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S. HRG. 107–1078

S. 1991, NATIONAL DEFENSE RAIL ACT

HEARING

BEFORE THE

COMMITTEE ON COMMERCE,

SCIENCE, AND TRANSPORTATION

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

MARCH 14, 2002

Printed for the use of the Committee on Commerce, Science, and Transportation

(

(II)

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

ERNEST F. HOLLINGS, South Carolina, Chairman

DANIEL K. INOUYE, Hawaii

JOHN D. ROCKEFELLER IV, West Virginia

JOHN F. KERRY, Massachusetts

JOHN B. BREAUX, Louisiana

BYRON L. DORGAN, North Dakota

RON WYDEN, Oregon

MAX CLELAND, Georgia

BARBARA BOXER, California

JOHN EDWARDS, North Carolina

JEAN CARNAHAN, Missouri

BILL NELSON, Florida

JOHN McCAIN, Arizona

TED STEVENS, Alaska

CONRAD BURNS, Montana

TRENT LOTT, Mississippi

KAY BAILEY HUTCHISON, Texas

OLYMPIA J. SNOWE, Maine

SAM BROWNBACK, Kansas

GORDON SMITH, Oregon

PETER G. FITZGERALD, Illinois

JOHN ENSIGN, Nevada

GEORGE ALLEN, Virginia

KEVIN D. KAYES, Democratic Staff Director

MOSES BOYD, Democratic Chief Counsel

JEANNE BUMPUS, Republican Staff Director and General Counsel

ANN BEGEMAN, Deputy Staff Director

(III)

CONTENTS

Page

Hearing held on March 14, 2002 ............................................................................ 1

Statement of Senator Dorgan ................................................................................. 11

Statement of Senator Hollings ............................................................................... 1

Prepared statement .......................................................................................... 2

Statement of Senator Hutchison ............................................................................ 8

Statement of Senator Kerry .................................................................................... 10

Statement of Senator McCain ................................................................................. 5

Prepared statement .......................................................................................... 7

Statement of Senator Wyden .................................................................................. 9

WITNESSES

Biden, Hon. Joseph R., Jr., U.S. Senator from Delaware ..................................... 12

Prepared statement .......................................................................................... 14

Carmichael, Gilbert E., Chairman, Amtrak Reform Council ............................... 87

Prepared statement .......................................................................................... 88

Carper, Hon. Thomas R., U.S. Senator from Delaware ........................................ 15

Hamberger, Edward R., President and CEO, Association of American

Railroads ............................................................................................................... 146

Prepared statement .......................................................................................... 148

Jackson, Hon. Michael P., Deputy Secretary, Department of Transportation;

accompanied by Hon. Allan Rutter, Administrator, Federal Railroad

Administration ..................................................................................................... 23

Summary statement ......................................................................................... 61

Rutter, Hon. Allan, prepared statement ......................................................... 26

King, David D., Deputy Secretary, North Carolina Department of

Transportation ...................................................................................................... 77

Prepared statement .......................................................................................... 79

Mead, Hon. Kenneth M., Inspector General, Department of Transportation ..... 48

Prepared statement .......................................................................................... 50

Moneypenny, Charles F., Director, Railroad Division, Transport Workers

Union of America ................................................................................................. 84

Prepared statement .......................................................................................... 86

Morial, Hon. Marc H., Mayor, New Orleans, Louisiana; President, United

States Conference of Mayors ............................................................................... 154

Prepared statement .......................................................................................... 155

Rennicke, William J., Vice President, Mercer Management Counsulting, Inc. .. 92

Prepared statement .......................................................................................... 94

Warrington, George D., President and CEO, Amtrak .......................................... 19

Prepared statement .......................................................................................... 21

(1)

S. 1991, NATIONAL DEFENSE RAIL ACT

THURSDAY, MARCH 14, 2002

U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC.

The Committee met, pursuant to notice, at 9:30 a.m. in room

SR–253, Russell Senate Office Building, Hon. Ernest F. Hollings,

Chairman of the Committee, presiding.

OPENING STATEMENT OF HON. ERNEST F. HOLLINGS,

U.S. SENATOR FROM SOUTH CAROLINA

The CHAIRMAN. The Committee will please come to order. I have

a statement, and we have an excellent panel of group of witnesses.

If this was a hearing on the privatization of the railroads, I would

be a good witness. Just a few weeks ago, I was going from London

to Harrogate, less than a hundred miles, at a cost of $250 round

trip, and the train runs each hour. So I got on, right quick like,

and caught it and did not have a seat because the train that I was

to get on was an hour behind, and the one I got on was behind an

hour. Thereby, I was on the wrong train without a seat.

Be that as it may, we had privatization in the United States. The

railroads came in 1971 begging us to get rid of passenger service,

and they gave us hundreds of millions of dollars in equipment, support and everything else, and then the government joined in with

the same thing. We got the cars, we got the routes, we got the

roadbeds and everything else of that kind, and we have given the

passenger rail system benign neglect, using Senator Moynihan’s

phrase for the minority population. We have given it benign neglect, and it has limped along acting as if we could make a profit.

Now, if Enron is the biggest bankruptcy, I think this one is the second biggest or maybe even bigger bankruptcy. We need $1.2 billion to keep it going. In an emergency supplemental we will be

asked to provide funding. Otherwise, the proposal before the Committee this morning is not a fix of Amtrak.

I hate to say the word ‘‘Amtrak’’ because you say that to a Member, of course, and they say ‘‘that is a dog, do not put me on that

thing because that is all we have been doing is limping along fixing

a broken system.’’ This is an entirely new endeavor to try to put

in a national defense rail system, somewhat like we did in the mid1950s with the interstate, to actually put the money in to improve

the roadbed. Amtrak has 730 miles of rail in the Northeast Corridor and there is 22,000 miles of rail operated by freight railroads.

We want everybody to put in their suggestion for improving the

rail system and get it going here.

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We want to take over the wonderful endeavor, or not take it over,

but support the endeavor being made in the various regions and in

the various States. This is not just a Northeast Corridor problem.

It is a national problem. 9/11 taught us that we have got to have

a national rail system. In 1999, of the industrialized countries, we

are number 25 in spending on rail.

Let us get going. Let me yield to the distinguished Ranking

Member, Senator McCain.

[The prepared statement of Senator Hollings follows:]

PREPARED STATEMENT OF HON. ERNEST F. HOLLINGS, U.S. SENATOR FROM SOUTH CAROLINA

This legislation will establish a strong and efficient national passenger rail system. For far too long, we have neglected investing in our nation’s passenger rail system. We have taken an active responsibility in developing the infrastructure of all

other modes of transportation, whether it has been federally funding the development of the interstate highway system, subsidizing airport construction, or taking

the responsibility for dredging harbors and channels or building locks and dams.

Now it is time to build a world class passenger railroad system in the U.S.—we

know it can be done—Japan and France provide two models of successful passenger

railroad service. The time to move ahead is now—we cannot wait for highways and

airports to become so clogged that they cannot operate any longer. Rail systems are

not built in a day. We need to engage in long-term planning to address future passenger transportation growth and show forethought in crafting transportation solutions; not wait for an impending crisis. My legislation provides the vision to begin

to do this.

The atrocious events of September 11th, 2001, and the aftermath which followed

exposed the vulnerability of our society and our economy when transportation

choices are limited and our mobility is diminished. In the aftermath of the horrific

attack on the World Trade Center and the Pentagon, we were forced to adjust to

a transportation system that was without access to aviation. That should make us

all evaluate the problems inherent in a policy that results in overall dependence on

any one particular mode of transportation. We need to have a more balanced system

of transportation for passengers in this country. Our economy depends on it; our

travelers deserve it; and our roads and airports could operate more efficiently in a

balanced system.

After the Federal Aviation Administration grounded all flights following the terrorist attacks on September 11, 2001, travelers flocked to Amtrak. Whether people

had to travel for business, to help with rescue efforts, or just to get home, Amtrak

kept our American citizens moving during a time of national emergency.

The situation not only proved that Amtrak works, but that passenger rail is a

critical part of our transportation infrastructure during a national emergency or security crisis. Amtrak provided a critical transportation link, carrying 35,000 passengers along the Northeast Corridor every day, and hundreds of extra carloads of

mail for the U.S. Post Office in the days following the terrorist attacks.

Transportation security—an essential part of our national security—requires a

balanced and competitive system of transportation alternatives. In September, we

found that our dependence on the aviation system almost crippled us. We cannot

afford to rely on any single mode of transportation; we need to ensure that we have

a balanced system that includes a sound passenger rail system. We also know that

passenger railroads use less fuel per passenger mile than highway vehicles and commercial airlines. During these times of oil-consciousness, a larger presence of passenger rail in our transportation system would reduce our nation’s dependence on

foreign oil.

Passenger railroads, the interstate highway system, and our national aviation

network have all taken different paths to their current roles in our national transportation system. The tales of their development stand in quite a stark contrast

from each other:

The interstate highway system has received significant attention and federal

funding since the construction of the Lincoln Highway in 1913 and the Rural Post

Roads Act of 1916, and later during World War II with the Federal Highway Act

of 1944. It was not until 1956, however, that the government began heavily promoting highway transportation with the passage of the Federal Aid Highway Act

of 1956. The Act established a Highway Trust Fund based upon federal user taxes,

in order to finance up to 90% of state construction costs of the $25 billion dollar

3

plan to pay for new roads, and the construction of the Eisenhower National Interstate and Defense Highway System.

Similar policies and federal attention for aviation, resulted in a strengthened infrastructure, and follows much the same story of the highways system.

Passenger rail service was once a vital instrument in the transportation needs of

our nation. For instance, during World War II, not only did the railroads transport

90% of all defense freight, but also 97% of all defense personnel on their way to theaters of action. By the end of the war, railroads accounted for three quarters of the

common carrier share of intercity traffic, with airplanes and buses sharing the remaining quarter of traffic. However, with national focus turned to aviation and

highways, by the late 1960s most rail companies were petitioning the government

to discontinue passenger services because of losses.

Amtrak was created as a federal corporation in order to relieve the railroad industry of these unprofitable passenger operations, and in the interest of maintaining

a national passenger rail network. But in retrospect, Amtrak was set up not to

thrive and expand passenger rail service, but really to just maintain the status quo

of 30 years ago. That attitude persists even today. Since 1971, Amtrak has received

only $25 billion in public subsidies; during that period, the United States invested

$750 billion on highways and aviation.

So one problem becomes all too clear—that U.S. passenger rail infrastructure has

no stable funding source, in contrast to highways, aviation, and transit. In fact, per

capita spending on passenger rail is much lower than many other countries: the

U.S. ranks behind Britain, France, Japan, Canada, Luxembourg, Austria, Switzerland, Belgium, Sweden, Denmark, Italy, Ireland, Spain, Norway, Czech Republic,

Finland, Slovakia, Portugal, Poland, South Africa, Greece, and Estonia. Including

these countries, no passenger rail service in the world has built and operated a passenger rail system at a profit. All have required government support for construction and maintenance, or operating support, or both. That same principle holds true

for highways and aviation, which have required substantial federal spending since

their beginning and continue to receive generous federal subsidies today.

Those who want passenger rail to operate without federal assistance—ultimately

forcing more travelers onto cars, buses and airplanes—argue that we should not

‘‘subsidize’’ passenger rail. But we subsidize the building of roads and highways

with tax dollars. We subsidize the building of airports and pay for all of the equipment and people needed to run our air traffic control system. We consider those subsidies to be worthwhile investments in our economy and our quality of life. We must

make the same investment to create a world-class passenger rail system in order

to see the same kinds of benefits.

While that argument should stand on its own, here’s something the highway and

airline crowd can take to the bank: moving more short-haul travelers to rail service

reduces congestion on our already overcrowded highways and eases congestion at

airports. It also provides real competition to airlines on short-haul trips.

Over the past 30 years, the lack of investment and attention to the needs of passenger rail infrastructure has resulted in a weak passenger rail network, and has

caused a strain on the capacity of other modes of transportation in many areas of

the country. The Amtrak Reform and Accountability Act of 1997, and preceding statutes, resulted in creating conflicting missions for Amtrak: serve a public function

by operating unprofitable long-distance routes, but also attempt to operate at a profit. To add insult to injury, Amtrak has been forced to delay capital improvement

projects having important long-term benefits in order to attempt to meet the mandate of the 1997 Act. Congress passed this misguided law in 1997 requiring Amtrak

to operate without government support by the end of FY2002. But there is no truly

national passenger train service in the world that makes a profit. Requiring Amtrak

to make a profit has forced the railroad to forgo long-term capital investments in

favor of short-term, bond payment shell games. Instead of investing in modern

trains and infrastructure upgrades, Amtrak was forced to mortgage Penn Station

just to pay the electric bill.

From this, it is evident that we need to reevaluate our nation’s rail passenger policy, and clearly define a role for Amtrak. A strong federal role was required to establish the interstate highway system and the federal aviation network. And now, federal investment in passenger rail infrastructure is critical; once again, federal leadership is required to address the needs of a reliable, safe, secure passenger rail network.

This legislation provides a blueprint for the future of passenger rail in the United

States. The bill will help develop high-speed rail corridors, which are the building

blocks for a national passenger rail system. This will allow regional transportation

solutions to play a part in the national system. It will also aid in the development

of short distance corridors between larger urban centers, as well as provide funding

4

to preserve longer distance routes for those communities that do not have the population densities to merit air service—sometimes the train is their only alternative

to driving. Finally, it will provide Amtrak with the tools and funding it needs to

operate efficiently.

This legislation authorizes $1.255 billion in emergency spending for Amtrak’s security and life safety needs. Similar language was included in the Rail Security Act,

S. 1550, which was favorably reported by the Committee on Oct. 17, 2001. In that

legislation, we authorized funds to be spent on immediate rail security needs, such

as hiring more police officers across the entire Amtrak system and modernizing the

safety infrastructure of old tunnels.

This bill will give the federal government the script for the role it needs to play

in establishing a national rail passenger system. It would not require any state contribution, and would give preference to projects having right-of-way dedicated to

passenger rail, involving high-speed passenger service of 125 mph (although operations of 90 mph speeds or more would be eligible for funding), and those connecting

to other modes of passenger transportation, including airports.

The bill authorizes $1.5 billion annually for corridor development. These funds are

needed for infrastructure acquisition, highway-rail grade crossing improvement/

elimination, acquisition of rolling stock and track and signal equipment. Development of a national passenger rail system carries a high cost, and the federal government must take the lead role in funding it.

This bill will also fund $35 billion in loan guarantees. This money will dramatically expand the current Railroad Rehabilitation & Infrastructure Financing loan

and loan guarantee program. But we also must restructure that program. Since it

was created in 1998 as part of TEA-21 bill, the program has processed only a few

loans due to unreasonable constraints imposed by OMB. Our bill eliminates the artificial limits on loan amounts, impossible collateral requirements, and unworkable

loan cohort structures.

This bill identifies existing high-speed corridors in 29 states and the District of

Columbia for priority consideration. Many of these corridors are in areas where people are now driving cars or taking airplanes on trips of 300 miles or less. In these

areas, like the East Coast, travelers could take a high-speed train instead—and arrive at about the same time. But right now they don’t have that rail option and they

won’t until we build it.

The passenger railroad system that has worked well in the Northeast can work

in other highly-congested areas of the country: the South, the Midwest, California

and the Northwest. Thirty years ago, those areas did not have the population to

support high-speed intercity rail. But today those areas are growing by leaps and

bounds. As the highways in those areas clog up and the planes run three hours late,

their governors—many of them Republicans—are asking us for help to build highspeed rail.

A short-term benefit of this legislation will be stimulation of the economy by providing jobs in developing new corridors. This bill ensures that fair labor standards

for all projects receiving funds under it, including payment of prevailing wages and

allowance of collective bargaining over wage rates.

Another immediate benefit will be the closing/improvement of highway-rail grade

crossings in high-speed rail corridors. Under this bill, funds are set aside specifically

for these important safety improvements.

This legislation will provide the necessary funds of $1.31 billion for Amtrak to repair and upgrade the track it owns and operates in the Northeast Corridor. This

corridor is a prime example of the benefits we can attain when there are transportation choices for travelers. The Northeast Corridor has become an invaluable asset

to our national transportation system, and it should not be left in disrepair. This

bill authorizes funds to enable Amtrak to eliminate its capital backlog of projects,

maintain ongoing projects to capital infrastructure, and improve capacity to accommodate projected growth in traffic. It also allows Amtrak to reinvest revenues from

operations in the Northeast Corridor back into the backlog of capital infrastructure

projects.

In a nutshell, this is our long term plan to make passenger rail a part of our balanced transportation system. But in short run, we must make sure Amtrak’s financial foundation is strong at a time when we are relying on them more than ever.

Amtrak’s ridership has increased consistently, and they now carry over 22 million

passengers per year. This legislation will give Amtrak the tools and funding they

need to create a modern, efficient passenger railroad. The bill reauthorizes Amtrak

for five years, and fully funds the their capital needs and the operating losses with

respect to long-distance service.

5

This legislation repeals the unrealistic operating self-sufficiency requirements. It

also authorizes funding for compliance with environmental standards, and the

Americans with Disabilities Act.

This legislation will further aid Amtrak to operate more efficiently. It will require

Amtrak to reinvest revenues from non-passenger operations into growth projects

outside the Northeast Corridor. It will require revenue from the Northeast Corridor

to be reinvested into capital projects on the Northeast Corridor. Finally, it will require an annual independent audit of Amtrak, to be reviewed by the Department

of Transportation’s Inspector General.

I am pleased my colleagues have joined with me in sponsoring this bill. By developing passenger rail as part of a balanced transportation system, this legislation

will lead to the creation of jobs in the short run to stimulate our economy. In the

long run, high-speed rail corridors will become a key foundation for our national rail

passenger transportation system, which is critical to the strong backbone of a prosperous economy.

Like the interstate highway system, the benefits of passenger rail and Amtrak

could be immeasurable, so we have much at stake. While I have outlined an ambitious blueprint, I keep in mind that fifty years ago, the National System of Interstate and Defense Highways was ‘‘pie in the sky.’’ Now our successful Dwight D.

Eisenhower System of Interstate and Defense Highways and national aviation network are used by many, so much that in many places they are congested and

strained to capacity. We should not wait until our current transportation problems

reach epidemic proportions; our economy cannot afford it.

STATEMENT OF HON. JOHN MCCAIN,

U.S. SENATOR FROM ARIZONA

Senator MCCAIN. Thank you, Mr. Chairman.

I hope today’s hearing will be the start of a thorough evaluation

of the intercity rail passenger service and what role Amtrak should

have in our nation’s transportation system. Clearly, a comprehensive re-evaluation of Amtrak is needed.

In fiscal year 2001, Amtrak’s operating loss was $1.1 billion, the

highest ever. The Department of Transportation Inspector General

reported that Amtrak made no progress in the last 5 years toward

achieving its financial goals, and even though Amtrak has received

over $5 billion in Federal funding over the past 5 years and another $1 billion from the States, it appears now to be on the verge

of bankruptcy.

As you know, Mr. Chairman, I too have introduced legislation to

address the future of rail passenger service. That proposal, S. 1958,

The Rail Passenger Service Improvement Act, would introduce

competition for rail passenger services and privatize Amtrak within

4 years.

To help Amtrak’s current financial crisis, this legislation would

place Amtrak under a control board modeled after the very successful District of Columbia Control Board. It would enforce the fiscal

discipline Amtrak has been unable to apply to itself and oversee

Amtrak’s privatization.

This legislation would authorize significant funding to address

operating capital costs and to transition Amtrak to the private sector. It would also require more involvement, including financial

commitments by the States who want to add rail service. To help

States meet their increased responsibilities, this bill would give the

States the flexibility to use their highway trust fund dollars on rail

passenger service if they so choose.

I recognize that not every Member may favor this approach, but

I hope my colleagues will be looking at all options for improving

rail passenger service. We face a very difficult challenge, and we

6

would be well served to consider a variety of possible solutions if

we are serious about meeting our Nation’s transportation needs.

I hope we will have a full and open debate in developing approaches for meeting these needs. I’m concerned that Congress may

simply pour more money into Amtrak without addressing its fundamental problems. I believe that is the approach taken by S. 1991.

That legislation, S. 1991, would authorize $14.5 billion for Amtrak

over the next 5 years, an average of nearly $3 billion per year, not

counting the $9.3 billion authorized over 6 years for the development of high-speed rail corridors. That $3 billion funding level is

about six times the amount the appropriators have provided in recent funding measures.

S. 1991 requires virtually no reform or restructuring of Amtrak.

In fact, Amtrak would be even less accountable to Congress and

the American taxpayer because the legislation would repeal a directive that Amtrak achieve operational self-sufficiency. Amtrak as

we know it today would not only be perpetuated, but significantly

expanded with the Federal Government’s funding obligation.

Under S. 1991, funding of high-speed rail corridors would be

made entirely a Federal responsibility, and this obligation would

apply not only to capital costs, but what could be large annual operating losses. This is opposite to the direction we should be moving. In spite of the $25 billion in Federal assistance invested over the

past 30 years, Amtrak only carries 2 million more passengers now

than it did in 1979. It serves less than 1 percent of the traveling

public. Some argue that Amtrak has been underfunded compared

to highways and airports. Well, I remind my colleagues that the infrastructure for those modes is funded through user fees. For Amtrak’s customers to fund the appropriations that would be provided

by S. 1991, each rider would have to pay a fee of $190 in addition

to the price of each train ticket.

To get rail passenger service on track we need to address a number of tough questions. What is the future for intercity rail passenger transportation service? Where does it attract passengers

and where does it not? Does rail passenger service have to mean

Amtrak, or after 30 years is it finally time find a new approach?

Where might high-speed rail service actually attract enough passengers to be economically viable? How does rail passenger service

fit into the national transportation system? What is the most equitable way for the Federal Government, State and municipalities

and other rail passenger stakeholders to share the financial burden?

One of Amtrak’s biggest problems has been its inability to control

the growth of its expenses. The Department of Transportation IG’s

January report concluded since the 1997 Reform Act, for every $1

of new revenue Amtrak has received, its cash expenses have risen

$1.05. States complain that Amtrak’s bills for State-supported services do not provide a clear and consistent accounting of its costs.

In my view, the source of most of Amtrak’s problem is Amtrak’s

status as a government-owned monopoly.

We can address this by introducing competition for passenger

service. After all, we do not have one national airline or one bus

company. Should not we at least consider the possibilities that

7

could come to light if we permitted another operator to offer service?

I believe we should authorize the Secretary of Transportation to

contract out passenger service to franchisees that meet specified

safety and liability requirements. This would not happen overnight,

and it should be an option.

I look forward to hearing from our witnesses. I hope each of you

will give us your perspective on what needs to be done to creating

a more cost-effective and customer-responsive rail passenger program.

I thank you, Mr. Chairman.

[The prepared statement of Senator McCain follows:]

PREPARED STATEMENT OF HON. JOHN MCCAIN,

U.S. SENATOR FROM ARIZONA

Mr. Chairman, I hope today’s hearing will be the start of a thorough evaluation

of intercity passenger rail service in our nation’s transportation system and what

role Amtrak has in providing service. Clearly a re-evaluation of Amtrak is needed.

In fiscal year 2001, Amtrak’s operating loss was $1.1 billion, its highest ever. And

even though Amtrak has received over $5 billion in Federal subsidies and over the

past five years another $1 billion from the states, it is now on the verge of bankruptcy.

As you know, Mr. Chairman, I too have introduced legislation to address Amtrak’s

problems. My proposal, S. 1958, The Rail Passenger Improvement Act of 2002, introduces competition for passenger rail services and privatizes Amtrak within four

years of enactment of the legislation. To help address Amtrak’s current financial crisis, my legislation places Amtrak under a Control Board modeled after the District

of Columbia Control Board. I recognize that not every member of the Senate may

favor my approach, but I hope my colleagues will be willing to look at other options

for improving passenger rail service.

While I hope we will have a full and open debate, I am concerned that Congress

will simply throw more money at the problem and not address Amtrak’s fundamental problems. This is the approach taken by S. 1991, the subject of today’s hearing. The legislation would authorize $14.5 billion for Amtrak for the next five years,

or an average of close to $3 billion per year, not counting the funds authorized for

the development of high-speed rail corridors. And while I support funding to address

legitimate security issues on Amtrak, I’m not sure what Amtrak hopes to accomplish

with some of the authorizations in the bill—especially the leasing of 10 bicycles. I

didn’t know it was possible to lease a bicycle other than at the beach.

The bill requires virtually no reform or restructuring of Amtrak. In fact, Amtrak

would be even less accountable to Congress and the American taxpayer since the

legislation would repeal the requirement that Amtrak achieve operational self-sufficiency. Amtrak as we know it today would not only be perpetuated but significantly

expanded—as would the Federal government’s funding obligations. Under S. 1991,

funding of high-speed rail corridors would be made entirely a Federal responsibility.

And this obligation would apply not only to capital costs but to what could be large

annual operating losses.

Where is the money for S. 1991 going to come from? It is simply not realistic to

think that the nation can afford to spend this kind of money for such a lightly used

rail system. In spite of the billions invested over the past 30 years, Amtrak only

carries 2 million more passengers now than it did in 1979. Some argue that Amtrak

has been underfunded compared to highways and airports. But I remind my colleagues that the infrastructure for those modes is funded through user fees. For

Amtrak’s customers to fund the appropriations provided by S. 1991, each customer

would have pay a fee of $190 in addition to the price of their train tickets.

We will be failing in our Congressional responsibilities if we simply give Amtrak

more money without making another effort to get more value for the taxpayers’ investment. Despite testifying repeatedly before Congress that it was on a ‘‘glidepath

to self-sufficiency’’, Amtrak has failed to achieve operational self-sufficiency and

failed miserably. The Inspector General of the Department of Transportation recently concluded that Amtrak made no progress in the past five years toward

achieving self-sufficiency.

To get rail passenger service on track, we need to address a number of tough

questions. What is the future for intercity rail passenger transportation? Where

8

does it attract passengers and where doesn’t it? Does rail passenger service have

to equate to ‘‘Amtrak’’ or can we accept the fact that after 30 years, it is time to

find a new approach? Where might high-speed rail service actually attract enough

passengers to be economically viable? How does it fit into our national transportation system? And what is the most equitable way for the Federal government,

states and municipalities, and other Amtrak stakeholders to share the financial burden?

Amtrak’s failure to make any progress toward self-sufficiency does not mean the

standard was unfair or unachievable. It means that more reform is needed. Amtrak’s biggest problem over the past five years has been that it has not been able

to control the growth of it expenses. The DOT IG’s January report on Amtrak concluded that for every $1 of new revenue Amtrak has achieved since the Reform Act

was passed, its cash expenses have risen $1.05. States complain that Amtrak’s bills

for state-supported services do not provide a clear and consistent accounting of its

costs. In my view, the source of this problem is Amtrak’s status as a governmentowned monopoly.

My proposal for Amtrak addresses this problem by introducing competition for

passenger service. A new Rail Passenger Development and Franchising Office would

be established within the Federal Railroad Administration. Beginning October 1,

2003 the Secretary of Transportation would be authorized to contract our passenger

service to franchisees that meet specified safety and liability requirements. Operations could not be authorized if they would result in a significant downgrading in

freight rail service.

My proposal would also restructure Amtrak into three subsidiaries to be managed

as for-profit businesses: Amtrak Operations, Amtrak Maintenance, and Intercity

Rail Reservations. Each subsidiary would be privatized within four years after enactment.

Under my proposal, Amtrak Operations would be prohibited from operating any

route on which Amtrak revenues do not at least cover the avoidable costs of providing the service, unless a state or other entity provides a subsidy to make up the

difference. While increasing the responsibility of the states on some routes, the bill

would also give the states the flexibility to use highway trust fund dollars on rail

passenger service.

Additionally, the Amtrak Control Board established by my proposal would approve and amend Amtrak’s annual budget and financial plan. It will enforce the discipline Amtrak has been unable to apply itself. The Control Board would also oversee Amtrak’s privatization.

Finally, my legislation would authorize funding to address Amtrak security needs

and to transition Amtrak to the private sector.

Before closing, I want to mention two other provisions of S. 1991 about which I

have serious concerns.

The legislation establishes criteria to be used in allocating funds for high-speed

rail projects. The criteria include whether the project encourages the use of automatic train-stop technologies and whether there will be a regional balance in the

provision of assistance. But the economics of a proposed project would evidently not

be a consideration. I think this is a serious oversight. I am also concerned that the

bill directs the Secretary of Transportation to give the highest priority to projects

in Chicago, Atlanta, and Dallas/Fort Worth, instead of requiring that all projects be

evaluated on their merits.

For high-speed rail projects and other rail rehabilitation projects using Federal

funds, the bill makes any person performing rail operations, catering, maintenance,

cleaning, construction or other services subject to the Railroad Retirement Act, the

Railroad Unemployment Insurance Act, and other railroad laws. This is patently

anti-competitive and counter to the flexibility given to Amtrak under the Reform Act

to contract out.

I look forward to hearing from our witnesses. I hope each of you will give us your

perspective on what needs to be done to create a more cost-effective and customerresponsive passenger rail program.

The CHAIRMAN. Thank you.

Senator Hutchison.

STATEMENT OF HON. KAY BAILEY HUTCHISON,

U.S. SENATOR FROM TEXAS

Senator HUTCHISON. Thank you, Mr. Chairman. Thank you for

putting forward the Amtrak reauthorization bill.

9

I am very concerned about Amtrak, concerned about the financial

condition and concerned that I keep getting the assurances from

the leadership of Amtrak that this is a national rail system, but

every time there is a budget shortage, the long-haul routes are

eliminated, and that means it is not a national system. It is a

Northeast Corridor system.

What I want in this reauthorization is the ‘‘fish or cut bait’’ eventuality. We must have a national system that we are going to support fully and fund at a level where it can function as a truly national system. Frankly, Senator McCain, if your legislation permitted a national system, I think some of your reforms might be

helpful.

I would not close the door on your reforms as long as your purpose is to have a national system rather than kill one, because I

think we need some changes, and we do need to shape up, but we

also need to be committed to a national system, not only for our

national defense, but also for our homeland security.

I do think that we have seen a situation in which airlines cannot

alone fulfill all the transportation needs of our country. We saw a

huge rise in ridership during the crisis after September 11. This,

if it were a viable national system, could become a viable alternative, a viable part of a multimodal system that allows people in

rural areas and small towns to be able to feed into a train system

that would allow much more flexibility in transportation options.

I look forward to hearing from all the witnesses. I look forward

to supporting Senator Hollings’ bill with whatever input that we

can have from Senator McCain and others if we are committed to

a national system and committed to a funding level that will support a national system that works.

Thank you.

The CHAIRMAN. Thank you.

Senator Burns.

Senator BURNS. Thank you for the hearing. I look forward to visiting with the witnesses. I have no statement at this time.

The CHAIRMAN. THANK YOU.

Senator Wyden.

STATEMENT OF HON. RON WYDEN,

U.S. SENATOR FROM OREGON

Senator WYDEN. Thank you, Mr. Chairman, and I think your efforts are really a breath of fresh air at this point, and it is coming

at a critical time.

It seems to me that on the current CEO’s watch—Mr. Warrington’s watch—Amtrak has failed to deliver on all of the major

pledges that they have made to the Congress, the pledge that they

would be self-sufficient with respect to their operating costs by October 1st, and they have not done that.

They said they would make the route decisions on the basis of

financial criteria. They have not done that. They said they would

run a national system, and they have not done that.

I very much share the view of Senator Hutchison with respect to

the way this system operates. This is a system out of the Northeast, for the Northeast and by the Northeast, and I will tell you

10

we are not, I think, going to abide by that, and I think perhaps Mr.

Warrington can tell us what this system is all about.

He comes out of New Jersey Transit, ran the Amtrak Northeast

Corridor. Then he is CEO of Amtrak, and now he has gone back

to the New Jersey Transit system, and I think it is very curious

that at a time when he is working out arrangements to go back to

New Jersey Transit, he is cutting routes across the country. He is

cutting routes, 18 of them, in fact, unless he gets the additional

money.

