forward, that alone would be in the $4 billion, $5 billion, or $6 billion range. 

Mr. SHUSTER. Right, OK. Well, thank you. I now ask unanimous 

consent to put in the record Mr. Landry’s statement for the record. 

And without objection, we will put that into the record. 

And also, I should have also said that we’re going to try to adhere as closely as we can to the five-minute rule, and so we make 

sure that the Secretary gets out on time. 

So, with that, Ranking Member? 

Ms. BROWN. Thank you. First of all, let me just say that I want 

to thank you. And you and Secretary LaHood and yourself is really 

one of the bright spots in the administration, as far as transportation and infrastructure. You have done a great job. 

20 

And I am just really outraged today about Florida and the governor’s unwillingness to use Federal funds for the development of 

high-speed rail and the creation of good jobs in Florida over, what, 

60,000 jobs is the project that we’ve been working on with—over— 

since the 1980s. 

And I want to know, because I was on television this morning. 

The governor was saying that the state was at risk. Can—was 

there any financial risk for Florida, as far as the project is concerned? 

Mr. PORCARI. Congresswoman, Secretary LaHood and I are extremely disappointed in that decision. Florida DOT did a very good 

job of eliminating both construction cost risk and operating cost 

risk in the way they structured the public/private partnership. The 

entire agreement was structured to eliminate any financial risk to 

the state. That’s a fact. People are clearly entitled to their opinions 

about high-speed rail; they are not entitled to their own facts. 

Ms. BROWN. So, the Federal Government put up, what, 90 percent of the project? And private was going to come in, it was a true 

public/private partnership? 

Mr. PORCARI. It was a true public/private partnership. There is 

very strong interest from the private sector teams that clearly understood that they would have to design, build, operate, and maintain that system, and assume all financial risk. They were very 

willing to do that. 

Ms. BROWN. Why would they be willing to do that? Because there 

were some questions about the ridership in this particular leg. But 

my understanding, it was because they wanted the Orlando to 

Miami leg to have the first right of refusal to participate. 

Mr. PORCARI. Yes. First, for a private venture to put that kind 

of capital at risk, they typically do their own ridership studies, and 

I’m sure they convinced themselves, through their own due diligence, that it made sense. They’re clearly interested in the right of 

first refusal, which was in the structure of the proposal for the Orlando to Miami leg, once Tampa-Orlando was built. 

I can’t think of a better example of a public/private partnership, 

where you have private capital at risk to build a project that will 

serve the already critical needs of Florida today, but more importantly, the even more congested Florida of the future. 

Ms. BROWN. OK. You know, I understand that there was a new 

ridership study. Have you all gotten a copy of that? And that ridership study would show that the ridership would be an additional 

15 percent? 

Mr. PORCARI. We have not been given any formal copy of the updated ridership study. The state did this additional study, an investment grade ridership study. We have asked for that. It has not 

been provided. We have heard informally that the ridership is 

higher than in previous studies by about 15 percent. 

Ms. BROWN. Well, I just want to thank you for your leadership. 

I understand that—you know, I work with Democrats and Republicans, it’s very bipartisan—we’ve worked on this project for over 

20—well, over 20, 30 years in Florida, 1980. Bob Graham put—I 

was on a study commission before I ever got elected, working to get 

high-speed rail in Florida. 

21 

Let me just ask you about the RRIF program. In 2006, President 

Bush proposed to eliminate the program. When Congress rejected 

that proposal, the Bush administration began a rulemaking to accomplish the same goal. But when President Obama took office, 

one of the first things he did was withdraw this ill-conceived rule. 

Do you think that for some reason people don’t see that that is 

not the administration’s goal at this time, and why we don’t get 

more applicants? 

Mr. PORCARI. We are clearly frustrated that we are not successful in getting the word out as well as we should, and in trying to 

promote the program as much as we should. 

The short line railroads, in particular, where they connect to the 

Class I railroads, are a critical part of economic development, in 

particular in the rural areas around the country. RRIF is one of the 

single best tools out there. And we just did a $56,000 loan, which 

is the smallest one we’ve ever done. But that grain loader in Mississippi is a very big deal for the 20 or 30 jobs that it creates. And 

we get that. 

So, we share everybody’s frustration but we are back in business 

on this. It is clearly creating and preserving jobs. But I don’t think 

the word is out. And we know that we owe everyone a consistent, 

predictable, transparent process, so they’re willing to go through 

that process and the time of getting a loan—especially the small 

railroads. 

We will continue to work on that, and we look forward to working with everybody who has an interest in this. 

Ms. BROWN. Thank you again for your leadership. I yield back 

the balance of my time. 

Mr. SHUSTER. Thank you. And with that, I will recognize the vice 

chairman, Mr. Reed, from New York, for—— 

Mr. REED. Well, thank you very much, Mr. Chairman. And I 

would seek unanimous consent to offer my opening comments for 

the record. I believe we have five days. 

Mr. SHUSTER. Without objection, so ordered. 

Mr. REED. Thank you, Mr. Chairman. I would like to offer my 

comments that, first, the RRIF program, to me, seems to be an excellent program. It seems to be doing a great job when you go down 

into the weeds and take a look at it. 

Mr. Secretary, we’re going to hear from some applicants, I’m 

sure, later today. But from your perspective—I know we’re down to 

131⁄2 months as the approval process timeline. We have a 90-day 

goal in the statute, is my understanding. 

From the Department’s point of view, what is the cause for not 

being able to meet that 90-day requirement in the statute? 

Mr. PORCARI. Well first, to be clear, we do meet the 90-day completed application goal. But from an applicant’s perspective, they 

really want to see it from the time they first think about a RRIF 

loan to when it’s approved. 

My observation of what has happened in the past is there has 

been a number of back-and-forths between the applicants sequentially asking questions. 

Mr. REED. OK. 

Mr. PORCARI. One of the things we’re trying to do, sir, through 

the credit council, is think through all the potential questions and 

22 

variables up front at one time, give those to the applicant before 

an independent financial advisor is hired—which can be very expensive—so they can answer those questions all at once, get it into 

a completed application, and we can move forward. 

We have been working very closely with the Office of Management and Budget, who has been very supportive on this. So I think 

that end of the process is squared away. I think the pre-application 

part of it is where we really need to work to compress the timeframe. 

Mr. REED. And, Mr. Secretary, are you seeing any consistencies 

in applications that aren’t complete, as to why they’re not complete? Is there something that’s routinely coming up, saying that 

we need additional information here, there, from the Department’s 

point of view, that maybe we could highlight here to applicants as 

we go forward? 

Mr. PORCARI. Some of the smaller short line railroads, for example, because they’re privately owned, don’t have audited financial 

statements. That’s a requirement. 

With very few exceptions, they have never been through this 

process before. So they are climbing a learning curve. They’ve only 

been in the commercial lending market before. So it’s a brand-new 

process to them. 

We try to tailor the amount of assistance we give them to their 

ability to do the application process themselves. For the $56,000 

loan example I mentioned, we did the work all in-house, because 

if it’s a $56,000 loan and you have to hire an independent financial 

advisor, it’s not worth doing. So, we have tried to do that. 

What we’re searching for are ways through webinars, outreach, 

newsletters, any mechanism that’s out there to give them a better 

sense of what will be required if they’re thinking about a RRIF 

loan before they even start the process. 

Mr. REED. OK, and you have those mechanisms in place? Are you 

moving forward with those mechanisms at the Department? 

Mr. PORCARI. We are looking, actually, for ways through the 

American Short Line and Regional Railroad Association, or anybody else to do that. 

Mr. REED. OK. 

Mr. PORCARI. So we are very open to ideas and suggestions on 

it. 

Mr. REED. OK. Because that dovetails with my next question. Because you had talked about—in your testimony about trying to do 

a better job promoting the program. Can you give me concrete examples of how the Department is going to promote this program 

into the industry? 

Mr. PORCARI. One that I would like to pursue is just based on 

personal experience. In Maryland, with the Short Line railroads, 

we used them as a critical part of the state’s economic development 

strategy. The statewide economic development people were very 

keyed into that. So, whether it was a grain elevator or a small 

manufacturer, they had their whole suite of grants, loans, loan assistance available for that. RRIF should be one of those tools that 

they have in their toolbox, and I know for a fact that we really 

haven’t done everything we can to make the state economic development people aware of what’s out there. 

23 

I am convinced that that also helps the Short Line railroad industry more broadly in each state, because that shows the value of 

that. You tend to focus on the Class I railroads. If the cargoes don’t 

get to the Class I railroad via the short line, you haven’t accomplished anything. 

Mr. REED. OK. So you’re going to move forward with notifying 

the state economic development agencies? Is that one of the promotional ideas? 

Mr. PORCARI. Yes. We’ve talked about doing that through the National Governor’s Association, through other professional organizations that might reach them more directly. And that’s something 

that I am going to personally pursue. 

Mr. REED. OK. Any other ideas to promote—the RRIF program? 

Mr. PORCARI. Those are some of them. I think, again, if any other 

idea is out there, we want to promote it. 

Mr. REED. OK. Thank you, Mr. Chairman. 

Mr. SHUSTER. Thank you. Now I will recognize Mr. Barletta, if 

he has questions. 

Mr. BARLETTA. Thank you, Mr. Chairman. How does the Department explain the priority for projects that enhance rail service to 

small communities and rural areas? 

In a September 28, 2010, guidance, that priority has been understood as giving priority to projects ‘‘that support interconnected, livable communities.’’ What is the connection, and how did livable 

communities find their way in the RRIF program? 

Mr. PORCARI. In that announcement in the Federal Register, we 

tried to make sure that the strategic plan goals of the Department 

were clear. They were very congruent, they overlapped very well 

with the original criteria in the RRIF legislation. They’re not exclusive, sir, in the sense that you need to meet all those priorities, and 

they’re not an ordinal ranking in any way. 

We believe that RRIF is one of the best tools we have for rural 

communities. If you look at the loan portfolio in RRIF, until the 

very recent past, that’s typically what the loans have been. 

And, in terms of livability, as part of our national outreach tour, 

we heard quite clearly from rural communities that livability is important to them, too. And it means, by the way, different things in 

different places. In the rural context, one of the issues that came 

up was it meant being able to age in place, having the kind of 

transportation facilities that would allow you to age in place in 

some of these communities that are losing population. 

So, we have been very aggressive in making clear that any eligible RRIF application, as long as that money is going to the improvement of the railroad, is something that we would encourage. 

Mr. BARLETTA. Thank you. 

Mr. SHUSTER. You done, Lou? OK, that’s all right. I wasn’t paying attention, sorry, until the end of it. Thank you. 

Mr. Bucshon, I will recognize you. And then after Mr. Bucshon, 

we will go to Ms. Richardson, if she wants to ask some questions. 

We will go to Mr. Bucshon first, then. OK, great. Mr. Bucshon? 

