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[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

             TAX TREATMENT OF TRANSPORTATION INFRASTRUCTURE

=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 25, 2000

                               __________

                             Serial 106-109

                               __________

         Printed for the use of the Committee on Ways and Means

                   U.S. GOVERNMENT PRINTING OFFICE
71-648                     WASHINGTON : 2001

_______________________________________________________________________
            For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 
                                 20402

                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma                LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                       Subcommittee on Oversight

                    AMO HOUGHTON, New York, Chairman

ROB PORTMAN, Ohio                    WILLIAM J. COYNE, Pennsylvania
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
WES WATKINS, Oklahoma                JIM McDERMOTT, Washington
JERRY WELLER, Illinois               JOHN LEWIS, Georgia
KENNY HULSHOF, Missouri              RICHARD E. NEAL, Massachusetts
J.D. HAYWORTH, Arizona
SCOTT McINNIS, Colorado

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S

                               __________

                                                                   Page

Advisories announcing the hearing................................     2

                               WITNESSES

ALSTOM Transportation Inc., Tim Gillespie........................    33
American Association of Port Authorities, Alexandria, Virginia, 
  Jean Godwin....................................................    63
American Consulting Engineers Council, and Anderson & Associates, 
  Inc. Tim Stowe.................................................    42
American Road and Transportation Builders Association, and 
  Parsons Transportation Group, William H. George................    37
Association of American Railroads, and Union Pacific Corporation, 
  Bernard R. Gutschewski.........................................    54
Georgia Regional Transportation Authority, Catherine L. Ross.....    22
High Speed Ground Transportation Association, Mark R. Dysart.....    60
Morgan Stanley Dean Witter, James B. Query.......................    45
North Carolina Department of Transportation, David D. King, 
  Deputy Secretary for Transportation, and Intercity Passenger 
  Rail, Raleigh, North Carolina..................................    18
Oberstar, Hon. James L., a Representative in Congress from the 
  State of Minnesota.............................................    14
Thompson, Hon. Tommy G., Governor of Wisconsin, and National 
  Railroad Passenger Corporation.................................     8

                       SUBMISSIONS FOR THE RECORD

American Society of Civil Engineers, statement...................    70
Bond Market Association, statement...............................    73
National Association of Railroad Passengers, Ross B. Capon, 
  statement......................................................    76
Shuster, Hon. Bud, a Representative in Congress from the State of 
  Pennsylvania, statement........................................    77
Talgo, Inc., Jean-Pierre Ruiz, statement.........................    79
Washington State Department of Transportation, Olympia, WA, Hon. 
  Sid Morrison, Secretary, statement and attachment..............    83

 
                    TAX TREATMENT OF TRANSPORTATION

                              ----------                              IN
FRASTRUCTURE

                         TUESDAY, JULY 25, 2000

                  House of Representatives,
                       Committee on Ways and Means,
                                 Subcommittee on Oversight,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 2:07 p.m., in 
room B-318 Rayburn House Office Building, Hon. Amo Houghton 
(Chairman of the Committee) presiding.
    [Advisories announcing the hearing follow:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                       SUBCOMMITTEE ON OVERSIGHT

                                                Contact: (202) 225-7601
FOR IMMEDIATE RELEASE
June 14, 2000
No. OV-20

                     Houghton Announces Hearing on
             Tax Treatment of Transportation Infrastructure

    Congressman Amo Houghton (R-NY), Chairman, Subcommittee on 
Oversight of the Committee on Ways and Means, today announced that the 
Subcommittee has rescheduled the hearing on the tax law treatment of 
transportation infrastructure. The hearing will take place on Tuesday, 
June 21, 2000, in the main Committee hearing room, 1100 Longworth House 
Office Building, beginning at 3:00 p.m.
      
    Oral testimony at this hearing will be from invited witnesses only. 
Witnesses will include representatives from organizations with 
expertise in the various modes of transportation. However, any 
individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    The transportation sector of the economy includes trains, motor 
vehicles, aircraft, and shipping. These various modes of transportation 
play a critical role in the operation of our economy. The demands on 
transportation industries have grown over time in step with the growth 
in the population and with the growth in the economy.
      