I am going to ask some questions about that because I would like

to know exactly how all of that unfolded. We are having proposals

to cut routes in the rest of the country and he is heading back to

run the New Jersey system, and by the way, New Jersey Transit

operates commuter trains in the Northeast Corridor. So there are

some curious processes there at Amtrak, but all of them seem to

blend in the same place, and that is, that you have a system for

the Northeast Corridor, and at some point I guess they think some

revenue is going to trickle down to the rest of the country, and

what they are really doing is turning that part of the country into

a zone, and I for one am not going to support sending any more

tax dollars from Oregon just to run trains on the East Coast, and

that is why your bill is so welcome, Mr. Chairman.

The CHAIRMAN. Thank you.

Senator Kerry.

STATEMENT OF HON. JOHN F. KERRY,

U.S. SENATOR FROM MASSACHUSETTS

Senator KERRY. Mr. Chairman, I appreciate the opportunity to be

here. This is a terrific hearing, and I thank our colleagues from

Delaware who understand this issue as well as any two Senators.

I’m in support of your bill, Mr. Chairman. I think it is a terrific

bill. It is a long overdue one, and it is important for the country,

but I have been listening in the last days as the Northwest, Western and elsewhere complaints are lodged with respect to the Northeast Corridor, and believe me, I am very sympathetic to their complaint, but we should not be bamboozled here into creating a sort

of false divide that pits us against each other. It is not a problem

of the Northeast inappropriately or sort of taking from somehow.

What happens is the system has been pushed in this direction

because Congress itself and the administrations have failed to

properly allocate resources and structure this, and the reason you

are left saying ‘‘why is the Northeast getting this?’’ Well, it happens to have the most ridership and it happens to be a commitment we made many years ago to go do the electrification in the

Northeast Corridor. That should be happening elsewhere in the

country. That is what a national rail system is about. That is what

a national commitment is.

Now I agree with the Senator from Arizona. There are some

places where today at this moment certain kinds of commitments

do not make sense. They are not going to make sense in terms of

transportation needs. They are not going to make sense in terms

of economic needs. I believe it is possible to structure a national

system that once and for all properly allocates the resources in

order to be able to have a working entity.

11

We have talked about it here in this Committee before. We are

the only country in the world, the only one in the world trying to

make a railroad system profitable when, in fact, the very foundation of it is incapable of being profitable. I know the Senator from

Arizona and others have problems with the labor structure. That

is not a differential here. The differential here is that if you do not

have a rail system that gets people from here to there comfortably

and rapidly and as a legitimate alternative to other systems they

are not going to take it and use it and can never make it profitable

or even close to profitable.

The rolling stock investment comparative figures that we have

looked at before in this Committee between the United States and

other countries is a shameful statement about our negligence and

unwillingness to provide the kind of rail repair and rolling stock

necessary to be competitive.

So my hope is that we are going to end this confusion here so

that we allow the system to begin to become more competitive and

to function better, Mr. Chairman, and we just have to face some

economic realities about how that is going to happen.

I think your bill is a tremendous place to start doing that. I

might just mention, Mr. Chairman, the air system of America,

those components funded by the Federal Government, does not

make a profit and never will. The highway system of America does

not make a profit and it never will.

Senator MCCAIN. They are funded by user fees.

Senator KERRY. No. They are funded partly by user fees, partly

government.

Then the question is why not allow those fees to be properly allocated? Over the lifetime of the airports, I think we have put something like $40 billion in the highways, $16 billion in the airports,

and $33 million into the rail. The disparity in the allocation is the

problem.

So we could use user fees just as we do gas tax or have user fees

to do that, build a railing system, and you have the equal kind of

funding. We do not have an equal funding structure, and that is

the problem, and we need to create that change.

The CHAIRMAN. Senator Dorgan.

STATEMENT OF HON. BYRON L. DORGAN,

U.S. SENATOR FROM NORTH DAKOTA

Senator DORGAN. Mr. Chairman, thank you very much. I will be

brief.

I am pleased to co-sponsor the legislation that you have introduced. I think it is an important step in the right direction, and

I agree with Senator Kerry, there is an incredible discrepancy with

respect to support for various forms of transportation, and I am one

who believes that we should have a national rail passenger system,

support Amtrak, believe in Amtrak, believe we can invest in Amtrak, and I think your legislation is an important step in the right

direction.

I’m pleased to co-sponsor it, Mr. Chairman.

The CHAIRMAN. That is our legislation. Efforts are not going to

go anywhere on this unless it is our legislation and that is what

I have tried and so far with good success. We have got bipartisan

12

25 co-sponsors in behind this move. We are listening, we are learning, but this is not just for the Northeast.

Senator Wyden’s here. Senator Murray is working at the Appropriation Committee level. I’m working with it, and unless we take

care and really have a national system with Texas or the midStates, West as well as the Northeast and everything else, it is not

going anywhere.

We have got wonderful witnesses here and the two experts. The

Senior Senator from Delaware has traveled more on Amtrak than

any of the Amtrak employees, and Senator Carper has been serving

on the board.

Let me hear first from the Senior Senator, Senator Biden.

STATEMENT OF HON. JOSEPH R. BIDEN, JR.,

U.S. SENATOR FROM DELAWARE

Senator BIDEN. Thank you very much, Mr. Chairman, Members

of the Committee. Let me begin first by setting a few things

straight just generic, not straight from my perspective.

The fundamental problem here is money. The distinguished Senator from Arizona said we do not have one airline. We probably

would have one airline if we did not subsidize them so much and

bail them out so much. They would be out of business if we had

not come up with about $14 billion in about a 4-minute debate on

the floor of the U.S. Senate.

I say to my friend from Oregon about you do not want to subsidize railroad in the East and you do not want rail in the East

when you are not getting it in the West. Well, I think I should stop

subsidizing water projects that cost about $30 billion to keep your

State alive and keep my friend from Arizona, him being able to

drink water at a cost less than my mother pays for water in Delaware.

I thought we were a Federal system. I thought we made up for

each other’s needs. I thought we were in the business as United

States Senators and the Federal Government to deal with the problems that each of our districts had, each of our areas have. Ours

happens to be some incredible traffic congestion. Yours happen to

be you do not have water, among other things. That is a little problem. You have got a lot of water someplace, and if we did not spend

Federal money to divert it, you would all be in real deep trouble.

So I find it offensive to be talking about how we are not going

to help on one end of the country another company because you do

not have benefit the same way we benefited. Maybe I should stop

voting for farm bills. Maybe I should stop voting for water projects.

Maybe I should stop voting for anything that does not directly benefit Delawarans, but I’m not going to do that.

The second point I would like to make is about airports in rural

areas. Let us get this thing straight. The people of Delaware pay

for people to fly into No Place, Oregon, that no one wants to go to.

We pay for it. We pay for it. We pay for it. It is called essential

services. Essential services. We just came up with another $20 million for that, essential services. I do not know why that does not

apply about essential services.

Third, the irony of all this is if Senator Hollings’ bill does not

pass, we are not going to have a national passenger rail system,

13

but guess who is the only one who is going get to ride the rail? Me.

Me, because it is going to survive in the Northeast. We are making

money. They are making money in the Northeast Corridor. They

are making money.

Revenues are up 40 percent. The number of passengers is up 21

percent or 20 percent. So we are going to be OK. That is the irony

of this whole deal. Delaware’s going to have Amtrak. Delaware’s

going to have somebody going up and down the Corridor. We do not

have a problem. You all are going to have a problem. You are going

to have a problem.

Mr. Chairman, you have the opportunity to do something really

significant here with your bill, but there are a few key points that

I think need to be made.

I do not need to tell you that our national rail system is at a

crossroads, and because of the decades of underfunding, Amtrak is

struggling to stay afloat. They imposed drastic spending cuts in the

last several months, the deferred capital maintenance projects.

They mortgaged Penn Station in New York, the most valuable

asset. They slashed employment, and short-term moves have only

served to worsen Amtrak’s long-term financial viability.

The IG report, you should read the whole report. The IG report says that there is a need for a minimum of $1.2 billion a year in

capital improvement. Now, whoever picks up the railroad, let us remember why they got out of the business, why Union Pacific got

out of the business, why Penn Central got out of the business, why

the BNO got out of the business. They got out of the business because they could not make any money in the business. That is why

they got out of the business.

The reason Richard Nixon came along and said there should be

this outfit called Amtrak was just because we needed a national

passenger rail service. Somebody had to do it. Now this $1.1 billion loss that Amtrak supposedly has this year, that is depreciation in non-revenue losses of $280 million in actual

losses. There would be no loss if we just funded what we authorized the last 2 years. We authorized twice as much as we appropriated. By the way, when they put this new railroad together

called Amtrak, I see my friend from Montana, they got a great

deal.

Senator BURNS. I did not make an opening statement here.

Senator BIDEN. No, I know that, but I know how critical my

friend from Montana is. He is a key player here.

I just want to make a point. We inherited all this rolling stock

that was useless. They inherited this stuff that was not worth anything. People were anxious to give it away. They ended up with

track that was in disrepair. So they started off kind of slow, folks,

because we did not give any money.

Let me cut to the chase here and end by pointing out we have

spent $750 billion on our highway and aviation system since 1971,

and $25 billion in passenger rail service. Make no mistake about

it, at the same time we were underfunding Amtrak, we were also

placing unrealistic expectations on Amtrak.

In 1997, the Amtrak Reform Accountability Act was passed. Amtrak was mandated to be operational and self-sufficient by 2002.

With this, Congress said Amtrak, go be profitable, but also provide

14

a public service to the Nation. Send railroads and trains places it

does not make sense, where it is not possible to be profitable, send

them there and then, by the way, with the highway trust funds,

with the little funds you were able to get, why do not we allow, just

as an illustration, just allow the States, not the Federal Government, but allow the States to say that our rural highway trust fund

money that we can now use to build a bicycle path, that we can

now use to buy buses and have a bus system, just if the State

wants to do, let the State use that money that goes to Amtrak and

say we will give you this money if you run a railroad, a passenger

train on our service. But all our cement boys here, they all thought

that was a real bad idea and you are allowed to build a bicycle

path, you are telling me, with highway trust money? You can build

a bicycle path and you can buy buses, but you cannot use an existing railroad track that sits in the middle of your State? This is ridiculous, ridiculous.

Kay Bailey Hutchison is right. Let us either fish or cut bait. We

have a national rail system or we do not. I am finished. I cut bait.

I am out of here.

[The prepared statement of Senator Biden, Jr. follows:]

PREPARED STATEMENT OF HON. JOSEPH R. BIDEN, JR.,

U.S. SENATOR FROM DELAWARE

Mr. Chairman, thank you for the opportunity to appear before the Committee this

morning. I would like to take this time to quickly outline a few key points that I

think are crucial in understanding the current state of passenger rail in this country, and the ways in which I envision its future.

As we’re all well aware of by now, our national passenger rail system is at a

crossroads. The decades of underfunding has finally caught up with us. Struggling

just to stay afloat, Amtrak has imposed drastic spending cuts in the last several

months, deferring key capital maintenance projects and slashing employment. These

short-term moves—which includes the recent mortgaging of Amtrak’s most valuable

asset, New York’s Penn Station—has only served to worsen Amtrak’s long-term financial viability, and put its future in jeopardy.

We have the chance to change that this year, and S. 1991 represents a solid start

towards the goal of a truly national, efficient, and safe passenger rail system. By

reauthorizing Amtrak at the funding levels it needs to maintain and grow, this bill

is a blueprint for both the present and the future.

For 30 years, Congress has taken a back-seat approach to this matter, stalling

and bickering, in the end providing only enough money to allow Amtrak to continue

to limp along. Now, we have to end that trend—we have to sit down with governors,

mayors, laborers, and all other interested parties, and discuss, as we are doing

today, what kind of passenger rail system this country deserves, and how much support from federal, state, and local agencies will be needed to sustain such a system.

And we must not forget the larger context in which this discussion takes place.

In the last several years, I have talked with lots of local, state, and federal policymakers about the increasing capacity constraints on our nation’s highways and airplanes, which have caused greater pollution and chronic overcrowding. Add to this

September 11th, which demonstrated in even starker and more rigid terms how important it is to have a diverse, balanced national transportation system, and it is

clear that the federal government must begin to adequately support passenger rail.

Every industrialized country in the world has provided, and in almost every case

continues to provide, substantial subsidies to their rail systems, as they understand

the enormous capital costs involved in developing and maintaining a national rail

system. And yet, in this country, though we have committed strongly to highway

and aviation development, we have not yet understood the parallel commitment necessary for passenger rail. Whereas we have spent $750 billion on our highway and

aviation systems since 1971, we have only spent $25 billion on passenger rail in

that same period.

And at the same time that we have been underfunding Amtrak, we have also been

placing unrealistic expectations on them. In 1997, when the Amtrak Reform and Accountability Act (ARAA) was passed, Amtrak was mandated to be operationally selfVerDate 03-FEB-2003 09:22 Sep 08, 2004 Jkt 089637 PO 00000 Frm 00018 Fmt 6601 Sfmt 6621 D:\DOCS\89637.TXT SSC1 PsN: SSC1
15

sufficient by December 2, 2002. With this, Congress said to Amtrak: ‘‘be profitable,

but also provide a public service to the nation.’’

This is not the right way to approach this issue. Instead, as S. 1911 would rightly

do, we need to move away from threatening to cut off Amtrak’s funding, and towards a realization that no system, anywhere in the world, operates without some

level of federal and local support.

This legislation lays out the priorities and vision for the future of passenger rail

in this country. It provides for a one-time cost of $1.3 billion for security-related improvements. As I’ve been saying for months, and as the Department of Transportation and others have concurred, Amtrak needs close to $3.2 billion to improve its

tunnel infrastructure, upgrade its security measures, and invest in other safety programs.

And S. 1911 also provides for longer-term investments in developing the infrastructure for Amtrak’s future. For example, it would fund $1.55 billion annually to

the planning and implementation of high-speed rail corridors. As we all know, one

of the brightest points for Amtrak has been the development of high-speed rail service. The Acela train is a fantastic success, as it has helped Amtrak increase its revenue by close to 40 percent and ridership by 20 percent in the last several years.

The 11 corridors outside of the Northeast that the Department of Transportation

has identified have the same potential to vastly improve the efficiency and profitability of Amtrak. The only thing stopping them from developing these routes is a

lack of funding from the federal government.

Let me conclude my remarks with one final comment: while it is crucial to set

long-term goals for passenger rail, during this reauthorization debate, we should not

also forget the immediate concerns facing Amtrak today. As George Warrington, the

head of Amtrak, has stated numerous times over the last several months, if Amtrak

does not receive a bare-bones minimum amount of $1.2 billion, more drastic labor

cuts, and potentially even route closings, may be the only way for passenger rail

to continue in this country. I think everyone in this room would agree that this

would be detrimental to our national transportation infrastructure, and so, I’d ask

that we continue to work to get Amtrak the $1.2 billion they so desperately need

next year, as we also work to reauthorize passenger rail service for the future.

Thank you, again, Mr. Chairman, for the opportunity to briefly offer my thoughts

on this subject.

The CHAIRMAN. Senator Carper, thank you very much.

STATEMENT OF HON. THOMAS R. CARPER,

U.S. SENATOR FROM DELAWARE

Senator CARPER. Now, you see the kind of act I have been trying

to follow for 25 years in Delaware. I believe what I was going to

say has been said. I will not say it.

I do want to say a word about George Warrington. I did serve

on the Amtrak board for 4 years when I was Governor of Delaware.

I was one of the people on the board who asked George to serve

as our interim president for our Amtrak. I asked George Warrington to apply for the position of president of Amtrak.

I have known a lot of people in my life, not just at Amtrak, but

in a lot of roles. He is one of the finest people I have ever had the

privilege to work with, and as he leaves Amtrak to return to his

home in New Jersey, he goes with my thanks and I hope with

yours.

I do not know who said this, Harry Truman or somebody else,

‘‘the only thing new in the world is the history we never learn’’ or

words to that effect. The only thing new in the world is the history

we never learn or have forgotten.

A couple of people alluded to it. We need to say it again. In 1971,

when Amtrak was created, it was created because of freights and

other rails could not make money carrying passengers. They wanted out of the business, and the deal was they bought some stock

in Amtrak. They gave up some of the real estate in the Northeast

16

Corridor. They gave old track bed, old overhead wires, old repair

shops, old train stations, old locomotives, old passenger cars and

old dining cars to this new entity called Amtrak, and basically we

said as a Congress and as a country ‘‘go run the railroad.’’ What

we have done for 31, now 32 years is to starve Amtrak for capital

investment.

Many countries around the world have passenger rail systems

that they are proud of. I would like us to be proud of our national

system in America, but what they do in all those other countries

where we have ridden their trains from Europe to Japan and other

places, they do not starve their passenger rail system of capital.

They heavily invest in capital and we simply have not, and the difference shows every time you ride one of our trains and every time

you ride one of theirs.

Maybe the folks in all those other countries are stupid or maybe

they see something that we do not, and I think what they see that

maybe we do not is in those countries it is in their naked self-interest to be less reliant on foreign oil. Many of them have less oil than

we do, and by putting together a good passenger rail system, they

economize on oil.

Joe and I rode down on the train today that had probably 500

passengers on the train, and along the way, we passed a lot of cars

that had one person in those cars, one driver. I can tell you, we

are saving a lot of energy compared to those 500 cars we passed

with single persons in them.

But not only do the other countries save energy, they end up

with cleaner air because of lower emissions. They end up with less

congestion on their highways. They end up with less congestions

around their airports, and that is why they do it. It is in their

naked self-interest, and I would contend that it is in our naked

self-interest to do the same.

What kind of passenger rail system do we want in America? This

is a timely debate. You ever see the old movies where you have got

the damsel in distress tied to the railroad tracks and like the train

is bearing down? Every year it is like that for Amtrak, only Amtrak

plays the role of the damsel in distress to the train bearing down,

and with the train bearing down and the question is, is Amtrak

going to be saved?

Another role that Amtrak plays is the role of the beggar with the

tin cup coming to us about every year begging for money. Neither

role is one that we ought to continue.

Let me just take a moment and just say this is the kind of passenger rail system that I would envision for our country. Joe is

right. We are always going to have a Northeast Corridor. We will

have train service from Boston to and through Washington, the

only place in the country that Amtrak actually owns the track

there and the overhead wires that we use. Everyplace else Amtrak

is on somebody else’s track. They do not like having Amtrak on

their track especially, and they let Amtrak know that because they

do not give them the rights-of-way.

This is the system I would like for us to consider having for the

future. There are a quarter-of-a-billion people who live in America

today. Seventy-five percent of them live within 50 miles of one of

our coasts. As time goes forward we will have more people and we

17

will have more densely-populated areas in our country. Many of

them live in corridors that we represent. The Northeast Corridor

is not the only corridor that lends itself to high-speed trains. There

are others in the Southeast. There are others in the Northwest.

There are others in the Midwest out of Chicago.

What we need to do is to make capital investments in the tracks

in those high-speed corridors to benefit Amtrak and also to benefit

the freight railroads. We should make those investments with dedicated sources of revenue, with earmarked sources of revenue. We

should ask State and local governments to share in the cost of

those investments.

Second thing we should do, as Joe said it and others have alluded to it as well. As Governor of Delaware, I found it offensive

that I could spend my State’s Federal transportation moneys for bicycle paths, for freight railroads or a variety of other uses, but if

I thought it was in the best interest of my State to use some of that

money for passenger rail service, I could not do that. That is foolishness, and we should stop that.

Next, we should relieve Amtrak of the burden of having to pay

railroad retirement for people who retired who never worked for

Amtrak. Amtrak spends about $200 million a year to pay railroad

expenses for people who never worked for Amtrak, who never will

work for Amtrak, and that should just be stopped. The moneys

have to be paid, but it should not be taken out of Amtrak’s hide.

There is a great partnership, and George Warrington can tell you

more about this, but whenever Amtrak is running on tracks with

the freight rails, they can actually carry things other than passengers, and Amtrak is doing a very good pilot project with the

Burlington Northern and Santa Fe rail where they actually carry

commodities, not just packages of mail and express, but actually

commodities, perishables and nonperishables on the tracks of the

freight railroads. Amtrak makes money doing it. They split the

profits with the freights, and it gives the freights a reason to want

Amtrak to be in their system.

I think we ought to expand services like the Auto Train. Some

of us have taken the Auto Train. It is the longest train in the

world. It actually can make money, a train on the West Coast

called the Coast Star. People pay a premium in order to ride the

train to see some of the most beautiful landscape in America. We

expanded some of those services where the ride is really the view,

not the destination, but the ride itself is the deal.

Amtrak owns the Northeast Corridor. It is a valuable piece of

land. We can use it for all kinds of things from fiber optic to rural

electricity, swing electricity up and down the Northeast Corridor,

making money to do that.

Last, if we actually make the investments in the Northeast Corridor to fully harness the potential of the new Acela Express trains,

some of us are going to ride that train when we go up to New York

in a month or so for our caucus. We do not fully utilize the potential of that train, and the reason why is because of the track. That

has not been upgraded sufficiently. The overhead wiring is old. The

signaling is old. We do not fully use the capacity. Even so, Amtrak,

I think, now carries over 50 percent of the passengers. There are

18

more passengers on trains in the Northeast Corridor than go by

air.

This is just a thumbnail sketch of a system that can actually survive and not just survive, but make this system a system that can

make us proud. It needs to start with a vision. I like the vision in

your bill. I am interested in learning more about what Senator

McCain has to say, and I very much appreciate the chance to be

here today.

Senator BIDEN. Mr. Chairman, could I have 60 seconds?

The CHAIRMAN. Sure.

Senator BIDEN. Only 60 seconds. Three points. Number one, we

are going to spend $112 million to service 78 cities in the year

2002, which is 20 percent of the entire Amtrak budget. Got that?

We are going to spend a $112 million straight up Federal revenue

to service 78 cities for airports. We are going to spend $500,000 for

all of Amtrak.

Number two, we have an $8.5 billion deficit in the highway trust

fund this year. Mark my words, we are going to take out of general

revenues another $4 billion. We are going to take probably $4 billion this year to subsidize the highways. If I am wrong, I will be

happy to say I am wrong, but I will make a bet that you all are

both putting another $4 billion beyond the revenues into highway.

The last point is, we promised that on October 16 we would take

care of the security problems of Amtrak. We made that commitment. We passed it out of here unanimously. I cannot even get it

up for a vote, because there is secret holds on not being able to deal

with the security interest of Amtrak, and there are more people

right now as I speak in New York City in tunnels that were built

in 1919, with no lighting, no ventilation, and no escape than there

are on 747s right now.

The CHAIRMAN. Very good. You both are very knowledgeable and

have been a terrific help to us as we move this bill along.

Senator WYDEN. Mr. Chairman, I am going to be very brief. I

just want to ask Joe a quick question. First, so you know, in 21

years in the Congress, I have voted every single time for the dollars that you all have been interested in, and I think what people

in Oregon are concerned about, people in the West are concerned

about now, and I think this is something we can walk out of here

and agree on, is we want the calls on the merits. We want the calls

on the basis of objective criteria, and I think what really set people

off in the West is when those trains were eliminated, other trains

were continued, but the GAO said we were less cost effective.

I think probably I would like, as we walk out the door, in an effort to find some common ground is an agreement that would just

call these on the merit, because in my part of the country, people

are doing everything except holding bake sales to keep their train

service coming.

We have small towns—at least in Oregon, Joe—that have voted

to levy per capita assessments to keep trains going on themselves,

and I think if we can just walk out of here saying we are going to

have as part of the Hollings bill, we are going to have these decisions based on the merits, I think we can come together and make

some common ground, and if you want to get a quick reaction to

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that, maybe the Chairman will allow that, give us a chance to walk

out of here and an opportunity to make some progress.

Senator BIDEN. Well, I think it should be made on the merits.

You may be right that it was not made on the merits. I am not

aware that it was not made on the merits.

I would like to add Wilmington, Delaware, to the 78 towns that

are subsidized for air traffic. We do not have any air transportation

in Delaware. I would like to have that considered on the merits.

We would join some of the towns that get subsidized findings, and

let us do it all on the merits. I am ready to do it.

Senator CARPER. Mr. Chairman, neither Joe nor I are interested

in running trains where people do not want to ride trains, and we

are not interested in running trains where State and local governments are not interested in providing some support. If people want

to ride the train, if State and local governments want to provide

the support, we should not let trains go.

The CHAIRMAN. Very good. We thank you both. The Committee

is indebted to you all.

Senator BIDEN. Does the cowboy have any questions?

The CHAIRMAN. We have got nine other witnesses here before us

this morning. Thank you.

Now, we have panel number one: Michael Jackson, Deputy Secretary of the Department of Transportation; Kenneth Mead, Inspector General of the Department of Transportation; and George Warrington, the President of Amtrak. Please come forward. We welcome you all this morning.

Your statements will be included in their entirety, and you can

summarize if you wish. Let me start with Mr. Warrington, if you

do not mind, Michael. Let us see what the gentleman says about

Amtrak and what we are going to get done.

STATEMENT OF GEORGE D. WARRINGTON,

PRESIDENT AND CEO, AMTRAK

Mr. WARRINGTON. Thank you very much, Mr. Chairman and

Members of the Committee. You have my formal statement which

we got over to you yesterday, and I would like to summarize that

statement by making a couple of very short points here.

This gets to some of the issues that you raised Senator Wyden.

I will tell you that the basic underlying model for intercity rail

service in the country really does not work, and it does not work

anywhere in the world. I think we have all come to that conclusion,

and it does need to be fixed appropriately.

I will tell you that we have tried very, very hard to make that

model work. We have managed costs aggressively, particularly discretionary costs. We have squeezed revenue from every conceivable

source across the operation, including all of our assets, and we

have also explored and developed other financing techniques to

generate revenue to hold this system together. When I came to this

position, I know that there were a number of folks who believed

that I was a Northeast Corridor guy, that I had a secret plan in

the vault to dismantle this system, that my interest was the Northeast Corridor interest and that I had substantial bias in that direction. I will tell you that that is simply not the case at all.

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I recognize and thoroughly understand that this Congress established clear expectations about a national system. The reason we

have pushed as hard as we have on revenue and cost and creative

opportunities to generate income here, whether it be mail and express, equipment leasing, pursuing fiber optics, pursuing highway

transmission, all those ancillary businesses that frankly we have

been criticized for engaging in, is to hold the national system together while at the same time trying to remain on the glidepath.

I always have been and have assured Senator Hutchison that I

am committed to this national system. I have worked very, very

hard to try to hold this system together as we have reduced Federal support and within the context of significant undercapitalization.

I think looking forward what is most critical here is that those

expectations, which many of you have expressed here this morning

and that were clearly established earlier in those days when I first

came to Amtrak about a national system, be aligned with public investment, because in the end, much of what we do is really a public

service.

We have worked hard to create a commercial culture inside the

corporation, but in the end it is a public service, some of which is

an essential public service that I would, as Senator Biden has said,

make analogous to an essential air service to rural and principally

Western communities across the country.

I think the Congress and the Administration need to once and

for all bring to closure what the system is, which as a matter of

public policy really does constitute the third leg of the transportation stool, particularly in the context of the highway and aviation

systems being reasonably built out.

Amtrak cannot do that alone, and in fact, what Amtrak has tried

to do is hold that system together. I think the Congress and the

Administration need to align public investment with that defined

system, like the interstate highway system in 1955, as a matter of

national transportation policy. Amtrak cannot do this alone, and

Amtrak cannot carry this burden on its back. The Federal Government needs to establish as a matter of national transportation policy, as it did when it defined the interstate highway system, that

there is a 10- or 15- or 20-year defined intercity rail passenger system that is a matter of public policy. The debate, frankly, is much

less about Amtrak and should be about the government’s national

transportation policy with respect to rail investment over the next

10 or 15 or 20 years.

I will tell you that while there are certainly opportunities around

restructuring, there are more meaningful opportunities around significant State and freight railroad engagement and partnership as

such a system develops.

I think fundamentally at the beginning, for any vision to be executed here, which is the case anywhere around the world, it does

have to be a substantial Federal commitment and Federal investment such as that which took place decades ago with respect to the

aviation and highway systems. I think this is fundamentally a Federal transportation policy question.

I will be leaving Amtrak soon, and I just wanted to say that I

want to thank all of you for all of your support. I want to also

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thank you for focusing on and bringing this important matter to

the table and hopefully to closure in the near future.

I also want to take this public opportunity to sincerely thank all

of the folks at Amtrak who I have worked with over the years,

management and the troops. They are an outstanding group of people who are incredibly passionate, interested, engaged and serviceoriented in what always has been a very, very difficult environment, and I will miss them immensely.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Warrington follows:]

PREPARED STATEMENT OF GEORGE D. WARRINGTON, PRESIDENT AND CEO, AMTRAK

Mr. Chairman and Members of the Committee, thank you for the opportunity to

appear before you this morning. All of us at Amtrak appreciate your leadership on

passenger rail issues, and we welcome this discussion. In addition to my statement

this morning, I have submitted for the record a copy of our Business Plan and Legislative Grant Request, which was sent to Congress on February 15, and which provides more detail about our past, present and future issues.

Mr. Chairman, we especially appreciate that this hearing marks the beginning of

a forward-looking discussion about the proper scope of our national passenger rail

system—and sources of adequate, predictable funding to support that system. As

you yourself have noted, it took a sustained federal commitment to build our national highway and aviation systems, both of which have become essential ingredients in our economic vitality and quality of life. Going forward, it will take the same

kind of federal responsibility and vision to build a passenger rail system that delivers comparable benefits.

Mr. Chairman, before I comment on re-authorization and the legislation currently

before this committee, I want to briefly provide a bit of context that everyone should

keep in mind as we discuss these issues.

First, it’s ironic that Amtrak finds itself in today’s difficult position, because the

demand for passenger rail—and the recognition of its critical role in our transportation system—have never been stronger. • Since 1996, our overall ridership has grown by 19% to an all-time record of 23.5

million passengers. • Also since 1996, Amtrak’s ticket revenue has grown by 40% to $1.1 billion, and overall revenues have risen by 38% to $2.1 billion. • We have developed successful partnerships with a growing list of commuter

agencies and private sector partners, and we have won increased state operating

contributions for state-supported services. • We launched North America’s first all-new, high-speed train, Acela Express,

which has carried more than 1 million guests in its first 14 months of operation. • We have instilled a greater emphasis on customer service, which is reflected in

the industry’s only satisfaction guarantee. • We have developed new business and analytical tools that have enabled us to

operate more efficiently. And we have reined in the growth of discretionary spending, achieving zero growth in expenses over the last year, excluding depreciation.

Certainly, we are far from perfect, and our work is far from done. But in a number of critical areas, we are better positioned to meet the country’s needs than we

were just 5 years ago.

The second bit of context that everyone should understand is the economic realities underpinning passenger rail service. All over the world, passenger rail is a competitive mode of travel in relatively high-density areas and for trips of up to 350

miles. Rail is much less competitive for longer-distance, lower-density routes.

This means that a national passenger rail network in the United States will never

be profitable on a classic, commercial basis. While some routes will cover their own

operating costs, other routes will need operating support, even after internal crosssubsidies. And none of our routes will ever cover their cost of capital. No one should

be surprised by any of this, as every other transportation mode in the United States

and every other passenger rail system in the world relies substantially on public

funding.

As I mentioned a moment ago, we have worked very hard and successfully to

maximize revenue opportunities and to control our discretionary expenses. And

while we have made significant progress, the reality is that it will never be enough

to fully cover the costs of today’s national network.

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The third piece of context that everyone must bear in mind is that Amtrak is expected to move in two directions simultaneously—to maintain a national network

including many segments which will require ongoing public support, while at the

same time becoming operationally self-sufficient. As a result of the successful initiatives I mentioned earlier, Amtrak has been able to accommodate a nearly 90% reduction in its federal operating support from $319 million in FY ’99 to $40 million

this year, excluding RRTA. But the only practical way to maintain a national network with declining levels of operating support is through borrowing and cross-subsidies from our profitable lines of business. But borrowing drives up our debt load,

and cross-subsidies deprive us of resources that could otherwise be re-invested in

modernized fleet, facilities and technologies.