Dr. BUCSHON. Thank you, Mr. Chairman. Just reading through 

the letter that was published, I mean, what I am trying to figure 

out is—and maybe this has been explained before—is why, all of 

a sudden, that the Federal Government essentially felt like they 

24 

had to add more layers of bureaucracy on top of the loan program 

by examining the cost benefit of a loan, I mean—and basically giving an opinion on whether you felt like it benefits the public. 

A lot of us are here trying to figure out ways to take away layers 

of bureaucracy, and I’m trying to figure out why we’re adding some 

in this area, especially when we’re all here to promote development 

of rail and improvement, especially with the data that shows how 

we’re going to be over-utilizing our current infrastructure in the future. Thank you. 

Mr. PORCARI. It’s a very fair question. Ironically, the purpose of 

the notice in the first place was to get the word out that we very 

much encourage RRIF loans. It was a change from the previous administration, which had actively discouraged it. In hindsight, the 

notice probably caused as much confusion as anything else. 

But public benefit is one of the criteria that’s in the original legislation. A very clear public benefit is providing a connection for 

goods to get from a manufacturer or an agricultural source, for example, to a Class I railroad. That is clearly a public benefit. 

Dr. BUCSHON. If that was in the original, what were we doing before, before you guys have added what you have added on? What 

were we looking at before? I mean who was determining the public 

benefit and everything before the—you added another layer of bureaucracy? 

Mr. PORCARI. It is not an additional layer, sir. In theory, the previous loans made by previous administrations, should have looked 

at the same criteria that were in the original legislation. 

I can’t speak for exactly how their process worked, but this is one 

of the better economic development tools that we have. We do understand that. And, in particular, for rural areas, where goods 

movement is important, it’s probably the single best tool that we 

have. We understand that. 

And want to streamline the pre-application process, because it is, 

by law, a 90-day process from a completed application. But what 

an applicant cares about is from the moment they think about a 

RRIF loan to the minute that they get the funding. And it’s the 

pre-application process that we need to focus on. 

Dr. BUCSHON. Could you describe to me the ways in which the 

previous administration actively were discouraging RRIF loans? 

Mr. PORCARI. One very specific way is in the fiscal year 2006 

Federal Railroad Administration budget. It says the administration 

proposes eliminating the program because the public policy need to 

subsidize private railroads is not clear. That’s a pretty clear statement. 

Dr. BUCSHON. Thank you. I yield back. 

Mr. SHUSTER. Thank you. And I will recognize Ms. Richardson. 

Ms. RICHARDSON. Thank you, Mr. Chairman. And it’s always 

good to see you, Secretary. And thank you for your commitment 

to—as I say often in our committees—of getting out and seeing 

what’s really going on where we have these projects. 

My first question is a little specific to my district. We—ACTA 

had submitted a loan application, and I think I had shared this 

with your staff earlier in the week. And originally, as you know, 

your process, I think, speaks to about 90-day review, or something 

25 

like that. And in our process it’s already taken 13 months. So, I 

was wondering what you were doing to look at addressing that. 

And also—so, one, in terms of expediting the process; two, have 

you noticed any redundancies or unnecessary steps? And I think 

for a real solid project that has had great success, funding—you 

know, on time, under budget, the whole thing—it just seems like 

this process is a little cumbersome. What would you say to that? 

Mr. PORCARI. First, I think ACTA, the Alameda Corridor project, 

which is a fantastic freight rail project serving the ports of LA and 

Long Beach with two Class I railroads, is one of the larger, more 

important freight rail movement projects in the country. It’s an extremely complicated deal, the way it’s been structured. 

We are in the final processes of an $83.7 million RRIF loan for 

that. But going through that process, it clearly begged the question 

of whether the financial structure of ACTA was sustainable, over 

the long term. I think a financial analysis reveals that it is not. 

What we are doing with this RRIF loan—which does provide 

short-term relief for the Alameda Corridor project—we’re also making clear that we are going to need to work with them on a longerterm restructuring that—for, really, a 15- or 20-year period will put 

it on a sound financial footing. A year or two of reduced container 

movements from those ports imperils the whole economics of this, 

and we need to put it on a more sound footing. 

Ms. RICHARDSON. OK. And then my next question is the President has already made such a commitment to I think what some 

of us think is a legacy in high-speed rail, and that’s exciting, and 

it’s long overdue. However, a lot in—long standing in the industry 

are concerned about what continual funding we can expect for the 

systems that we have already in place. What are your thoughts on 

that? 

Mr. PORCARI. Well, first, just on the freight rail side, I neglected 

to mention before in the United States we have the world’s best 

freight rail system. And if it wasn’t here—Class I, Class II, Class 

III, as a system—if it wasn’t here, just think about what our roads 

would look like, and what goods movement would cost us. 

First and foremost, we want to make sure that we don’t do any 

harm to that system and that we, in fact, improve it. On the passenger rail side, we know we’re going to have 70 million more citizens in the next 25 years. We know it’s 100 million in the next 40 

years. If you look at the transportation system objectively, how else 

are we going to accommodate a portion of that growth? And that’s 

really where the dual function of promoting freight rail and passenger rail comes together. We are convinced—and I think there is 

solid evidence behind the fact—we can do both, working with our 

private sector partners. We—— 

Ms. RICHARDSON. So—and I apologize, but I’ve only got a minute 

and 18 seconds—so are you saying you are equally committed to 

maintaining the funding options that we have available for our current systems, as well as the high-speed rail? Because I don’t think 

they’ve been quite as balanced, thus far. 

Mr. PORCARI. We are. And I think that if you look at the President’s fiscal year 2012 budget proposal, it is solid evidence of the 

continued commitment for passenger rail. Not just high-speed rail, 

26 

but commuter rail, and some of the other really critical aspects of 

it. 

Ms. RICHARDSON. OK. I am co-chair of the California high-speed 

rail caucus. I am supportive, but I am concerned about maintaining 

existing funding for our existing area. 

My last question. I have got 40 seconds. If the President-proposed the national infrastructure bank becomes a reality, how do 

you envision the RRIF program fitting into the larger infrastructure funding program? 

Mr. PORCARI. And—— 

Ms. RICHARDSON. Many of us have been supportive of that for 

quite some time. 

Mr. PORCARI. The RRIF program could clearly continue. I think 

the national infrastructure bank would be more attractive to most 

applicants, because there is no credit risk premium requirement. 

Ms. RICHARDSON. OK. I yield back. Thank you, Mr. Chairman. 

Mr. SHUSTER. Thank you. I appreciate you adhering to the fiveminute rule. We continue to move on. Mr. Long, I recognize you for 

five minutes. 

Mr. LONG. Thank you, Mr. Chairman, and thank you, Mr. Secretary, for being here. 

Mr. John Fenton of Metrolink points out in his statement a lack 

of coordination between the RRIF program’s collateral requirements and the Federal Transit Administration policy prohibiting 

liens on property purchased with FTA funds. 

How would you recommend addressing this problem, so that commuter railroads and other publicly funded agencies that have their 

assets purchased in part with Federal funds can participate in the 

RRIF program? 

Mr. PORCARI. It’s a difficult question, but a very valid one, because collateral reduces the credit risk premium for the RRIF program. I would be very happy to meet with him directly to try to 

do that. We’re not allowed to subordinate RRIF loans to any other 

non-Federal debt, as well, which could also come into play here. 

We’re going to have to work through this on an individual case 

basis. Because on both sides of it, the law is clear. And if there is 

a way to do it at all, we would like to do that. I would like to meet 

with him. 

Mr. LONG. I think it’s a big problem. I think we need to—— 

Mr. PORCARI. And we have run into similar problems with combining different programs in the case of Denver Union Station, 

RRIF and TIFIA, neither of which can be subordinated, both of 

which are Federal loan programs. But we managed to work 

through that. 

Mr. LONG. Another question. On kind of the finance angle, why 

does the Office of Management and Budget require that applicants’ 

assets first be devalued to 80 percent of the fair market value for 

purposes of establishing the amount of collateral necessary to secure a RRIF loan? And is this an issue that could be addressed administratively? 

Mr. PORCARI. My understanding is the Office of Management and 

Budget is looking at the ability to sell those assets if it’s required 

in an illiquid market. It may be some of the rolling stock or fixed 

27 

assets are not necessarily easy to dispose of. And you almost certainly wouldn’t get 100 cents on the dollar for doing that. 

I would point out that OMB—this OMB—has been very supportive of the RRIF program, and has been working hard to actually turn the loans around quickly. So we have enjoyed a very good 

working relationship with them. 

Mr. LONG. OK. And just kind of a statement, I guess. Mr. 

Barletta was asking about the guidance that—interpreted as giving 

projects the support, interconnected, livable communities. And in 

your answer to that, your—‘‘livable community,’’ you said, meant 

different things to different people. And any time something like 

that appears in a government program, I think it probably portends itself to problems. That’s just a comment on my part. 

Thank you for your time, and I yield back. 

Mr. SHUSTER. I thank the gentleman. And the gentleman from 

Illinois, Mr. Lipinski, is recognized for five minutes. 

Mr. LIPINSKI. Thank you, Mr. Chairman. I thank Chairman Shuster, Ranking Member Brown, for holding this hearing today. I 

think there really is very few issues more critical right now in 

transportation than rehabilitating and improving our Nation’s rail 

infrastructure. It’s something that a lot of people don’t—the public 

doesn’t see. And so I think there is not quite the understanding of 

the impact that it has. 

In Chicago, we certainly do know the impact, if only for sitting 

there, waiting for trains to go by. But there is, I think, some sense 

of the Chicago being the hub of the Nation. Knowing how critical 

it is to our businesses, and being able to move goods efficiently and 

moving people efficiently, it’s really critical to moving our economy 

forward. 

I want to recognize Deputy Secretary Porcari for his leadership 

at the Department. I think that your experience as a state transportation secretary has served the USDOT and the Nation very 

well. 

As we move forward now—being from Chicago, I know this very 

well, and know it firsthand, but I think all of us on this subcommittee know very well that Chicago is the predominant rail hub 

of North America at a terrible choke point. And we talk about rail 

investment in Chicago, and we’re talking about CREATE, the public-private partnership to upgrade the region’s outdated rail network with 71 individual projects, not just important to Chicago, but 

for the entire country. 

Now, I know, Mr. Porcari, you’re very familiar with CREATE and 

its importance. And, as we make progress on CREATE and these 

individual projects that are a part of CREATE, can you comment 

on DOT’s commitment to CREATE, and what the Department is 

currently doing to advance the program? 

Mr. PORCARI. We have a strong commitment to CREATE. It’s a 

great example of a public-private partnership. We are taking a step 

back. Everybody has looked at the larger rail infrastructure issue 

in the greater Chicago area, and very systematically identified the 

highest priority for discreet projects, and attacked them, one by 

one. 

Our commitment to that has continued. Chicago has been and 

will continue to be a singular rail hub because of the design of the 

28 

freight and passenger rail system in America. It was built, in large 

part, around Chicago. 