    One feature shared by all modes of transportation is that they are 
capital intensive. For example, the railroad industry must build and 
maintain the tracks upon which its trains travel as well as the 
expensive rolling stock required to operate a rail system. The motor 
vehicle industry is continually challenged to produce more fuel 
efficient and safer vehicles, while governmental units are called upon 
to expand and improve our highway system.
      
    The tax law historically has recognized the unique character of the 
transportation industry and has been tailored to address its special 
circumstances. For example, the tax law imposes an excise tax on motor 
fuel and aviation fuel, the proceeds of which fund improvements in 
highways and airport facilities respectively. Likewise the tax law 
provides tax-exempt bonding authority to high-speed intercity rail 
facilities, as well as special rules for the treatment of railroad 
repair expenditures and for the depreciation of railroad rolling stock.
      
    In announcing the hearing, Chairman Houghton stated: ``Despite the 
popular attention given to the new ``dot-com'' industries, the 
transportation industry remains the backbone of an expanding economy. 
Without the efficient movement of people and products, the continued 
growth in our economy could be jeopardized. I want to explore how the 
tax law affects the national transportation infrastructure and the 
transportation industries' ability to serve the public.''

FOCUS OF THE HEARING:

      
    The hearing will focus on how the tax law treats the transportation 
industry and how it can promote better transportation infrastructure 
for the various modes of transport, such as railroad, motor vehicle, 
aircraft, etc.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Wednesday, 
July 5, 2000, to A.L. Singleton, Chief of Staff, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Subcommittee on Oversight office, room 1136 Longworth 
House Office Building, by close of business the day before the hearing.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or 
MS Word format, typed in single space and may not exceed a total of 10 
pages including attachments. Witnesses are advised that the Committee 
will rely on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.

    Note: All Committee advisories and news releases are available on 
the World Wide Web at ``http://waysandmeans.house.gov''.

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                

                      NOTICE-HEARING POSTPONEMENT

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                       SUBCOMMITTEE ON OVERSIGHT

                                                Contact: (202) 225-7601
FOR IMMEDIATE RELEASE
June 16, 2000
No. OV-20-Revised

                Postponement of Subcommittee Hearing on
             Tax Treatment of Transportation Infrastructure

    Congressman Amo Houghton (R-NY), Chairman of the Subcommittee on 
Oversight of the Committee on Ways and Means, today announced that the 
Subcommittee hearing on the tax law treatment of transportation 
infrastructure, previously scheduled for Wednesday, June 21, 2000, at 
3:00 p.m., in the main Committee hearing room, 1100 Longworth House 
Office Building, has been postponed and will be rescheduled at a later 
date (See Subcommittee press release No. ``ov-20.htm''>OV-20, dated 
June 14, 2000.)

                                

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                       SUBCOMMITTEE ON OVERSIGHT

                                                Contact: (202) 225-7601
FOR IMMEDIATE RELEASE
July 18, 2000
No. OV-22

             Houghton Announces Rescheduling of Hearing on
             Tax Treatment of Transportation Infrastructure

    Congressman Amo Houghton (R-NY), Chairman, Subcommittee on 
Oversight of the Committee on Ways and Means, today announced that the 
Subcommittee has rescheduled the hearing on the tax law treatment of 
transportation infrastructure. The hearing will take place on Tuesday, 
July 25, 2000, in room B-318 Rayburn House Office Building, beginning 
at 2:00 p.m.
      
    Oral testimony at this hearing will be from invited witnesses only. 
Witnesses will include representatives from organizations with 
expertise in the various modes of transportation. However, any 
individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    The transportation sector of the economy includes trains, motor 
vehicles, aircraft, and shipping. These various modes of transportation 
play a critical role in the operation of our economy. The demands on 
transportation industries have grown over time in step with the growth 
in the population and with the growth in the economy. One feature 
shared by all modes of transportation is that they are capital 
intensive. For example, the railroad industry must build and maintain 
the tracks upon which its trains travel as well as the expensive 
rolling stock required to operate a rail system. The motor vehicle 
industry is continually challenged to produce more fuel efficient and 
safer vehicles, while governmental units are called upon to expand and 
improve our highway system.
      
    The tax law historically has recognized the unique character of the 
transportation industry and has been tailored to address its special 
circumstances. For example, the tax law imposes an excise tax on motor 
fuel and aviation fuel, the proceeds of which fund improvements in 
highways and airport facilities respectively. Likewise the tax law 
provides tax-exempt bonding authority to high-speed intercity rail 
facilities, as well as special rules for the treatment of railroad 
repair expenditures and for the depreciation of railroad rolling stock.
      