Fourth, on top of conflicting policy mandates, Amtrak has had to cope with inadequate levels of public investment for the system we were expected to maintain.

Over the last 31 years, our federal funding available for capital investment averaged

less than $325 million a year, for a 22,000-mile system. The total capital funding

over 31 years—about $10 billion—is still a fraction of what this country invests in

highways and aviation in a single year.

Mr. Chairman, as you yourself have pointed out, passenger rail is the only mode

of transportation in the United States that does not have guaranteed appropriations

and a dedicated source of capital funding. Highways, aviation, transit and ports all

have this predictability. Passenger rail is the only mode subject to the uncertainties

of the annual appropriations process. And the result is deferred modernization,

higher maintenance costs for aging assets, and higher debt service due to our dependence on private financing.

The more recent factors that have affected our performance are the recession, the

higher security costs stemming from September 11, and the actions of the Amtrak

Reform Council, which have had a direct cash impact of $52 million since November.

But rather than dwell on the combination of factors that have undermined America’s passenger rail system in the past, I think the DOT Inspector General said it

best in the Wall Street Journal on January 28, and I quote: ‘‘For what it has been

charged to do, it’s amazing that Amtrak has gotten this far.’’

Mr. Chairman, there is one more piece of information about the passenger rail

system that is widely misunderstood, and that is our operating losses. In FY 2001,

Amtrak’s operating losses were just over $1 billion. Of that total, depreciation expenses were $488 million, excess RRTA was $183 million and net interest expense—

driven by inadequate levels of federal capital—was $80 million. So as you can see,

more than 80% of the operating losses were attributable to these three mandatory

items alone, and nearly 50% was non-cash depreciation.

Mr. Chairman, I hope these comments shed some light on the challenges facing

us all, as we work together to improve and transform Amtrak. In particular, I hope

I’ve made it clear that any future course of action that relies primarily on shortterm business actions within the current policy framework will fail. Likewise, any

proposal to fix Amtrak’s problems by splitting it into several parts is a distraction

from the fundamental issues.

After the latest round of expense reductions, capital deferrals, and revenue actions, Amtrak will have improved its financial position by a total of $543 million

during FY 2002 and 2003 without compromising safety or eliminating any train

services. But having cut nearly to the bone, with a mounting capital backlog and

our financial flexibility impaired by uncertainties about the policy process, we are

running out of tools and time.

Indeed, the time has come for Congress and the Administration to put the country’s passenger rail system on a firmer foundation—because our country needs it.

Even before September 11, our highways and airports were reaching capacity limits. And in the aftermath of September 11, the need for a balanced transportation

system couldn’t be clearer. Passenger rail offers additional benefits—as an engine

of regional economic development, as a cost-effective way to expand transportation

capacity, and as an environmentally friendly way to expand capacity without increasing our reliance on petroleum.

As I said earlier, I want to briefly speak about reauthorization and talk about the

legislation currently before this committee. Both you, Mr. Chairman, and Senator

McCain, have introduced legislation that would begin the debate on Amtrak’s reauthorization and the future of intercity passenger rail service in this country. Although the bills differ in approach, you have both recognized that a substantial federal commitment will be required to fully develop the potential of intercity passenger rail service.

As I’ve said before, the key questions that need to be answered in this debate are:

What is the scope of the intercity passenger rail system that’s needed? What will

it cost? And how will we pay for it? But, in the end, Congress and the AdministraVerDate 03-FEB-2003 09:22 Sep 08, 2004 Jkt 089637 PO 00000 Frm 00026 Fmt 6601 Sfmt 6621 D:\DOCS\89637.TXT SSC1 PsN: SSC1
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tion will ultimately decide the size and scope of the system and how that will be

paid for. Amtrak commits to you that it is ready to contribute to the debate in a

direct, honest, and transparent manner. Whatever you choose to do, my only strong

recommendation is that you do it sooner rather than later.

We look forward to working with you, other Members of Congress, the Bush Administration, Governors, Mayors and all interested parties across the country to ensure a strong and vital passenger rail system. Moreover, as this debate moves forward, I want to assure you that Amtrak is prepared to share the expertise that we

have developed over 30 years of operating America’s passenger rail system. We have

devoted a great deal of thought and analysis to these questions. There is no doubt

that we can build a national passenger rail system that makes America proud and

meets her need for a balanced, efficient transportation system. We simply need to

summon the political will, and we appreciate your leadership in that regard, Mr.

Chairman.

That concludes my presentation; I’ll be happy to answer questions.

The CHAIRMAN. Well, the Committee, Mr. Warrington, thanks

you very much. I join in the sentiments of Senator Carper. You

have done an outstanding job and the best job that could be done

under the circumstances.

Let the record show that we asked, of course, Secretary Mineta

to appear. He had a conflict, but added that his designee on the

Amtrak board was the Deputy Secretary Michael Jackson, and the

Committee is pleased to recognize you now, sir.

STATEMENT OF HON. MICHAEL P. JACKSON, DEPUTY

SECRETARY, DEPARTMENT OF TRANSPORTATION;

ACCOMPANIED BY HON. ALLAN RUTTER, ADMINISTRATOR,

FEDERAL RAILROAD ADMINISTRATION

Mr. JACKSON. Thank you, Mr. Chairman and Members. I am

grateful for the opportunity to speak before you today.

Amtrak’s financial condition is grave. Since Secretary Mineta

was assigned to the Amtrak board and assumed that position, I

have, as his designee, as you say, Mr. Chairman, been attending

to meetings and working with George Warrington and Amtrak staff

on these issues.

We have had three objectives since roughly a year ago last May

when I first sat down and attended a meeting: One, understand the

financial facts about Amtrak; two, get them out to the Congress

and to the public; and three, encourage and support an effort this

year to reauthorize national passenger rail service.

As we sit here and grapple with this Amtrak problem, we have

made progress, because a year ago when we started looking at

these issues there was a sense that everything was OK, we are on

a glidepath. We have serious financial problems at Amtrak, and I

think they have been well described by the Members and by Amtrak so I will not spend time on that. It has taken us 30 years to

get to this point, but it is a crossroads and time to fix this in some

fundamental way.

The Administration is grateful, Mr. Chairman, for your legislation and that of Senator McCain being placed on the table because

they begin the very detailed debate about the specifics of what we

have do to structure an outcome that is going to be acceptable to

the country and that will not just punt this problem forward once

again. So we are grateful for your efforts and welcome the opportunity to dig into those details.

We are continuing a review of the specifics, not only of these

pieces of legislation that are on the table here and in the House,

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but of the core sets of problems. I would like to outline just briefly

as an introduction some of these ten questions that we are trying

to work our way through, because when you add the answers up

to these ten questions, you have the outline and the details for a

piece of legislation that can get us where we need to go.

The first question the Administration is asking itself is should

we continue to support Federal funds for intercity passenger rail,

and I want to say at the outset that Secretary Mineta has been

clear on this. So we know the answer to that one from his perspective, and I absolutely share it, that intercity passenger rail is an

indispensable part of the national intermodal transportation network and we must have intercity passenger rail in some viable

form.

Second question—have we understood adequately the major financial and policy drivers that make Amtrak incapable of financial

self-sufficiency? The Board has undertaken an outside study of

these areas. Internal to the Administration we have done the same.

Inspector General Mead has contributed significantly to our understanding of these issues, and I think that we just have to make

sure that we all lay on the table the significant drivers and then

look at the legislation against those problems, those drivers.

Third question—what kind of passenger rail system should we

support? We have tried to lay out the range from nothing at all to

an extensive network of high-speed rail that complements the system that we have and grows it and builds it, and there are pros

and cons for each of these.

There are three or four or five major different options in between

the beginning and the end. We think that each has significant cost

and policy questions, and I think there has to be clarity first and

foremost about what we are trying to accomplish. Are we trying to

fix Amtrak and basically maintain what we have? Are we trying to

grow a high-speed rail network and make it viable for the long

haul? This clarity about what we are trying to accomplish is important. Is it a national network or is it a regional network? This is

the beginning point for making sound policy here.

Forth, and most importantly, and I agree with the Senator Biden

and Senator Carper, both of whom said the same thing, the most

important question here is how much is it going to cost? How much

is it going to cost? When we know what we are trying to do is the

preferred approach and how are we going to pay for it. This is the

core set of issues. How should we divide up those payments?

The Federal Government has a role. We agree with that. The

States we think should have a partnership, should have a role. In

the West, we see some significant investment in capital already,

and in the East we have different approaches. So I think that there

is a role to look at how to pay for the approach.

Fifth, Amtrak has to contribute in the fare box and in operating

efficiencies beyond what it is doing now. There is work, as George

Warrington has said, that we can do and structures that make

sense to make the operating efficiencies more effective.

Sixth question—how are we going to pay for this? What specific

funding mechanisms are needed? A dedicated fund or not? Should

Federal funds cover both capital and operating expenses?

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Seventh question—does Amtrak’s current organizational structure provide the right way to deliver needed services? The report

suggests fundamental changes here. Senator McCain’s legislation

also does. I think it is important to look at the question of the

structure of Amtrak, the structure of a national passenger rail system and how best to achieve it.

Next, how do we deal with track access and safety issues? These

are important questions. There is congestion on the freight tracks,

increased demand on the Northeast Corridor, grade crossing issues.

These have to be part of the legislation that we work through.

Ninth question—we know what we want and we know how to

pay for it. How do we get there? What type of transition is necessary? The transitional issues are very, very important. We cannot

flip a switch and change the system overnight.

Finally, the question of what is politically possible. There is a

range of views in this Committee and certainly in the Congress,

and we have to work through the question of what we can do.

These are expensive investments. They are important investments

and we have to look to figuring out how we balance the multiple

needs that we have in our transportation network.

So this is an orientation, Mr. Chairman, how we are looking at

these sets of issues, and we welcome the ongoing conversation with

you and your Members.

[The prepared statement of Mr. Rutter follows:]

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The CHAIRMAN. General Mead.

STATEMENT OF HON. KENNETH M. MEAD,

INSPECTOR GENERAL, DEPARTMENT OF TRANSPORTATION

Mr. MEAD. Thank you, Mr. Chairman. If I could just say a note,

too, about working with Mr. Warrington over the past several

years, ever since you passed that legislation. You assigned us statutory responsibilities for doing assessments of Amtrak periodically.

Mr. Warrington and his team have been terrific to work with, and

I regret seeing him go.

I have some slides—or some slides are in front of you—with the

blue banner across the top. Many of you Members may reflect that

you have heard the financial woes of Amtrak before and can legitimately ask what is different this time, and what is different this

time is Amtrak has run out of options. Most everything has been

mortgaged that can realistically be mortgaged and sold, then leased

back, and I have a real difficulty making the numbers work on the

$521 million budget request which the Administration, when they

submitted it, they said it was a placeholder, but it is very difficult

to make those numbers work even if all you had was the Northeast

Corridor.

I would like to turn to slide one. Slide one I think shows some

irony and the irony is that Amtrak’s revenue and ridership has

shown significant growth since that self-sufficiency mandate was

established on the slide, system-wide ridership is represented by

that blue line. That grew about 11 percent, and systemwide passenger revenue which is represented by the red line on that same

slide, that grew about 26 percent, and that growth trend that

began in 1995 actually brought Amtrak to its highest passenger

revenue levels in its history. An interesting fact here is that 43 percent of Amtrak’s revenue now comes from sources other than the

fare amounts.

If you could turn to slide two, unfortunately Amtrak’s revenue

growth is more than matched by growth in expenses. In fact, since

the self-sufficiency mandate was established, for every dollar they

are bringing in new revenues, cash expenses increase by $1.05.

Senator MCCAIN. What percentage of costs are labor?

Mr. MEAD. I cannot say what the exact percentage is, but it has

gone up, but not by the same percentages a lot of other categories

such as interest, which I am going to come to in a minute. Labor

certainly is a huge portion of Amtrak’s cost, but I would not want

to represent them as skyrocketing and out of kilter by comparison

with what is happening in the freight railroads.

On slide three, slide three shows the operating loss for 2001 and

for prior years going back to 1990. The dark blue line, that loss

shows over $1 billion. It’s about $129 million higher than its 2000

loss and the largest in Amtrak’s history. The dark blue line, it is

important to know the delta between the light blue line, and the

dark blue line represents the depreciation and that is not bad. It

represents capital investment and depreciation assets.

The real test is the cash loss and there is the light blue line, and

you see that is $585 million and under the current law that is the

basis for measuring self-sufficiency.

49

The dark blue line is not. The light blue is, and as you can see

that has not gotten any better either. That, in fact, is worse by

about $24 million than it was in 1998, the first year of the selfsufficiency mandate.

If you turn to the next slide, Senator McCain, this is what I was

alluded to in response to your question about the growth in expenses. Since 1997, Amtrak’s total debt has grown 155 percent.

That is a very serious problem here. Gone from about $1.7 billion

to nearly $4.4 billion. Interest on borrowing was $24 million in

1994. It is approaching $180 million or so this year and expected

to increase to $225 million by 2005. When you combine that with

the principal payments, you have $300 million a year, and that is

over half of the current subsidy that is going to debt.

Finally, if you could turn to the slide five, this is the last slide

I would like to discuss here. What this shows is, as best we can

measure it, the results of lack of capital investment, and you can

see that despite investments since 1997, Amtrak has not been able

to invest sufficiently in its fiscal plan, and the results are becoming

apparent. This is total delay for Amtrak trains in the Northeast

Corridor and how they have risen between 1998 and 2001, and

there is a 75 percent increase in delay, and the Northeast Corridor

of all of our corridors is a high-speed rail corridor and you cannot

do high-speed rail and have this type of phenomenon occur.

I would like to just make a couple of brief comments on passenger rail options beyond 2003. I think it is a mistake to focus on

this operating deficit alone. The real issue is capital and the capital

shortfall. It is not true that if you just did away with the long

cross-country trains and the long distance trains that Amtrak

would be OK. That is not true.

In fact, the net operating subsidy that is required to continue operating the long distance trains, and I will say that again, the annual net operating subsidy that is required to continue operating

the most unprofitable long distance trains is less than one-third of

the annual capital subsidy to continue operating the most profitable trains in the Northeast Corridor.

I would like to make a comment about the bills that were recently introduced. There is actually common ground between the

two bills, and I would like to just mention them. Both bills have

in common that an immediate increase in capital funding is necessary. The amount varies, but it is a lot more than we are putting

into this system now. The bottom line is there is no future for Amtrak in the Northeast Corridor or anywhere else if we do not deal

with the capital situation.

Both bills also establish strong oversight provisions in my view.

The type of money that Senator McCain’s bill is talking about or

Senator Hollings’ bill is talking about I would not just hand out to

Amtrak. I think it is good Senator McCain’s has a control boardtype mechanism. Senator Hollings’ has it going to the—I think that

is an important set of gates to make this amount of money go

through rather than just sending it to Amtrak.

Finally, both bills authorize capital funding for security and life

safety improvements, including the tunnels under New York, and

I think that is very important.

Thank you, Mr. Chairman.

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[The prepared statement of Mr. Mead follows:]

PREPARED STATEMENT OF HON. KENNETH M. MEAD, INSPECTOR GENERAL,

DEPARTMENT OF TRANSPORTATION

Mr. Chairman and Members of the Committee: We appreciate the opportunity to

testify on Amtrak’s performance, budget and passenger rail service issues. Since December 1997, Amtrak has operated under a Federal mandate to eliminate its need

for Federal operating assistance by December 2, 2002. Amtrak has not succeeded

in implementing enduring financial improvements of the magnitude necessary to attain and sustain self-sufficiency in and beyond 2003. Despite marked growth in Amtrak’s passenger revenues and ridership—26.1 percent and 11.4 percent, respectively—expense growth has more than kept pace, so that for every $1 Amtrak realized

in additional revenue, cash expenses increased by $1.05.

Amtrak’s operating loss in 2001 of $1.1 billion was $129 million higher than the

2000 loss and the largest in Amtrak’s history. Amtrak’s cash losses, which are the

basis for measuring Amtrak’s progress towards self-sufficiency, were $585 million in

2001. This was $24 million worse than Amtrak’s cash loss in 1998, the first year

of Amtrak’s self-sufficiency mandate.

Amtrak’s failure to eliminate its need for operating assistance has detracted attention from the more critical issue, which is how much capital investment will be

needed to sustain a system of intercity passenger rail. The long-distance trains,

which account for most of Amtrak’s cash losses, actually constitute a relatively

small subset of Amtrak’s capital needs. The annual net operating subsidy required

to continue operating Amtrak’s most unprofitable long-distance trains is about 30

percent of the annual capital subsidy required to continue operating Amtrak’s most

profitable trains in the Northeast Corridor. The Northeast Corridor alone accounted

for about 55 percent of Amtrak’s total ridership in Fiscal Year 2001 and contributed

about $89 million in cash profits to the rest of the system, but to ensure safe and

reliable operations, most of Amtrak’s capital investment dollars will need to be invested there.

Any system of passenger rail—profitable or not—will require substantial and continuing capital funding. Even if Amtrak (or a successor) were to succeed in becoming

operationally self-sufficient, it would still require substantial external assistance to

address its capital needs. The Northeast Corridor has a backlog of capital investment needs to bring it to a state of good repair that Amtrak has recently estimated

to cost about $5 billion. To address this backlog and make the kinds of annual reinvestment necessary to sustain safe and reliable operations, Amtrak estimates that

it will need between $1 billion and $1.5 billion annually.

As this Committee continues its efforts to reauthorize intercity passenger rail

service, three issues are likely to shape the outcome:

• The substantial level of capital funding that will be required regardless of the

operating structure adopted,

• The most equitable and appropriate source and vehicle for funding these needs,

and

• The importance of each component of the system from a national, regional, and

state perspective and the implications of such for cost-sharing decisions.

Although the Chairman’s bill, S.1991, and the Ranking Republican member’s bill,

S. 1958, differ in their long-term approach to intercity passenger rail service, they

both recognize that an immediate increase in capital funding is necessary. Given Amtrak’s history of substantial operating losses and its capital spending choices as reported in our statutory annual assessments of Amtrak’s financial performance,

strong oversight provisions should accompany any infusion of capital funding be it

to Amtrak or any successor. S.1991 places substantial oversight responsibility with

the Department while S.1958 assigns a strong oversight role to an independent control board as well as the Department. We are pleased to see strong oversight provisions in both bills.

Both bills also provide capital funding for security and life safety improvements

and we fully endorse these investments as well. However, we note that the ultimate

goals for much of the proposed capital infusion are markedly different in each bill.

S.1991 foresees substantial growth in capital funding to maintain, improve, and expand the current system under Amtrak’s operation, including substantial funding

for the development of high-speed corridors. In contrast, S.1958 envisions a restructuring of the current system into separate entities for train operations, maintenance, and national reservations services. Capital improvements are authorized to

make a restructured system more viable with the final goal of liquidating Amtrak

and privatizing the remaining entities at the end of a 4-year period. Which direction

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1The Office of Management and Budget traditionally requests funds on behalf of Amtrak

which it includes in the Department of Transportation budget request. A request was submitted

by the Department on February 4, 2002 for Fiscal Year 2003 funds, which included $521 million

for Amtrak’s 2003 operations. Amtrak subsequently transmitted its own request to the President

on February 15, 2002, requesting $1.2 billion.

to take is the province of this Committee and the Congress. We stand ready to provide analytical support to you and your staff as the process moves forward.

DETAILED OPERATING AND CAPITAL COST ESTIMATES MUST BE DEVELOPED FOR EACH

PASSENGER RAIL OPTION CONSIDERED.

Congress and the Administration need to determine whether the public interest

lies in a linked national passenger rail system, in regional systems of time-competitive routes, in some variation of the two, or in no passenger rail service at all. Once

the desired system is determined, a detailed cost analysis, including the funding

that will be needed to support operations and adequate capital investment will need

to be developed.

On February 15, Amtrak submitted its own grant request to the President, seeking $1.2 billion for operating and capital needs in Fiscal Year 2003.1 The request

included $840 million for capital investment needs that Amtrak describes as, ‘‘essential for keeping a national rail service network intact,’’ during that year. This ‘‘limpalong’’ budget is substantially greater than the Administration’s placeholder budget

request for 2003 of $521 million.

Amtrak projects that over the next 25 years, it will need to invest about $30 billion in capital projects just to sustain the system as currently structured. Approximately one-half will be needed in the Northeast Corridor, including $5 billion to address the backlog of state-of-good-repair needs. The magnitude of need makes it

clear that neither the Administration’s request nor Amtrak’s request would allow

Amtrak to begin to meaningfully address these needs in 2003. However, it is not

clear at this point how passenger rail will be structured beyond that date, which

could affect the required level and location of investment.

Congress needs to understand how and where Amtrak intends to use its requested

2003 appropriation before it can determine the appropriate amount of funding. Amtrak needs to develop specific and detailed information on the exact operating and

capital programs requiring immediate funding as well as long-term attention. More

specifically:

• To support its FY 2003 grant request for $840 million in capital investments,

Amtrak needs to provide detailed data on project location, construction schedules,

cost estimates, spending plans, and associated assumptions. Amtrak should identify

which routes and states would benefit from these investments and describe for each

project what the implications would be from a safety, legal, service reliability, and

financial perspective (operating revenues and costs) if the investments were not

made in FY 2003.

• Additionally, to support its request of $200 million for the net losses associated

with operating 18 long-distance trains, Amtrak should provide details on how it calculated the operating losses for each of the trains, how it derived the internally generated offsetting profits, and the basis for the related capital investment savings.

Also, Amtrak needs to provide more specific support for how it arrived at its estimate for $160 million in excess RRTA expenses.

In order to determine the capital and operating subsidies necessary to support

any future intercity passenger rail service, it will be necessary to develop fully allocated cost estimates for each option considered, for example, the current system, the

current system minus long-distance trains, the Northeast Corridor only, or existing

corridors plus new corridors.

Amtrak’s figures are likely to be the best data currently available to establish a

cost baseline. From these data, the short- and long-term capital and operating funding needs associated with any potential option for passenger rail could be determined. This information will be essential to the Congress and other stakeholders if

any discussion of route or service restructuring is to be considered. Amtrak should

be encouraged to develop these data as quickly as possible.

FUNDING FOR CONTINUED RAIL SERVICE SHOULD BE SHARED AMONG STAKEHOLDERS

Amtrak has historically received Federal capital and operating subsidies, which

it invests systemwide as needed to support operations across a national network.

In some cases, states and freight railroads have partnered with Amtrak on a

project-by-project basis to fund capital improvements. Some states have also agreed

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to subsidize the operations of services that Amtrak could not otherwise operate due

to the losses associated with these services.

The ‘‘formula’’ for partnering, however, is inconsistent, and some entities have contributed substantially to the growth and operation of passenger rail while others have

benefited from service without contributing anything. Work should be done to better

identify and allocate the costs of capital and operating investment according to the

benefits realized by stakeholders. An important precursor to allocating costs will be

determining how each service fulfills our national, regional, and state goals for mobility and other transportation priorities.

IMPORTANCE OF RAIL SERVICE TO A REGION WILL LIKELY PLAY AN INTEGRAL ROLE IN

DETERMINING COST-SHARING RATIOS

Once the costs of subsidizing passenger service are identified—both operating and

capital—it will be important to weigh the subsidies needed—both capital and operating—in light of national, regional, and state priorities. A number of variables

should be considered in these evaluations including the importance of the rail system to regional mobility, essential transportation for small communities, national

security, the need for transportation alternatives, relationship to other national priorities including environmental issues, political considerations, and historical or nostalgic importance.

For example, an argument has been made that the rail infrastructure in the

Northeast Corridor is a national asset and is essential to national mobility. The

Northeast Corridor serves cities with four of the seven most congested airports in

the United States, and has for several years carried more passengers between

Washington and New York (62 percent of the total) than all airlines combined. Including intermediate stops on the New York to Washington route, Amtrak carries

nearly three times as many passengers as the airlines. While the capital subsidies

associated with maintaining the Northeast Corridor service may be higher than in

other parts of the country, the contribution to regional mobility and the implications

on congestion for other modes of transportation without it, may justify the significant capital investment.

Regions and states may decide that even if a service or corridor does not fulfill

a national need, it serves a critical regional or state priority. For example, California has decided to subsidize both rail service operations and capital improvement

projects to expand rail service within California consistent with the state’s sensitivity to environmental issues and concerns about regional mobility.

Assessing and identifying the importance and need of service in a particular region

or community will play an integral role in determining who should bear responsibility for financially supporting that service or how those costs should be shared

among stakeholders. It is possible that cost-sharing equations would differ in areas

where limited demand makes service less of a necessity even though the relative

subsidies to continue that service might be far less than what would be required

in other, more rail-dependent, communities.

ELIMINATING AMTRAK DOES NOT ADDRESS PRIMARY ISSUE OF CAPITAL FUNDING.

Proposals have been made concerning the possibility of establishing separate entities—either public or private—to address the operational needs and infrastructure

needs of intercity passenger rail. While elements of these proposals certainly have

merit, the primary issue of funding needs to be resolved first. Amtrak currently estimates that it would need about $1.0 billion to $1.5 billion in capital each year just

to sustain the current system and another $0.5 billion each year to begin to develop

new high-speed corridors. These needs would not just go away by handing the system or parts of it over to another entity. What it will cost to continue and begin

to expand passenger rail in the United States is not dependent upon whether Amtrak is the operator or not. The debate over whether a private company or government entity should be established solely for the purpose of administering the rail infrastructure investment program is irrelevant if there is no assurance that adequate

capital funding has been secured to invest in the system.

In fact, privatization is not likely to be an option unless adequate funding is secured. If the Northeast Corridor were to be franchised ‘‘as is,’’ with its $15 billion

in long-term capital investment needs, few investors would find it a good bargain.

For the Northeast Corridor to become marketable, the capital needs must first be

addressed, which leads us back to the funding question already on the table: ‘‘How

much will it cost, who pays, and how?’’

The recent experience in Great Britain with rail service underscores concerns

about commercializing and separating infrastructure and operating functions. Allowing a business to operate ‘‘like a business’’ may mean relinquishing control over how

53

2Financial data for Fiscal Year 2001 were compiled from Amtrak’s unaudited internal financial statements.

certain expenses are cut or which capital investments are made. An infrastructure

company that is focused on its bottom line may make decisions that are in its best

interest financially, but which may affect the safety or efficiency of rail service operations.

With Amtrak’s authorization expiring at the end of 2002, many questions face the

Congress about the future of intercity passenger rail in the United States. The question of what kind of system is best for the country is inextricably intertwined with

the question of how much the country is willing to pay for such a system. The answers to both questions are most appropriately left to the Administration, the citizens of the United States, and their elected representatives.

We expect that our contribution to the debate will be in helping to frame the

questions in such a way as to make the task easier as Congress moves forward to

develop answers. As part of our legislative mandate to perform annual assessments

of Amtrak’s financial condition and needs, we will also provide whatever information we can concerning possible options and the likely costs, risks, or both associated

with the various options put on the table.

The following discussion summarizes Amtrak’s performance achievements and

shortfalls since it received its self-sufficiency mandate in 1997, as well as general

performance trends experienced over the past decade. We also offer some observations on Amtrak’s Fiscal Year 2003 grant request.

AMTRAK’S PERFORMANCE ACHIEVEMENTS AND SHORTFALLS

In the following section, we highlight some of Amtrak’s achievements and shortfalls in financial and operating performance since its self-sufficiency mandate in December 1997 as well as longer-term trends in performance. For the most part, the

record shows that Amtrak has fallen far short of its financial and operating performance goals and, as a result, its financial health has significantly deteriorated.

IMPLEMENTATION OF HIGH-SPEED RAIL SERVICE IN THE NORTHEAST CORRIDOR

First and foremost, Amtrak implemented high-speed rail service in the Northeast

Corridor. Acela Regional service was initiated on a limited basis in January 2000

and Acela Express revenue service started in December 2000. These accomplishments were not without their downside, however. The electrification of the right-ofway between New Haven, Connecticut, and Boston, Massachusetts, was completed

about 1 year behind schedule and more than $300 million over budget. Similarly,

Acela Express revenue service was introduced about 1 year behind schedule with

substantial budget overruns. The 20th and final Acela Express trainset is now projected to be in service by the summer of 2002, about 2 years behind schedule.

PASSENGER REVENUE AND RIDERSHIP GROWTH

In 2001, systemwide passenger revenue 2 and ridership improved from 2000, continuing the upward swing of the past few years. Passenger revenues increased by

8.2 percent and ridership by 4.3 percent. The Northeast Corridor experienced the

most significant increase where passenger revenues grew a strong 13.5 percent and

ridership increased by 4.6 percent.

Systemwide ridership grew 19.3 percent between 1996 and 2001, rising from 19.7

million to 23.5 million. Additionally, systemwide passenger revenue grew 44 percent

between 1995 and 2001. The revenue growth trend that began in 1995 has brought

Amtrak to the highest passenger revenue levels in its history. Figure 1 illustrates

systemwide passenger revenue and ridership growth from 1991 through 2001.

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While growth has fallen short of Amtrak’s projections for both revenue and ridership, in the current economic climate and in the wake of the terrorist attacks, Amtrak’s relative performance has been more positive than its competitors. Domestic

air passenger enplanements for the major carriers were down approximately 21 percent for the most recent quarter ended December 31, 2001, compared to the same

quarter last year and air carrier passenger revenues were down almost 33 percent.

Amtrak’s ridership and revenue numbers, however, remained strong. Compared to

the same quarter last year, Amtrak’s systemwide ridership was only down about 1

percent and passenger revenues were up by 13 percent. It is particularly noteworthy

that passenger revenue in the Northeast Corridor grew by 21 percent over the same

quarter a year ago.

NON-PASSENGER REVENUE GROWTH

Non-passenger revenue has accounted for an increasing share of Amtrak’s total

revenues between 1991 and 2001. In contrast to passenger revenues, which grew 31

percent, the overall increase in non-passenger revenue has been 139 percent, rising

from $394 million in 1991 to $941 million in 2001. Non-passenger revenue includes

revenue from operating commuter services, mail and express, reimbursable work,

state support for train services, commercial development, and other miscellaneous

sources. Non-passenger activities now account for 43 percent of Amtrak’s total revenues. Figure 2 illustrates growth in non-passenger revenues between 1991 and

2001.

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Amtrak’s fastest growing source of non-passenger revenues was projected to come

from its expanded Mail and Express business line. To its credit, Amtrak’s Mail and

Express revenues increased 67 percent, from $70 million in 1997 to $117 million in

2001. Figure 3 illustrates actual revenues generated from Amtrak’s Mail and Express business line for the 5-year period 1997 through 2001.

However, this performance fell far short of Amtrak’s projections. Amtrak’s 2001

Strategic Business Plan projected revenues of $181 million for 2001, growing exponentially to over $400 million by 2003. Subsequent issuing its business plan, Amtrak recognized that its forecasts were not realistic and substantially reduced the

estimated contributions from the Mail and Express business.

EXPENSE GROWTH HAS MORE THAN KEPT PACE

Since receiving its mandate in December 1997, for every $1 Amtrak realized in

additional revenue, cash expenses increased by $1.05. Between 2000 and 2001, Amtrak’s expenses, including depreciation, grew 9.8 percent, or a total of $294 million.

Viewing expense growth in the longer term, since 1991, total operating expenses

have grown about $1.2 billion, from $2.1 billion to $3.3 billion, representing an overall increase of 57 percent. In the same time period, total revenues grew by about

$850 million. Figure 4 illustrates growth in various categories of expenses between

1991 and 2001.

Our assessments of Amtrak’s prior Strategic Business Plans identified large gaps

in Amtrak’s ability to stay on its glidepath. Simply put, Amtrak needed to curtail

expense growth by over $700 million and the railroad did not have concrete plans

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3 In 2000, Amtrak entered into several sale-leaseback transactions involving passenger train

equipment. Amtrak set aside proceeds from the transactions that, combined with projected interest earnings on the proceeds, are expected to satisfy the associated future capital lease obligations of over $900 million.

to achieve the reductions. In FY 2001, Amtrak began to focus on cost management

initiatives but these actions were clearly inadequate.