We have clearly collectively, both on the private and public side, 

not invested as much as we needed to in the past. We are paying 

for that today, in terms of freight congestion. We know we’re playing catch-up on that. But we also know that through projects like 

CREATE, where we’re taking element after element that’s a bottleneck and fixing them, that we’re making real gains. 

So, we’re not going to be done for a long time, but we are clearly 

committed to doing it. 

Mr. LIPINSKI. Is there anything that you can see as being done 

to improve the process of implementing the CREATE projects? 

Mr. PORCARI. I think the partnership itself is extraordinarily effective, and has been, in structuring the sequencing and priority of 

what needs to be done. 

In a perfect world, more investment on both the public and private side would accelerate those improvements. 

Mr. LIPINSKI. I think that we all understand that there is going 

to be a greater emphasis in transportation infrastructure on publicprivate partnerships, and I think CREATE serves as a good example of how it has worked. We can always use more funding on both 

the public and private side. 

But I think as we move CREATE forward, we can be a good example for what can be done. 

Although it is always critical to point out that public funding in 

the public part of that is important, because it’s critical to our Nation moving people and moving goods. 

But as my time is running out, I just wanted to ask Mr. Porcari 

if, for the next few weeks, we have the opportunity to sit down and 

we could talk about CREATE further, and how we could continue 

working together to see it through. 

Mr. PORCARI. I would be happy to, sir. 

Mr. LIPINSKI. Thank you. I yield back. 

Mr. SHUSTER. Thank the gentleman, and I recognize the gentleman from New York, Mr. Hanna, if he has any questions. Five 

minutes. 

Mr. HANNA. Thank you. Thank you very much. Yes. Thank you 

for being here. 

Mr. PORCARI. My pleasure. 

Mr. HANNA. It seems to me your response to the 90-day requirement and the 131⁄2-month reality is that it’s, with all due respect, 

‘‘It’s them, not us.’’ Does that really explain the full gap of 10 

months? 

Mr. PORCARI. I don’t believe it’s them, not us. I believe, first of 

all, that the distinction of 90 days from a completed application, 

which we have been making, is not enough. I think the pre-application part of it is clearly where, together, we need to work on it. 

There have to be ways where we can make the process more simple and predictable and consistent and transparent. I think working through associations and individual short line and other railroads is probably the best way to do it. Anybody who tells you you 

can’t re-engineer a process and make it more efficient is not looking 

close enough. 

29 

Mr. HANNA. So you would like to see the 90 days moved out to 

some different date, a number of days that makes better sense? 

Mr. PORCARI. Well, sir, I think the part leading up to the 90 days 

is where the schedule can be compressed, and I think that’s where 

our efforts ought to be. 

Mr. HANNA. Thank you very much. I yield back. 

Mr. SHUSTER. I thank the gentleman from New York. And with 

that—anybody on the other side? I think we got everybody. 

So, with that, Mr. Secretary, we appreciate your being here 

today. 

Mr. PORCARI. Thank you. 

Mr. SHUSTER. And you will be replaced—joined at the next panel 

by Mr. Yachmetz. 

Mr. PORCARI. Yes. 

Mr. SHUSTER. And again, thank you. Thank you for being here 

today. 

As the chairman came in and whispered in my ear, he said, ‘‘We 

want to make sure we work together to figure out how we make 

this RRIF program go forward, reducing the time it takes to loan, 

and let’s get the money flowing, because it will be good for America.’’ 

Mr. PORCARI. We will be happy to come back to the Committee 

with a progress report, if you would like. 

Mr. SHUSTER. Thank you very much. Thanks for being here. 

With that, the Secretary is leaving, and the next panel can make 

their way forward. 

While they’re making their way, I will introduce the entire panel, 

and then of course I will introduce each as they testify. 

But we are joined today by William Callison, who is president of 

the Wheeling and Lake Erie Railway; John Fenton, the chief executive officer for Metrolink—and I am sure we will hear from Mr. 

Fenton on the issue about the RRIF with Metrolink—Michael 

Sussman, the president of Strategic Rail Finance, Thomas Loftus, 

Jr., who is the chairman of Public Private Investment and Project 

Financing Council, American High Speed Rail Alliance, and principal of the Seneca Group. And last, but certainly not least, General Richard Timmons. 

General Timmons, it’s great to have you back. I know you fought 

a battle for the past several months with cancer, and it’s great to 

see you. You look like you’re in good health, and you look like 

you’re ready, willing, and able to get into the fray. So, again, welcome. It’s good to see you here today. 

General TIMMONS. Thank you very much, Mr. Chairman. It’s 

good to be back. 

Mr. SHUSTER. And also Mr. Yachmetz, who is here—I introduced 

earlier, that—he is the Federal railroad administer, or Federal administrator of the railroad policy and development for the Federal 

Railroad Administration. So we appreciate you joining us to be able 

to continue to answer some questions for us. 

And with that, I will start off with General Timmons. If you’re 

ready to go, we will hear you first. 

30 

TESTIMONY OF RICHARD F. TIMMONS, PRESIDENT, AMERICAN 

SHORT LINE AND REGIONAL RAILROAD ASSOCIATION; WILLIAM CALLISON, PRESIDENT, WHEELING AND LAKE ERIE 

RAILWAY; JOHN E. FENTON, CHIEF EXECUTIVE OFFICER, 

METROLINK; MICHAEL SUSSMAN, PRESIDENT, STRATEGIC 

RAIL FINANCE; AND THOMAS P. LOFTUS, JR., CHAIRMAN, 

PUBLIC PRIVATE INVESTMENT AND PROJECT FINANCING 

COUNCIL, AMERICAN HIGH SPEED RAIL ALLIANCE 

General TIMMONS. Thank you, Mr. Chairman. And members of 

the Committee, it’s good to be here. I appreciate the opportunity to 

provide my thoughts on the railroad infrastructure and improvement financing program. I am Rich Timmons, president of the 

American Short Line and Regional Railroad Association. We represent about 540 Class II and Class III railroads. 

The short line railroad industry has been the primary user of the 

RRIF program: 25 of the 28 RRIF loans approved to date are short 

line railroads. The average short line loan is $27.8 million. And together they borrowed a total of $695.5 million over the last 10 

years. These loans have helped short lines maximize capital investment through direct rehabilitation. And, in some cases, through refinancing existing debt, so as to increase cash available for additional rehabilitation. 

We are particularly proud to point out that since the program’s 

inception in 1998, not a single short line railroad has defaulted on 

its loan. Only one railroad has ever missed a quarterly principal 

and interest payment, and that was due to serious railroad watersheds caused by the 2007 floods in Iowa. That delinquency, of 

course, has been rectified since. 

I would like to emphasize three important points about the current RRIF program, and comment briefly on the recent RRIF guidance issued by the Obama administration. 

First, RRIF leverages substantial private investment in short 

line infrastructure. These are not grants, but loans that must be 

paid back in full by the railroad. They’re relatively low interest 

rate, and the 35-year amortization period are terms short lines cannot secure in the private market and it allows short lines to undertake projects that could not have been done, or that would have 

been stretched out over many years. 

Second, because these are loans that must be repaid, and are secured by an ironclad first lien on the railroad’s hard assets, RRIF 

loans are not being used to fund frivolous or cost-ineffective 

projects. 

Third, most short lines do not have the in-house manpower to 

undertake rehabilitation projects, must hire contractors and additional laborers to do the work. The FRA estimates that 50 percent 

of every rehab dollar goes to labor. In addition, 100 percent of the 

ties, and the overwhelming majority of the materials used in track 

rehabilitation are U.S. manufactured. 

RRIF is currently authorized at $35 billion, and is yet to reach 

a billion in outstanding loans over the past 10 years. This is due, 

in part, to the slow start-up of the program, and to the lengthy 

delays in the approval process. Over the years, I believe the FRA 

has worked diligently to accelerate the process, particularly that 

part of the process they control. 

31 

Indeed, as I have previously acknowledged before this committee, 

I believe that part of the blame for this slow start may lay with 

the application submitted by my own short line railroads. I applaud 

the FRA staff for their patience and willingness to correct our 

shortcomings, especially in those early years. Nonetheless, I believe 

the FRA is understaffed to manage the RRIF program. 

But it also is no secret that, since the beginning, FRA has had 

to deal with substantial institutional opposition to the program 

within other Federal agencies, and that opposition has been largely 

responsible for the severe under-utilization of this program. I am 

fearful that the pattern may be repeated. 

On September 29, 2010, the administration issued a Federal Register notice concerning its priorities in granting RRIF loans. We believe the new guidelines will make it very difficult for small, private railroads to qualify for loans. And it eliminates categories of 

loans that are clearly eligible, under the statute. 

I have attached to my testimony a copy of a letter that I sent 

to the USDOT detailing our difficulties with this notice. Our primary objections are as follows. 

The guidance creates loan criteria that are not part of the underlying statute. The guidance claims the need to ration loans, so as 

not to be disruptive to the railroad economy. The railroad industry 

invests over $10 billion a year in capital projects. If the FRA were 

to double that number of loans over night, the combined total 

would represent just 14 percent of the industry’s annual expenditures. 

The guidance discriminates against refinancing as an eligible 

purpose, except for public agencies. This directly contradicts the 

statute, which makes no differentiation among eligible categories. 

Short lines borrowed heavily from banks to purchase and rehabilitation lines that were going to be abandoned by the Class I railroads. Refinancing this short term high interest rate of debt is very 

important to a short line’s cash flow, and allows it to preserve cash 

that is much needed for rehabilitation. 

The guidance establishes priority categories of politically correct 

RRIF projects which have nothing to do with the economic world 

in which short line railroads operate. The categories include enhancing commuter and inner city rail, transportation, noise reduction, reduction of waterway pollution, development of inter-connected livable communities, and reduction of highway traffic. These 

have nothing to do with the short line railroads. 

The guidance creates a new requirement of public benefit, defining public benefit as the difference between the benefit that would 

be achieved by using RRIF, as opposed to using conventional financing. In the real world, the difference is that short line railroads cannot get these kind of loans from conventional financing. 

That was the reason the program was created in the first place, the 

reason why $7 billion was set aside to begin with, which is one-fifth 

of the revolving authorization. That amount of money is reserved 

solely for projects primarily benefitting freight railroads, other than 

the Class I carriers. 

Mr. Chairman and committee, I appreciate the opportunity to appear before you today, and will be glad to address any questions 

that you may have at the appropriate time. Thank you very much. 

32 

Mr. SHUSTER. Thank you very much, General. And I forgot to 

mention that you were the president of the American Short Line 

and Regional Railroad Association. But I think you made that pretty clear to us. So again, thanks. Thanks for being here. It’s great 

to see you. 

General TIMMONS. My pleasure. 

Mr. SHUSTER. Next up would be Mr. William Callison, who is 

president of the Wheeling and Lake Erie Railroads. Welcome, and 

you may proceed. 