    In announcing the hearing, Chairman Houghton stated: ``Despite the 
popular attention given to the new ``dot-'' industries, the 
transportation industry remains the backbone of an expanding economy. 
Without the efficient movement of people and products, the continued 
growth in our economy could be jeopardized. I want to explore how the 
tax law affects the national transportation infrastructure and the 
transportation industries' ability to serve the public.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on how the tax law treats the transportation 
industry and how it can promote better transportation infrastructure 
for the various modes of transport, such as railroad, motor vehicle, 
aircraft, etc.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Tuesday, 
August 8, 2000, to A.L. Singleton, Chief of Staff, Committee on Ways 
and Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Subcommittee on Oversight office, room 1136 Longworth 
House Office Building, by close of business the day before the hearing.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or 
MS Word format, typed in single space and may not exceed a total of 10 
pages including attachments. Witnesses are advised that the Committee 
will rely on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.

    Note: All Committee advisories and news releases are available on 
the World Wide Web at ``http://waysandmeans.house.gov''.

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                

    Chairman Houghton. Good afternoon, ladies and gentlemen. 
The hearing will now come to order.
    This is a hearing on transportation infrastructure. The 
transportation section of our economy, as you all know, 
includes railroads, motor vehicles, aircraft, and shipping. 
These all play an essential role in the operation of our 
economy.
    Furthermore, demands on the transportation industry have 
grown in step with the growth of the population and the growth 
in the economy. All modes of transportation are capital-
intensive. The railroad industry must install and maintain 
tracks upon which its trains travel, as well as the expensive 
rolling stock required to operate the system.
    The motor vehicle industry is regularly challenged to 
produce more fuel-efficient and safer vehicles, while 
government is called upon to expand and improve our highway 
system.
    The tax law historically has sought to address the special 
needs of the transportation sector, but it has not always 
provided uniform assistance. Regrettably, there is an imbalance 
in how Federal law addresses the unique needs of the various 
modes of transportation.
    For example, the tax law imposes an excise tax on highway 
motor fuels, the proceeds of which are then deposited into the 
Highway Trust Fund. The Highway Trust Fund provides a stable, 
long-term source of funding for highway infrastructure 
improvements.
    In a similar manner, the excise tax on aircraft fuel is 
deposited in the Airport and Airway Trust Fund. This provides a 
stable source of long-term funding for infrastructure on the 
aircraft sector.
    However, there is no comparable source of stable, long-term 
Federal support for the infrastructure related to passenger 
rail service. The various modes of transportation should try to 
operate evenly. If the current tax law does not treat all 
transportation modes fairly, then we should point out where an 
imbalance may exist and explore how to correct it.
    Without the efficient movement of people and products, 
continued growth in our economy will increasingly be in 
jeopardy. As a result, it is right for the Committee on Ways 
and Means today to explore how the tax law could be improved to 
help the private sector meet the transportation infrastructure 
needs of the next century.
    I welcome our witnesses today, and I look forward to 
hearing their testimony.
    Chairman Houghton. I would like to recognize the Ranking 
Democrat Mr. Coyne for his opening statement.
    Mr. Coyne. Mr. Chairman, thank you. I, too, welcome today's 
oversight hearing on tax incentives for transportation 
infrastructure.
    The witnesses appearing before us today will provide 
valuable insight into the present law and rules on tax-exempt 
financing, capital cost recovery, capital construction, and the 
net operating loss carry-back for Amtrak.
    In addition, I look forward to discussing the bill to 
facilitate Amtrak's high-speed rail financing sponsored by 
Chairman Houghton as a cosponsor of this bill, H.R. 3700, the 
High Speed Rail Act of 2000, which would provide for tax-exempt 
bond financing of high-speed rail construction and improvements 
with the use of Federal tax credits in lieu of interest 
payments.
    This financing method has proven to be successful in other 
areas and merits serious consideration for the long-term 
development of high-speed rail throughout many parts of the 
United States.
    The federally designated high-speed rail corridors 
throughout the Nation should be funded in an efficient and 
timely manner. Amtrak's service and ridership in Pennsylvania 
is impressive. Amtrak operates more than 100 trains daily in 
Pennsylvania. The constituents that I represent know very well 
the services of the Capital, Limited, the Pennsylvania, and 
Three Rivers.
    High-speed rail is an important component of our national 
transportation infrastructure that should be fully supported, 
and I thank the Chairman for holding a hearing on the entire 
package of tax incentives of assistance to transportation 
systems and infrastructure.
    Thank you, Mr. Chairman.
    Chairman Houghton. Thank you, Mr. Coyne.
    Ladies and gentlemen, Jim Oberstar, a Member of Congress 
from Minnesota, was going to be here first. He is not here, I 
don't see him, and therefore we will try to blend him in a 
little later on.
    I would like to call the first panel, Hon. Tommy G. 
Thompson, Governor of Wisconsin, Chairman of the Amtrak Reform 
Board, and, Tommy, it is great to have you here; David King, 
Deputy Secretary of Transportation, North Carolina Department 
of Transportation in Raleigh; and Dr. Catherine L. Ross, a 
director of Georgia Regional Transportation Authority, Atlanta, 
Georgia. I am sure that John Lewis is going to be furious that 
I have already introduced you, but he can do it a little later 
on.
    Chairman Houghton. Governor Thompson.