OPERATING AND CASH LOSSES CONTINUED TO GROW

Continued expense growth coupled with lower-than-projected revenue growth has

resulted in operating losses that have continued to increase since Amtrak’s mandate

was established in 1997. Amtrak’s operating loss in 2001 of $1.1 billion was $129

million higher than the 2000 loss and the largest in Amtrak’s history. Amtrak’s

2001 cash loss, which is the basis for measuring operating self-sufficiency, was $585

million, $24 million higher than its cash loss in 2000. Figure 5 illustrates growth

in Amtrak’s operating and cash losses since 1990.

AMTRAK’S OVERALL FINANCIAL HEALTH HAS DETERIORATED

Between September 2000 and September 2001, Amtrak’s long-term debt and capital lease obligations grew by 30 percent, or a total of $832 million. Since 1997, Amtrak’s total debt has grown about $2.7 billion, from $1.7 billion to $4.4 billion, representing an overall increase of 155 percent.3 Figure 6 illustrates the growth in Amtrak’s short-term liabilities as well as long-term debt and capital lease obligations

since 1997.

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4Discussion of interest is on a cash interest basis, rather than accrual.

5 Estimated.

As a result of its growing debt burden, Amtrak has experienced a significant increase in interest expenses.4 The expenses primarily relate to externally financed

purchases of new equipment, including the Acela trainsets and high-horsepower locomotives in the Northeast Corridor. Interest expense is expected to grow substantially, reaching $225 million by 2005. Figure 7 illustrates past growth in interest

expense since 1993 and projected growth through 2005.5

In addition, depreciation expenses will increase dramatically over the next 4 years

as the new capital investments financed by Taxpayer Relief Act funds, Federal appropriations, and private borrowing add to the total value of Amtrak’s capital assets. Depreciation expense is expected to reach nearly $650 million by 2005, almost

double the expense in 2000. Although depreciation is a non-cash expense, it is important to note that this reflects the cost of assets used up in generating the railroad’s revenues. In essence, this is the annual amount of capital required just to

replace or restore train equipment, stations, tracks, and other facilities. Figure 8

shows actual depreciation levels from 1993 through 2001 and projected levels for

2002 through 2005.

During 2001, Amtrak’s liquidity continued to deteriorate. As a result, Amtrak

sought to compensate for cash shortfalls through a variety of means, including mortgaging portions of one of its most valuable assets, Penn Station-New York, for approximately $300 million. Despite this cash infusion, Amtrak’s working capital ratio

went from 0.45 in 2000 to 0.31 in 2001, its lowest level in over a decade. The workVerDate 03-FEB-2003 09:22 Sep 08, 2004 Jkt 089637 PO 00000 Frm 00061 Fmt 6601 Sfmt 6621 D:\DOCS\89637.TXT SSC1 PsN: SSC1
58

ing capital ratio, which is calculated by dividing the value of current assets by current liabilities, is a measure of an entity’s ability to meet short-term liabilities. The

decrease in working capital means that Amtrak may have to increase its short-term

borrowing or slash current expenses to enable it to meet its current obligations. Figure 9 shows the changes in Amtrak’s working capital ratio since 1991.

AMTRAK HAS NOT MET ITS OPERATING PERFORMANCE GOALS

While Amtrak’s ridership grew from 22.5 million in 2000 to 23.5 million in 2001,

it fell short of Amtrak’s 2001 ridership goal of 24.7 million. The shortfall was primarily attributed to delays in the Acela Express trainset deliveries, a slowing economy, and poor on-time performance. Other key performance measures for Amtrak

are on-time performance and the Customer Satisfaction Index (Index). Amtrak reported systemwide on-time performance in 2001 of 75 percent, which was significantly below performance levels in 1999 and 2000, and far short of 2001 goals. Amtrak cited scheduled and unscheduled track work, freight rail traffic interference,

mechanical failures, and weather as the largest contributors to the poor performance. As illustrated in Table 1, all three business units fell short of 2001 on-time

performance goals.

Table 1: On Time Performance

[percentage]

Business Unit 1999 Actual 2000 Actual 2001 Actual 2001 Goal +/(-) 2000 +/(-) Goal

Systemwide ................................. 78 78 75 85 (3) (10)

Intercity ....................................... 67 68 62 75 (6) (13)

Northeast Corridor ...................... 88 87 83 92 (4) (9)

West ............................................ 75 75 75 79 0 (4)

Amtrak’s Customer Satisfaction Index, which indicates the level of customer satisfaction with Amtrak’s overall service delivery, remained the same in 2001 as the

score in 2000, 82 (out of 100). However, as Table 2 indicates, all three business

units fell short of their goals for 2001.

Table 2: Customer Satisfaction Index Results

[Scale: 1-100]

Business Unit 1999 Actual 2000 Actual 2001 Actual 2001 Goal +/(-) 2000 +/(-) Goal

Systemwide ................................. 83 82 82 86 0 (4)

Intercity ....................................... 78 79 79 83 0 (4)

Northeast Corridor ...................... 85 82 81 86 (1) (5)

West ............................................ 86 84 87 89 3 (2)

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6Total includes delays caused by equipment, infrastructure, train operations, and outside interference (weather, police, and trespassers). The total includes delays incurred by Amtrak operating along its own right-of-way as well as trains operating over territory in which Amtrak neither owns nor is responsible for maintaining the infrastructure.

INFRASTRUCTURE HAS DETERIORATED DUE TO UNDERINVESTMENT

While Amtrak’s capital funding since 1998 has been substantial, it has not been

sufficient to invest in both high rate-of-return projects and reinvest sufficiently in

existing infrastructure. The projects that support self-sufficiency, while not frivolous, have come at the expense of other, less visible reinvestment and operational

reliability projects. The most notable of these needs is an estimated $5.0 billion

backlog of ‘‘state of good repair’’ needs in the Northeast Corridor. Amtrak has not

been able to invest sufficiently in operational reliability or other kinds of projects

that would begin to address these needs. The results of this deferred spending are

becoming apparent. Total minutes of delay for Amtrak trains in the Northeast Corridor rose nearly 75 percent between 1998 and 2001.6 Figure 10 compares minutes

of delay in the Northeast Corridor from 1998 to 2001.

AMTRAK’S FY 2003 GRANT REQUEST EXCEEDS THE ADMINISTRATION’S BUDGET

SUBMISSION BY NEARLY $700 MILLION

The Department of Transportation’s FY 2003 budget submission to the President

requested funding in the amount of $521 million for Amtrak. On February 15, 2002,

Amtrak submitted its own grant request to the President, requesting $1.2 billion,

which it stated would be, ‘‘essential for keeping a national rail service network intact’’ in 2003. Included in this $1.2 billion is $160 million for payments to the railroad retirement fund in excess of the amount paid to Amtrak retirees, commonly

referred to as ‘‘excess RRTA,’’ $200 million to cover net losses generated by 18 longdistance trains, and $840 million to pursue a ‘‘minimum’’ capital program. Figure

11 illustrates Amtrak’s FY 2003 grant request.

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We have not had an opportunity to review the detailed support, but Amtrak’s request for $200 million to subsidize the operation of 18 long-distance trains as well

as $160 million for excess RRTA appears reasonable. However, the $840 million Amtrak is requesting for ‘‘minimum’’ capital investment needs close scrutiny. Table 3

outlines the general categories of capital projects Amtrak is proposing to fund with

its FY 2003 capital grant request.

Table 3: Amtrak’s $840 Million Capital Grant Request

[$ in millions]

Environmental ...................................................................................................................................................... $29

Americans With Disabilities Act .......................................................................................................................... 19

Minimum Fleet Overhauls/Preventive Maintenance ............................................................................................. 190

Life Safety ............................................................................................................................................................ 26

Debt ...................................................................................................................................................................... 105

Federal Infrastructure/Operational Reliability ...................................................................................................... 286

Non-Federal Infrastructure/Operational Reliability .............................................................................................. 75

Fleet Repair and Additional Limited Overhaul .................................................................................................... 59

Facilities ............................................................................................................................................................... 12

Technology ............................................................................................................................................................ 40

Total Capital ............................................................................................................................................... 840

Amtrak’s grant request for capital alone is significantly higher than the funds requested by the Administration for Amtrak’s total needs in 2003. We note that the

Administration recognized that the $521 million essentially serves as a funding

placeholder until a new paradigm for intercity passenger rail service is identified.

However, Amtrak’s mandatory requirements including payment on debt service,

excess RRTA, and net losses on the 18 long-distance trains identified by Amtrak

amount to about $500 million before the first dollar is spent on real capital projects.

Amtrak forecasts that over the next 25 years, it will need to invest about $30 billion in capital projects just to sustain the system as currently structured. Approximately one-half will be needed in the Northeast Corridor, including about $5 billion

to address the backlog of state-of-good-repair needs. The magnitude of need makes

it clear that neither the Administration’s request nor Amtrak’s request would allow

Amtrak to begin to meaningfully address these needs in 2003. However, it is not

clear at this point how passenger rail will be structured beyond that date, which

could affect the required level and location of investment. Congress needs to understand how and where Amtrak intends to use its 2003 capital dollars before it can

determine the appropriate amount of funding.

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In our view, the most significant area where more information is needed is in the

category of investment related to ‘‘infrastructure/operational reliability.’’ Amtrak’s

budget request includes $286 million for Federally-owned infrastructure and $75

million for agreements with partner railroads for improvements on non-Federallyowned infrastructure. In our prior assessments, we have maintained that Amtrak’s

annual minimum capital need for Federally-owned infrastructure was about $135

million, $151 million less than Amtrak’s grant request.

It may be that Amtrak needs more than our annual estimate for FY 2003, but

its budget request only includes a laundry list of projects that could be undertaken,

which Amtrak indicates is ‘‘subject to condition assessments.’’ To enable Congress

and the Administration to make informed decisions, Amtrak should provide specific

and detailed information on exactly what projects need to be done in FY 2003,

where they are, how much each is estimated to cost, how the projects will improve

service, and what would be the implications if the projects were not done in FY

2003.

The same type of information is needed for the $75 million Amtrak requested for

operational reliability on non-Federally-owned infrastructure. While we fully endorse Amtrak partnerships that leverage funding from other sources and improve

service, Amtrak has not shown in detail how the $75 million will be spent and the

implications if it did fund its share of these agreements in FY 2003.

The lack of clarity and specificity in its budget request may be symptomatic of

Amtrak’s unwillingness or inability to provide detailed financial information for effective decision making. Despite recommendations by the Amtrak Reform Council

to break out financial results from train operations and owned infrastructure, and

our repeated requests for detailed financial information on its mail and express

business, Amtrak resisted implementing a financial reporting system that provided

the information.

The absence of this important data makes it difficult to arrive at good business

decisions and to pinpoint responsibility and accountability for achieving measured

results. As an example, even though Amtrak was leaning heavily on generating substantial bottom-line contributions from its mail and express business to achieve selfsufficiency, Amtrak was not closely tracking the costs associated with this business

line and could not account for how much, if any, it was netting from this activity.

Even as it entered the 5th year of its 5-year glidepath, Amtrak was still trying to

refine how to assign costs to its mail and express activity.

Mr. Chairman, this concludes our statement. I would be pleased to answer any

questions.

The CHAIRMAN. Thank you very much, General Mead.

Mr. Rutter, we are glad to have you, sir.

Mr. RUTTER. Thank you, Senator. I appreciate the indulgence of

the Committee in allowing me to be here accompanying the Deputy

Secretary. I simply ask that be entered into the record some testimony that we provided to the Committee that we offered to Senator Murray’s Subcommittee last week.

The CHAIRMAN. That will be included.

[The information referred to follows:]

SUMMARY STATEMENT OF HON. MICHAEL JACKSON, DEPUTY SECRETARY,

DEPARTMENT OF TRANSPORTATION

Mr. JACKSON. Thank you, Senator. I appreciate the opportunity to testify today

before your committee. Madam Chairman, Amtrak’s financial condition is grave, as

you have outlined, and the administration understands and agrees with you about

the gravity of the circumstances that Amtrak faces.

As George Warrington has testified and spoken about recently, there is a structural problem in the way that Amtrak has to operate its mission to make profit and

its public service commitment that has reached a point where those goals cannot

be effectively reconciled. Its financial problems are significant.

BOARD OF DIRECTORS FOCUS

Since the Secretary was appointed to the Amtrak board in May of last year, his

focus on these issues has been three-fold: First, to understand the financial facts;

second, to support getting these facts out to the Congress and to the public to stimulate the type of understanding, and debate, and discussion about Amtrak’s financial

difficulties that we are having here today, and to help the public understand, and

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the Congress to understand that Amtrak is, indeed, at a crossroads, not just another

reauthorization period.

Finally, that is why he encouraged early in the summer of last year that we undertake a reauthorization early this year to look at the core issues and to figure out

how to proceed with intercity passenger rail going forward.

It took us 30 years to get here. It will take us a little bit of time, I think, to build

the consensus on the State level, at the Federal level, with all the parties that are

necessary to take what is a very complex series of issues, and to bring them to some

closure so that we know how to provide for intercity passenger rail in the future.

DEPARTMENTAL FINANCIAL ANALYSIS

If I could, in May of last year, late April of last year, we were presented at the

Department of Transportation with the transaction that you referred to regarding

Penn Station, and at that time began to understand the degree of difficulty that

Amtrak faced in meeting its financial obligations and the various methods and

mechanisms that it had sought to use to try to reach the glide path objectives that

were set out for it.

We expressed concern about that particular financing deal at the time, but agreed

with Amtrak that their mandate for the glide path and their requirements to live

within their budget left no alternative, and the Secretary agreed to provide the

guarantee necessary by the Department to allow that transaction to move forward,

but that started for us the beginning of a very intensive look at the Amtrak issues.

Internally, we began a financial analysis, and it was shortly after that that the

management of Amtrak and the board voted to seek some outside support in looking

at these same set of core issues. So I think that the realization about Amtrak’s financial difficulty has appropriately and helpfully reached the stage which we are

at today, which is to say that they are struggling to live within their financial

means this year, and have taken significant steps at Amtrak on the board—these

issues have been -discussed in great detail to try to get us to the end of the fiscal

year within the means that we have at the disposal of the corporation, and to provoke this reassessment of how to proceed going forward.

I would like to talk just briefly, and then would be happy to answer any questions

about the issues that I think need to be addressed.

I do not come here today with a legislative package, with a specific opinion about

each of the details that have to be incorporated into the solution of the problems

that we have, but I want to just outline the questions that I think we have to face

before us and fold into any solution that we should carry forward.

AMTRAK SELF-SUFFICIENCY

First, do we need to continue to support with Federal funds intercity passenger

rail? Secretary Mineta’s view of this has been clear from the outset, and is clear

from his whole congressional career. Yes, indeed, we do need to support with Federal funds, inter-city passenger rail, and that the intercity passenger rail is a vital

part of our national transportation needs.

Second, have we understood adequately the major financial and policy drivers

that make Amtrak incapable of financial self-sufficiency? I think we have a much

clearer picture of that. George will be speaking about that; so will the Inspector

General. We have cooperated carefully with both, and I think we have a clearer

view of what the drivers are.

Third—and this is the beginning of the key questions. What kind of passenger rail

system can we sustain, should the American people support? No system? I have said

that we think that is not a viable option. But then we have to look—a limited system, with certain corridors only, a national system characterized mainly by routes,

or a true national system comparable in scope to the type of system we have today?

That does not even address the question of improving service with high-speed rail,

or the significant investments that would be necessary to make high-speed rail possible. So then layered on top of the three option I just mentioned, do we support

corridors or a national system of higher-speed rail capability?

Finally, what is the role of MAGLEV in this area? These three strands supporting

what we have today, growing for the future with high-speed rail, and the MAGLEV

issue out on the side, have to be brought together in a single authorization.

AMTRAK FUNDING OPTIONS

What is the total cost? Each of these have broadly different costs. Just to keep

what we have, I believe, personally, that the cost order magnitude is $2.5 billion

to $3 billion a year. That is not to grow to high-speed rail. It does provide money

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for some of the deferred capital investments that need to be made in their existing

network.

What portion of these costs should be borne and by whom? The Federal Government? State government? Fare box revenues and increased operating efficiencies at

Amtrak? I believe all of these are part of the solution and have to be part of the

solution. Just as you have said, some States are putting significant investments in.

And we have to manage this problem of how to fund intercity passenger rail by looking at Federal, State, and the Amtrak assets that come here, fare box, and operating

efficiencies.

I would like to raise the question of whether there is outside capital investment,

private sector investment that should have a role somehow in providing the necessary funds.

The next question we have to raise is: How is the government going to pay for

its share? As you have said already, Madam Chairwoman, the amount of money

needed to bring this together is very, very large, indeed. Should the Federal funds

cover operating expenses as well as capital expenses?

The next question I think we have to face is whether Amtrak’s current organizational structure provides the appropriate means for providing intercity rail passenger service. The ARC report suggests some fundamental restructuring.

I would suggest that the more difficult questions are what we want and how we

are going to pay for what we want, and that the structural questions really follow

behind that, and would drive solutions once we can address those core questions.

How do we deal with access issues on trackage and safety issues? There is increasing congestion in the freight rail tracks which Amtrak uses. Amtrak has a special right of access under the law. We have increased demand on the Northeast Corridor. There are grade crossing issues associated with high-speed rail improvements,

and noise issues. There is a cluster of those issues which have to be understood,

addressed, and evaluated as part of a solution that we need for reauthorization.

Next, we have to know what we want, and how to pay for it, and how to get there.

What type of transition is necessary? I do not think it will be easy, or possible, or

desirable simply to say that the Amtrak that exists today is going to be changed

dramatically in a structural way, or in an operating way, in terms of how we fund

and manage this going forward.

So I think we have to look at some transitional approaches to move from where

we are today to where we want to go. It may not be possible to throw a switch and

get the system that we want, or the organization and operation that we want overnight at the beginning of a new fiscal year.

AMTRAK STRUCTURE

Finally, what is the will of the Congress, the States, and others who are part of

this process? There was on the table with the previous authorization, a very strong

mandate that we must meet operational self-sufficiency at Amtrak, and that operational subsidies were not to be expected.

So we have this question on the table: What are we going to be able to sustain,

and what is the political realm of possibility that we have to choose from among

these options, these questions, these issues?

So without trying to lay specific answers on the table, I am very pleased with my

colleague, Administrator Rutter, to be engaged in a dialogue with the Congress,

with the States, and with interested varties here, with Amtrak’s employees, to look

at its future, and to build a better future for intercity passenger rail.

I look forward to participating in this dialogue in the coming weeks with you.

Mr. RUTTER. And I am here to answer any questions that the

Senators may have.

The CHAIRMAN. Very good. Secretary Jackson, you must have

had that Dick Morris write your statement. You acted as if we

were having a hearing for the Administration. You asked more

questions than we could possibly answer, and it is probably a darn

good idea.

We have given you the answers. What do you think of them? At

least that is why we got you here. We know how to ask the questions. At least we got onto General Mead and that is valuable, but

we both believe in capital funding, Senator McCain’s bill and mine,

otherwise strong oversight and not to get rid of Amtrak, and that

means get rid of Amtrak which we both agreed and then let us get

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something operating with respect to security and everything else of

that kind.

But why had not you all set up something that we can act on?

After all, you all have made decisions in the country of Georgia.

You all can make up your mind about what can be done in the

Philippines. Cannot you make up your mind what ought to be done

with this bankruptcy that is at your doorstep? I mean, you mortgaged Penn Central Station in order to pay the light bill. You know

that I know that. So come on, what do you all want to do?

Mr. JACKSON. Senator, we appreciate the difficulty of this problem, and I am going to give you a couple of answers, and I am just

going to say this. The Administration is continuing the assessment

portion of the rest of it, and we want to engage in a dialog. Where

we started at the end of last year, we were operating under a Congressional mandate that said Amtrak had to meet a glidepath and

be operating self-sufficiently by the end of the year.

The CHAIRMAN. I do not mean to be rude, but this is not foreign

policy. We do not want to get in a dialog. We want to make decisions and provide. I mean, that is what we have been into is a dialog since 1971, an unfunded dialog.

Mr. JACKSON. Well, we are ready to work very closely with you,

sir, to make that dialog into legislation. Let me give a couple of

particulars.

The Administration last December 5th supported the measures

that this Committee put forward on the safety improvements for

the tunnels. That is a part of your bill. That is something we have

supported. We also supported about a $500 million investment on

improving Amtrak security. That is something that the Committee

has supported in a bipartisan way, and we support that as well.

In your legislation and in Senator McCain’s legislation, as General Mead said, there are some important provisions that relate to

making sure that we audit carefully and watch the way that money

is allocated, and we support that fiscal responsibility and the impulse to structure this in a different way than we have now.

There are two different measures on the table here in the two

bills that Committee Members have laid on the table and are looking at that issue of how best to structure it. I think both bills look

at a transition period. Senator McCain’s bill has a control board

mechanism and a period of years. We are concerned that we cannot

just simply change the appropriation and throw more money at

Amtrak as currently structured without understanding that we

want to change the behaviors that have produced these problems.

So we will be recommending a transitional structuring through

what we have today and make it operate more effectively.

So there are series of things that I think we will be in very much

agreement on, but the President is going to have to review with his

advisers the significant financial cost associated with this transportation need, and we are not prepared as an Administration, and I

would be rash to get out in front of my President on this issue, to

commit to a specific dollar amount and an enumeration of exactly

what we can support in that regard. I think the questions have to

do above all with what we can afford and what we are trying to

produce.

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The CHAIRMAN. Is the Administration ready for a national system? Mr. Warrington has already testified to the fact that the basic

model is flawed, it has not worked and has not worked anywhere

in the world, and right to the point, we need a national system according to the bill before us. Do you agree or disagree?

Mr. JACKSON. The Administration is not prepared to see what we

have as a national system continued because it is broken and does

not work, and I think, Senator, you have acknowledged the same.

So we recharacterize it, restructure it. We do need intercity passenger rail in this country.

The CHAIRMAN. You keep saying intercity. Is that as far as the

Administration will go, just intercity?

Mr. JACKSON. Well, a national system is a system that links cities, and the question is how extensive a network do we need, and

so we are not able to commit to a specific network in the exact way

that we have it today because I think we have to work through the

funding mechanisms of what we can afford and how to pay for it

and also the structural reforms of the sort that the Amtrak Reform

Council has on the table are, we believe, important questions to

take up as well.

The CHAIRMAN. Is there anything any one of the panel finds radically wrong or a mistake or any one of you four gentlemen have

got some criticism? Let us have it. If you see some mistake being

made or something’s wrong in the bill before us, Mr. Warrington,

how about you?

Mr. WARRINGTON. First of all, as I said earlier, Mr. Chairman,

I think it is important for the Congress and the Administration to

define what the expectations are, the service expectations for a system, define it and invest in building it and acknowledge which of

those services are clearly essential public services that will require

some form of subsidy no matter how efficiently they are managed.

I would also suggest that whatever the outcome I do believe that

there does need to be an appropriate measuring stick. The concept

of operating self-sufficiency applied to the entire service model and

types of services that Amtrak runs does not work.

I think the underlying economics of each part of the business are

different kinds of services and aligning a set of measurements, both

financial measures and operating measurements and standards

against different parts of the business is an important consideration as any kind of quid pro quo for public investment. I think

that is very important. I think the concept of self-sufficiency was

not the right measuring stick, but I think measuring sticks are important around efficiency, around discipline and around clear expectations of what we are getting for publicly invested dollars.

The CHAIRMAN. Mr. Mead, do you have a suggestion?

Mr. MEAD. I guess I would have a couple. One is I think you

need to have some incentives for Amtrak to be efficient and even

with a substantial capital infusion, and I think the operating selfsufficiency test is a good test in some corridors that encourages it

be efficient, and I would encourage your bill to include provisions

along those lines.

The second area is in cost-sharing. I think that we are going

down the road where we are going to have to look to some costVerDate 03-FEB-2003 09:22 Sep 08, 2004 Jkt 089637 PO 00000 Frm 00069 Fmt 6601 Sfmt 6601 D:\DOCS\89637.TXT SSC1 PsN: SSC1
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sharing with the States because different States will want, for example, high-speed rail, and I will pay some attention there.

In Senator McCain’s bill, it is not clear what will happen at the

end of the authorization period. For example, the Department of

Transportation becomes apparently the caretaker or the custodian

of the Northeast Corridor, but it is not clear after putting that capital money into the Northeast Corridor to fix it up what is going

to happen at the end of the authorization period because it is very

unlikely that you could charge at the fare box enough money to

cover all the costs in the Northeast Corridor.

So those would be two or three suggestions I would make, sir.

The CHAIRMAN. Secretary Jackson, do you have a suggestion

rather than a question?

Mr. JACKSON. Yes, sir. I have two points to make.

On the cost-share, I agree that as I have said earlier that this

is going to be an indispensable part of a solution that is going to

work.

Second, I think on the capital investment issue, one of the drivers of the whole conversation about structuring and restructuring

is really a manifestation of our efforts to grapple with how are we

going to pay for the capital investment and then how do we operate

off of that investment.

So I do think that one of the structural questions proposed by the

Amtrak Reform Council is are we going to fund the capital investments sufficiently and how do we face up to that issue. That goes

back to the question I asked of what sort of system are we going

to have. Sorry to have another question here, and when we decide

that, how expensive it is and how we are going to fund it, we really

have to structure that capital investment in such a way as to make

that happen. Then I think there is an opportunity to inject competition into the operational component of the railroad and to look

at those issues independent of the capital, but the capital is the big

driver.

The CHAIRMAN. Mr. Rutter.

Mr. RUTTER. As long as it would be inappropriate for me to make

critical judgments if we are not prepared to make positive ones, but

I would make a couple of observations about where we are trying

to go that illustrate where some of the positions of the two bills

are.

First, we are trying to find out ways of increasing the ability of

the private sector to participate in the delivery of these systems.

Whether it is a matter of franchising whole lines, as Senator

McCain’s bill does, or finding ways of having certain elements of

what the passenger transportation system is provided by non-Amtrak employees, there are possibilities of having private sector involvement that would reduce what now is a very high cost of providing those services.

Second is a way of enhancing and giving incentives for States to

participate in delivering these systems. Many of the States are already putting in quite a bit of money into the system that exists

and want to be willing to invest in enhanced speeds, enhanced

service, how we structure a system that encourages those States to

make those investments because the Federal Government cannot

do all of it on its own.

67

Then third would be a way of, in terms of where we are going

with high-speed rail systems, how do we meet those State expectations and desires for increased services when most of the States are

looking at services that would provide top speeds of under 125

miles an hour for reasons that that is a way of them getting increased service to their populations at a cost that is nonprohibitive.

Those are some of the things we are looking at in these two bills

and all the other ones that are up on the table.

The CHAIRMAN. Senator McCain.

Senator MCCAIN. Thank you, Mr. Chairman.

Mr. Jackson, I have the highest regard for you and the Secretary

and many of the people that work for you, but look, it is time that

you come forward with a proposal from the Administration so we

have something to work on. We had a very unhappy experience

with the airport security bill because frankly of the failure of the

Administration to come forward with a specific proposal, and we

ended up delaying by weeks a bill that should have been passed

in a very short time. So, Mr. Jackson, carry the message back, get

a proposal.

Mr. Chairman, I suggest you have another hearing when the Administration is ready with their proposal because this is an important issue that must be addressed.

So, please, seriously do that. Worst of all is for us to go through

the whole legislative process and have a bill that the President

threatens to veto and, therefore, does veto.

This issue of a short- and long-term debt is really perhaps the

most disturbing aspect of your presentation today and obviously we

have had some very interesting things go on, buying equipment

that we pay for and then it being sold back and try re-leasing it

and we pay for it. So taxpayers have paid for this equipment sometimes three or four times.

I do not like to revisit history, but there is an old line about

those that ignore history are doomed to repeat it. I have in front

of me an Amtrak news release November 7, 1997, that talks about

the leadership of Senator Kay Bailey Hutchison, Senator Lott, Senator John McCain and Senator John Kerry enacting this legislation

which Amtrak, in a news release, states the bill contains important

reforms that will help Amtrak wean itself from Federal operating

support which Congress and the Clinton Administration says it will

cease in 2002.

Enactment of the reauthorization bill will put Amtrak on the

road to financial recovery and begin to ensure its place in America’s future transportation system, and if you look through the colloquies and statements on the floor of the Senate at the time we

passed that, everything was going to be fine with Amtrak, and I

will bet you if we went back through the previous iterations all the

way back to 1971, we would have the same rhetoric, the same

statements, only we just extended it for several more years, and

now we have compiled an investment of some $25 billion over this

period of time, and we obviously have a railroad that is in very,

very serious difficulties.

Are they in serious financial difficulties, Mr. Mead?

68

Mr. MEAD. Yes, they are. I do not know what the right adjective

or characterization is. Mr. Jackson said grave. I am saying extremely grave.

Senator MCCAIN. In 1997, everything was going to be fine because of the legislation that we passed. I want say another word

about this.

For years, a line in the State of Wisconsin which we subsidized $1,200 per passenger finally was shut down. So I am not averse to

supporting the Northeast Corridor, because I plan on trying to get

from Washington to New York and to Boston and other places just

as well. So for us to say, well, we are not going to support the

Northeast because we do not have a rail system that goes to Portland, prove the viability of a rail service and I will support it. I

think we prove unequivocally that if we have rapid transit in the

Northeast Corridor on a good and safe railway system that will be

viable and over time, it will be financially viable. I do not have that

assurance about Texas, Arizona or Oregon.

So talk about the ‘‘need’’ for a national rail system. The case has

to be made. I think the case has been made in the Northeast. I

think the case will be made in the far West. I hope the case will

be made in Oregon, Texas, Arizona, but so far it has not, and my

constituents have voted with their feet, and that is to go to the airport in order to get to Los Angeles rather than go down to the train

station in order to get to Los Angeles or Portland.

So, no, I am not averse at all to using Federal dollars to make

all American citizens have a better opportunity, and I am sorry I

have used up all my time.

I just want to ask Mr. Mead again, Mr. Mead, do you believe that

the present system, what is your estimate of the amount of money

that would be necessary to inject into Amtrak today, exactly as it

is today, in order to let them start off with zero debt again?

Mr. MEAD. Probably speaking, just to get rid of the debt alone, would be $4 or $5 billion, but then assuming you want the railroad

to continue to operate, you are going to have to fix up the Northeast Corridor, and you are going to have to fix up the rest of the

country. I would guess you are in the neighborhood of $10 billion

immediately.

Senator MCCAIN. Immediate injection?

Mr. MEAD. If you want to liquidate all the debt and keep the railroad going and make the necessary repairs to the corridor and keep

the rolling stock in good shape and keep the overall national system running, but I do not think that that is what the hour calls

for.

I think what the hour probably calls for, I think Amtrak could

maintain its current system, not fall into further disrepair, with an

annual funding of between $1.3, $1.5 billion. That would not go and

contemplate the building and structuring of additional high-speed

rail corridors.

Senator MCCAIN. Well, I think it would help this Committee in

its deliberations significantly if you could provide us an estimate

of how much money it would require in order to give Amtrak, after

reorganization, whatever legislation is passed, an opportunity to

become financially viable, and I understand there are other variables, whether we have to subsidize a line in Wisconsin, as they

69

did for several years in Wisconsin, as they did for several years for

$1,200 a passenger or whether we do it in a most efficient fashion,

but I would appreciate very much if you would, for the benefit of

the Committee, give us a sum of the moneys that would have to

be made available in the short-term and the long-term in order to

give this organization an opportunity, at least if well-managed, an

opportunity to have financial viability.

I thank you, Mr. Chairman. I have no second line of questioning.

The CHAIRMAN. Senator Hutchison.

Senator HUTCHISON. Thank you, Mr. Chairman.

Mr. Chairman, I would like to respond somewhat regarding the

national system to say that it would be very hard for someone in

Phoenix to get on an Amtrak train and not be 6 to 12 hours late

going to Los Angeles or to Dallas-Fort Worth. So starving the system is going to continue to make it less and less viable. That is

why I think you do have to make a commitment, and yes, it will

cost money to corridors that we know will be there, that can allow

a high-speed component and will run on time with good rolling

stock. I think the continued starvation of capital improvement in

the long-haul routes has caused a difficulty in making it viable.