Mr. CALLISON. Thank you. I am Bill Callison, president of the 

Wheeling and Lake Erie. The Wheeling is approximately an 850- 

mile railroad that runs from Toledo in the west through Cleveland 

to Akron, Canton, crosses the Ohio River, goes through West Virginia through Pittsburgh, and on to Hagerstown, Maryland. We 

carry about 100,000 car loads of freight per year, the majority of 

which is steel-related products, aggregates, coal, chemicals, and 

plastics. We currently have 325 employees. 

We’re a successful regional railroad, but it wasn’t always so. Like 

most short lines and regionals, we inherited the 1990 railroad that 

had a depleted customer base and severe deferred maintenance. 

Since we’ve purchased the railroad in 1990, we have doubled our 

revenues, and we have increased our employees from 245 to 325. 

Again, this is not atypical growth. 

Virtually all of today’s short line railroads operate at a profit on 

a P&L basis. But the issue is not just profitability. The issue really 

is earning enough to be able to reinvest in the infrastructure. We 

have track, bridges, tunnels, and other equipment that has to be 

maintained in order for us to continue to be able to make money. 

We have to earn this money in an environment where we’re serving really small customers that aren’t served by the Class I’s, and 

also directly compete with Class I’s, where the margins are very 

thin. So—it’s a very capital-intensive business, and it’s very difficult to earn a profit. 

The RRIF, therefore, is ideally suited to meet the challenge of 

upgrading the infrastructure and does so, as you know, at no cost 

to the Federal Government. The short lines and regionals could 

never secure terms as favorable as the RRIF, neither in terms of 

the term of the loan, at 25 years, nor the treasury rates. You would 

either not be able to afford it, or you would have to do your projects 

over a very long period of time. 

The Wheeling has two RRIF loans, and I would like to describe 

our experience with those two RRIF loans as the good, the bad, and 

the ugly. The good is the result of the loans. We have a $25 million 

RRIF track rehabilitation loan that allowed us to take approximately 120 miles of track from 25 miles an hour with numerous 

10 mile-an-hour slow orders to 40 miles an hour. That higher speed 

allowed us to increase our asset utilization, allowed us to turn our 

crews, our locomotives, and our cars much more quickly. It made 

us a safer, more efficient, more customer reliable railroad, and also 

lowered our operating costs. 

We also have a $14 million loan which allowed us to purchase 

150 open-top hopper cars during a very tight equipment market. 

While under any circumstances these loans would have been very 

important to the financial success of the company, but as we had 

33 

a very severe recession in 2002 and 2009, where we lost almost 

50,000 car loads and $20 million in revenues, had it not been for 

the RRIF loans, it would have been very difficult for us to continue 

to operate at a profit. We were able to get through this period without laying off a single employee or missing a quarterly debt payment. 

The bad was the amount of time it took to secure the loans: 18 

months for the first and 10 months for the second, under a statute 

that requires the government, as you know, to complete it in 90 

days. 

The ugly was what took place at the end of the second loan. The 

second loan application was made in December of 2005, with the 

understanding that the loans would be approved within 90 days, 

and with the expectation that the first loan had acquainted the 

FRA and others with the financial stability of the company and the 

other financial aspects. 

We placed the car order for delivery to begin in April 2006. The 

loan was not approved until November 2006. As a result, we had 

to get out a bridge loan, which incurred—a $7.7 million bridge 

loan, which forced us to incur $53,500 in interest. But, as damaging as that was, there was damage to the car builder, having to 

try to get them to hold off on the orders, and to our customers. 

I have worked in the railroad now for about 30 years. I am familiar with the FRA and its people. They’re both our regulators and 

they’re our partners in certain matters, such as safety and standards. It’s an agency that understands the industry and is dedicated 

to making it better. It is, therefore, very hard for us to understand, 

in general for short lines and regionals, why it is that the RRIF 

program has had such troubles. 

I would like to address three issues. The first is that I think my 

colleagues and I believe that there are too many cooks in the kitchen—that is that the FRA, the credit council, and the OMB are all 

re-analyzing the same data. The second is that both the OMB and 

the credit council are outside the 90-day window. And then finally, 

that the FRA itself does not have adequate resources to look at the 

loans and get the final analysis done. We would like to have them 

have more resources so you’re doing one-stop shopping. 

In conclusion, the RRIF has the potential to enhance the safety, 

the efficiency, and the reliability of the regional and short line infrastructure and equipment, much to the benefit of rail customers, 

both large and small. With a little bit of diligence and oversight, 

the program’s problems can and should be fixed. I appreciate the 

opportunity to appear before you today, and I would be very happy 

to answer any questions at the appropriate time. 

Mr. SHUSTER. Thank you very much, Mr. Callison. I appreciate 

your testimony, and next recognize Mr. John Fenton, the chief executive officer of Metrolink. 

Mr. Fenton, you may proceed. 

Mr. FENTON. Mr. Chairman and members of the subcommittee, 

thank you for inviting me to testify today. My name is John Fenton, and I am CEO of the Southern California Regional Rail Authority, known as Metrolink. My comments today, along with my 

written submission, will hopefully help highlight barriers that 

34 

Metrolink has encountered in our efforts to apply for Federal RRIF 

support. 

I also want to address some suggestions to improve RRIF program effectiveness for public transportation entities like Metrolink. 

By way of background, Metrolink is the second largest commuter 

rail system by size, and the fifth largest by ridership in the U.S., 

serving close to 20 million people. We operate in southern California, a place notorious for traffic gridlock with more than 15 million cars vying for space on existing streets and freeways. 

We at Metrolink are working hard to provide solutions to the 

gridlock. But to do so, we need the benefit of a comprehensive Federal finance approach to public transportation infrastructure, including an available RRIF program. Unfortunately, due to restrictions imposed by the process itself, we at Metrolink are currently 

unable to take advantage of the RRIF opportunity. 

To illustrate, Metrolink recently contemplated applying for a $300 million RRIF loan to purchase advanced technology locomotives. Our current fleet is one of the oldest and highest-polluting 

in the Nation. But it didn’t take long to realize that the cumbersome RRIF exercise was not a viable option for us. Some of the 

issues that discouraged our involvement include lack of coordinated 

FTA/FRA rules. 

Some of Metrolink’s hard assets were acquired with assistance of 

FTA capital funding. Property acquired with assistance of FTA 

funds has a condition of giving FTA rights to the property, if the 

property is no longer used for public transportation purposes. That 

situation conflicts with the condition imposed by FRA RRIF rules, 

which requires a first lien on hard assets. In effect, that means 

Metrolink cannot use an asset as collateral, because the FTA has 

prior rights. This eliminates our ability to use RRIF for these improvements. 

The credit risk premiums, another significant challenge with the 

RRIF program, is the unique feature which requires credit risk premiums. In effect, the default risk cost is borne by the applicant 

through the payment of what is called the credit risk premium, calculated as a percentage of the amount of the loan and the risk of 

non-payment. 

Again, this cost is a limiting factor for cash-strapped public transit agencies like Metrolink. Providing funds for RRIF loan credit 

risk premiums similar to the TIFIA loans would be helpful and certainly make the program more financially practical. 

Another factor working against us is the requirement that each 

applicant pay an investigation fee to cover FRA’s cost of evaluating 

the application, whether or not the loan is ultimately approved. 

These extra administrative expenses can make the loan cost prohibitive for government entities with limited resources. 

The topic of RRIF loan flexibility will be addressed by my colleague on the panel, Mr. Loftus. 

To maximize opportunities for transit agencies to provide solutions in their respective communities, RRIF and private-public 

partnerships must be built upon a comprehensive investment strategy in the transportation infrastructure. The RRIF program is a 

great opportunity to leverage private investment, and we should do 

everything we can to make it work. We encourage more flexibility 

35 

in the FRA collateral and repayment rules, as well as better interagency coordination between FTA and FRA on funding policies. 

In closing, I would like to emphasize that Metrolink is more than 

a passenger train moving people from place to place. We are the 

solution for some of the major issues facing southern Californians 

today. Metrolink would like to work with the subcommittee to identify incentives that will encourage greater private investment and 

streamline processes that encourage, rather than discourage investment by public transit agencies like Metrolink. 

I want to thank you for the opportunity to appear before you 

today, and I am happy to answer any questions that you might 

have. 

Mr. SHUSTER. Thank you very much, Mr. Fenton. And I just 

want to give everybody a heads up. Mr. Fenton has to catch a 2:45 

flight to make it home in time for his parents’ 60th wedding anniversary. 

Mr. FENTON. Sixtieth wedding anniversary. 

Mr. SHUSTER. So that’s fantastic. So what we will do is we will 

finish through the panel. But if anybody has got a specific question 

for Mr. Fenton, I want to try to direct them to him early, and then 

you get out of here when you need to go. And I would imagine 

about 1:15 you probably want to high-tail it out of here. 

OK. So we will continue with Mr. Sussman, who is president of 

Strategic Rail Finance. 

Mr. Sussman, please. 

Mr. SUSSMAN. Good morning, Chairman Shuster, and members 

of the subcommittee. My name is Michael Sussman. I own Strategic Rail Finance, a company I founded 17 years ago, when I discovered that most freight railroads, for no inherent business reason, have fewer funding options than companies that are much less 

important to the Nation. 

I have coordinated financing for rail projects in 23 states, inventing new ways to integrate private sector financing with public sector funding. This collaborative approach delivers more capital and 

strengthens rail projects for all stakeholders. 

I have been asked by the Committee staff to provide my perspectives on the RRIF program. The RRIF program is a USDOT loan 

and loan guarantee program with three main attractions for the 

borrowers. One is the repayment term, which can be as long as 35 

years. Second is its relatively low interest rate, based on treasury 

securities of a similar term. Most importantly, it recognizes the collateral value of track, right-of-ways, and transportation facilities, 

assets for which it is challenging to secure long-term financing in 

the private sector. 

The country can enjoy a substantial return from improving the 

RRIF program. In spite of America’s love-hate relationship with 

railroads, rail transportation provides many public benefits. Each 

train load of freight, if moved on our highways, requires a convoy 

of trucks 27 miles long. Since those trucks burn two to four times 

the amount of diesel fuel, the consequent increase in air pollution 

is significant. We need trucks as part of a complete transportation 

system, but we need increased rail transportation more than ever. 

RRIF fulfills a role that is missing in the private sector. Since 

Federal de-regulation of railroads in 1980, the number of short line 

36 

and regional railroads has increased from 190 to 575. At the same 

time, banks have merged and consolidated, leaving behind the close 

connection between local banks and local railroads. 

In spite of the long-term financial stability of rail projects, they 

are more challenging to finance than riskier commercial developments such as office buildings and movie theaters. So, why does 

this $35 billion loan program still have $34.6 billion available? And 

what can be done to increase the loan activity? 

I will suggest four no-cost remedies, and several process improvements. Firstly, I recommend enforcing the previously-mandated 90- 

day timeline for the FRA to make loan decisions. 

Secondly, I would like to see the OMB reverse the practice of cutting the collateral values by 20 percent when accompanied by professional appraisals. Hardly warranted when the primary assets 

presented in rail projects—i.e., steel, land, and rolling stock—are 

among the most stable collateral items we see, often appreciating 

in value over time. 

Thirdly, it is vitally important to revisit the FRA’s 

deprioritization of refinancing made public last September. There 

should be no reluctance to approve RRIF loans for refinancing, as 

long as it supports a comprehensive capitalization strategy for successful long-term stewardship of rail facilities. 

Fourth, borrowers should be given the option of a higher interest 

rate in exchange for a lower credit risk premium. 

There are other ways to improve the RRIF program, such as instituting a clear pathway for the program’s loan guarantee function, and coordinating with state departments of transportation 

and local banks. I would be gratified to share these ideas with the 

Committee at a later date. 

For now, just a brief mention of process improvements. Seeing a 

RRIF loan application through to completion is like raising a child. 

No one really talks about how damn hard it is. And, even if they 

do, it is harder than anyone has the capacity to imagine until they 

have one of their own. 

What I would like to see is a less expensive, less strenuous application process for smaller RRIF loans, in support of one of its stated purposes, ‘‘preserve or enhance rail or intermodal service to 

small communities or rural areas.’’ 

As an addendum to my remarks, I have provided data on the 

outstanding repayment history of state revolving loan funds that 

rely on much less application information, and a relatively rapid 

approval process. The RRIF process needs to be more predictable 

and more interactive. Applicants need more coaching and support 

at every stage, and the application itself needs to be rewritten by 

writers, not financial analysts or engineers. 

Many of the application questions do not clarify the level of data 

and detail required, and the FRA is often muted in its response to 

inadequate applications. This communication gap adds weeks and 

months to the process, often ending in frustration and withdrawn 

applications. 

Relating to a much simpler state loan application, Kathleen Grover, former administrator of Michigan’s rail loan program, said that 

50 percent of the applicants in her state did not respond to requests for additional information. Railroaders are some of the hardVerDate Aug 31 2005 13:55 Aug 26, 2011 Jkt 000000 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 P:\HEARINGS\112\RR\2-17-1~1\65451.TXT JEAN
37 

est working people in industry. A successful RRIF campaign requires more determination and communication than most rail operators can muster. 

If we apply our limited public resources intelligently, we can seed 

private sector investment to accomplish goals that neither sector 

can achieve on their own. The resulting innovation can provide the 

capital environment for railroads to substantially increase their 

contribution to America’s economic vitality. 

Thank you for this opportunity to present my views. 

Mr. SHUSTER. Thank you, Mr. Sussman. Appreciate it. And next 

up will be Mr. Thomas Loftus, who is the chairman of public private investment and project financing council at the American 

High Speed Rail Alliance, and also principal at Seneca Group. 

So, Mr. Loftus, please? 

Mr. LOFTUS. Mr. Chairman and members of the Committee, I am 

Tom Loftus. I am here today representing the American High 

Speed Rail Alliance. I’m on the advisory board of the Alliance and, 

as the chairman has mentioned, I am chairman of its public private 

partnership and project financing council. 

The membership of the alliance includes state departments of 

transportation, passenger rail corridors, financial organizations, the 

full spectrum of rail supplier companies, rail labor unions, and 

grass roots advocates. The Alliance’s mission is to advocate for the 

development and implementation of high-speed passenger rail in 

the U.S. 

I am currently a principal of the Seneca Group, a transportation 

consulting group located here in Washington that has worked extensively on railroad rehabilitation and financing loans. My purpose today is to propose a number of changes to the RRIF program 

that the American High Speed Rail Alliance believes would allow 

the program to better support the development of high speed rail, 

and help leverage the private financing that is badly needed to 

make high speed rail a reality in this country. 

Building world class high speed rail will require a significant 

commitment of resources. The $8 billion provided in the 2009 stimulus package, and even the $53 billion that the President has proposed, are not sufficient to complete the job. These funds are going 

to have to be matched by local support and private investment. 

Let me briefly describe three changes that would provide an incentive for private investment. The first proposal is to provide 

RRIF with a TIFIA-like Federal subsidy that allows the Secretary 

of Transportation to modify loan terms by deferring payments or 

subsidizing the interest rate. Deferring payment would allow high 

speed rail applicants to meet the construction and ramp up time 

tables of high speed rail projects, which typically run anywhere 

from 5 to 8 years to 10 years. 

Under TIFIA, repayment can be deferred up to five years after 

completion of the project. The cost of this deferral is paid by annual 

appropriations, initially set at approximately $122 million, and 

supplemented in 2010 to cover additional loan activity. 

We propose also that the RRIF subsidy can be used to lower the 

interest rate when the Secretary determines that that would make 

the difference in the viability of a project. 

38 

RRIF and TIFIA interest rates are set based on comparable U.S. 

treasuries. Today, the rate on a 35-year loan is approximately 4.7 

percent. We estimate that, at today’s interest rate, a $1.1 billion 

subsidy would support a 10-year deferral of payments, or a 3 percent interest rate on a 35-year loan of $5 billion. Put another way, 

one Federal dollar would leverage five dollars in loans to private 

entities that must be repaid. 

We fully understand the need to reduce Federal spending, and 

we know that $1.1 billion is not pocket change. However, if the 

Federal Government is committed to investing in high-speed rail, 

would we not be better off taking a portion of the proposed $53 billion and leveraging it at 5 to 1? Given today’s financial reality, this 

might be the only way to find the funds necessary to build high 

speed rail in the U.S. 

Collateral is also an obstacle to the high speed rail industry. 

RRIF requires a first lien on hard assets equal to at least 100 percent of the value of the project. High speed rail projects will not 

be able to meet this requirement. We propose that FRA accept the 

estimated value of a future stream of taxes or fees pledged to repay 

the loan as collateral. In the case of a default, the government is 

guaranteed this stream of income to repay the loan, so it’s just as 

protected as it would be if there were hard assets to sell to recover 

the loan. 

Finally, we propose that development phase activities be eligible 

for RRIF funding. High speed rail projects, as you know, require 

substantial development phase activities, including planning, feasibility analysis, and environmental review. Under the current RRIF 

statute, it is unclear whether these are eligible costs. 

Uncertain outcomes can make this first phase of the projects the 

hardest to fund. Knowing that a RRIF loan could reach back and 

pay for these costs would make it more feasible for private or local 

government to initially fund these costs. 

High speed rail holds great promise for the American people, and 

high speed rail advocates are rightly passionate in promoting its 

substantial advantages. Congestion relief, energy conservation, 

cleaner air, inter-connected communities are all potential benefits. 

Build-out will create many thousands of jobs in providing rolling 

stock, signaling systems, and maintaining the infrastructure will 

renew critical domestic manufacturing and supply industries that 

we have sadly ceded to foreign countries. 

We need to move forward—to move forward, we need to think 

about alternative ways to fund high speed rail projects. These proposals are not the total answer, but they are realistic and a costeffective way to begin. 

Thank you for your time, and I am available to answer any questions you might have. 

Mr. SHUSTER. Thank you very much, Mr. Loftus. Appreciate that. 

And again, as I said, if anybody has any direct questions to Mr. 

Fenton, we want to sort of direct them to him. I know, Mr. Long, 

you had a question to the previous—to the Secretary about the program. I don’t know if you wanted to pursue that line of questioning. 

Go ahead, Mr. Long. 

39 

Mr. LONG. Thank you, Mr. Chairman. I—and I think he’s taking 

the train to his folks’ reunion, not the plane, I believe. 

[Laughter.] 

Mr. LONG. In your testimony, Mr. Fenton, you described a lack 

of coordination—I brought this up with an earlier witness—between RRIF program collateral requirements and the FTA’s policy 

prohibiting liens on properties I discussed earlier. 

Do you have a recommendation on how we can rectify that? 

Mr. FENTON. Well, I think, you know, there has to be a recognition of some way that we can take those assets and use them as 

collateral. 

Now, I appreciate the opportunity to sit down with the deputy 

to discuss what those options would be. But until we get that matter resolved, I mean, I am completely precluded from participating. 

So I would be anxious to hear what they would look at as a viable 

option on how we solve a very complex problem. And I just appreciate the chance that we could sit down and work together through 

the issue. 

Mr. LONG. OK. One other question. Why would a public agency 

like Metrolink look to the RRIF program when you have other financing tools at your disposal, such as tax-free munis and private—that private entities can’t access? 

Mr. FENTON. Well, actually, I am owned by five different member 

agencies. I have no taxing authority. I do not have the ability to 

issue bonds. Up to this point, we are funded solely through our 

member agencies. We are dependent upon grants. 

I am trying to expand my options, so we can advance some of 

these projects. When I look at a RRIF program, a lot of the projects 

we are examining would be things that would be—add some operating benefit to our organization, as well, and hopefully not be a 

burden from an operating expense, but actually create some enhancements. 

So I am not like a lot of government agencies that would have 

the authority to go out and have those tools available to me at this 

point. 

Mr. LONG. OK. And then one other quick one here, so you can 

get off to Reagan, but do you view RRIF as a promising financing 

tool for commuter railroads to pay for Positive Train Control systems? 

Mr. FENTON. I think at this point it has to be, just because of 

the unfunded need to implement the PTC. 

You know, I am fortunate that we are first out of the box with 

PTC. I am fully funded at this point. But many, many other transit 

agencies are not. And I think that RRIF has to become a part of 

the equation to meet that need on having money and capital available for the PTC project. 

Mr. LONG. OK. Thank you. And I yield back, Mr. Chairman. 

Mr. SHUSTER. Before I go to the next line of questioning, I will 

let Mr. Yachmetz engage in this discussion, because—if you want 

to go ahead and respond to some—— 

Mr. YACHMETZ. Yes. Actually, I would. I’m not quite familiar 

with what the immediate Metrolink problem is. 

We have, as you noted from looking at our list of RRIF loans we 

have granted, funded 50 passenger coaches for Virginia Railway 

40 

Express. And when we also did the Denver Union Station project, 

we subordinated the RRIF program to the TIFIA program. Basically, the Secretary subordinated his right pocket to his left pocket. 

And so, there is flexibility in the Department. If there is an absolute requirement to let FTA have first position on the assets, we 

could look at taking a second position with RRIF. So we would be 

very happy to try to flesh out what the specific issue is, because 

it may actually be something we can just take care of administratively. 

Mr. SHUSTER. That would be good for Metrolink and the FRA to 

get together. Maybe we can resolve some of this. I would like to 

hear back after you’ve been able to discuss that and the outcome 

of it. 

And with that, we yield to Mr. Larsen. 

Mr. LARSEN. Thank you, Mr. Chairman. And I am glad—is it 

Yachmetz—Mr. Yachmetz answered that question. That was one of 

my questions I had for you, relative to Metrolink’s issue. 

And I think what I would like to know—if there—if you can get 

back to us—if there is a—rather than solving the problem, which 

I hope you do, is in fact, if this is just a one offer, two offer, three 

offer—it’s for Denver, it’s for VRE, it’s for Metrolink, or do you 

have some sort of guidance on how you approach these things? And 

that, I think, from our perspective—it’s great to hear you solve the 

problem. I think, from our perspective, we would like to know if 

you actually have some guidance on how you make those choices. 