My concept has always been to take the United States rough

drawing and do a Northeast-to-Florida Corridor, and a Western

Corridor connecting those at the bottom part of the country to the

top part of the country where the top part of the country is Chicago

and would go right down through the middle of the country with

Chicago, St. Louis and Dallas-Fort Worth and then San Antonio or

Houston as that final stop where you could have a high-speed line.

This would be very viable, particularly in Texas. One of the highest

priorities for our Governor and the Department of Transportation

is to have a high-speed corridor from Dallas to Houston and San

Antonio and back to Dallas-Fort Worth in a triangle.

I think that could be viable because it would allow them, if you

had an Amtrak intercity connection, to have the State and the local

government step up to the plate and create feeder lines that would

make Amtrak more viable and increase your ridership.

Oklahoma has done that to a minor extent by putting in a line

from Oklahoma City down to Dallas-Fort Worth, and they did it at

State expense working with Amtrak.

I do think it is fair to ask every State that receives Amtrak service to step up to the plate. I think the Northeastern States should.

I think Southern States, the Midwestern States, and the Western

States should step up. That is fair. I think some of the lines that

were eliminated in the past were because the States refused to step

up to the plate. Texas did step up to the plate, but other States

did not, and that was part of the factor.

Right now, except for the Northeast Corridor and maybe the

Western Corridor to an extent, probably the only real use of the national system is for pleasure because the on-time performance is so

abysmal, that a person that has to make a meeting could never

take Amtrak outside the Northeast Corridor or perhaps the West.

I think we have got to say, when we talk about a national system, it has to be viable, and it has to perform, and that is going

to take a capital investment, and clearly I think you are probably

going to have to have a debt component for capital investment, but

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not for operating subsidies, and that is something that should be

looked at and determined if it is going to be part of a plan.

I would like to ask this question. The labor costs in running a

railroad are out of line with other industries in our country. There

is no question about that. I was looking at the chart that you gave

us, and it looks to me like the labor costs of Amtrak are about 50

percent.

Mr. MEAD. That looks about right, 53, 55 percent.

Senator HUTCHISON. They stayed relatively constant compared to

some of the other costs, but the question is, and I would ask this

of Mr. Warrington and Mr. Mead, is there a real possibility that

we could bring the labor costs in line and bring them in line with

other industries as opposed to some of the archaic labor provisions

that were put in place probably long before we had an industrial

revolution probably? Could you comment on whether we could get

those in line and if that would be helpful in looking at a national

system?

Mr. WARRINGTON. As a consequence of the last round of collective

bargaining, Senator, you may recall that about 20 percent of the

costs of increased wages which settled at 2.9 or 3 percent were offset by significant productivity improvements which to date have a

value of about $85 million a year, and we have always incorporated

those savings in the plan. We are in our next round of collective

bargaining right now.

Senator HUTCHISON. Are you saying the labor costs turned out

as you had predicted it would?

Mr. WARRINGTON. Yes. Actually, we ended up saving $85 million

a year through productivity improvements. The context also is that

Amtrak’s basic wages on an hourly basis are below the rest of the

industry and substantially below both commuter and freight weight

on average.

Senator HUTCHISON. If you compared that to not just the rail industry, but to the efficiency of the aviation transportation system,

how would that compare?

Mr. WARRINGTON. I have not looked at that recently. We can certainly get you those comparisons. I would say that probably on average we are competitive or perhaps even below. I will tell you that

the long distance train network itself generally tends to be a labor

intensive set of services just by nature of the length and distance

and time associated with the operation.

Senator HUTCHISON. My staff has just handed me a chart that

is in Mr. Rutter’s testimony that shows rail is out of line as compared to aviation and other modes of transportation.

Mr. WARRINGTON. Yes. Let me respond this way, Senator. If you

look at that chart, which I am generally familiar with, Amtrak’s actual costs fall below that industry standard, and I can get you that

on average annual wage basis. In other words, Amtrak’s costs associated with labor are below that industry average represented in

that chart, and I can share those details with you.

Senator HUTCHISON. Well, yes, since it appears to be the exact

opposite, that would be helpful.

Mr. WARRINGTON. That is not Amtrak’s. That is the industry as

a whole, and where Amtrak falls within the industry is actually

very competitive.

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Senator HUTCHISON. Competitive with other modes?

Mr. WARRINGTON. Within the railway industry.

Senator HUTCHISON. I was trying to determine if they were as efficient as they could be if you compared them with other transportation industries which this chart indicates they would not.

Mr. MEAD. A quick observation, I think there is something to say

about labor applied to and its relationship to capital, and I am not

a student of good comparisons between labor and airline industry

and labor and rail, but one thing is very clear, when you compare

airlines to Amtrak, I doubt if the aviation employees on the maintenance side are running around plugging as many holes in the

dike on a daily basis as Mr. Warrington’s staff probably is, and infusions of capital tend to put things in a better state of repair, and

that should correlate with some productivity gains in labor.

I would like to thank Mr. Warrington for his great service.

Thank you, Mr. Chairman.

The CHAIRMAN. Senator Wyden.

Senator WYDEN. Thank you, Mr. Chairman.

My first question for the panel goes to the point Senator McCain

was addressing in his question of who gets routes and under what

circumstances and I want it understood. I want these calls based

on the merits. I want them based on, in effect, good, timely information.

I have got a draft report that I am going to share with my colleagues from the General Accounting Office and Amtrak got saying

that Amtrak has got lousy information on the key questions with

respect to revenues generated in areas that go right to the heart

of the system. I want to share it with my colleagues.

It is not helping us make these calls on the basis of the merits,

and it meted out political judgments, and as this panel knows, the

General Accounting Office evaluated training based on their costeffectiveness and areas of service were eliminated that were more

cost-effective in trains that were allowed to go forward.

So I want it understood that I want to work with my colleagues

in fashioning this bill so we do have these decisions based on the

merits, and I will begin by asking you, Mr. Jackson, what is the

Administration doing specifically to help the Congress and the various reforms that are being discussed that would allow us to have

these decisions based on the kind of criteria I am outlining.

By the way, if we wanted to set out a set of criteria, for example,

and then hand it over to an independent third party, and shoot,

Mr. Mead has done good work for us for years, if we wanted to set

out a set of criterion, we could persuade old Mead to do it; it would

be fine with me if he would make the decisions.

But the question for you, Mr. Jackson, what is the Administration doing as we go forward with this reform effort to have these

calls made on the merits? They are not being made on the merits

today. That is what the GAO said and that is what they said repeatedly in their reports.

Mr. JACKSON. Senator Wyden, I share the same frustration you

have. I walked into my first board meeting and did not have available to me the data from Amtrak about the cross-subsidies that

were taking place within the network.

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I want to compliment George Warrington, because they have

been trying to pull that out and tease that out of the financial system that was I believe disincentivized to give you the straight dope

about what is going on in that regard. So they have been trying

to pull the cross-subsidy information out of an accounting system

that was not structured to deliver that type of data.

I think anything going forward has to have rigorous clarity about

how much it costs to provide service to each community and to

each segment of the operation. You are absolutely right about this.

Senator WYDEN. What is the Administration’s proposal on that?

Do you think we are making progress? The General Accounting Office got a draft report to me that say we are not making progress.

Mr. JACKSON. I have not seen the draft.

Senator WYDEN. Is it your proposal to take a system that now

is served with lousy information and change it?

Mr. JACKSON. It is to require that we make all decisions of this

sort transparent and visible about the viability of a given route

structure. I think that is an indispensable principle that has to be

baked into the authorization.

Senator WYDEN. Mr. Warrington, it seems to me you changed the

goal posts once again this morning. You pledged to the Congress

a year ago that Amtrak was going to achieve operational self-sufficiency this year. Obviously that has not happened. I have seen how

it has been blamed on September 11, but obviously Amtrak ridership is up in a number of areas since September 11, and I think

it is worth noting you changed the goal post again today.

You said operational self-sufficiency should not be the measure,

but in your word, the question was whether Amtrak was on a

glidepath. What does that mean?

Mr. WARRINGTON. The measure has always been the glidepath

and the extent to which Amtrak would provide Federal operating

support to its operations, and what we have worked very hard to

do is remain on that glidepath and reduce the annual amount of

each annual appropriation that would be devoted to operations,

and we have actually done that through this year.

Senator WYDEN. But you said that you were going to be operationally self-sufficient.

Mr. WARRINGTON. What that means is we would have achieved

that glidepath result by FY 2003, which means that the amount of

Federal appropriation we would get would not be applied to operating support for any of the trains in the company. My point here

has been that I believe a year ago that continuing to work hard

could allow us to get to that goal which was the goal established

in the law, but frankly, moons have to align perfectly.

We were, as I often said, fixated and focused on trying hard to

get there, and a number of events did occur that made it increasingly difficult, in my view, to get there.

Senator WYDEN. What were those events, because ridership was

up post-September 11 in a number of areas?

Mr. WARRINGTON. Frankly, the slippage in delivery and the introduction of the Acela high-speed train sets on the Northeast Corridor had a cumulative value of about $300 million in revenue over

the course of this measure period for self-sufficiency, number one.

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Number two, the economy clearly began to show impacts on cashflow beginning late last winter and early in the spring. They

reached their height of negative trend in August and September

and October of last year. September 11 did help us on the Northeast Corridor in particular, on other corridors and on many of our

sleeper services across the system.

On top of that, we had some security costs associated with 9/11

that had a cash impact. Another one of the difficulties we had this

past year resulted from the Amtrak Reform Council issuing their

formal finding, which had some unintended consequences that

flowed from that. One consequence was to put in play the provision

in the law that requires the U.S. Senate to consider the liquidation

of Amtrak, and with that concept being out there, and uncertainty

about how this body would deal with that statutory issue, as Ken

has said earlier, has hurt us with the private markets. We depend

substantially upon private markets, short-term and long-term, and

one of the consequences of the cumulative effect of Acela highspeed trains is delivery delays with the cumulative impact of the

economy which was fairly substantial by last spring and last summer and into the fall and the ARC trigger being pulled, which overnight cost us about $54 million in financing relating to equipment

overhaul that had been in place, created a serious issue that we

had to deal with this year. As a consequence of all this, I had to

take a set of actions, given the uncertainty in financial markets

this year, a set of actions a month or so ago that would make sure

we would manage this business through the balance of the year,

Senator.

The CHAIRMAN. Senator Cleland.

Senator CLELAND. Thank you very much. When Senator Carper

indicated that that intercity passenger rail service nationwide is in

our naked self-interest, I was reminded of a line by southern humorist Lewis Grizzard that ‘‘naked’’ is when you do not have any

clothes on and ‘‘nekkid’’ is when you do not have any clothes on,

but you are up to something.

I think we ought to be up to something, and what we ought to

be up to is putting together a nationwide passenger service. I will

say that there is a national security component to this now. I have

always believed in the national rail system, but after 9/11, it was

Amtrak that I took, not Delta, and I took it back to Georgia.

I will say, interestingly enough, that the effort to privatize was

done by the United Kingdom, and they recently announced that

rail privatization, which is similar to the plan Amtrak Reform

Council has suggested, had failed after only 5 years. I now understand that the UK’s transportation secretary has announced the

plan to extend a $100 billion over the next 10 years to totally revamp Britain’s railway passenger system.

Matter of fact, the history of Atlanta is quite interesting. Atlanta

was once called terminus for the very reason that rail tracks intersected there. I will say that my State is one of the leaders. It is

now looking at attracting some 8 to 12 million passengers a year

through passenger rail in Georgia and has invested, through the

General Assembly, $2.6 million in bonds to acquire property in

downtown Atlanta for a multimodal passenger terminal for buses

and trains.

74

I would hate for the Federal Government to fall behind here. Mr.

Warrington, you have done a superb job. We will miss you. Your

departure is a loss not only of Amtrak, but of this country, and I

would hate to lose a passenger rail in this country. I think it is valuable. I think it is what we ought to be up to. I think it helps build

out the economy, create jobs, particularly in a recessionary period.

Mr. Warrington, what is your take on what the Congress ought

to do immediately to help Amtrak get back on a good footing other

than just committing conceptually to the 10-year, 20-year plan that

you were talking about?

Mr. WARRINGTON. Well, as I said to Senator Wyden earlier, there

have been a whole series of events which have served to and conspired to make sure this year was very difficult and we have had

to take a series of actions internally to stabilize that. Clearly, over

the short haul, an appropriation next year is absolutely critical at

the right level to make sure we can stabilize and basically maintain this system, today’s system.

I will tell you that ultimately the system needs to evolve. I think

that today’s system needs to evolve into a very different kind of

system over time, and I think that ultimate vision of what that system needs to be is what the Congress and the Administration need

to define as part of this reauthorization process.

It is very clear that there are a whole set of services that could

be built and developed and operated very successfully. If you look

at models around the world, and we can inform this discussion, as

Michael Jackson said, because we have done a lot of very good

work internally on the underlying economics associated with different kinds of corridor and long distance services. Each of them

have fundamentally different underlying economics, and I think

that the real, as I said earlier, the real issue here is Amtrak does

need to be stabilized over the short term.

I think Senator McCain’s question about debt service is an important one. It has largely been a consequence of not having sufficient capital. So for years we have had to borrow primarily in connection with the acquisition of equipment. In fact, the entire Acela

high-speed train set program is entirely privately financed, and it

is one of the reasons why interest costs have risen last year from

$50 million to about $150 million this year as we pay off those

train sets.

So I think short-term the focus for us needs to be on the FY 2003

appropriations. Longer term, I think that what is critical is defining a system, defining how today’s system should evolve into a system which would conceivably have better economics attached to it.

Senator CLELAND. I would just say I am proud to be on the bill.

That is the reason why I am co-sponsoring with the Chairman,

Senator Hollings, and I hope we can move this legislation right

along.

Thank you, Mr. Warrington.

The CHAIRMAN. Thank you.

Chairman Breaux.

Senator BREAUX. I will very brief. I thank the panel for their testimony.

Mr. Warrington, thank you for your service and sorry to see you

departing.

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I guess just a general question. I mean, we had testimony out

here this morning that since 1996, overall ridership has grown by

19 percent to an all-time record of 23.5 million passengers. Since

1996 the ticket revenues have grown by 40 percent to $1.1 billion.

Overall revenues have risen by 38 percent from $2.1 billion. I guess

that is the good news, because the bad news is that our operating

loss in 2001, $1.1 billion, was $129 million higher than the 2000

year loss and the largest in Amtrak’s history.

It seems that revenues are up, ridership is up and losses are up.

I used to always wonder when I looked at an airplane that was flying as full as it possibly could be with a wait list outside that did

not get on the plane and you see the planes are losing $400, $300

million a year. I said, you know, if I was filling up the plane as

much as I possibly could and was still losing money, I would say

maybe I should be in a different business.

I mean, this is a problem. Good things are up and the bad things

are up. I do not know how we can continue to break this cycle. Do

you think Amtrak is as efficient today or is it more efficient today

than we were in 1997?

Mr. WARRINGTON. I think in many, many ways Amtrak runs a

much tighter and more efficient operation on a day-to-day operating basis. As I mentioned earlier, even from a collective bargaining point of view, we have negotiated work rules that have secured significant benefits. We run a much leaner operation.

As a matter of fact, if you look at our forecasts for next year, the

powerhouse in this operation really is the Northeast Corridor. Now,

potentially there are other powerhouses out there, but the powerhouse is the Northeast Corridor.

Senator BREAUX. Let me interrupt that. I think we had a statement saying that if that is all you had operating, you would still

be in a bad situation.

Mr. WARRINGTON. That requires capital, absolutely. It requires

capital to even run the Northeast Corridor operation and it is substantial capital. In fact, Ken’s point I think was that the subsidy

issue around the long distance train network, which I would call

basic essential public services, is a very relatively small financial

issue and requirement, contrasted with what really are substantial

capital investment needs, not only on the Northeast Corridor, but

also the viability on the long distance network and the build out

of other corridors across the country.

Senator BREAUX. I asked you are you more efficient and I wanted

to give you a chance to respond, because Mr. Carmichael, when he

testifies, will say regardless of whether one subscribes to the notion

of self-sufficiency for rail passenger service, Amtrak is less efficient

today than they were back in 1997.

Mr. WARRINGTON. I entirely disagree with that assertion, and we

can share with you all of those places where we have tightened up,

managed better, in particular around the back office, and squeezing

better business processes and saving money that support the basic

operation of this company. I can share all of that with you.

Those actions have been included in our business plans historically. We have got many of those actions in play and in place

today, and they will continue through next year. I am very confident about that.

76

Senator BREAUX. Can anybody give me a comment on, I guess in

Senator McCain’s bill, requiring States to participate to cover for

the services and the Northeast Corridor States would contribute 20

percent? This is as I understand it, but I am concerned what happens if one city that is being serviced along the route just refuses

to make a contribution. Maybe three of them will say, ‘‘Fine, we are

going to contribute,’’ and the fourth one says ‘‘Not me.’’ What do

we do?

Mr. MEAD. I think cost-sharing is probably inevitably the way we

are going to have to go on both the operating subsidies and capital.

Senator BREAUX. Is that a mandated cost-sharing from Congress?

Mr. MEAD. Well, as you say, what you do if one State says not

me, but you have to drive the train through the State, and it is different when you drive parallels to the interstate. It is a little ditch.

I remember when I used to go down to law school in South Carolina, I would have to stop at this place called South of the Border.

They did not have the interstate complete. They did not have the

interstate complete.

Senator BREAUX. You had to stop there?

Mr. MEAD. But I did. No. The State chose not to complete the

interstate there at that particular time. So you had to get off the

interstate, but at least there was a road, and in rail, that parallel

fails, and so I do not have a good answer for your question, but I

do think cost-sharing is the guy, sir.

Senator BREAUX. I am supportive. I really think this is an essential service. It is necessary. It is a question of how much we are

going to recognize, and we have to support it and continue to make

it more efficient, and that is the real question, how efficient can we

get it, and then how much is it going to cost us.

Thank you.

The CHAIRMAN. Thank you.

Senator MCCAIN. Mr. Chairman, I just want to make one additional comment. When we are talking about the amounts of money,

of taxpayers’ dollars we need to spend here in making Amtrak viable, until 9/11 the airlines were growing their ridership each year

by more than Amtrak’s total ridership.

Less than 1 percent of Americans today ride on Amtrak, and I

would argue that most of those probably are in the Northeast Corridor. So we are talking about a very small number of Americans

that make use of Amtrak.

So when we contemplate spending $10-, $15-, $20-, $50-billion, I

think we ought to make sure we understand what the return on

that dollar is and whether it will be a viable enterprise or will we

revisit this issue every 3, 4, 5, 6 years, as we have since 1971, and

find ourselves in the same position of pumping more billions of dollars of taxpayer dollars into this enterprise. I thank you, Mr.

Chairman.

The CHAIRMAN. I thank the panel on behalf of the Committee

very much for your appearance. The record will stay open for questions.

We will bring forward panel number two: Honorable Marc

Morial, Mayor of New Orleans and President of the Conference of

Mayors; David King, Deputy Secretary, Department of Transportation, North Carolina; Edward Hamberger, the President and

77

CEO of Association of American Railroads; William J. Rennicke,

Vice President of Mercer Management Consulting; Gilbert Carmichael, Chairman of Amtrak Reform Council; and Charles

Moneypenny of the Transport Workers Union of America, and their

statements I want to include in the record.

Senator BREAUX. Mr. Chairman, I will just note that I had talked

to Mayor Marc Morial. He is on his way. He is at another event

testifying, and he is on his way and will join the panel as soon as

he gets here.

The CHAIRMAN. Very good. I know the gentlemen want to make

lunchtime.

Mr. King, we will start with you, sir. All your statements will be

included in the record, and you can summarize or give them in full

as you wish. Try to limit it though.

STATEMENT OF DAVID D. KING, DEPUTY SECRETARY, NORTH

CAROLINA DEPARTMENT OF TRANSPORTATION

Mr. KING. Thank you, Mr. Chairman. We are very appreciative

of the opportunity to come before you and very appreciative of your

leadership in putting forward a bill that allows discussions to take

place.

I represent, as you noted, the State of North Carolina and also

a 22-State coalition that is interested in moving forward intercity

passenger rail. Those States span the continent from the Northwest to Florida and Maine and a number of States in between.

We are DOTs who have come to the realization that intercity rail

is important because we are in the highway business and the aviation business and cannot solve the problem with those tools alone.

It is clear to those of us in this coalition, and in several States such

as California and Michigan that are not in the coalition, that intercity rail is an important component of a State-offered transportation system.

What is particularly appealing about your legislation, Senator, is

that it states categorically that we do need a system, a national

system, and it offers to end the conundrum that Amtrak has found

itself in lo these many years of being expected to be operationally

self-sufficient while maintaining a national system.

I would turn your attention to a color map that is in the back

of my testimony. I am not sure that it is at your place. I hope that

it is. It was published by National Geographic in 2001. It is basically a light map of the United States. Particularly important to us

in the Southeast is how the lights, and therefore, the population

density, really lines up along Interstate 85 from Atlanta through

Spartanburg, to Charlotte, to Raleigh, Richmond to Washington

and, of course, up the Northeast Corridor. But as you look across

the country, you can see how the lights line up, and many of our

high-speed rail corridors that have already been designated by U.S.

DOT follow where the people are. So there is a certain common

sense there, and our challenge, I think, with the national system

is to knit those corridors together.

Let me give you the gospel according to the States in terms of

what we believe should happen.

Number one, we do believe that there should be a national system; that it should connect the dozen or so high-speed rail corVerDate 03-FEB-2003 09:22 Sep 08, 2004 Jkt 089637 PO 00000 Frm 00081 Fmt 6601 Sfmt 6601 D:\DOCS\89637.TXT SSC1 PsN: SSC1
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ridors; that it should connect to other modes such as airports; that

it should connect to city centers and bus systems and commuter

rail in convenient intermodal transportation centers that are in the

heart of cities and allow you to walk to a number of destinations

when you get off the train. Obviously, this is quite a contrast from

airports, which are by definition in the suburbs or exurbs of communities and require you to drive as you leave the airport.

I think States by and large are incrementalists. The efforts to

leap forward and build a French-style high-speed rail system from

scratch have not succeeded. They are inordinately expensive, and

they seem beyond our grasp. We have been moving forward on an

incremental basis.

A second principle that I think is shared by the States is that

we need a Federal-State partnership. We have had a Federal-State

partnership for decades in the highway business, in the aviation

business, in the transit business. That partnership is based on Federal funding usually on the capital side at 80 percent, 90 percent

with the interstate highway system. We are used to that. That

works well, and we believe that the same model would work very

nicely in the intercity rail business.

Number three, the States recognize the value of freight railroads.

If you want to get a highway engineer excited about rail, and sometimes that is hard, you point out to them the degree to which the

rail system takes heavy trucks off our highways. Heavy trucks disproportionately damage our highways and cause them to have to

be designed to a much higher standard and cause them to wear out

a good deal quicker.

So the first place you win the heart and mind of a highway engineer is by pointing out the degree to which heavy freight comes off

the road system when you have got a viable rail network.

As we move forward with rail passenger service, there should be

no mistake about the States’ commitment to do that in a way that

does not damage the ability of our freight railroads to be successful

freight operators. Indeed, over the last decade or so there is a

growing list of situations in which States have partnered with

Class I railroads to put infrastructure in place to help the passenger business, but also help the freight business. Those two are

not mutually exclusive goals.

I think it is a false argument that passenger rail is at the expense of freight. In fact, the two can work very well together if they

are well-planned and coordinated.

I would note a very positive development in our experience over

the last several years with our two major railroads, Norfolk Southern and CSX. The attitude has I think made a sea change. The

ability and the willingness of those two corporations that serve

Eastern America to work with States on intercity rail has improved

dramatically over the last several years, and we appreciate that.

We currently have a $25 million project underway between Raleigh and Charlotte with Norfolk Southern, and their cooperation

is exemplary.

Several comments on Amtrak. They have been good partners to

us. There are a lot of excellent people who work for Amtrak, to include George Warrington for whom I have a great deal of respect,

79

but there are several fairly fundamental reforms that I think would

add a lot of value.

One is in your bill, Senator. Section 310 calls for a thorough review of Amtrak’s accounting system. States have been chronically

disappointed with Amtrak’s inability to provide good cost data on

the services States support financially. There is simply not the capacity there within the company to control costs based on good accounting and good information nor to control revenues and to account for revenues, nor to figure out how we can grow revenue and

control cost. Section 310 is an excellent feature.

Second, I think the competition factor is huge, and we would love

to inject some competition into a provision of Amtrak services.

Third, the essential authority that Amtrak has to access the

tracks of private railroads needs to be preserved no matter what

happens to Amtrak. If Amtrak were to go away in its present form,

then certainly States or multi-State compacts need to have that authority or else we would have no ability to operate in rail freight

corridors.

There are some comments in my written statement about the

speed issues. Most of our State projects are designed for 110 mph,

and not 125 miles an hour. We think that is a better standard, although those States that feel they can go higher certainly should

be encouraged to do so.

I wish Senator Cleland were here. We have tremendous business

support in Southeast, as you may know, Senator, including Greenville, Spartanburg and Columbia chambers and the Atlanta chamber and a dozen or so other chambers that have gotten together to

support this effort, have been up here to Congress to make that

clear and continue to do so because it is good for regional economic

development and competitiveness.

Finally, the States I think feel a sense of urgency. We need to

do something this year, this legislative session if at all possible.

Every year that we waste drives costs up and squanders opportunities and makes us vulnerable as we saw on 9/11. The States that

I represent, and some that I do not, I think are eager to work with

you in this Committee to get this done this year, and I hope you

will feel free to call on us for any information or input that you

think would be valuable.

Thank you very much.

[The prepared statement of Mr. King follows:]

PREPARED STATEMENT OF DAVID D. KING, DEPUTY SECRETARY,

NORTH CAROLINA DEPARTMENT OF TRANSPORTATION

Mr. Chairman, my name is David King. I serve as the Deputy Secretary for

Transportation of the North Carolina Department of Transportation. My responsibilities include ferries, aviation, bicycles and pedestrians, public transportation and

rail.

I testify today on behalf of the State of North Carolina and the States for Passenger Rail Coalition.

NORTH CAROLINA ACTIVITIES

In recent years North Carolina has established a comprehensive rail transportation program. Major program components include:

• Passenger Contract operation of intercity passenger trains beginning with the

Carolinian in 1990. We have acquired passenger locomotives and rehabilitated passenger and food service equipment for the Piedmont service, which was inaugurated

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in 1995. We also have invested in mechanical and maintenance facilities to support

the operation.

• We have embarked upon a station improvement program that will rehabilitate

or construct new stations at every active stop. Our commitment of state and discretionary federal funds for 20 projects to date is in excess of $109,000,000. These

projects serve as a focal point for downtown development and re-development activities, and they provide modern and safe facilities for intercity rail, intercity bus, local

transit and other activities.

• In 1998, we invested $72,000,000 to complete acquisition of the 317 mile North

Carolina Railroad (NCRR) from Charlotte, Greensboro, Raleigh, Selma and Morehead City.

• In 2001, we signed a master agreement with Norfolk Southern Railway (NSR)

and the NCRR to initiate a program of speed, capacity and safety improvements between our major city pairs. Our initial investment of $24,000,000 will reduce travel

time between Raleigh and Greensboro by about 20 minutes. Construction will be

completed in 2 years or less. A program of additional investments is now being developed.

• We operate a marketing program in support of passenger services. This program includes toll-free 1.800.ByTrain information center and the North Carolina

Volunteer Train Host Program.

Engineering and Safety

• NC develops engineering plans and specifications and cost estimates for our rail

freight and passenger improvement projects.

• We have partnered with the Federal Railroad Administration (FRA) and NSR

to develop the Sealed Corridor approaches to improving crossing safety. The FRA

has documented benefit to cost ratio for Sealed Corridor projects of up to 40 to 1.

Once FRA formally reports their findings to the Congress, these cost-effective innovations can be applied nationally throughout the traditional ‘‘Section 130’’ grade

crossing safety program.

• Since 1992 NC has closed 40 at grade crossings on the designated high-speed

line between Raleigh and Charlotte, NC.

• Partnering with the FRA we have initiated a demonstration program designed

to address ‘‘gaps’’ in safety resulting from private crossings. Under this program we

will inventory private crossings on the designated high-speed line, develop a program of recommended safety improvements, and implement two public-private

grade crossing safety demonstration projects.

• NC also houses its grade crossing safety and federally certified rail safety inspection programs within the Rail Division.

Planning

• We have developed a comprehensive long-range plan for the development of

high-speed, intercity and commuter passenger rail for our state.

• We have partnered with the Commonwealth of Virginia to complete a programmatic Tier I Environmental Impact Statement between Charlotte and Raleigh,

NC, Richmond, Virginia and Washington, DC. We now have a basis for making a

high-speed rail routing decision. This decision includes environmental, engineering

and cost-benefit documentation and has been thoroughly coordinated with all the interested local, state and federal resource agencies.

• A Virginia-North Carolina High Speed Rail Commission has been created to

evaluate the feasibility of developing high-speed rail, and to develop a program of

legislative and financing recommendations. The new Commission seats legislators

from both states.

STATES FOR PASSENGER RAIL COALITION

The States for Passenger Rail Coalition is a grass roots organization of state departments of transportation. North Carolina is one of 22 states in the coalition. I

serve as Chairman and Ken Uznanski, Manager of Washington State’s Rail Program, is our Vice-Chairman and Randall Wade, Passenger Rail Implementation

Manager of the Wisconsin Department of Transportation serves as our SecretaryTreasurer. Our growing membership is drawn from around the country and includes

states with existing passenger rail service as well as those in the planning and development stage. Large states and small states, we span the continuum of partisanship, varied interests and geography. A map of the Coalition members is attached.

We are quite a diverse group and we are a national group. Our strength is that it

is a bottoms-up initiative, created and supported by the states because we share a

common goal.

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Following the tragic events of September 11, 2001, many citizens had their first

travel experience with our national rail passenger system and they were glad it was

available. They also have first-hand knowledge that our national rail passenger system is in need of major capital investment in order to assure reliability and to have

travel times that are auto and air-competitive. Rail passenger service is now a national security issue as well as a mobility and economic development issue.

FIVE BASIC PRINCIPLES PROVIDE THE FOUNDATION OF THE STATES FOR PASSENGER

RAIL COALITION:

• First, high-speed passenger rail complements existing intercity passenger and

freight systems. Those systems, mainly road and air, are increasingly saturated to

the point that safety and reliability are compromised. The states and the private

sector are meeting the challenge by investing record amounts of money in those systems. Increasingly states have made the business decision that we receive a greater

return on investment by increasing the capacity of freight and passenger rail than

by making alternative investment decisions. An example would be when the cost of

adding a lane of interstate is much more expensive than improving a segment of

rail where the rail improvement results in the same or more capacity than the additional lane of highway.

• Second, because intercity passenger rail trips tend to be 100 to 300 miles in

length, many of the corridor development planning, analysis, and construction management tools routinely used at the state level apply. States plan, build and maintain interstate transportation corridor systems. We meet a myriad of environmental,

planning, and safety standards. These are multi-million dollar projects we deliver

daily.

• Third, improved intercity passenger rail is attractive to states since it can be

implemented incrementally. Because our programs are publicly funded to deliver

public services, states must make prudent investments. We recognize that major

new transportation infrastructure cannot be built overnight, but we need to start

where we are today and work to improve those systems. Our stockholders, the citizens of our various states, have very high expectations.

• Fourth, states recognize the importance of partners in this process. Because

railroading is both a capital and labor-intensive business, we must have the full participation of the freight railroads and labor organizations. The freight railroads own

most of the assets outside the Northeast Corridor. Publicly and privately held railroad assets are currently shared in part with commuter agencies. Our emphasis is

to assure safety and reliability and capacity for our freight carriers and our customers. The burden is on the states to understand the needs of and work with our

partners effectively.

• Fifth, the federal government has a role to play in intercity passenger rail because this financial investment is in the national interest. Beyond the direct interest

of the thirty-four states that comprise the eleven corridors designated by the federal

government for high-speed rail development, it also is in the interest of the Nation

to have a network of vibrant, well built, well-operated conventional intercity rail

corridors. These corridors contribute to a national commitment to improve mobility

and the social and economic quality of life for all our citizens. States, however, cannot accomplish this laudable call alone or even collectively; a national transportation

system dictates a role for a federal partner.

CAPITAL FORMATION IS AN ESSENTIAL ROLE FOR THE NATIONAL GOVERNMENT IN

TRANSPORTATION FEDERALISM

The federal government fulfills a vital role in highway, public transportation,

aviation and inland water transportation by creating a series of excise taxes and

fees, placing them in trust funds and allocating those resources. As capital markets

have become increasingly restricted, states and the freight railroads are working together to develop public-private partnerships that can build increased capacity for

rail passenger and freight operations

We need a federal partner who will help us provide a stable, dedicated, long-term

financial commitment for all modes of transportation. Development of a high frequency, high-speed passenger rail network requires a level playing field.

More specifically:

• The complex, long-term nature of corridor development dictates a multi-year

programming tool.

• The federal government, through direct outlays and through the tax code, can

provide a useful means of attracting and organizing larger amounts of private investment capital.

82

• States are making significant investments in intercity passenger rail. These

funds can be used to match federal investments. In fact, the issue of matching funds

deserves a more thorough and complete examination. States are creatively using a

broad array of public and private resources to provide improved rail service. Both

of these public and private matching efforts should be counted on the corridor level.

Expansion of tools to recognize the value of matching efforts is to the common good

and should be encouraged.

• The combination of federal, state and other funds can help achieve both economies of scale and funding levels attractive to investors.

• States are responsible for delivering a broad array of transportation services.

This requires program stability and a reliable and predictable source of revenue. In

large measure this stability is derived from the latest multi-year surface transportation bill ‘‘The Transportation Equity Act for the 21st Century’’ or ‘‘TEA-21.’’

SENATE 1991, THE NATIONAL RAIL DEFENSE ACT, COMBINES LEADERSHIP AND

PARTNERSHIP FOR NEW INVESTMENT IN THE RAIL PASSENGER AND FREIGHT NETWORK

S. 1991 presents a funding program to lead investment in high-speed intercity

passenger, and for the freight railroads.

• The National Rail Defense Act requires the Secretary of Transportation to establish a national high-speed ground transportation policy.

• The National Rail Defense Act promotes intermodalism and transportation efficiency by encouraging cooperative arrangements between the States and the host

railroads and by giving preference to projects that link passenger rail services with

other modes of transportation.

• The National Rail Defense Act recognizes the value of federal leadership in

planning and developing a network of high-speed rail corridors. It is important that

we encourage the development of these corridors so that we can expand the benefits

of high-speed rail throughout the country, and bring new systems on-line in a rational, coordinated manner.

• The National Rail Defense Act authorizes needed rail freight infrastructure

funding and streamlines the Railroad Revitalization and Regulatory Reform Act to

make it a more effective instrument.

• The National Rail Defense Act provides for timely implementation by establishing time limits for rulemaking.

We believe one area of the National Rail Defense Act merits further discussion

and perfecting language:

The provision ‘‘giving a priority to systems which will achieve sustained speeds

of 125 miles per hour or greater and projects involving dedicated rail passenger

rights-of-way’’ will favor development of a limited number of projects at the expense

of many other worthy projects.

• Most, but not all of the high-speed development outside of the Northeast Corridor is designed for maximum operating speeds of between 90 and 110 miles per

hour. Preliminary engineering and advanced environmental studies have been performed using these standards to develop auto and air-competitive travel times on

many of the corridors. Of the thirty-four states with federally designated high-speed

rail corridors it is believed that only three (California, Florida and New York) are

being planned for operations in excess of 110 miles per hour.

• Re-engineering high-speed rail corridors for 125 miles per hour operation will

require additional time, and the additional environmental and community impacts

will add significantly to the costs to implement service. If the 125 miles per hour

priority criterion is observed, the funding authorized in the National Rail Defense

Act may impede rather than facilitate implementation of a network of travel-time

competitive rail passenger services.

• Sustained cruising speeds of 125 mile per hour and above will require electrification. While research and development is being completed on high-speed nonelectric locomotives, they are not broadly available and there are limitations on

their use in tunnels. Electrification of thousands of miles of corridors will add orders

of magnitude to the cost of implementation.

• Most high-speed rail corridors are proposed to make extensive use of existing

freight rail rights-of-way. Few freight rail rights-of-way will permit sustained speeds

approaching 125 miles per hour, thus acquisition of significant new rights-of-way

will be necessary, resulting in community disruption and new environmental impacts.

The States for Passenger Rail Coalition recommends:

• Deletion of priority consideration for 125 miles per hour segments and proceed

with the requirement for the Secretary of Transportation to establish the national

high-speed ground transportation policy required by part 309(e)(1) of Section 26100

83

no later than December 31, 2002. This will help ensure an equitable program of investments in high-speed rail while not magnifying the costs unnecessarily.

• A federal-state funding partnership for high-speed and intercity passenger rail

development that mirrors the capital investment programs for other surface transportation programs.

We believe that these issues can be readily resolved. Individually and collectively

we are eager to work with the committee, the committee staff and others to remove

these challenges to broad and successful implementation.

STATES ARE READY TO MOVE FORWARD, NOW

In closing, I want to assure the Committee that many states are ready to begin

implementing a high frequency, high-speed rail network now. States have developed

innovations in highway-railroad crossing safety, passenger equipment design and

manufacturing, and in railroad signaling systems. States renovate and construct

new multi-modal stations and help attract new development to our inner cities.

States are making investments in commuter, intercity and high-speed rail systems

that serve state, multi-state and national interests. States make these investments

in concert with local communities and commuter agencies, with Amtrak and the

freight railroads, and with adjoining states. The federal government should not expect the states alone to build a national high-speed rail system. States need federal

leadership and a federal funding partner to undertake this task.

States also are working with business leaders to develop solutions to our congested highway and airport networks. For example, the Southeastern Economic Alliance (SEA), comprised of fourteen Chambers of Commerce from six states has been

formed with the goal of achieving high-speed rail in the southeast. The leadership

of the SEA already is having an impact on transportation decisions in our state capitals, and I believe business leaders around the country will mirror their example.

Recently, a similar regional chamber effort has gotten underway in the Midwest led

by the Chicagoland Chamber of Commerce and other chambers in the nine states

that are a part of the Midwest Regional Rail Initiative. Our business leadership is

not motivated because they are a fan of rail transportation, nor do they simply advocate for more government. Rather, their impetus comes from a business analysis

that our current transportation system has a serious weakness, and that weakness

hampers our ability to compete in world markets.

Development of a high quality, high-speed intercity passenger rail network can

help mitigate congestion. Development of high-speed rail transportation will help

stimulate economic growth by creating new jobs and by increasing mobility. Development of a national system of high-speed rail is predicated on having a program

of public-private investment that includes the active participation of states and the

federal government. Many of our member states have completed preliminary engineering and environmental work and are ready to begin projects now. Many States

have available ‘‘shelf plans’’ for incremental high-speed rail development, and are

investing significant state and private funds now; we need a viable federal funding

partner.

As you have heard from the nation’s governors, and as you are aware from the

condition of our economy, states are not in a position to finance a network of highspeed rail infrastructure. We must have a federal partner. While states generally

advocate for flexibility in the use of federal funds, the needs of our highway, transit

and aviation modes far exceed available resources. We can and are eager to partner

with the federal government to plan, design and construct the network of rail infrastructure improvements envisioned by the National Rail Defense Act.

This Congress has as important an opportunity to impact the transportation system in the United States through support for development of a high frequency, highspeed rail network, as did the Eisenhower administration when it presided over creation of the Interstate and Defense Highway System. We look forward to working

with you to develop this critical program. Thank you for the opportunity to testify

before you today.

The CHAIRMAN. Thank you very much.

Mr. Moneypenny. Would you pass that microphone to him,

please?

84

STATEMENT OF CHARLES F. MONEYPENNY, DIRECTOR,

RAILROAD DIVISION, TRANSPORT WORKERS UNION OF

AMERICA

Mr. MONEYPENNY. Let me begin by saying that rail labor applauds you, Mr. Chairman, for the boldness and vision of your bill.

I have been involved with Amtrak both as a worker and union representative since the railroad opened its doors for business in Boston more than a quarter century ago.

In that time yours is the first piece of legislation I have seen

which addresses the real problem facing national passenger rail

service in this country. Amtrak’s problem today is the same problem that has always plagued Amtrak, lack of funding.

Rail labor looks forward to working with you and other responsible parties to give this country the quality of passenger rail service it needs and deserves.

We hope that this Committee is not distracted by the efforts of

some to blame either labor or management for the current Amtrak

crisis. Five years ago in the midst of another Amtrak crisis Congress decided that Amtrak’s problems could be solved by attacking

Amtrak workers. Accordingly, labor protections which Amtrak

workers had enjoyed throughout the railroad’s history and which

were standard in the industry, were removed from the law and our

contracts and made the subject of a collective bargaining process

which would have necessarily ended in binding arbitration. Restrictions against contracting out were taken out of the law and made

the subject of negotiations. This, some assured us, would fix Amtrak’s problems.

Five years later Amtrak’s problems are worse than ever. This

time not even an outfit as rabidly anti-Amtrak as the so-called Amtrak Reform Council can find fault with Amtrak’s workers. The

council, in fact, recommends that should another carrier take over

Amtrak service the current work force should follow the work with

seniority order and collective bargaining agreements intact. It is

the only thing I agree with the council on, and I applaud the Chairman for his wisdom in that regard.

This time we are told the problem is Amtrak management. No

manager in particular seems to be the problem. Amtrak’s departing

president is, in fact, praised by most Members of Congress and indeed by members of Amtrak Reform Council. A vague allegation of

a bad corporate culture is now introduced as evidence that the

problem of passenger rail can be fixed by a new management team

or teams.

Having been the victim of this sort of witch-hunt 5 years ago, rail

labor declines the opportunity to point the finger at Amtrak management as the source of the problem. Again, the Chairman’s bill

correctly identifies and more importantly offers solutions to the

real problem, lack of funding.

We also hope that this Committee will ignore the siren song of

privatization. As some have noted earlier, passenger rail service

was privatized in this country. That is how Amtrak came to exist.

Not one of the freight railroads which was lucky enough to get out

of the business 30 years ago has been knocking on the door trying

to get back in. In its 4 years of existence, the Amtrak Reform

Council was unable to identify even one company that runs a pasVerDate 03-FEB-2003 09:22 Sep 08, 2004 Jkt 089637 PO 00000 Frm 00088 Fmt 6601 Sfmt 6601 D:\DOCS\89637.TXT SSC1 PsN: SSC1
85

senger train anywhere in this country willing to step in as Amtrak’s successor.

We know there are some folks out there who said they would like

to have a crack at running a passenger rail service. They may not

have any employees, they may not have any experience, they may

not even exist as companies yet, but if we are sure to give them

enough money and they will try the job. That is not very comforting to us, and it probably would not be too comforting to our

customers either.

I can testify from personal experience, Mr. Chairman, about the

dark side of privatization. Several years ago, the Massachusetts

Bay Transportation Authority, the MBTA, in my home State decided to contract out maintenance work which had been done by

Amtrak employees. The MBTA awarded the contract to a company

which was literally created for the purpose of bidding on this contract. This company had no mechanics, no office, no telephone, no

address, no fax machine.

In fact, when testifying before a Senate Committee 2 years ago,

this shadow company’s representative responded in classic fashion

to a question from Massachusetts Senator Kerry. Senator Kerry

asked the witness if it was true when they were awarded the contract they had two employees. The witness responded yes, roughly.

This shadow company had a simple plan to get a work force.

They planned to break the unions. Threatening letters were sent

to workers’ homes telling them they had no choice but to accept the

wages and working conditions which the new company intended to

impose. Wages would be cut, work rules eliminated, seniority discarded and pensions stolen. Memoranda passed between the two

employees of the shadow company warned against hiring those

with union sympathies.

Unfortunately for this two man gang, there were way too many

workers with union sympathies. Not one worker applied for a job

with a company that wanted to break their unions, and unable to

produce a qualified work force, the would-be union busters lost the

contract. It was a stunning example of union solidarity and we

hope a strong message to those who would seek to gain profits by

siphoning them from our members’ pockets.

Finally, let me say a word about Amtrak’s employees, that in

simple fact Amtrak would not exist today without the sacrifices

made by the men and women who make the trains run. Amtrak’s

unionized employees are working every day under contracts which

expired more than 2 years ago.

Years of wage deferrals, wage freezes, job cuts, et cetera, have

made Amtrak workers the lowest paid unionized work force in the

industry. We hope, Mr. Chairman, that your bill marks the end of

the sorry practice of funding national passenger rail service on the

backs of the employees. Our members intend to be a vital part of

the future of the national passenger rail system that they have

kept alive all these years. We look forward to working with you toward that goal.

[The prepared statement of Mr. Moneypenny follows:]

86

PREPARED STATEMENT OF CHARLES F. MONEYPENNY, DIRECTOR, RAILROAD DIVISION,

TRANSPORT WORKERS UNION OF AMERICA

Good morning, Mr. Chairman and members of the Committee. Thank you for the

opportunity to appear before the Committee and present testimony concerning

S.1991, the National Defense Rail Act, and the future of national passenger rail

service.

My name is Charlie Moneypenny. I am the Director of the Railroad Division for

the Transport Workers Union of America, and I have most recently served as the

labor member of the Amtrak Reform Council. This is my 30th year in the railroad

industry, and more than 25 of them have been with Amtrak as either an employee

or union representative.

Let me begin by saying that Rail Labor applauds you, Mr. Chairman, for the boldness and vision of your bill, S.1991. I have been, as I said, involved with Amtrak,

both as a worker and a union representative, since the railroad opened its doors for

business in Boston more than a quarter-century ago. In that time, yours is the first

piece of legislation I have seen which addresses the real problem facing national

passenger rail service in this country. Amtrak’s problem today is the same problem

that has always plagued Amtrak: lack of funding. Rail labor looks forward to working with you and other responsible parties to give this country the quality of passenger rail service it needs and deserves.

We hope that this Committee is not distracted by the efforts of some to blame

either labor or management for the current Amtrak crisis. Five years ago, in the

midst of another Amtrak crisis, Congress decided that Amtrak’s problems could be

solved by attacking Amtrak workers. Accordingly, labor protections which Amtrak

workers had enjoyed throughout the railroad’s history, and which are standard in

the industry, were removed from the law and our contracts made the subject of a

collective bargaining process which would, if necessary, end in binding arbitration.

Restrictions against contracting out were also taken out of the law and made the

subject of negotiations. This, some assured us, would fix Amtrak’s problems.

Five years later, Amtrak’s problems are worse than ever. This time, not even an

outfit as rabidly anti-Amtrak as the so-called Amtrak Reform Council can find fault

with Amtrak’s workers. The Council, in fact, recommends that, should another carrier take over Amtrak service, the current workforce should follow their work, in

seniority order, with their collective bargaining agreements intact. This time, we’re

told, the problem is Amtrak management.

No manager in particular seems to be the problem. Amtrak’s departing President,

George Warrington is, in fact, praised by most members of Congress and indeed

even by many members of the Reform Council. Vague allegations of a bad ‘‘corporate

culture’’ are now introduced as evidence that the problem of passenger rail can be

fixed by a new management team or teams. Having been the victim of this sort of

witch hunt five years ago, Rail Labor declines the opportunity to point the finger

at Amtrak management as the source of the problem. Again, the Chairman’s bill

correctly identifies, and more importantly, offers solutions to the real problem, lack

of funding.

We also hope that this Committee will ignore the siren song of privatization. Passenger rail service was privatized in this country. That’s how Amtrak came to exist.

The freight railroads providing the service begged President Nixon to relieve them

of what the ARC called, ‘‘the burden’’ of providing passenger rail service. Not one

of those freight railroads, which the ARC called ‘‘the best in the world’’ have stepped

forward to say they’d like to get back into the business of passenger service. And

in its four years of existence, the Amtrak Reform Council was unable to identify

even one company that runs a passenger train anywhere in this country willing to

step in as Amtrak’s successor.

We know there are some folks out there who say they’d like to take a crack at

running passenger rail service. They may not have any employees, they may not

have any experience, they may not even exist as companies yet, but, we’re assured,

give them enough money and they’ll try to do the job. That’s not very comforting

to us, and it probably wouldn’t be too comforting to our customers either.

I can testify from personal experience, Mr. Chairman, about the dark side of privatization. Several years ago, the Massachusetts Bay Transportation Authority

(MBTA), in my home state, decided to contract out maintenance work which had

been done by Amtrak employees. The MBTA awarded the contract to a company

which was literally created for the purpose of bidding on this contract. This company had no mechanics, no office, no telephone or fax machine. In fact, when testifying before a Senate Committee two years ago, this shadow company’s representative responded in classic fashion to a question from Senator Kerry. Senator Kerry

87

asked the witness if it was true that when they were awarded the contract, they

had two employees. The witness responded, ‘‘Yes, roughly.’’

This shadow company had a simple plan to get a workforce. They planned to

break the unions. Threatening letters were sent to workers’ homes telling them they

had no choice but to accept the wages and working conditions which the new company intended to impose. Wages would be cut, work rules eliminated, seniority discarded, and pensions stolen. Memoranda passed between the two employees of the

shadow company warned against hiring those with ‘‘union sympathies.’’ Unfortunately for this two man gang, there were way too many workers with ‘‘union sympathies.’’ Not one worker applied for a job with the company that wanted to break

their unions, and, unable to produce a qualified workforce, the would-be union busters lost the contract. It was a stunning example of union solidarity and, we hope,

a strong message to those who would seek to gain profits by siphoning them from

our members’ pockets.

Finally, let me say a word about Amtrak’s employees. It is a simple fact that Amtrak would not exist today without the sacrifices made by the men and women who

make the trains run. Amtrak’s employees are working every day under contracts

which expired more than two years ago. Years of wage deferrals, wage freezes, job

cuts, etc., have made Amtrak workers the lowest paid workforce in the industry. We

hope, Mr. Chairman, that your bill marks the end of the sorry practice of funding

a national passenger rail service on the backs of the employees. Our members intend to be a vital part of the future of the national passenger rail system that they

have kept alive all these years. We look forward to working with you toward that

goal, and I would be happy to answer any questions you might have.

The CHAIRMAN. Very good.

Mr. Carmichael.

STATEMENT OF GILBERT E. CARMICHAEL, CHAIRMAN,

AMTRAK REFORM COUNCIL

Mr. CARMICHAEL. Thank you, Mr. Chairman and Members of the

Committee. I have two of my council members here with me today.

You just heard from Mr. Moneypenny who has been a very active

and aggressive member of the council, and I have enjoyed working

with him.

We learned early on that labor was not the problem. Then we

looked at Amtrak and started investigating, we learned that management was the problem. I listened a minute ago to Mr. Warrington when he answered the question about deficiencies that are

in the bill. It is interesting to note that of the 24,000 employees,

that over 3,000 of them are managers, and in the last few years

the management has grown.

The other member of the council that is here today is Jim Coston

who is sitting here and a very active member from Chicago.

Quickly, on our Amtrak Reform Council, the Congress created

this council, and we got in the business in 1998, had a hard time

getting started, but in the last 4 years the ten members of this

council, working with about a six person staff, have done a very

good job of producing a citizen’s report on Amtrak. We took our role

seriously.

Those ten members, plus the Secretary of Transportation, who

was not able to participate, those ten members did thousands of

hours of hard work for no fee. They were not paid. The small staff

under Tom Till produced a very good citizen’s document. It is not

a real polished literary tome, but it is good, thoughtful research

into the Amtrak problem and some of the suggestions and solutions.

What has made me happy this morning was as I was listening

to the witnesses earlier in the meeting they are getting where we

88

were about a year ago. They are putting the facts together and

they are in the learning curve, and we do have, as Inspector General Mead said a moment ago, we do have a serious crisis. As

David King added a minute ago, we are at the position where we

need to come up with a new plan for a new national rail passenger

system. And the council has been very pro-rail.

We gave Amtrak every bit of the benefit of the doubt during

these last 4 years as they were on the glidepath they were talking

about. The council let me be the Chairman, and I asked for that

privilege, to give Amtrak as much leeway as possible to help them

reach the self-sufficiency that they were trying to reach. It was not

till last November that we got to the point that it was necessary,

the council members got concerned enough, and while I wanted to

postpone the vote till January, the council came together and we

made the vote in November.

Looking back, it was probably a very wise idea to go ahead with

the vote because one of the things that happened, is that it did provide the trigger. It did start the national debate, and we are having

a good, strong debate and your bill and Senator McCain’s bill are

excellent examples of where the debate ought to be going and how

it ought to be solved.

I have submitted a report here, Mr. Chairman. I had some more

little comments that I wanted to make in here, but I have got one

report. I will probably clean it up and submit a mini version of it,

but I think we have come a long way. We are very close to a new

national rail passenger plan. The freight railroad people throughout need our help in this debate. They will be major beneficiaries,

like your bill or Senator McCain’s bill. They need to increase their

speed and their capacity for their freight side, and if they do that

and if there is funding available for that, we will have a beautiful

railroad right-of-way out here for intercity high-speed trains, also.

So I just encourage you to please proceed, and I stand by for

questions.

[The prepared statement of Mr. Carmichael follows:]

PREPARED STATEMENT OF GILBERT E. CARMICHAEL, CHAIRMAN, AMTRAK REFORM COUNCIL

Good morning, Mr. Chairman, and members of the Committee.

I am Gil Carmichael, Chairman of the Amtrak Reform Council. Thank you for the

invitation to present the Council’s views on S. 1991, The National Defense Rail Act,

in the context of the Council’s Action Plan for the Restructuring and Rationalization

of the National Intercity Rail Passenger System, which was submitted to the Congress on February 7, 2002. With your permission, Mr. Chairman, I will summarize

my statement and submit the full statement for the record.

The Council has submitted its recommendations to the Congress for reform. Other

reasonable reforms will be proposed. The Council believes that reform is no longer

an option, Mr. Chairman. Reform is an imperative.

Over its lifetime, the increase in Amtrak’s ridership has barely kept pace with the

growth rate of the U.S. population. Contrary to popular belief, in the period between

September 11, 2001, and the end of last year, Amtrak carried fewer passengers than

it did in the comparable period of 2000. Amtrak is burdened with debt and debt

services, and its assets are in poor condition. All its routes lose money when depreciation is taken into account.

Regardless of whether one subscribes to the notion of self-sufficiency for rail passenger service, Amtrak is less efficient today than it was in 1997. And this is after

the appropriation to Amtrak of more than $5 billion during the past five years, including $2.2 billion in capital funding under the Taxpayer Relief Act.

The continuing deterioration of Amtrak’s performance since the Council was established led the Council to its finding that Amtrak would not achieve operational

89

self-sufficiency by December 2, 2002, as required by the Amtrak Reform and Accountability Act of 1997.

Without reform, FY 2003 will be business as usual for Amtrak—lower revenues

and higher costs and greater losses than Amtrak promised.

Why does Amtrak have this record of poor performance?

Amtrak has too much to do, and does little of it well. In this environment, Amtrak

has proven that it cannot concentrate on its core mission of running trains. As it

is chartered and organized today, no agency has effective oversight of Amtrak’s business plans, its funding requests, or its financial and operational performance. Our

analyses and those of the DOT/IG and the GAO are all done in hindsight. No program can be successful without good, timely oversight.

THE COUNCIL’S PROPOSALS FOR REFORM

The Action Plan the Council sent to Congress on February 7, 2002, thus recommends a fundamental restructuring of the way we organize, fund, and operate

the national rail passenger service program. If we are to have a modern rail passenger program that works, we have to separately organize and fund the passenger

trains from the 20,000-plus miles of nationwide rail infrastructure that supports

them.

The Council proposes that the two new companies be administered by a small federal agency, the National Railroad Passenger Corporation (NRPC). The NRPC

should be restructured on the model of the United States Railway Association

(USRA), created by Congress in 1973 to restructure Penn Central and 6 other railroads. USRA planned Conrail, enforced strict accountability on Conrail, and shielded Conrail from political interference. The Council believes a new National Passenger Rail Program needs a similar oversight organization.

In this framework, a new national train operating company could concentrate

strictly on running trains, with the resources to do so, under contract, with no unfunded mandates, and without political pressure on its management decisions.

The Council’s proposal for a National Passenger Train Operating Company also

recommends introducing the possibility of competition into the provision of passenger train services. In many countries around the world, reforms in the provision

of both passenger and freight rail service have involved competitive bidding for contracts to provide public services.

Our recommendations also deal directly and strongly with the parts of the Northeast Corridor and other infrastructure that Amtrak owns. Today’s Amtrak is a minority user of the Northeast Corridor—running only about 150 of the Corridor’s

1200 trains—and its finances and management cannot bear the burden of maintaining and improving what is largely a commuter facility.

As an aside, Mr. Chairman, you have some very interesting figures in your own

bill. Those figures make it clear that the annual cost of operating, maintaining, and

improving the NEC infrastructure, which S. 1991 sets at $1.3 billion, is equal to the

cost of operating, maintaining, and improving the entire national passenger operating company.

The Council’s final major recommendation is that the Congress enact measures

to provide stable and adequate sources of funding—separate sources for train operations and for infrastructure—for a restructured National Rail Passenger Program.

There are those who say that putting more money into the existing Amtrak—as S.

1991 provides—is all we need to do. The Council strongly rejects that notion. What

we have today is an institution that, through more than 30 years of existence, has

never had the full confidence of the Congress or the Executive regarding Amtrak’s

ability to spend money properly, regardless of which party controlled either of those

branches. Effective reforms will correct that lack of confidence.

FUNDING A PASSENGER RAIL PROGRAM

Even then, the reality of government funding today poses important challenges

to effective funding of passenger and freight rail infrastructure needs. As you know,

guaranteed spending programs, which today predetermine the appropriation of 75

percent of all federal transportation funds, have been very beneficial for highways,

transit and aviation. But the rail mode of transportation is having a tougher time

getting funds appropriated because there is no room in the transportation appropriations bill to fund major facilities such as the Northeast Corridor infrastructure,

which needs at least $1 billion per year.

Funding Passenger Rail Infrastructure

Most important for the infrastructure needs of an improved passenger rail program are several bond bills that have been introduced. One is the High Speed Rail

90

Investment Act, co-sponsored by Senators Daschle and Lott. A bill sponsored by

House Transportation and Infrastructure Committee Chairman Don Young, RIDE21, provides $36 billion in tax-exempt bonding authority (and $35 billion in loan

guarantees) for railroad investments.

Under appropriate safeguards, the Council also recommends that states have

flexibility to use highway and aviation funds for investments to improve the intermodal connectivity of the passenger network or to fund rail investments that would

relieve highway or aviation congestion in short-haul corridors.

When such a program is enacted, these funds should be the engine for an effective

federal-state rail infrastructure program, in cooperation with the freight railroads,

to support improved passenger rail (and intermodal freight) service. The systematic

and continuing improvement of railroad rights-of-way and tracks that this program

will support is an essential element of the sound national rail passenger (and

freight) program that America needs.

Funding Operations and Equipment

The issue of funding for operating subsidies and other needs for Amtrak’s longhaul trains, as well as for the capital requirements of corridor trains, and also for

operating assistance during a transition period, is more difficult. The Council’s Action Plan recommends that the government provide funding on the basis of a formula that will promote its efficient use, not simply fund cash shortfalls resulting

from inefficient, deficit-ridden operations. Funding under such a structure might be

provided through appropriations or through some dedicated source of funding (some

have suggested that a new penny might be added to the federal motor fuel tax that

could go to rail uses if matched by a new state penny). Under the program structure

that the Council recommends, in which train operations would be provided under

contracts, much of the funding for the passenger equipment investment needs of the

operating company should or could come from private capital markets.

Funding the Northeast Corridor Rail Infrastructure

Let me go back and address the Northeast Corridor infrastructure. Separating the

Northeast Corridor infrastructure—both organizationally and financially—from Amtrak’s nationwide train operations is another way of narrowing the gap between the

subsidy needs of Amtrak’s national train operations and the uncommitted funds

available in the budget. There is little or no chance that Amtrak will be able to get

the capital it needs to maintain and improve the NEC out of appropriated funds.

Clearly, the NEC infrastructure needs to be shifted to a federal agency or authority

that has better access to federal, state, and local guaranteed funding than Amtrak

has.

Why? Because Amtrak has demonstrated that it has to use whatever cash is

available to offset the operating losses of its trains. To fund operations, Amtrak

raised $300 million for operating expenses last year by mortgaging future income

from two concourses in Penn Station New York. Amtrak regularly charges portions

of its oversized management overhead costs to capital projects, and it has deferred

maintenance on the NEC infrastructure below levels needed for minimum operational reliability. Despite the $3.8 billion backlog of critical fire and life safety and

other urgent capital projects on the Northeast Corridor, Amtrak did not request the

full amount of appropriations authorized by the Congress under the Amtrak Reform

Act.

Amtrak—as it is presently structured—cannot be an effective public steward for

this vital toll road known as the Northeast Corridor.

A variety of funding sources, not all directly available to Amtrak, are accessible

to NEC state governments (and the other states with emerging corridors) to assist

in providing the investments to support their large NEC commuter operations, as

well as Amtrak’s high-speed operations.

Indeed, there is no single source that could provide all the necessary capital for

the NEC. Thus, the Congress should look at a variety of sources, which may include:

• Bond bills that are pending before Congress (RIDE-21 and HSRIA) would help,

and may be the principal way to fund all of the corridors.

• The private market will likely provide bond funding to a separated NEC infrastructure;

• For vital fire and life safety projects on the NEC, federal appropriations might

be used to reauthorize the Northeast Corridor Improvement Program or provide

part of the funding needed to establish a trust fund to pay off bonds issued by a

new Northeast Corridor Authority.

• Loans or guarantees under TIFIA and/or RRIF can also help. A restructured

National Railroad Passenger Corporation and the states might work with Regional

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Transmission Organizations, to undertake one of the major infrastructure projects

south of New York—the replacement of the electric traction system.

• Expanding the flexibility provisions in current transportation trust funds to include the NEC projects that would reduce highway and air traffic congestion.

• Civil works projects under the Army Corps of Engineers to undertake bridge

projects that are over navigable waters can be implemented with federal transportation funds.

• Special purpose mechanisms for ownership and control of such NEC assets as

the Penn Station Complex, which has total needs of more than $4 billion, might be

effectively handled under some kind of appropriate regional umbrella.

• Federal and/or state tax incentives, such as tax credits, might be developed to

encourage the private sector to make investments in the corridor.

COMMENTS ON THE NATIONAL DEFENSE RAIL ACT (S. 1991)

Mr. Chairman, let me take the opportunity to contrast the thrust of the proposals

that you put forward in S. 1991 with the comparable proposals from the Council’s

Action Plan.

Oversight. Mr. Chairman, S. 1991 does not provide badly needed oversight of Amtrak. The Council suggests you give due consideration to strengthening oversight.

Corporate and Board Structure. Following on from improved oversight, S. 1991

does not propose any substantive changes in corporate or board structure for Amtrak. A major reason for the structural changes the Council proposes is to provide

effective corporate governance for the three major functions that today’s Amtrak

carries out. These are: National Rail Passenger Program direction, direction and

management of national rail passenger operations, and direction and management

of the Northeast Corridor rail infrastructure. Each of these functions is very different from the others. They each require different skills and different representation. The Council would suggest that you give due consideration to appropriate

changes in the rail passenger program’s corporate governance.

High-Speed Rail Corridors. The Council strongly supports the development of the

emerging high-speed rail corridors. Our proposal, however, would be to base such

a program on federal-state cost-sharing rather than on 100 percent federal funding.

First, we doubt that sufficient federal funds exist to carry the entire burden. Second,

where freight railroads get major benefits from the investment, they should make

an appropriate contribution. The Council would also support having the funding priority of the Corridors determined by the Secretary of Transportation, rather than

by federal law. And while transitional federal operating assistance might be warranted, basing the corridors on permanent federal operating support is likely to be

fiscally and economically untenable.