Mr. YACHMETZ. Well, we will certainly get back to you. We have 

had conversations with about three or four commuter agencies, and 

this is the first time this issue has come up. So we will be happy 

to see whether there actually is an issue that we have to do a oneoff, or maybe just provide some clarity in our guidance. 

Mr. LARSEN. And we would also expect FTA to respond to us, as 

well. 

So, Mr. Fenton, how is—in your view, how is the credit risk premium—how is that different than pursuing a similar loan in the 

private sector? At some point you have to have a risk tied to your 

loan. 

Mr. FENTON. Well, I think it goes back to what’s the capability 

to pay. And if you think about what we would be subjected to, 

which would be 1 to 3 percent of the loan, of a $300 million loan, 

you can see, you know, anywhere from $3 million to $9 million of 

cost. 

Now, in a public agency, when we’re sitting here trying to meet 

the growth needs, whether it’s in infrastructure—you know, I can 

build a mile of railroad for $5 million. You know, technically, we’re 

taking resources and diverting them into a credit risk premium 

that could be put into improving infrastructure. And, you know, 

since I have sat on both sides of the fence, I’m much more constrained with my ability to do creative things in the public sector 

at this point. And every dollar means something, especially when 

you face the many challenges we face in southern California. 

So, when I start talking about, you know, $3 million to $9 million 

for a credit risk premium, I’m looking at cars, locomotives, capacity 

improvements, things that are sorely needed in southern California. 

41 

Mr. LARSEN. I would just say every dollar always means something. Every public dollar always means something, not just when 

things are good or bad. 

Can you give me a view on whether or not you think we ought 

to—well, does Metrolink have a view on subsidizing the credit risk 

premium, or there is one other idea—it might even have been in 

your testimony—buying up the interest rate to buy down the credit 

risk premium? 

Mr. FENTON. Well, I think the model is really the TIFIA. You 

know, they don’t have that aspect as a part of their loan. And I 

think, when you start having some consistency in how public agencies are dealt with, whether it’s through TIFIA or whether it’s 

through the RRIF program, I think they should be consistent. 

I think TIFIA has the right model, when it comes to the credit 

risk premium, and I think those dollars should be allowed to be put 

into viable assets, instead of something that the credit risk premium—because, you know, I feel very comfortable that we would 

be able to cover our payments. 

Mr. LARSEN. Just finally, I am not totally familiar with the 

TIFIA program and how it works, perfectly, but I’m sure if we 

brought people in like this panel to talk about TIFIA, we could 

probably find our own problems there, too. So, you know, I’m pushing back very hard on this because it still—whether it’s your public 

dollar for Metrolink, or it’s a Federal taxpayer dollar, it’s a taxpayer’s dollar that you’re asking us to begin thinking about making 

choices about. And there is not a lot to go around. In fact, there 

is negative taxpayer dollars going around—at one point $6 trillion 

in deficit this year alone. 

So, that’s why I’m pushing back very hard. And before I even 

jump on the TIFIA idea I would certainly be interested in seeing 

how well the people are participating in the TIFIA program, and 

see how that’s going. 

It might be a model that works for you, because it saves you 

money. And that’s fine. I don’t expect anyone to come up here and 

say that—ask us to do things that don’t save you money. But by 

the same token, it’s not necessarily—if it works somewhere else 

perfectly, I would be happy to look at it. 

Mr. SHUSTER. Thank you, Mr. Larsen, and I think you make a 

very good point. As we go forward, trying to find the solution to improve the RRIF program—and there is some question as to whether the FTA will allow their—what they have loaned money on to 

be collateralized to the FRA, and so I’m not sure we’re clear on 

that, and that’s something we need to delve into further and get 

that squared away so we can move forward. 

In addition to that, what was that—oh, the question on the timing of it. The Secretary said that you’re within the—FRA is within 

the 90-day window. But my understanding of the law is that it says 

that it needs to be completed within 90 days. And you’re completing your part, then you’re kicking it over to the credit council, 

and it’s taking longer and longer. 

So, as I said, I think the law is pretty clear that it’s to be a 90- 

day window. Is that true, what the—how I interpret the law? Do 

you interpret it that way? And what’s the 90-day period? What do 

you call 90 days? 

42 

Mr. YACHMETZ. Well, 90 days, in our interpretation—and I think 

the statute is fairly clear—is from the date we have received a completed application until the date that the Secretary—or, in this particular case, the Administrator—makes a decision on the loan. 

We frequently get incomplete applications. We frequently—less 

frequently, but on occasion we get applications that require reviews 

under the National Environmental Policy Act that need to be completed before we can deem the application complete. Because we 

cannot move forward with a loan or a grant, because it still falls 

within the jurisdiction of the National Environmental Policy Act. 

So, there is an extended period of time, but I think it differs on 

an applicant-by-applicant basis. And that’s why the Deputy Secretary was saying we need to do more outreach so we can better 

inform the community about what is needed for a completed application. 

So, that is one of the things we will be working on. 

Mr. SHUSTER. And kicking it out to the credit council and OMB 

outside the 90 days, again, that’s—would seem to me you’ve got to 

shorten your process within your agency, so that you can still get 

it to the credit council within that 90-day period, wouldn’t—— 

Mr. YACHMETZ. Well, to be clear, the credit council is within the 

90-day period. And after receiving a recommendation from the 

credit council, the Administrator makes a decision on the loan. And 

the role of OMB, under the Credit Reform Act of 1990, is not to 

approve or disapprove the loan, but to set the credit subsidy 

amount, which is what becomes the credit risk premium in the 

RRIF program. 

So, the way the RRIF statute is written now, that is outside the 

90-day window. 

Mr. SHUSTER. And I wanted to make clear, Mr. Fenton, you are 

excused whenever you need to leave, and then we’re going to go 

back to sort of more regular order here in asking the questions. 

I just wanted to follow up with that question to Mr. Callison. 

Again, your view is the process is way too slow, and—— 

Mr. CALLISON. Well, what happened in our case was simply that 

we thought we had FRA approval, and then it was moved to the 

OMB, which caused a considerable delay. And the cars were already delivered, and we still did not have approval. And all I know 

is, regardless of how you interpret the statute, in fact, the OMB 

had it, the FRA had done the approval, and we didn’t have a 

final—didn’t have final loan dispersement until some four or five 

months after the cars were actually delivered. 

Mr. SHUSTER. Thank you. And, Ms. Richardson, if you—— 

Ms. RICHARDSON. Yes. Actually, Mr. Fenton, I am glad you are 

still here. I did have a follow-up intended question. 

You heard me ask Secretary Porcari about a commitment for 

both high-speed rail, as well as our existing systems. Do you feel 

that that has been translated through the budget and through 

other things that you’ve been told, that there is a dual commitment? 

Mr. FENTON. You know, I’m not as confident that that has been 

fully articulated. And being at Metrolink now for 10 months, I see 

many needs and I am concerned because we aren’t the future, we’re 

today. I mean we are providing service today. 

43 

And I think it’s something that has to be kept on the front burner, that as we pursue high speed rail options, you still have to 

move people, you still have to provide service on a daily basis. And 

at this point, we are that person. And I think it’s important that 

we continue to be kept in the forefront of making sure that we can 

grow to accommodate the needs of the municipalities that we serve. 

Ms. RICHARDSON. And could you articulate specifically what is it 

that you’re seeing is a concern, in terms of funding, that you feel 

that the duality doesn’t exist? Because Mr. Porcari’s staff is still 

here. 

Mr. FENTON. Well, I mean, I guess my concern is that as we start 

to work through the budget and the different processes, as our 

needs—and, look, I’m all about competing. I understand that the 

dollars have to be spent wisely. And, you know, I want to make 

sure that, as we move forward, that we have a stake at the table, 

and that we look at the needs that we have, and rank those 

projects accordingly to what the value and the needs are of those 

municipalities. 

And I don’t know if I have seen that process yet, as things are 

starting to unfold. But I do think it is important that we continue 

to keep the local commuter agencies in the forefront, because we 

are providing those services today. 

Ms. RICHARDSON. OK. And then finally, my question to all of you. 

Have any of you had an opportunity to participate in a stakeholders’ advisory group or something, where it seems to me—today 

you have provided excellent feedback of potential suggestions to improve this program. Have you had the opportunity to communicate 

those to the Secretary? 

Sir? Just yes or no. Have you had that—— 

Mr. CALLISON. No, only through the Short Line Association, to 

the extent that they have spoken to the administration. 

Ms. RICHARDSON. OK. Sir? 

General TIMMONS. No, we have not. 

Ms. RICHARDSON. OK. 

Mr. FENTON. No, I have not. 

Ms. RICHARDSON. OK. 

Mr. SUSSMAN. Only eight years ago, when there was a major revamping of the program, and there was a stakeholder outreach. 

Ms. RICHARDSON. OK. Sir? 

Mr. LOFTUS. I personally have not, but I believe the High Speed 

Alliance has. 

Ms. RICHARDSON. OK. And you, sir? 

Mr. YACHMETZ. We are committed to—as Deputy Secretary said, 

we are committed to—— 

Ms. RICHARDSON. I can’t hear you. 

Mr. YACHMETZ. As Deputy Secretary Porcari said, we are committed to increasing the outreach that the Department does on this 

program and our other credit programs. 

Ms. RICHARDSON. OK. Might I suggest, Mr. Chairman, that we 

refer these excellent suggestions that our witnesses have provided 

us today of how to improve the program, that we would submit 

them to the Secretary for consideration, and to come back to the 

Committee on his thoughts of those recommendations. 

44 

I think the general would say often times when you’re requested, 

a response might come—requested or directed—might often times 

get a stronger answer. 

Mr. SHUSTER. That’s a great suggestion, and we will pursue that. 

Ms. RICHARDSON. Thank you, sir. I yield back the balance of my 

time. 

Mr. SHUSTER. Thank you very much, and yield to Mr. Reed. 

Mr. REED. Thank you. Thank you, Chairman. I guess the question I would ask is you’re all willing to meet with the Department, 

I would assume, yes? 

[All nod affirmatively.] 

Mr. REED. Yes. And the Department is committed to doing that. 

Is that a yes? 

Mr. YACHMETZ. That’s a yes. 

Mr. REED. OK, great. How are we going to accomplish that, 

Chairman? How are we going to get that done? 

Mr. YACHMETZ. Well, the first part of this is, I think, educating 

the potential applicant pool of the change in approach by this administration with regard to credit policy. And we have had, actually—while we were waiting for the hearing to start, we have had 

a number of conversations with the Short Line Association about 

us going to their regional meetings, their annual meetings—— 

Mr. REED. Excellent. 

Mr. YACHMETZ [continuing]. To start the meeting with members 

and prospective applicants, to walk through the process and identify what we will be looking for in a completed application, how we 

can help make that process not only more transparent, but easier 

for the relatively small, less financially sophisticated companies. 