Non-Transportation-Related Profits. Without organizational separation, the Council believes there is reason to doubt that Amtrak’s current accounting systems and

practices can effectively determine whether Amtrak’s activities are indeed profitable. Assuming such profits could be accurately determined, another problem arises.

If profits have to be given away, then it is likely that not much in the way of profits

will materialize. This is what happened under the Transportation Act of 1920,

which required that the profitable railroads subsidize the unprofitable railroads. All

profits magically went away. This provision also has the aura of a kickback to states

that hire Amtrak for various non-transportation-related contracts, which could be

unfail to private firms bidding to supply such services.

Efficiency. S. 1991 does not contain any incentives to improve the efficiency or

customer satisfaction of Amtrak’s corporate overhead functions, train operations, or

supporting services. Amtrak needs strong incentives to get its costs under control,

increase its revenues, and improve its service quality.

CONCLUSION

With all due respect to your proposals, Mr. Chairman, the Council believes its recommendations are strong and sound. The chronic difficulties that Amtrak experiences—year in and year out—are not due principally to lack of funding. They spring

primarily from an organization that does not inspire confidence and thus desperately needs to be redesigned. Effective reform will beget funding. Funding alone

will not beget reform.

For these reasons, the Council strongly recommends that the Congress first adopt

badly needed institutional reforms before providing major new funding for passenger rail service.

I will be pleased to answer any questions. On behalf of the Council, I thank you,

Mr. Chairman, for the opportunity to address the Committee.

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The CHAIRMAN. Very good, and get that plan to us as soon as you

can.

Mr. Rennicke.

STATEMENT OF WILLIAM J. RENNICKE, VICE PRESIDENT,

MERCER MANAGEMENT CONSULTING, INC.

Mr. RENNICKE. Thank you, sir.

My name is Bill Rennicke, and I am Vice President of Mercer

Management Consulting. One of the things we found in the late

1980s was that a very exportable product around the world was our

understanding of the commercial and private railroad structures in

the U.S. As such we wound up being involved in virtually every

railway privatization in the world or application of private secondary activity to the rail passenger and freight business.

I think one of the important lessons we have learned, and something to bring up right up front, is that when we speak about privatization, we are not talking about returning to the model that

the U.S. railroads had with private operations up until 1970. That

is one of probably 25 models that have worked in some other countries, but it is not the only model. We are talking about places

where private sector involvement has worked, not necessarily with

companies with two employees, but companies with thousands and

thousands of employees.

The kinds of things that typically have gone on is countries, governments and regulators have revised the privatization structure,

the structures of companies. They have changed regulatory governance, funding, and recruited bidders.

The whole process started about 10 years ago almost concurrently with the change in political situations in Eastern Europe.

Most major countries of the world, whether they were industrialized or developing, ran out of money to support the railroads. Argentina, the first country where we were hired, had spent almost

$1.6 billion U.S. in that year funding railroad operations and capital programs. It was a very, very small country and that was a

very considerable amount of money.

So in most cases those countries were facing many of the same

issues and debates that you are having today, and basically, they

said, ‘‘What do we need to do to change?’’ They were experiencing

poor performance of the railroads themselves. Services were poor,

massive amounts of capital were required, and the government felt

tremendous financial pressures. Particularly it was felt among people like the World Bank, and in the U.S. Government, and European governments, that if the Eastern European governments were

going to survive, and one of the biggest cash drains on their economies was the railroad, then they had to commercialize, if not privatize. There was frustration on the parts of governments over the

lack of any kind of a firm action or protocol on the part of the railroads.

The process that typically was used and one that I would suggest

be considered in the U.S. is something we call unbundling. If you

try to digest the railroad as a whole, the complex integrated business structure of a private company, you often will come up with

either a very simplistic yes or no kind of answer—do we return to

1970 or do we not?

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In almost every country in the world that has embraced what is

called private involvement in railways, whether they be passenger

or freight, they have not necessarily applied it to 100 percent of the

activities. They have looked for selected places in the railroad

where these could be done with the concurrence and support of the

regulators, of the passengers, and of employees. I would say in

none of the countries that can I think of in which we were involved

with private sector participation was there a situation where at the

end of the cycle we did not have the full support of the employees.

The fact is in Argentina, the unions formed a company and became

one of the franchise bidders themselves.

Again, the kind of private structures that we are talking about

are several. One is the full or partial privatization of the railroad.

The MTRC was the largest subway system in Hong Kong, whose

functions were basically outsourced by privatization. You had sales

to foreign operators. The New Zealand rail system, and the Argentine freight systems were sold as concessions, with significant involvement of private financing and the provision of assets by maintenance companies and equipment companies.

One of the most important things is to realize that while there

has been a characterization in the U.S. that nobody will step forward to become a private operator, it is really wrong. Most of the

private companies that you want to have as operators in the

United States are operating elsewhere in the world, and in fact, operate things like bus companies in the United States. They are

well-seasoned railroad companies. They understand how to run a

railroad and how to run a private company. Some of them actually

involve, from our past experience, interest on the part of the U.S.

airlines in some parts of the rail system.

Those companies will probably never step forward until there is

a process that would allow them to bid on something.

So until there is some kind of request for proposal or resolution

or establishment of a structure, they will not get involved in spending their resources in trying to go through the years of debate and

discussion about what to do with the railroad.

When there is a transparent program they will decide to bid or

not to bid, and in the supplemental material I gave you there is

a list of about I think 70 companies that we think might be interested. We have not contacted them. Some of them are U.S. railroads that run commuter operations, and they may or may not be

interested, but I think if you had a transparent process like those

we found even in much less desirable situations in developing countries, you could probably count on 25 to 50 world class companies

showing up.

The kind of things that I think are of interest to these folks, and

I listed this out in my comments, is primarily clarity on the framework. They are going to want to understand the politics. They are

going to want a structured business offering. They are going to

want enforceable commitments and some ideas of the funding because we are not talking about total private funding. That does not

exist anywhere.

You cannot run most passenger railroads totally out of the

farebox. They are going to want to know where the funding comes

from, and in the material I provided we have show you that you

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can reduce the subsidies tremendously. Mexico went from a $700

million subsidy to zero. Argentina is down to about $50 million

from the total of $1.6 billion.

I have given some examples of what is happening in other countries, and I have also provided on page 46 of the supplemental material something that I was not necessarily asked to do and that

is at least a hypothetical version of how you might want to consider

as part of this debate incorporating some other issues that face the

transportation sector in the U.S.—not that Amtrak is not enough

to bite off, but there are things like airport congestion that, as you

think about the restructuring of the system, if you incorporate

those planning concepts you could actually come up with a much

more attractive opportunity for private operators to get into the

system. This is described in some of the supplemental material.

Thank you.

[The prepared statement of Mr. Rennicke follows:]

PREPARED STATEMENT OF WILLIAM J. RENNICKE, VICE PRESIDENT,

MERCER MANAGEMENT CONSULTING, INC.

My name is William J. Rennicke, and I am a Vice President with Mercer Management Consulting, Inc. (Mercer). I have 30 years of experience consulting to the

transportation industry on a wide range of regulatory, economic, litigation, and

asset management issues. I specialize in transportation strategic planning, management, marketing, economics, and operations, and have particular expertise in restructuring, organizational redesign, and transactions to improve financial and operating performance of transport operators around the world. I have previously provided expert testimony on the state of the North American rail industry on several

occasions before the U.S. and Canadian legislatures. I have also directed the analysis of the competitive effects of transactions before the FTC and DOJ.

My purpose in preparing this statement is to provide the Committee with Mercer’s perspective on the worldwide trend towards private sector involvement in passenger railroad restructuring and privatization. My testimony is based on experience working with many of the national railways worldwide that have been restructured, privatized, or are otherwise seeking ways to attract private sector investment

and improve both their finances and their services.

In the last ten years, there has been a radical change in the way passenger railroads around the world are structured and operated. A particular feature has been

growing private sector involvement in all areas, from operating trains, through

maintenance of rolling stock and infrastructure, to financing of large-scale projects.

In general, the result has been very positive, with improvements in service and ridership, increases in investment and big reductions in subsidies.

Many of the lessons can be applied to the U.S. passenger rail situation, although

obviously each country is different, and we should be careful in applying wholesale

a model used elsewhere, however successful.

TEN YEARS AGO

Ten years ago, around 1990, virtually all countries had large, integrated, stateowned railroads. The integrated railroads did everything—specifying, procuring and

owning equipment and infrastructure, maintaining it, running passenger and

freight services, operating stations and freight terminals, providing add-on services

to customers, and managing all the associated administrative activities.

Many of the railroads were actually government departments, others some form

of public corporation. In both cases, funding came from the government, usually

through coverage of the annual operating deficit, and funding of the capital budget.

Since governments are perennially short of money, capital spending was inadequate

to replace assets, and the condition of the equipment and infrastructure was steadily deteriorating.

The only major private sector involvement was U.S. freight railroads. Outside of

U.S. freight, private sector involvement was very limited.

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CHANGES IN THE LAST TEN YEARS

Since 1990, the railroad sector worldwide has undergone a radical change that is

still continuing. The change has been driven by three related factors: • Poor and declining performance by the railroads, including declining (or barely

increasing) ridership, poor service (especially frequency and on-time performance),

and increasing costs and financial support required. • Financial pressures on governments that made the subsidy paid to railroads

look a poor value use of public funds compared to alternative uses such as health

and education. • Frustration by governments at the lack of firm action by railroad management

to address these problems, and at the intransigence of labor to adapt in ways that

would assist performance.

The changes differed by country, depending in particular on how bad the situation

was, the government’s objectives and the level of skills available in the existing railroad staff to sort out the problems.

UNBUNDLING

A common theme in all countries has been ‘‘unbundling’’. The integrated stateowned railroad comprised a series of activities—for example, financing the equipment, owning it, maintaining it, operating it, marketing the service to passengers—

that together provide the service to customers.

Unbundling separates out these activities and gives them to the most efficient

type of provider. So, financing and ownership of equipment may be done more efficiently by an operating lessor or a bank. Equipment maintenance may be done more

efficiently by a specialist maintenance company, or by the manufacturer who understands the technology and can give a long-term commitment to equipment availability. Train operation may be done better by large bus operators who are skilled

at providing high-frequency customer-oriented services.

Importantly, unbundling allows the private sector to become involved. No private

sector companies have the experience to manage the full range of rail activities, but

they can be very effective at managing pieces of it. Where there is a requirement

to manage more than that, they can create consortium arrangements where each

member does what he is good at and they all share in the overall risk and reward.

PRIVATE SECTOR INVOLVEMENT

Private sector involvement has taken a variety of forms:

• Full or partial IPO of the railroad or unbundled parts of it. Examples include

Canadian National, the Japanese railroad (split into regional operators), the UK infrastructure company Railtrack, and the subway operator MTRC in Hong Kong.

• Sale to private owners. Examples here include the New Zealand railroad and

the UK freight operator (both sold to Wisconsin Central), the Argentinian freight

lines (sold to local and U.S. short line operators), and the UK passenger rolling

stock and maintenance shops (sold to various banks and manufacturers).

• Concessions to operate services. Examples include Argentina passenger services

(originally concessioned for seven years and now being extended to encourage re-investment), Swedish and German regional rail concessions (typically 3-10 years), and

UK passenger franchises (7 years).

• Financing of new assets. This includes growing private sector leasing of rolling

stock, and the financing of major infrastructure. Examples include the UK passenger rolling stock fleet (the ROSCOs), and FBOT (finance, build, operate, transfer)

schemes such as the Dutch high-speed line, the high-speed Channel Tunnel Rail

Link in the UK, and the Taiwan high-speed line.

As the examples show, it is not necessary to sell the whole system to get many

of the benefits of private sector involvement. Many countries, particularly in Europe,

are working toward a mixed model, where some activities, particularly management

of infrastructure, will be state-run and others, particularly train services, will be

run by the private sector. However, even state-run infrastructure activities will use

the private sector, e.g., for maintenance or for financing major projects, as the normal part of doing business.

COUNTRY CASE EXAMPLES

South America has seen the most radical changes in its railroads, with virtually

all the region’s railroads moving from state-owned to private sector in the last ten

years. Argentina was the first country in South America (and in the world) to move

to complete private sector railroads in 1993-5. At the time service was very poor,

financial support was out of control, and poor asset condition threatened even basic

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operation. The government, with Mercer’s help, moved quickly to bring in private

operation of all passenger and freight lines, and committed them to a program of

asset improvement. Similarly in Mexico, the rapid devaluation of the peso forced the

government, again with Mercer’s help, to split up and concession the freight railroad

in three pieces in record time, yielding over $2.5 billion in one-off cash to the government.

In continental Europe, railroads were better run, and government financial pressures less. As a result, there has been a gradual evolution, pushed along by the European Commission. The succession of changes started with restructuring of the

railroads while still in state ownership to make them more commercial, efficient and

financially sound (and to separate infrastructure from train operations). It has now

moved to greater private sector involvement and competition, with a requirement

for commuter, regional and light rail systems to be offered to competitive concession,

and plans to IPO the freight and inter-city passenger services in some countries.

Similar changes are happening, more slowly, in Eastern Europe, as countries prepare to join the EU.

The UK, of course, followed a different path. The government unbundled the system into 100 separate pieces and privatized everything. The resulting complexity

has caused problems, and contributed to the failure of Railtrack, but other parts

have performed well, particularly the train operators, and the rolling stock management and maintenance.

Elsewhere, Japan is completing the privatization of its system, mainly through

IPO of existing operators; Australia is concessioning most of its passenger and

freight operations; and New Zealand sold off its railroad in the early 1990s. Even

China is now reviewing options for unbundling and private sector involvement in

its massive system, and Russia has recently restructured its railroad in preparation

for privatization.

EMERGENCE OF PRIVATE SECTOR COMPANIES

Parallel to these changes has been the emergence of private sector companies to

take on the new roles. Ten years ago, governments had to search for companies with

the right skills when they wanted to bring in the private sector. Now, there is a

group of companies experienced in operating in the new unbundled rail industry.

There are four different types of new companies:

• Train operators. New passenger train operators are primarily French or British

bus companies that started with UK rail privatization. They include Connex, National Express, Via GTI, First Group, Arriva and Stagecoach. They now hold concessions in the UK, Netherlands, Australia, Sweden, Portugal, Germany, and Denmark, including some high-speed services (over 125 mph).

• Maintenance companies. Infrastructure maintenance specialists have emerged

mainly from construction companies and include Balfour Beatty and Jarvis of the

UK, and Sersa of Switzerland. In rolling stock maintenance, manufacturers predominate, including Bombardier, Alstom and Siemens.

• Finance providers, including lessors (financial and operating), arrangers and

commercial lenders. There is a large list of commercial lenders in Europe in particular that now have experience owning rail assets and lending to major railroad

projects, and a growing understanding of how to assess and price the risks involved.

• BOT (build, operate, transfer) consortia. Consortia members include finance

providers and train operators, but also other risk-taking comp anies such as project

managers (e.g., Bechtel) and engineering consultants.

With their international experience with different rail operations, these new companies are increasingly transferring best practices from one country or operation to

another.

MAXIMISING VALUE FROM PRIVATE INVOLVEMENT

As governments have developed private sector involvement, they have learned

what conditions are required to maximize the value they get. Some of the conditions

relate to attracting private sector bidders in an international marketplace where

private companies have many other opportunities; others relate to ensuring ongoing

value as the contract or concession progresses. The major conditions are:

• Clarity on the framework (political, institutional and legal) within which the

private sector will operate. Without this, the private sector fears it will get squeezed

by ever changing political pressures. In the UK, for example, the threat by the

Labour party of re-nationalization put off bidders and considerably reduced the

value the government obtained from the sale of the ROSCOs and the IPO of

Railtrack.

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• A structure of the business being offered that gives private operators sufficient

breadth over which they can add value, and sufficient flexibility to make changes.

Too narrow a set of activities and too many constraints (e.g., on service frequency,

prices, or labor) reduces the private sector’s ability to improve performance. Some

private operators are not bidding for concessions in Europe because the concessions

are too narrow and too short to make a decent return.

• Agreed, measurable and enforceable commitments on service and investment,

which if met will deliver to government the benefits it needs. This effectively aligns

the government’s and the private operator’s interests.

• Strong performance monitoring arrangements, including reporting and meaningful penalties/incentives which focus the private company’s management and staff

day-to-day. This needs to be coupled with a hands-off day-to-day management approach by government, which allows the company to manage in a normal commercial manner.

RESULTS

In general, the results of the changes have been very positive. For example:

• In Argentina, ridership of the commuter system increased by 125% in the first

seven years of the concessions (1993-2000), service improved dramatically, and subsidies for the commuter and metro systems combined reduced from $300 million to

$50 million.

• In Mexico, in addition to the $2.5 billion initial cash inflow, government subsidies of $0.7 billion a year were eliminated. Freight traffic rose by 50% between

1995 and 2000 and a $1.3 billion investment program was completed.

• In the UK, passenger and freight traffic increased by 25-40% in the first five

years, subsidies for passenger services were committed to fall by 60% over the seven

years of the franchises, and a major replacement program for passenger rolling

stock is still underway.

• In passenger concessioning in countries such as Sweden, Germany and Australia, private operators are committing in their bids to operate the services with

cost reductions of 20% or more, with a larger reduction in subsidy.

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The CHAIRMAN. Very good.

Mr. Hamberger.

STATEMENT OF EDWARD R. HAMBERGER, PRESIDENT AND

CEO, ASSOCIATION OF AMERICAN RAILROADS

Mr. HAMBERGER. Thank you, Mr. Chairman. On behalf of the

AAR, we appreciate the opportunity to be here and I would like to

add my words of praise to the job that George Warrington did in

recognizing the importance of cooperation between rail freight and

rail passenger providers.

First, let me point out that it is important to recognize that Amtrak could not exist without the facilities and services of freight

railroads. Outside the Northeast Corridor, of course, Amtrak operates almost exclusively over tracks that freight railroads own and

maintain, and while passenger rail is important to the country, it

pales in comparison to the importance of freight railroads.

Freight trains provide more than 40 percent of the Nation’s

intercity freight transportation and according to Lou Thompson,

the World Bank’s railways adviser, our railroads provide the most

efficient, cost-effective rail freight service in the world. Consequently, any solution to Amtrak’s problems must not burden the

freight railroad operations.

I would like to just say I appreciate the comments from Secretary

King about his recognition of maintaining adequate freight transportation and his comments about the cooperation he has received

from two of our members. I would also observe based on my own

experience and comments I received from several of our members

that perhaps the sea change to which you refer occurred not just

in the freight rail industry, but also in the hallways of State rail

agencies who now recognize the importance of cooperation. So congratulations to all I guess who have come to that conclusion.

The freight railroads have identified seven principles which we

believe should be part of the debate as we go forward.

Number one, intercity passenger rail service on a broad scale

simply is not profitable in this or any other country and cannot

exist without significant government subsidization. Every railroad

passenger service in the world, as we just heard, receives a government subsidy, and indeed, Amtrak was created to preserve passenger service in the country at a time when freight railroads were

losing over $200 million annually equaling $775 million in today’s

terms.

Number two, freight railroads should receive full compensation

for the use of their assets by intercity passenger operators. By statute, Amtrak is accorded priority access and access on the basis of

incremental costs which do not fully cover the costs incurred by

freight railroad.

It is interesting to note that when freight trains operate over

Amtrak’s Northeast Corridor, Amtrak charges them as appropriate,

fully allocated, not incremental, costs, and the difference is up to

five times more than is paid by the freight operator for access to

the Northeast Corridor than that paid by Amtrak to access to the

freight roads.

Number three, freight railroads should not be expected to further

subsidize intercity passenger rail service either through new taxes

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or the diversion of existing taxes, and you will not be surprised to

hear that I am referring to the 4.3 cent per gallon deficit reduction

fuel tax which, of course, we believe should be repealed immediately.

Four, Amtrak should have as its business focus the safe transport of passengers, and therefore, subsidized passenger authorities,

including Amtrak, should not have a statutory right to carry mail

and express, but should be required to negotiate arrangements in

these areas with the right-of-way owners. We understand the drive

of Amtrak management to try to accumulate capital from outside

sources. Senator Carper commented this morning there are cases

where that occurs on a voluntary, bilateral basis. We think that is

the way that should go forward.

Five, safety requirements and the integrated nature of railroading necessitate that intercity passenger rail be provided by one

entity. We believe that should be Amtrak, and further, Amtrak’s

right of access, preferential access rates and operating priorities

should not be transferred or franchised. We believe this because we

operate a national system, and it is important that we deal with

one entity who recognizes that this is a national system and can

deal with us on the impact of what happens in Chicago affects

what happens in New York and as we try to compete with trucks,

and I will leave for another hearing whether or not we are competing on a level playing field with trucks. As we compete with

trucks for business, we need to be able to deal with one entity that

recognizes the importance of our system operating in competition

with national truck system.

Six, Amtrak’s present obligations, notably those under the Railroad Retirement Act, must not be shifted to the freight rail industry. We believe it would be inequitable for that to happen. It would

threaten the viability of the railroad retirement system itself, and

of course, given the reforms that Congress passed and the President signed last year that would be too ironic if that were to occur

right now.

Seven, future high-speed passenger rail corridors should be separate, dedicated and sealed. I think this is just matter of safety and

efficient operations.

Let me now apply these principles to your bill, Mr. Chairman.

We are pleased that certain sections of the proposed National Defense Rail Act are consistent with these principles. Specifically, the

legislation recognizes that passenger trains do need to be subsidized. It recognizes the value of an integrated system operated by

a single entity. It recognizes Amtrak’s obligation to the railroad retirement system. It increases the money available under the Railroad Rehabilitation Improvement Financing Program and removes

the unrealistic lender of last resort requirement, and it promotes

the industry’s ability to ensure safety and security by increasing

the need for authority on the railroads’ property.

However, there are some provisions with which we have some

concerns. The legislation does not appear to require that grade

crossings should be eliminated on high-speed corridors nor does it

require high-speed operations be conducted over separate, dedicated tracks, and high-speed, I think we are talking 125 miles an

hour and above.

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It encourages Amtrak to develop freight revenue which would

distract Amtrak from its public purpose and generate conflict with

the freight railroads.

Finally, we see no benefit from interjecting the Surface Transportation Board into issues between Amtrak and freight railroads regarding on-time performance which are handled now very efficiently through contracts which provide for penalties and incentives.

We recognize the difficult mission that you have undertaken, and

we look forward to working cooperatively with this Committee,

with Amtrak and others to achieve a viable passenger service in

this country.

[The prepared statement of Mr. Hamberger follows:]

PREPARED STATEMENT OF EDWARD R. HAMBERGER, PRESIDENT AND CEO,

ASSOCIATION OF AMERICAN RAILROADS

America’s freight railroads are grateful for the opportunity to present their views

as you consider the future of Amtrak and intercity passenger railroading in this

country.

Although there are numerous commuter rail and subway systems in the United

States, Amtrak (more formally, the National Railroad Passenger Corporation) is the

sole provider of intercity passenger rail transportation. It operates over more than

22,000 route miles, carries 23 million passengers annually, and serves more than

500 stations in 46 states and the District of Columbia. Amtrak is also the nation’s

largest contract provider of commuter rail service for state and regional authorities,

serving an additional 54 million commuter passengers per year in California, Connecticut, Maryland, Massachusetts, and Virginia. Amtrak has approximately 23,500

employees.

Amtrak could not exist without the facilities and services of freight railroads.

Other than the approximately 730 route-miles Amtrak owns (primarily in the

Northeast Corridor bounded by Boston and Washington, and in Michigan), Amtrak

operates the remaining 97 percent of its system almost exclusively over tracks

owned and maintained by our nation’s privately-owned freight railroads, via mandatory access at below market rates. Freight carriers also furnish other essential services to Amtrak including train dispatching, emergency repairs, station maintenance,

and, in some cases, police protection and communications capabilities.

Throughout its history, Amtrak has faced recurring questions concerning its funding needs and the proper role it should play in our nation’s passenger transportation

system. Today, Amtrak faces perhaps its most urgent and serious reappraisal yet.

As policymakers deliberate the future role and structure of Amtrak and intercity

passenger railroading in general, they should know that freight railroads will continue to work cooperatively to help ensure that intercity passenger railroading succeeds. Freight railroads believe that intercity passenger railroading in this country

has a role in alleviating highway and airport congestion, decreasing dependence on

foreign oil, reducing pollution, and enhancing mobility and safety.

It is critical, however, that as you deliberate the future of Amtrak and intercity

passenger rail, you fully recognize the appropriate freight railroad role in the provision of intercity passenger service.

PASSENGER RAIL HISTORY

Immediately following the birth of our nation, economic development was concentrated along the East Coast and in areas with navigable rivers, largely because

barges and ships were the only practical means available to transport people and

freight long distances.

The rise of the U.S. rail industry changed that. In the second half of the 1800s,

railroads allowed population centers to develop in areas previously considered inaccessible and allowed mineral, timber, and agricultural products to reach distant

markets at home and abroad. Railroads were a catalyst that allowed our nation to

grow.

Well into the 20th century, railroads were the primary means by which people

and freight were transported in this country. In 1930, for example, the rail share

of both the intercity freight and passenger markets was around 75 percent. Over

time, though, a number of factors, especially the enormous expansion of our nation’s

highway system and the development of an extensive commercial aviation indusVerDate 03-FEB-2003 09:22 Sep 08, 2004 Jkt 089637 PO 00000 Frm 00152 Fmt 6601 Sfmt 6621 D:\DOCS\89637.TXT SSC1 PsN: SSC1
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1 Interstate Commerce Commission, ‘‘Railroad Passenger Train Deficit, Proposed by Howard

Hosmer, Hearing Examiner, Assisted by Robert A. Berrien, Fred A. Christoph, and Raymond

C. Smith, attorney advisers,’’ Docket No. 31954, 1958. 2George W. Hilton, The Transportation Act of 1958, Indiana University Press, 1969, p.13 3 Incremental (or avoidable) costs are those direct costs which result from additional traffic/

volume or which would be eliminated by the discontinuance of a traffic or a particular activity.

Fully distributed (or allocated) costs include incremental costs as well as a proportionate share

of the fixed and common costs (including the cost of capital necessary to provide the service)

allocable to the traffic or service in question.

try—both accomplished with the help of hundreds of billions of dollars in government subsidies—brought enormous competitive pressures to bear on passenger railroading.

In fact, by the 1930s, passenger railroading had become clearly unprofitable.

World War II brought a brief respite, but by the late 1950s, private railroads were

losing $750 million per year (about $3.8 billion in 2002 dollars) in fully distributed

costs on passenger service, according to an Interstate Commerce Commission (ICC)

study.1 A series of subsequent studies by others confirmed the ICC’s findings. In

fact, a noted transportation scholar wrote ‘‘it is no exaggeration to say that by 1958

railroad passenger service had demonstrated itself to be the most uneconomic activity ever carried on by private firms for a prolonged period.’’ 2

The primary reason that these massive losses continued for so long was that government regulators often made it extremely difficult for railroads to discontinue

even clearly unprofitable passenger rail service. Until 1958, only state public service

commissions could grant railroad requests to eliminate money-losing passenger

trains—something commissioners were often loathe to do, no matter how much

money the railroads were losing.

The Transportation Act of 1958 transferred to the ICC the authority to approve

discontinuances of interstate passenger service, as well as appellate power over the

discontinuance of intrastate trains that had been denied discontinuance by state

regulators. From 1958 through mid-1967, the ICC approved the discontinuance of

490 interstate and 331 intrastate trains. Nevertheless, the passenger deficit in 1968

was not appreciably different than it had been a decade earlier.

By 1967, many purely local trains had been discontinued, and the railroads were

pursuing the elimination of major trains that comprised the basic elements of the

national passenger rail network. With fewer than 600 daily passenger trains nationally (down from more than 1,400 per day in 1958), political pressure against the cessation of passenger service intensified. In June 1968, the ICC called for more demanding legislative standards for train discontinuance, longer time periods for deliberation, and exclusive ICC jurisdiction over determinations applicable to the last

train on any given route. If approved, these new standards would have made it even

more difficult for railroads to eliminate unprofitable passenger service.

Looking only at incremental or avoidable costs (as opposed to fully distributed

costs), the ICC found in 1969 that railroads could save $200 million (approximately

$775 million in 2002 dollars) each year if they were allowed to exit the passenger

business.3

In essence, for several decades the railroad industry was forced by various governmental bodies to lose hundreds of millions of dollars annually providing a public

service that fewer and fewer people chose to use. By 1970, passenger rail ridership

had plummeted to just 11 billion passenger-miles, an 88 percent decline from its

1944 peak of 96 billion, despite a 40 percent increase in U.S. population during the

same period. By 1970, the cumulative passenger deficit had reached countless billions of dollars.

Unfortunately, the massive passenger losses were draining a rail system that was

also facing unrelenting attack on its freight business from subsidized trucks and

barges, leading to railroad bankruptcies, consolidations, service abandonments, deferred maintenance, and general financial deterioration. By 1970, railroads’ share

of intercity freight ton-miles had fallen to 40 percent, down from 56 percent just 20

years earlier, and the industry’s overall return on investment had fallen to 1.7 percent—less than a child could earn on a passbook savings account.

In 1970, the largest U.S. railroad, the Penn Central, went into bankruptcy. At the

time, it was the largest bankruptcy in U.S. history. Not coincidentally, the Penn

Central was also the largest passenger railroad in the country.

THE RAIL PASSENGER SERVICE ACT OF 1970

The Rail Passenger Service Act of 1970 (RPSA) was a response to the very real

possibility that the United States would soon have no intercity rail passenger service at all, and a recognition that rail passenger losses were a serious threat to the

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4The fee each railroad had to pay was based on each carrier’s 1969 passenger services and

consisted of the lesser of (1) 50 percent of the fully distributed passenger deficit; (2) 100 percent

of the passenger service avoidable cost; or (3) 200% of the avoidable loss associated with passenger service over routes retained in the Amtrak system.

viability of freight railroading. Given the huge financial pressure they faced, it is

no surprise that when the RPSA created Amtrak, railroads welcomed the opportunity to rid themselves of their hopelessly unprofitable passenger obligations.

However, the RPSA exacted a hefty price from freight railroads for the opportunity to exit the intercity passenger rail business.

First, freight railroads were required to capitalize Amtrak in cash, equipment, or

services. These payments to Amtrak totaled $200 million (approximately $740 million in today’s dollars).4

Second, the RPSA authorized Amtrak to operate wherever it wished over the privately-owned freight rail network. Amtrak was also granted the power to force

freight carriers to convey property to it if the property were necessary for intercity

rail passenger transportation.

Third, the RPSA explicitly ordered freight railroads to grant preference to Amtrak

trains over their own trains or any other customers in the use of any given line of

track, junction, or crossing.

Fourth, the RPSA gave the ICC the authority to intervene if Amtrak and the host

freight railroad could not agree on the compensation due the owner for Amtrak’s

access. However, a 1973 ICC decision that ordered Amtrak to pay a rate of compensation greater than incremental or avoidable cost was overridden by a 1973

amendment to the RPSA, which allowed Amtrak to pay no more than the incremental costs of the owning freight railroad caused by Amtrak’s use of the tracks.

Railroads that refused to accept the statutory terms offered in the RPSA were required to continue their passenger operations—despite any losses they would

incur—for at least four more years. Thereafter, they could seek relief before regulatory agencies, but received no guarantee that they would be permitted to discontinue unprofitable service at that point. All but a few of the railroads accepted

the terms of the RPSA and immediately turned over passenger operations to Amtrak, rather than face continuing losses and the uncertainty of the regulatory process.

FUTURE PUBLIC POLICY DIRECTIONS

The special statutory privileges regarding its relationship with freight railroads

that Amtrak has enjoyed over the past 30 years have amounted to a significant,

mandatory, and inequitable subsidization of intercity passenger operations by

freight railroads. As you consider the future of Amtrak and intercity passenger

transportation, the freight railroads respectfully suggest that it is not possible to

‘‘develop a new, clear national policy for intercity passenger rail that can have the

broadest possible base of support,’’ in the words of FRA Administrator Allan Rutter,

if these inequities are not addressed.

While passenger railroading is important to our country, it pales in comparison

to the importance of freight railroading. Our privately-owned freight railroad system

is a tremendous national asset. Freight railroads operating in the United States

move more freight, more efficiently, and at lower rates than anywhere else in the

world, according to Lou Thompson, the World Bank’s Railways Advisor. The safe,

efficient, and cost-effective transportation service that freight railroads provide is

critical to the domestic and global competitiveness of our nation. Indeed, freight railroads are responsible for over 40 percent of our nation’s intercity transportation

service. Therefore, we must find the most effective way to provide the passenger

services that America needs, but without burdening the freight rail system—operationally, financially, or in any other way.

Freight railroads have developed a series of principles regarding the future of

intercity passenger rail service. Our principles call for future rail passenger public

policy to acknowledge the extreme capital intensity of railroading and to ensure that

railroads’ investment needs can be met. Policies which add to freight railroads’ already enormous investment burden, such as further saddling them with support of

passenger rail infrastructure needs, or which reduce their ability to provide the

quality service needed by their freight customers, must be avoided. To do otherwise

would undercut our nation’s freight rail capabilities and be counterproductive in addressing our country’s congestion, environmental, safety, and economic concerns.

The freight railroad principles are outlined below.

1. Intercity passenger rail service on a broad scale simply is not profitable in this

or any other country, and cannot exist without significant government subsidization.

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For decades prior to Amtrak’s creation, our nation’s railroads learned the hard

way how difficult it is to recover the full costs of passenger railroading. Although

Amtrak was created as a for-profit entity, experience has shown that this is not

achievable. No comprehensive passenger system in the world operates today without

significant government assistance.

Once policymakers in the Administration, Congress, and the various states agree

on the nature and extent of intercity passenger railroading in this country, they

must be willing to commit public funds commensurate with that determination.

2. Freight railroads should receive full compensation for the use of their assets

by intercity passenger operators.

As explained above, freight railroads do not profit from Amtrak’s operations.

Rather, for the past 30 years, freight railroads have heavily subsidized Amtrak by

virtue of Amtrak’s statutory right of priority access to freight railroads’ tracks at

incremental cost. An incremental cost basis does not come close to reflecting the full

market value of Amtrak’s access to the owning railroad’s tracks because it does not

cover the full operating, capital, and other costs freight railroads incur in hosting

Amtrak trains.

This has become an especially important problem over the past decade, as freight

railroads are increasingly required to expand the capacity of their networks to accommodate growing traffic volume. In certain locations, railroads are experiencing

serious and growing capacity constraints. Ton-miles per mile of road owned, a useful

measure of freight traffic density, has risen from 3.9 million in 1970 (when Amtrak

was established) to 14.8 million in 2000—a 279% increase. Largely because of this

congestion, train ‘‘slots’’ on major freight corridors are as valued as gates and departure times at major airports or berths at ports. Moreover, because most shippers no

longer carry large inventories, railroads must meet their customers’ requirements

for ‘‘just-in-time’’ or more predictable freight arrival. Consequently, asset utilization

has become a crucial management tool and rail infrastructure, crews, communications, and customer satisfaction have come to depend on precise and efficient operations.

Thus, where Amtrak trains fill prized corridor ‘‘slots’’ at bargain prices, the result

is a major cross-subsidy from freight to passenger service. It also limits the overall

size of certain freight rail markets (because slots are not available to freight trains)

and affects the reliability freight railroads can offer their customers.

Internal railroad studies have confirmed that the subsidies involved are substantial. For example, a few years ago, one railroad calculated that its annual subsidy

to Amtrak exceeded $56 million per year—and this was without including certain

major categories of costs, including the cost of delays to freight trains and the resulting dislocation of freight crews and locomotives.

It is interesting to note that when freight railroads run freight trains over the

Northeast Corridor, which is owned by Amtrak, Amtrak charges the freight railroads fully allocated costs, not just incremental costs. In fact, the fees that freight

railroads pay Amtrak are many times greater (on a per car basis) than the fees

which freight railroads must accept from Amtrak. Thus, railroads are prohibited by

statute from treating Amtrak the same way that Amtrak treats freight railroads.

Freight railroads should be fully compensated for Amtrak’s use of their property, on

the same terms that Amtrak is compensated for use of Amtrak’s property.

3. Freight railroads should not be expected to further subsidize intercity passenger rail service, either through new taxes or the diversion of existing taxes (notably the 4.3 cents per gallon deficit reduction fuel tax).

If policymakers determine that intercity passenger service provides essential public benefits, then the costs of the passenger service should be borne by the public,

not by freight railroads. For 30 years, freight railroads have subsidized Amtrak.

Forcing them to continue on this basis will seriously hinder freight railroads’ ongoing efforts to provide safe, efficient, and cost-effective transportation service.

Indeed, to force freight railroads to continue to subsidize passenger operations

would be supremely inequitable. Freight railroads are suppliers to Amtrak. As such,

they should be treated the same as those who supply Amtrak with locomotives, passenger cars, diesel fuel, electricity, and provisions for the dining car. Nor should

freight railroads be held to a loftier ‘‘public interest’’ standard. Highway contractors

are not required or expected to bid below cost because highways are in the public

interest. The same rules should apply to railroads.

The 4.3 cents per gallon deficit reduction fuel tax paid by railroads deserves special mention. This tax should be repealed—not diverted to any other purpose—so

that freight railroads can channel these funds into needed infrastructure and equipment. Diverting this tax to fund intercity passenger rail would perpetuate the inequities faced by freight railroads, because they would continue to derive no benefit

from a tax they pay but their primary competitors do not.

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5Mail and express traffic commonly refers to expedited delivery service involving small shipments.

4. Amtrak should have as its business focus the safe transport of passengers.

Therefore, subsidized passenger authorities, including Amtrak, should not have a

statutory right to carry ‘‘mail and express,’’ but should be required to negotiate arrangements in these areas with the right-of-way owners.

Amtrak was created as a passenger service company that, by focusing its management attention on passengers rather than on freight, would have an opportunity to

resuscitate America’s passenger trains. Congress intended for Amtrak to have

freight operations only incidental to its passenger service. Nor did Congress envision

Amtrak establishing and scheduling ostensibly ‘‘passenger’’ trains for the primary

purpose of serving freight needs and carrying passengers as an incidental activity.

Indeed, allowing Amtrak to transport general freight traffic under the auspices of

‘‘mail and express’’ service should not be allowed.5 This is especially so under the

terms of access Amtrak currently enjoys regarding freight railroads’ facilities. Because Amtrak currently need only cover freight railroads’ incremental costs—with

no requirement that Amtrak contribute to the owners’ fixed costs or profit—allowing

Amtrak (or any other passenger authority) to carry freight forces freight railroads

to subsidize their own competitors. Moreover, given Amtrak’s operating priority over

freight railroad operations, allowing Amtrak to carry freight forces freight railroads

to sacrifice their own competitive operational schedules in favor of Amtrak freight

movements.

The special terms of access and other privileges granted Amtrak by the RPSA

make sense only in the context of a clear-cut distinction between Amtrak’s passenger activities and other railroads’ freight operations. Permitting Amtrak to transport carload and trailerload movements of freight under its ‘‘express’’ authority obliterates that distinction.

Simply put, freight railroads fully appreciate Amtrak’s current financial difficulties and understand the reasons underlying attempts to increase Amtrak’s operating

revenues and cost coverage. Amtrak, however, should not be allowed to offload its

financial difficulties on the backs of the nation’s freight railroads, which already

heavily subsidize Amtrak operations.

5. Safety requirements and the integrated nature of railroading necessitate that

intercity passenger rail be provided by one entity—Amtrak. Further, Amtrak’s right

of access, preferential access rates, and operating priority should not be transferred

or franchised..

One of Amtrak’s fundamental purposes was to amalgamate several hundred disjointed passenger trains operated by more than 20 individual carriers into a coherent intercity passenger rail system. It was envisioned that a single carrier would

yield greater efficiency and innovation. This approach remains just as sensible

today.

Moreover, the terms and conditions by which Amtrak uses freight-owned tracks

were set by Congress more than 30 years ago under circumstances vastly different

from today. As noted above, at that time freight railroads were losing hundreds of

millions of dollars per year on passenger trains they were forced by the government

to operate. In order to be relieved from these huge losses, freight railroads accepted

terms covering Amtrak’s use of their tracks that under other circumstances would

have been unacceptable. Moreover, freight railroads did not agree to an ‘‘open door’’

policy and balkanized structure that would allow any number of state, regional, or

local entities to claim access to their assets.

Further, freight railroads knew that Amtrak ‘s obligations were, in essence, the

obligations of the United States and that Amtrak would be operated safely and professionally. Should Amtrak intercity services be transferred to other passenger operators, it is unclear under what circumstances the transfer would be made and what

characteristics would apply to the operators. For example, private entities might

have different degrees of financial backing; public authorities might or might not

enjoy the full faith and credit of their sponsoring states; and some prospective passenger rail operators might be less committed to safety and sound operating standards than Amtrak.

If others are asked to provide Amtrak-like services, freight railroads must retain

the right to negotiate terms (at arms length, free of governmental coercion) under

which those providers will gain access to the freight railroad’s right of way. Freight

railroads must become satisfied that acceptable operating practices and dedication

to safety will be observed before they allow use of their facilities.

Finally, freight railroads view the granting of statutory access to other passenger

operators to be an unconstitutional ‘‘taking’’ of private property.

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6. Amtrak’s present obligations, notably those under the Railroad Retirement Act

and the Railroad Unemployment Insurance Act, must not be shifted to the freight

rail industry.

Railroad employees and retirees are not covered by Social Security. Instead, they

are covered by Railroad Retirement, a government sponsored and managed pension

plan funded by payroll taxes on railroad employers and employees. Railroad Retirement covers the full rail industry, including freight, Amtrak, and commuter railroads; rail labor and trade organizations; rail lessor companies; and miscellaneous

railroad affiliates.

Like Social Security, Railroad Retirement is a pay-as-you-go system: payroll taxes

for current employees are used to provide current retiree benefits. Railroad Retirement is also a pooled system in which all rail participants contribute at the same

statutory rates, all rail industry employees receive standardized retirement and survivor benefits based upon their years of service and earnings, and participating employees are assured of benefits regardless of the fate of their particular employers.

The integrity of such a system is based upon all participating entities contributing

based on the current number of active workers employed. It is inequitable for a single firm, especially one as large as Amtrak (which accounts for approximately 10

percent of the rail industry work force), to suddenly be granted special relief from

a pooled, pay-as-you-go system. Simply removing Amtrak from the Railroad Retirement system, in whole or in part, would force the remaining participants—primarily

freight railroads—to sharply increase their contributions to maintain the viability

of the system.

7. Future high-speed passenger rail corridors should be separate, dedicated, and

‘‘sealed.’’

‘‘High speed’’ rail service is envisioned by many to be a primary component of future intercity passenger rail operations. It must be acknowledged that the expansion

of high-speed passenger rail service throughout the United States presents serious

challenges. To operate safely, high-speed passenger rail operations require the construction of separate, dedicated tracks. Further, grade crossings must be eliminated

(either through closure or through the construction of highway underpasses or overpasses). These are exceedingly expensive undertakings and will require firm, continued commitments by the appropriate authorities, but they are necessary for successful implementation of high-speed projects.

THE NATIONAL DEFENSE RAIL ACT

The freight railroads are pleased that certain sections of the proposed National

Defense Rail Act (S. 1991) are consistent with the freight railroads’ principles outlined above.

First, at its heart, S. 1991 recognizes the inherent need for public subsidization

of intercity passenger rail, since no system in the world is financially self-sustaining. Furthermore, the level of subsidy recognizes that the current level of funding falls short of what is needed.

Second, the proposed legislation recognizes the value of a harmonized intercity

passenger system which is operated by a single entity.

Third, S. 1991 recognizes Amtrak’s obligation to continue its pro rata funding of

the pooled, pay-as-you-go Railroad Retirement System. To disregard this obligation

would have severe implications for the other freight and passenger railroad participants of the industry system.

Fourth, the legislation appropriately increases to $35 billion the authorization of

the Railroad Rehabilitation and Improvement Financing (RRIF) program and removes the unrealistic lender of last resort barrier to implementation.

Finally, S. 1991 promotes railroads’ ability to ensure safe and secure operations

by permitting railroad police officers to enforce laws on other railroads’ property.

There are, however, provisions of S. 1991 which are inconsistent with what the

freight railroads believe is in the best interests of both freight and passenger railroads, and the national economy in general.

First, while S. 1991 appears to recognize the need for investments in grade crossings, there appears to be no requirement that grade crossings on high-speed passenger rail corridors be eliminated and that high-speed rail operations be performed

over separate, dedicated tracks. Freight railroads submit that these are threshold

requirements for the high-speed services contemplated in S. 1991. Safety and economic requirements preclude joint freight and high-speed passenger operations, and

acknowledgement of this foundational criterion allows for a more realistic view of

the true costs involved.

Second, the Section 130 grade crossing program was designed to address a different highway safety need than the establishment of sealed corridors for high-speed

154

passenger rail. Consequently, we would like to continue to work with this Committee on how best to address this grade crossing program.

Third, if the United States is to have a responsive and efficient intercity rail passenger system, it must come about through a realistic appraisal of what is needed

and the provision of public funding sufficient to build and maintain that system.

Freight railroads must be treated fairly and equitably. In this regard, the encouragement by S. 1991 for Amtrak to develop revenue sources from rail freight cargo

can only serve to distract Amtrak from its appointed public purpose and generate

conflict with the private sector freight railroad companies.

Finally, the freight railroads can discern no benefit from, and see considerable

downside to, positioning the Surface Transportation Board between the freight railroads and Amtrak with regard to issues concerning Amtrak’s on-time performance.

The current arrangement of contractual incentives and penalties is eminently more

efficient than, and preferable to, a regulatory construct.

SUMMARY

Congress has before it a difficult mission: to fashion a realistic, fair, and workable

solution to the serious problems facing intercity passenger rail in the United States.

In reaching that solution, we strongly urge you to review the principles above in

order to ensure that freight railroads continue to be a vital part of the North American economy.

Freight railroads look forward to working cooperatively with this Committee, with

Amtrak, and with others to achieve this worthy goal.

The CHAIRMAN. Very good.

Marc Morial.

STATEMENT OF HON. MARC H. MORIAL, MAYOR, NEW

ORLEANS, LOUISIANA; PRESIDENT, UNITED STATES

CONFERENCE OF MAYORS

Mr. MORIAL. Thank you very much, Mr. Chairman.

Mr. Chairman, Senator Breaux, let me first thank the Committee

for holding these hearings on the future of Amtrak. I also want to

publicly say how much we have appreciated our working relationship with George Warrington. We think he has been an excellent

executive and a great leader for Amtrak.

I know much has been said this morning and I do not want to

try to reiterate too much of what has been said, but I want to add

maybe a broad perspective, Senator, because I think we are at a

point in history right now where we can chart a course with a goal,

and what we hope the goal is to build for the United States a first

class national passenger rail system.

In the last 50 years in this country we built a first class national

highway system. We did it in the name of national defense. What

we have found is that the commercial and economic benefits of it

have been a thousandfold. We have also in the last 50 years created a first class civil aviation system. Both of these systems were

created with significant guidance, and yes, money from the U.S.

Government.

The highway system is self-evident, the money we put in to

build, to expand and to maintain that system. On the aviation side,

people do not realize that we, in effect, financed most of the construction, the rebuilding of airports through direct subsidies

through passenger facility charges.

We assisted the aviation industry with the FAA and with considerable regulatory oversight. We have got to chart a course, and I

think why it is so important is that we cannot build any more highways in this country except in a few places.

Number two, the skies are crowded.

155

Number three, the population of this country is going to grow

significantly in the 21st century, and we must begin to plan for the

future, and mayors believe very importantly that developing a national passenger rail system, properly funded with strong, strategic

investments in capital, with the proper support on the operating

side, certainly should be the mission and the goal of this debate

that we are having in America today.

At the local level, we run transit systems. Those transit systems

are not self-sufficient. We can make them self-sufficient, but we

would have to make fare boxes, the expense to the consumer at the

fare box, $4, $5, which would defeat the purpose of a system which

is affordable and available to people of all income levels.

I think as we go through this debate, I hope that the needs of

the consumers are not forgotten, that the affordability of the system is kept in the discussion, and I also hope that we will debunk

some of the notions, i.e., that people only ride trains for pleasure.

That is not right and that is not true and that is not accurate.

People ride trains for transportation purposes. Tens of thousands

of people come to New Orleans each year to come to special events

on the trains. Maybe they cannot afford a plane. Maybe they do not

like a plane. Maybe they simply like the train. So people travel on

trains for more than pleasure.

Second, I believe that there is a market out there, Senator

Breaux, for people who might wish to ride a high-speed train between Phoenix and Los Angeles, New Orleans and Houston, New

Orleans and Atlanta, Portland and Seattle, Dallas-Fort Worth and

Houston. There is a market out there because if you travel on short

legs on airlines, with all of the security procedures, with all of the

time to park, with all of the congestion, the time we spend in the

air is a small portion of the time in the actual trip.

So I think we have got to look at this as a great opportunity to

create in the 21st century the third leg, if you will, the third leg

of a truly multimodal system in this country, and I think this Committee has a great opportunity to guide that, and the mayors of

America want to be a participant in those discussions.

Thank you.

[The prepared statement of Mayor Morial follows:]

PREPARED STATEMENT OF HON. MARC H. MORIAL, MAYOR, NEW ORLEANS,

LOUISIANA; PRESIDENT, UNITED STATES CONFERENCE OF MAYORS

Mr. Chairman and Members of the Committee, I am Marc H. Morial, Mayor of

New Orleans.

I appear today on behalf of the United States Conference of Mayors where I serve

as the organization’s President. The Conference is a bipartisan organization that

represents mayors of the more than 1,200 cities with a population of 30,000 or more.

OVERVIEW—A NATIONAL PASSENGER RAIL SYSTEM

Mr. Chairman, I want to thank you and other Members of this Committee for

holding this hearing today and as the spokesman for the nation’s mayors, I cannot

stress enough the importance of a secure and comprehensive national passenger rail

system—a national passenger rail system that touches communities across America

from my city of New Orleans to the nation’s capital and beyond.

Let me begin by emphasizing that the nation’s mayors overwhelmingly believe

that the time has come to increase our investment in our passenger rail infrastructure and build out the third leg of our transportation system. We see a powerful

linkage between a strong Amtrak, a growing national inter-city passenger rail system, and the long-term viability of our local and metropolitan economies.

156

Mr. Chair and Members of this Committee, as the focal points of economic activity, cities are vital to the nation’s economic development.

THE U.S. CONFERENCE OF MAYORS CALL FOR A NATIONAL RAIL POLICY FOR

THE 21ST CENTURY

Mr. Chairman, the nation’s mayors are not new to this discussion. On January

17, 2001, I led the U.S. Conference of Mayors in convening a National Rail Summit

in Washington, DC as part of our 69th Winter Meeting. Over 300 mayors from

around the country attended and called for a National Rail Policy for the 21st Century.

The nation’s mayors understood that in three decades of existence, Amtrak was

never provided with a permanent, reliable and sufficient source of funding to ensure

its ability to deliver the world-class service many other countries now take for

granted.

Mr. Chairman and Committee Members, it astonishes people in New Orleans

when they learn that less than 1% of all federal transportation spending has gone

to passenger rail over the past 3 years. This year is no exception; the administration’s budget request for Amtrak funding is $521 million. The same budget includes

nearly $24 billion for highway, road and bridge construction projects and $14 billion

for aviation purposes. How can we expect Amtrak to offer a vital transportation

service to other modes without providing it with comparable levels of funding?

PROVIDING A NATIONAL RAIL SERVICE IS NOT PRIVATIZING THE SYSTEM

The French national passenger rail system for example is clean, safe and has an

ultra modern fleet of sleek trains run by state-owned companies. Often lost in the

admiration of the European system is the breakdown of the British system. In the

mid-1990s, Britain broke up the state-run system aiming for privatization and all

the traps that are a part of that discussion including new investments and improved

services.

It simply did not work. What Britain has today is a financially troubled company

overseeing the tracks and private firms running money losing passenger lines that

have a reputation for being dirty, expensive and unsafe.

AMTRAK’S MISSION

We are requesting that our political leaders in Washington define whether Amtrak’s mission is to provide an affordable national passenger rail service, including

running certain politically popular but financially ill-advised long distance trains or

is the mission to break even, perhaps even make a little profit. Mr. Chairman, my

constituents and visitors to New Orleans need an affordable national passenger rail

system.

New Orleans is a special events city. We routinely host national events including

the NFL Super Bowl, Sugar Bowl, the New Orleans Jazz and Heritage Festival, and

our world famous Mardi Gras. The success of these special events and related financial infusion into our local economy depends heavily on transportation choice and

that includes Amtrak.

NATIONAL RAIL DEFENSE ACT

The mayors applaud Senator Hollings leadership on this issue of national urgency

and support S. 1991, The National Rail Defense Act.

Mr. Chair and Members of this Committee, again, I want to convey the mayors

strong support for S. 1991 and to urge your action on this priority legislation. We

believe that the National Rail Defense Act is uniquely situated to ensure sufficient

flows of public capital investment into the northeast corridor while guaranteeing defined budget allocations to our nationwide system of short and long distance routes.

Mr. Chairman, we also strongly support the priority given to the development and

implementation of high-speed passenger rail corridors.

S. 1991 is a long-term plan to make passenger rail a part of our balanced transportation system. Mr. Chairman and Committee Members, the nations mayors feel

strongly that the National Rail Defense Act will provide Amtrak the tools and funding needed to create a modern passenger system for all Americans to be proud of.

CLOSING REMARKS

In closing, thank you for this opportunity to appear before you today to offer the

perspectives of the nation’s mayors on The National Rail Defense Act.

I would like to underscore that this is a very high priority concern for the mayors

and other local elected officials and we will stand with you and this Committee as

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you examine ways to meet Amtrak’s funding request of $1.2 billion this year and

development of a strategic vision and policy on a passenger rail system for the 21st

Century—a national passenger rail system that will provide all Americans with

transportation choice. The nations mayors firmly believe that The National Rail Defense Act is an important part of that vision.

As President of the Conference of Mayors, I can assure you that the nation’s mayors will strongly support your efforts in this regard.

The CHAIRMAN. This has been excellent testimony. Let me yield

to our Chairman of our Transportation Committee. You have got

your distinguished mayor here.

Senator BREAUX. Thank you very much, Mr. Chairman. We

talked about the good service that George Warrington has provided

to Amtrak and that he is departing in the not too distant future.

The same compliments go to Mayor Marc Morial. Marc is serving

currently, of course, as President of the United States Conference

of Mayors. We just had an election down in New Orleans to select

the next mayor of New Orleans, and I guess Marc’s term is shortly

to be completed, and New Orleans is a better place as a result of

that service. We are very proud of what you have done.

The leadership has been absolutely tremendous in very difficult

times, and we are just glad that you are with us and still functioning as the president over here. I did ask could he continue as

president. He said no, it would be like me on the Commerce Committee; if I was not in the Senate, I could not be in the Commerce

Committee.

So he is not mayor, cannot be president of the Conference of

Mayors. So we understand that, and thank you very much, Marc.

The CHAIRMAN. You go ahead.

Senator BREAUX. Just quickly, Mr. Moneypenny, I want to give

you a chance. Senator Hutchison has raised the question of labor

costs, and I think in Mr. Carmichael’s presentation the charts that

Senator Hutchison referred to say that the most important factor

in Amtrak’s operating costs is wages, fringes and employee benefits. Employment costs amount to a large portion of Amtrak’s expenses, and so that Amtrak’s unit employment cost exceeds the

total unit expense of other transportation providers for several reasons, including compensation levels, as well as the rate of growth

in compensation has outpaced inflation.

I wanted to give you a chance to say something about that if you

desire to do so.

Mr. MONEYPENNY. Thank you, Senator. I can tell you that unless

inflation has been zero the last 2 years we have not outpaced it.

Our members’ contracts expired more than 2 years ago. Let me add

also that the sacrifices that Amtrak workers have made over the

years started more than 20 years ago.

In 1981, Amtrak workers were told that Amtrak was in a financial crisis. We had a negotiated contract that included excellent pay

raises. We were told that we had to defer 12 percent of those wage

increases. Twenty-one years later our members are still waiting for

that money to come back. From the years 1987 through 1992 our

members had their wages frozen. Nobody got a pay raise.

For our coach cleaners, they went 1984 to 1992, 8 years, without

a pay raise. We are, after all of that, left as I said in my testimony

the lowest paid unionized rail work force in the country by dollars

an hour, and I do not know how you make comparisons to airlines.

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I wish Senator Hutchison were here to expound on that a little

more.

We represent workers on American Airlines and other airlines.

Mechanics there make over $30 an hour and they deserve it. The

best mechanic on Amtrak, no matter how many years of service he

or she has, makes $19 an hour. The same worker, who is doing the

exact same work on Metro North or the MBTA or New Jersey

Transit, makes $3-, $4-, $5-an-hour more doing exactly the same

work.

So I know it is ideologically pleasing for some to say when they

look out the window in the morning and it is raining blanketyblank, ‘‘labor did that.’’ You cannot credibly point to labor as the

source of Amtrak’s problem.

Senator BREAUX. Thank you. I got the impression that you were

concerned about privatization. Suppose if it is privatization, I am

not advocating it one way or the other, but if there was privatization, then would not your workers still be able to be represented

by working for the privatized new system as well as working for

Amtrak?

Mr. MONEYPENNY. I hope you heard the same thing I did this

morning. Mr. Rennicke, the privatization expert, just told us, if I

understood him correctly, it is sort of a secret who might be interested in taking this service over. I asked the ARC after 4 years of

studying if it is not Amtrak, who is it going to be? If we give a

party and nobody comes, what do you do? And the answer I got

was that the Peter Pan Bus Company had expressed some interest,

and I am sure they run nice bus service. They just do not run any

trains, and a foreign corporation which has, to the best of my

knowledge, one North American employee.

Now I hear Mr. Rennicke say there are 70 companies they think

might be interested, but they are bashful. They don’t want to say

anything. Amtrak has been subject to the most withering scrutiny

that Congress can give, and I do not know of any other Federal

agency that has been studied in as many different ways as Amtrak

has, and I would hope before we get on the road to privatization

that we will subject whatever company steps forward, whenever

they have enough courage to do so, to the same sort of scrutiny before we say let us pass legislation and see if anybody shows up.

I will say if a privatized company shows up, they have to deal

with us. We are the only people that do this sort of work. Rail work

is so industry-specific and safety-sensitive, there simply is not another work force to do it. I would just hope we do not throw it up

in the air and see who wants to catch it.

Senator BREAUX. Thank you. Mr. Rennicke, talk about the question of privatization. My understanding of Amtrak is it is kind of

like a quasi-public, quasi-private operation that is trying to get this

job done. If it were to be privatized, how could that bring about any

change in the problems that we face? I guess you are saying that

even if it was totally privatized you are still going to have to have

the Federal Government paying a large portion of the cost of the

operation. Do you envision where it has been done before that

somehow the privatization brings about efficiencies that would

eliminate the need for that type of subsidy?

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Mr. RENNICKE. Well, in virtually every case, with the possible exception of the problems we had in the United Kingdom with

Railtrack, which I want to be very clear is their infrastructure company, not the train operating company, you had vast efficiency improvement.

In Argentina today, 82 percent fewer workers deliver three or

four times the amount of passenger-miles than there were when we

started the privatization program. Private companies found a way

to create value. The government borrowed $300 million from the

World Bank, and basically we had a program that everybody wanted. The employees were happy, the prior employees working in the

same area.

In Mexico today, private companies down there now run the

freight business. There are almost 60 percent fewer employees

working on the railroad than there were 4 years ago. There was

no labor disruption. Pension funds were stabilized, and basically

the benefits to the government came from the drastic reduction in

the unit cost of the operation and drastic improvement in service

because specialists who had a business capability that were different from the incumbent companies brought some management

expertise to the table that was not there before, and that essentially improves the bottom line.

There are very few places where privatization was undertaken

where there are not substantial improvements in productivity. The

government still has to pay, as Mr. Hamberger pointed out. There

is really no place in the world where a passenger railroad or intercity railroad really funds itself totally, but they pay far less. That

is really the crux of why those countries did it, and why there are

70 companies or more waiting to see a real RFP or a real resolution

to the commercial offering that the U.S. would have in a private

sector environment.

Senator BREAUX. Thank you.

Mr. King, I have one quick question. In the McCain bill we

talked about requiring or encouraging cities that benefit from the

Amtrak service to have to kick in a certain percentage of money,

I think it was 20 percent maybe in the Northeast Corridor, of the

operating cost, and I raised the question, what if one city along the

route or one State just says ‘‘We are glad you are coming through

our State, but we are not kicking anything in.’’ How do we handle

that with the State? Just mandate everybody pitch in? How do we

handle that?

Mr. KING. That is a very interesting question. We had the same

question paving secondary roads in our department, and we were

faced with that situation in the Southeast. What we want to do in

the Atlanta to the Washington, DC, Corridor is to extend the

Northeast Corridor through Richmond, Raleigh, Charlotte, Greenville, Spartanburg, to Atlanta.

North Carolina and Virginia have been very aggressive on that

and have come a long way and invested a fair amount of money

so far. Georgia has shown a lot of interest in particular lately.

South Carolina’s heart is in the right place, but they have not

found a way to put any money in it yet.

Senator BREAUX. You cannot get to Atlanta from Charlotte without going through South Carolina other than by air.

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Mr. KING. Your point is well taken. The question is how do we

buy services. Right now, North Carolina buys two services from

Amtrak. One is a Charlotte-Raleigh-Charlotte round trip. The other

is a Charlotte-New-York-Charlotte round trip which performs very,

very well. The Senator from Oregon made the point that we perhaps are not charged on an equitable basis for those services, and

I would submit that this is certainly the case with us. At least our

perception is that we are paying disproportionately as compared

with other States.

I think the answer to your question is that if we do not have

unanimity at the end of the day when we are ready to step forward

as a group of four States and put money on the table to buy service

from Amtrak or any other service offerer that might be out there,

then all four States are going to have their financial plans in place,

and I am confident they will. We have still got a lot of work and

collaboration and planning to do before we are ready for that.

Senator BREAUX. Thank you.

Mr. Hamberger, thank you.

No questions. Marc, thanks for being with us.

The CHAIRMAN. That is the original railroad. The first in the

country was from Charleston-Hamburg, and we still have it in the

Charleston museum which is the truth.

Mr. Rennicke, you or anyone in the sound of my voice, please

give us the name of anybody that really wants to operate a private

national rail system.

Mr. RENNICKE. I did in the material.

The CHAIRMAN. Who?

Mr. RENNICKE. We have got the names of people ready to go. I

think they will come.

The CHAIRMAN. Do not give me that they will come and so forth.

You name them because we have not been able to find them.

Mr. RENNICKE. You have not put the For Sale sign up. It is like

somebody walking down the street knocking at every door, trying

to buy a house and people do not want to sell to you. I think as

soon as you define what it is that you want to sell or privatize.

The CHAIRMAN. We want to sell the system and any part of it

and that is it, and let us negotiate the terms and everything else.

There is no use to operate top secret. Business people are business.

If it is an opportunity, Mr. Rennicke, they will come. We have got

people that will come in and offer, do all kind of things around

here. So do not give us you have got to wait for the special occasion.

Mr. RENNICKE. If I could have your authority to act on your representations here, I think I could produce some people just on those

representations who would come and talk to you.

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The CHAIRMAN. You have the authority and we would appreciate

it very much.

Mr. RENNICKE. I will.

The CHAIRMAN. The testimony has been very, very helpful to us,

and the Committee is indebted to each of you.

We are going to keep the record open for questions. The hour is

late so we are going to be in recess now until the call of the chair.

Thank you all very much.

[The hearing adjourned at 12:20 p.m.]

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