And one of the other things the Deputy Secretary said is that we 

are looking for other good ideas, how to get out and work with the 

community, because we view this as a very valuable opportunity to 

invest in the transportation infrastructure of this country at little 

or no cost to the government. 

Mr. REED. Well, I appreciate it. So maybe we will have some 

more hearings so everybody can get in the same room and we will 

get some positive movement there. 

One thing that concerned me, Mr. Sussman, in your testimony 

you focused on the application and the questions in the applications that ‘‘they do not clarify the level of data and detail required.’’ 

Specifically, what in the application is of concern to you, and how 

can we, at the Department—or how can the Department clarify, 

make that—more user friendly, it sounds like—— 

Mr. SUSSMAN. Yes. 

Mr. REED [continuing]. Is what you’re looking for. 

Mr. SUSSMAN. Well, for instance, there is a question that asks 

the applicant to describe the impact of the improvements, the funded improvements, on the safety of their operation. And that’s the 

question. What’s asked—what they want is a data-driven, specific 

dollars-and-cents, how is this going to be spent, how much do they 

spend for derailments now, what would be the projected amount 

that gets spent on derailments after this investment, that type of 

level of detail. 

And the applicants, not knowing that, answer that question like 

an essay question. 

45 

Mr. REED. OK. That would make sense. 

Mr. SUSSMAN. Yes. 

Mr. REED. You have any problem with maybe a little more detail 

in the application? 

Mr. YACHMETZ. No. And, in fact, that is one of the reasons why 

we feel like as if now we need to go back out and do outreach, 

which, quite frankly, we have not done for a decade, at least, and 

talk to the community and maybe walk through the application, 

and also see where we can make the application a little bit clearer 

and less onerous. 

Mr. REED. Do you have any timelines as to when that would be 

completed by? 

Mr. YACHMETZ. I believe the National Short Line meeting is in 

May. Our administrator has already committed to speak there, and 

I will probably be out there talking, as well, to the short line members. 

And then, over the course of the rest of the year, there will be 

a number of regional meetings, which is where we will probably 

have a lot more of the detailed discussions. 

Mr. REED. Well, I appreciate that, because this is a great program, and I think we want to expand upon it, and I think that 

commitment will go a long way to get more money out there into 

the field. 

Mr. Chairman, I will yield back the balance of my time. 

Thank you very much, gentlemen, I really do appreciate the 

input. 

Mr. SHUSTER. I thank the gentleman from New York. And looking down to see if anybody has any—Mr. Hanna, I will recognize 

Mr. Hanna for a question. 

Mr. HANNA. Mr. Loftus—thank you, Chairman—you describe, in 

your desire to change the definition of collateral, because you don’t 

own 100 percent of the assets, the new assets, they’re still there, 

they’re still collaterable. But then you go on to say that the—in the 

event of a default, the stream of revenue from the high speed rail 

would serve as a collateral. 

But am I missing something, or isn’t it, by definition, if the 

stream of revenue was adequate to guarantee the loan, then the 

loan wouldn’t default? 

Mr. LOFTUS. That’s correct. 

Mr. HANNA. Well, then why would one lead to the other? 

Mr. LOFTUS. The operation might default. So if the operation had 

to stop because it’s not covering its costs, for example, the RRIF 

loan would still be secured by a separately-pledged stream of tax 

revenue or fee revenue. That’s under a separate credit agreement 

with the FRA pledging that stream of cash to repay the loan. 

Mr. HANNA. OK. 

Mr. LOFTUS. And—if the operation wasn’t meeting its operating 

costs, for example, and it just had to stop operating, that stream 

of cash would still be there to repay the loan, which is similar to 

what happens in any default, except in this case, because high 

speed rails are not constructed at the time the application is submitted and approved, there are no assets to pledge. So there are 

no assets to sell in event of default. And this is a proposal for a 

way to deal with that lack of pledgeable assets. 

46 

Mr. HANNA. But the asset is there. You still have—— 

Mr. LOFTUS. It will be there after four or five years, when it’s 

constructed. And I guess you could switch over to a pledge of assets 

at that time. But I’m talking about when the loan is getting approved. Right now the requirement is to have collateral, hard collateral, to pledge to support the loan. And that doesn’t exist in high 

speed rail systems. 

Mr. HANNA. I see. So, rather than—you might like to see some 

period of time between conception and when it’s built out, that associates that problem—that allows you forgiveness of that. 

Mr. LOFTUS. That’s not what I suggested, but that would be 

worth considering. 

Mr. HANNA. Well, thank you. 

Mr. LOFTUS. It would be more risky, I think, from the FRA’s 

point of view. But it would be worth considering. 

Mr. HANNA. Thank you. I yield back. 

Mr. SHUSTER. I thank the gentleman. First question I have is to 

General Timmons, and then I want to come back and, Mr. 

Sussman and Mr. Loftus, I would like the two of you to maybe 

comment on each other’s, because there are different solutions to 

the problem. So I would like to hear your assessment on each other’s, and engage the rest of the panel on your ideas. 

But first, to Mr.—to General Timmons, from a short line perspective, why is refinancing such an important eligibility under the 

RRIF program? Can you expand on that? 

General TIMMONS. I can, Mr. Chairman. A sentence or two about 

the background of that. And as you all may or may not be aware, 

the purchase of those short lines and the equipment and the purchase or the loans appropriate for infrastructure upgrade are all 

commercial loans. And so those carry the baggage of high interest 

rates and relatively short term. And so, what that really does is 

bleed off much-needed cash that could be used for the reinvestment 

in the infrastructure of the small railroads. 

The RRIF loan provides a relatively low-interest, long-term payback which provides a greater cash flow, and you can use that 

money to invest in your railroad. You say, ‘‘Why is that such a critical issue, this reinvesting?’’ It seems like short line railroads are 

continuing to reinvest. 

The reality is that the rail industry itself is the most capital-intensive industry in North America. And of—within the railroad industry, the short line industry is the most capital-intensive. About 

30 percent of their bottom-line revenues go into infrastructure upgrades. Why is that? Because they got old and deferred maintenance equipment from the Class I railroads who got rid of them, 

as a result of staggers. And so they’ve been in a continuous and 

perpetual effort to upgrade those systems. 

And while that has been going on, keep in mind that the short 

line industry changed from 8,000 miles immediately after staggers 

to 50,000 miles today. And at the same time, the requirements for 

heavier track and heavier equipment and more substantial bridges 

adjusted because we put heavier cars and more robust equipment 

with greater load capacities. 

So, this is sort of a very tightly-woven fabric, where the refinance 

is absolutely at the center of it. 

47 

Mr. SHUSTER. Thank you very much, General. Appreciate that. 

Mr. Loftus and Mr. Sussman, you both have very different views. 

Mr. Loftus wants to lower the interest rates and provide some government subsidies. I take it you put out they are governmentbacked, government-underwritten, and Mr. Sussman is talking 

about increasing interest rates. 

So, Mr. Loftus, if you could, comment on what are the weak 

points in Mr. Sussman’s that you think won’t work and why yours 

will work. 

Mr. LOFTUS. Well, first of all, we are talking about different sectors of the industry. Mr. Sussman, I believe, is talking about primarily short line freight roads, regional freight roads. I am talking 

about the high speed rail industry. 

A key difference is, as we all know, high speed rail does not 

exist. It’s an effort to get started. And the rail lines themselves 

have to be constructed. And during that construction period, obviously there is no revenue being generated to support repayment of 

the loan. And there is typically a—you know, a period of time right 

at the beginning, after construction, where demand for the system 

gets built up as people become aware of it, and they understand 

the benefits of it, and they start to ride. 

So, it’s anywhere from three to five years, I would say, until it 

reaches its full ridership. So the deferral would address that situation very effectively, from the Alliance’s point of view. An interest 

rate subsidy over the length of the loan would do some of the same 

things. It wouldn’t cover, obviously, the elimination of debt service 

during construction ramp-up, but it would lower the overall coast 

of the loan over the period of the project. 

Mr. SHUSTER. So I misunderstood. I thought you were talking 

about financing the same way. 

But, Mr. Sussman, could you expound on yours—higher interest 

rates—— 

Mr. SUSSMAN. My suggestion of an enhancement to the program 

would be to add an option for borrowers to agree to a higher interest rate in exchange for lowering the credit risk premium. For 

some applicants, that will be very attractive. For others, not. It all 

depends on the amount of the loan, and the rest of their financial 

structure. 

Mr. SHUSTER. Would you see—and, as you said, it depends on the 

applicant. From what you’ve seen out there, do you think there 

would be a significant number that would prefer what you’re proposing, or not sure, or—I mean what do you think the market is 

out there for your recommendation? 

Mr. SUSSMAN. Yes, I think there would be considerable interest 

in that. Certainly the credit risk premium, which, just for reference, is typically, for the loans that have been approved so far, 

has been in the two, three, four percent, and that requires the applicant, for every $100 that they want to accept in a loan, they 

have to pay in, you know—— 

Mr. SHUSTER. Right. 

Mr. SUSSMAN [continuing]. $2, $3, $4. So, for some—— 

Mr. SHUSTER. Right. 

Mr. SUSSMAN [continuing]. That’s another one of the hurdles—— 

Mr. SHUSTER. Right. 

48 

Mr. SUSSMAN [continuing]. To getting to the finish line. 

Mr. SHUSTER. And the—some, I would assume, would be interested—stronger balance sheets, higher operating profits, they’re not 

afraid to—— 

Mr. SUSSMAN. Yes. 

Mr. SHUSTER. OK. 

Mr. SUSSMAN. Yes. 

Mr. SHUSTER. And, Mr. Callison, could you comment on what 

your thoughts are on what Mr. Sussman is presenting? Is that 

something you’re interested in, or—— 

Mr. CALLISON. I think it’s an interesting option, to have the ability, rather than to have a credit risk premium, to be able to pay 

a default rate risk in the interest rate. I think it’s an interesting 

option. 

Mr. SHUSTER. And, General Timmons, your thoughts as an industry-wide—— 

General TIMMONS. I think it’s an option. Obviously, now, the— 

based on the collateral that you put forward, the less you put forward the higher your interest rate. The more you put forward, if 

you collateralize it at 120 percent or 130 percent, your interest rate 

gets pretty low. 

Mr. SHUSTER. Right. 

General TIMMONS. Four or five percent. So the program today 

has that flexibility built into it. And so, it just depends on how 

much you want to step forward on that amount. 

Mr. SHUSTER. OK. All right. Well, anybody else want to comment? 

Mr. YACHMETZ. Well, just a couple points. The whole concept of 

the credit risk is actually built into the Credit Reform Act of—— 

Mr. SHUSTER. I’m sorry, could you repeat that? 

Mr. YACHMETZ. The concept of the subsidy amount, the credit 

risk, actually flows from the Credit Reform Act of 1990, and applies 

to all of the Federal Government credit programs. So, fixing this 

for RRIF may not be best. You may want to look at this in the context of all credit programs. 

And then, another—just to point out, a number of the people 

here talked about the difference between TIFIA and RRIF. And one 

of the good things about RRIF is, in fact, the credit risk premium 

being able to be paid by individual companies, because that takes 

us out of the appropriations environment. The way TIFIA is different—because it was created under title 23—— 

Mr. SHUSTER. Right. 

Mr. YACHMETZ [continuing]. Is there is contract authority to pay 

it. And in the last year or two, when the contract authority ran out, 

TIFIA started imitating RRIF, and letting individual companies or 

individual applicants actually pay the credit risk premium, rather 

than wait for contract authority to be available again. 

Mr. SHUSTER. OK. Well, thank you very much for that. And I 

want to thank all of you for coming here today. Again, apologies 

for getting a late start. I appreciate that. And we will take Ms. 

Richardson’s idea to pursue this further. 

I have to do a UC. I think I’ve got to step out for a minute. Mr. 

Denham wants to ask a few questions. And let me do this first, it’s 

my housekeeping. I ask unanimous consent for a statement to be 

49 

put in the record for Chairman Mica, and also to insert his October 

15th and my October 15, 2010, letter to the Department of Transportation on the RRIF guidance, our concerns on that. Without objection, I want to put those both into the record. 

[Hon. Mica’s statement is on page 59; the letter follows:] 

50 


Insert offset folio 21 here 65451.021
51 


Insert offset folio 22 here 65451.022
52 

Mr. SHUSTER. And with that, you will be the final questioner, if 

you had a couple of questions. Fine, and then you get to sit here. 

I have to step out and take a meeting. So thank you all very much, 

and Mr. Denham will finish up. 

Mr. DENHAM. [presiding]. Thank you, Mr. Chairman. Thank you, 

Mr. Shuster. 

I just have a few quick questions on—primarily on California 

high speed rail. Obviously, we have had a number of concerns, 

you’re seeing a number of amendments on the floor right now addressing a variety of different topics, as it pertains to funding for 

high speed rail. 

My biggest concern right now is the private capital that is supposed to make the entire project whole. Mr. Loftus, I wanted to 

specifically ask you. The question that keeps coming up is: When 

is enough Federal money enough? And do you expect any more 

state money? So, when you get those two pieces figured out, at 

what point does the private industry step in, and when does it become a financial—and when is there a financial incentive for a private company to actually come in and take the burden, the final 

burden, of this? 

Mr. LOFTUS. Obviously, that’s a very project-specific situation. 

But, in general terms, private money will come in when they believe they can earn what—the return they want to make on their 

money. 

Mr. DENHAM. I would agree. 

Mr. LOFTUS. Anyway, that’s very obvious, right? 

Mr. DENHAM. Yes. 

Mr. LOFTUS. And the concept is, to the extent the Federal Government can remove the risk of the project by providing funds, and 

the private sector, in effect, tops up the required amount of funds, 

that will increase the returns, just by the fact that they put in less 

money to get the returns that the project generates. 

And I can’t say where that would be. I believe private sector return requirements are probably in the 14 percent range on these 

types of projects. And, again, it’s very project-specific. Cash flow is 

what generates returns. So the ridership forecasts and the cost estimates, all of that will be—and the cost to construct the system, 

all of that will play into what the private sector perceives as the 

potential returns. 

And to—again, to the extent that the Federal Government grants 

money and the RRIF loan facility is adjusted—perhaps in the ways 

I have suggested, or other ways—to the extent that removes risk 

from the project, the private sector would be more interested in 

stepping in and providing financing. 

Mr. DENHAM. So do you have a specific modeling that would 

show when the risk would be low enough for private investors to 

step in and be profitable? 

Mr. LOFTUS. Yes, we do. And I can provide that later, you know, 

after the meeting, or to your staff, if you like. 

Mr. DENHAM. Thank you. And specifically on the California high 

speed rail project, what do you anticipate the Federal Government 

and state government are going to have to put in? 

53 

Mr. LOFTUS. I can give you an answer, but I can’t say that number right now. I just don’t have enough information in my head to 

answer that. But it will be substantial. It’s a large system. 

Mr. DENHAM. Yes, I understand it’s going to be substantial. 

You know, we took a bond—were you still there when we voted 

on that in the legislature? We voted on it at the legislature. At the 

time, $9.95 billion. We took that to the voters, we told the voters 

that was all that Californians were going to have to pay. You know, 

that was assuming that a large portion was coming from the Federal Government. But now these numbers continue to escalate. 

So, my fear is, now that we’re pulling communities out of thin 

air and putting rail stops between the first segment, that not only 

does the public lose interest, but more importantly, we actually run 

out of money and never are able to finish a project because we can’t 

encourage private investors. 

So, my concern is making sure that this model works, and we 

continue to move forward on a project that is not penciling out 

today. 

Mr. LOFTUS. Right. 

Mr. DENHAM. Do you have that same concern? 

Mr. LOFTUS. Oh, yes. Of course. I mean, obviously, no one wants 

to pursue projects that don’t make economic sense. And we would 

not suggest doing that, although we do think that Federal—— 

Mr. DENHAM. But that is what we are doing right now today. As 

other states give up money, we’re trying to grab that money. And 

I realize that we’re trying to grab that money to make the project 

whole, but we’re doing it without understanding specifically what 

the model is to make it successful and complete. 

Mr. LOFTUS. Well, I can—I will show you a model of a high speed 

system that makes sense. I will provide that to your staff. 

And also, you know, historically, passenger operations of any 

kind, passenger rail operations of any kind, like the highways, 

have not covered their costs. There has always been some government subsidy involved, including on the highways. So a lot of this 

is sort of the unquantifiable public benefits. There is no cash benefit that you can put on the public benefit of having better transportation systems in any type of—any mode of transportation. 

Freight railroads are different, because they’re transporting 

goods that are sold, and companies need to transport those goods, 

so that’s a very different model of transportation than passenger 

transportation. And I think history shows that the country has 

been willing to finance passenger transportation modes—again, including highways —because they believe there is an overall benefit 

to society, whether there is the cash return or a lack of subsidy requirement has generally been the case, and it’s also generally been 

that the government is willing to support that. 

Mr. DENHAM. And I would agree that the American public would 

be willing to support a project that will have the ongoing ridership 

numbers. Where they see the biggest need, you know, they can see 

the investment to put the capital forth to get the project started 

and actually complete. 

But I believe—it’s my belief—that the American people expect 

the ridership numbers to pencil out, so that it’s not an ongoing subsidy. That would be the administration’s position, as well. I mean 

54 

is that not how we’re moving forward on each of these projects, is 

putting the assets out there, and then expecting the private companies to be able to fulfill the ridership numbers? 

Mr. LOFTUS. That is the model that Florida is pursuing, even 

though the governor returned the funds. 

Mr. DENHAM. And what different challenges are you seeing? This 

is high speed in general, across the Nation. What challenges would 

you see that would be different in, say, the northeast corridor 

versus California or any of the —are there different regional challenges, I guess, is my question. 

Mr. LOFTUS. There are. The northeast corridor, it’s an existing 

infrastructure, travels through very densely populated areas. So, to 

turn that into a true high-speed rail operation is going to be difficult, just from an engineering point of view. It can be done. 

In California, they are running over, in many cases, existing 

freight lines. So the interaction between freight and passenger will 

be something that needs to be worked out. And they’re also building new dedicated facilities. 

Florida, I believe, is primarily, in this first leg, Tampa to Orlando, I think that’s pretty much dedicated right of way. When 

they’ve moved beyond Orlando, trying to go down to Miami, then 

they’re going to be sharing track with a freight railroad operation. 

So that interoperability difficulty is present there. 

Mr. DENHAM. And which of those routes would be most attractive 

to private investors? 

Mr. LOFTUS. I—right now, Florida is the only one that I am 

aware of that is well-enough defined for the private sector to get 

their hands around. And as Secretary Porcari said earlier, the private sector was ready to take on that project, including ridership 

risk, but the governor chose to return the funds. 

Mr. DENHAM. And you have a model on all three of those 

projects? 

Mr. LOFTUS. No. 

Mr. DENHAM. Just—— 

Mr. LOFTUS. I have a model on a project that I will provide to 

your staff. 

Mr. DENHAM. OK. So the project model that you have would be 

the same for all three? 

Mr. LOFTUS. No, no, of course not. I mean the riderships are different, the cost to construct is different. The cost to operate is different. But, in concept, the ability to generate returns would be 

conceptually the same, yes. 

Mr. DENHAM. OK, OK. But you do have three models for all 

three projects. 

Mr. LOFTUS. No, I don’t. I have one project. 

Mr. DENHAM. You have—— 

Mr. LOFTUS. The models for those projects are proprietary, and 

they’re not available to the Alliance. 

Mr. DENHAM. Oh, OK. OK, thank you. 

My final question, Mr. Yachmetz, how many grants did FRA administer before the ARRA? 

Mr. YACHMETZ. You mean all kinds of grants? We—generally 

speaking, we had—before the Recovery Act we had two big grants, 

Amtrak’s capital and debt service was one grant, and operating 

55 

was another grant. And then we would, on a regular basis, have 

20 to 30 small grants, and 2 or 3 RRIF loans. 

Mr. DENHAM. Thank you. Ms. Richardson, do you have any final 

questions? 

Ms. RICHARDSON. Yes. Thank you, Mr. Chairman. I just wanted 

to follow up on a few of the questions that you asked. 

Mr. Loftus, which project are you working with with high speed 

rail currently, that you have a model for? 

Mr. LOFTUS. The DesertXpress system. 

Ms. RICHARDSON. Excuse me? 

Mr. LOFTUS. DesertXpress, from Victorville, California to Las 

Vegas, Nevada. 

Ms. RICHARDSON. OK. Mr. Chairman, for the record, I think 

some of the answers of what Mr. Loftus provided were actually not 

originally within the overall scope of this committee’s jurisdiction, 

and I—not jurisdiction, in terms of our hearing today. 

And I want to thank you. It’s my understanding I think earlier 

today you were considering an amendment on the floor and you 

withdrew, and I want to express gratefulness to that, because I 

know we do have an upcoming hearing in your area—in fact, next 

week—that I plan on attending. 

But I would just say that I have attended, because I am one of 

the co-chairs of the high speed rail caucus for California, and I 

would welcome your involvement with that. It is a bipartisan caucus. And I think that some of the things that Mr. Loftus said—I 

have participated in at least three or four meetings where I have 

engaged with great private sector involvement, and hope to be involved with with our projects. 

So, maybe after we learn from the hearing next week, we will be 

able to speak to the chairman, Mr. Shuster, about having a more 

intensive high speed rail discussion with all of the appropriate parties present, so before we make decisions of, you know, yea or nay 

on something, that we have everything at the table. Thank you, sir. 

Mr. DENHAM. This hearing is adjourned. 

[Whereupon, at 1:33 p.m., the subcommittee was adjourned.] 

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