STATEMENT OF HON. TOMMY G. THOMPSON, GOVERNOR OF WISCONSIN, AND 
  CHAIRMAN, AMTRAK REFORM BOARD, NATIONAL RAILROAD PASSENGER 
                          CORPORATION

    Governor Thompson. Thank you very much, Mr. Chairman, thank 
you, Mr. Coyne, both of you; you for sponsoring the bill, and 
Mr. Coyne for being a cosponsor.
    I want to thank you for holding this hearing. I really 
appreciate it.
    As both Chairman of the Amtrak Reform Board and Governor of 
one of the 36 States that are currently pursuing high-speed 
rail, I am absolutely honored to appear before your 
Subcommittee today, Mr. Chairman, to discuss the innovative 
ways through which the Federal Government can help finance 
high-speed rail. I am going to focus on the High-speed Rail 
Investment Act, H.R. 3700, which I believe is truly a creative 
and historic piece of legislation.
    Mr. Chairman, there is a rationale for an innovative 
Federal role in developing high-speed rail to help Amtrak and 
the States do what needs to be done, what we are attempting to 
do, but what it cannot do nearly so well without the Federal 
Government's involvement and their assistance.
    The simple truth is that our Nation's transportation system 
is in serious trouble. One of the clearest statements of the 
nature of the trouble appeared last December in a Los Angeles 
Times editorial. With your permission, Mr. Chairman, I would 
like to read a brief excerpt of that editorial:
     ``California faces the millennium with its transportation 
stuck in the freeway-mad jet-age sixties. The State that 
pioneered the instantaneous connections of e-mail and e-
commerce stands on the verge of a broadband revolution that 
promises to pipe feature movies into homes in seconds. But 
residents still pack themselves into automobiles that travel at 
Eisenhower-era speeds for most inner-city journeys, or into 
shuttle jets that spend more time waiting for takeoff and 
circling their destinations than en route.'' .
    What is true of California is absolutely true of the rest 
of the Nation. No wonder Governors, public policymakers, 
business, and labor leaders are all coming to appreciate the 
benefits that passenger rail can provide.
    Even before the recent rises in oil prices, the National 
Governors' Association has unanimously voiced its strong 
collective support for Amtrak and high-speed rail corridor 
development. Amtrak also enjoys strong support from the 
National Conference of State Legislators, the U.S. Conference 
of mayors, the National League of Cities, as well as many other 
influential organizations. Most recently a brandnew 
organization, States for Passenger Rail, has been formed to 
support high-speed rail funding.
    What are the benefits that high-speed rail offers? Improved 
mobility, greater dependability, increased safety, lower travel 
costs due to increased competition, and yes, a reduced need for 
expensive and politically difficult construction of new 
airports.
    Mr. Chairman, these are the benefits of high-speed trains 
in absolute terms, but to fully understand the critical 
importance of high-speed rail to our Nation's future, it is 
necessary to examine the benefits of investing in high-speed 
rail in relative terms. Once you do that, one fact is glaringly 
obvious: The costs of building new highways and airports are 
going way up. The costs of adding to our rail capacity are 
coming way down.
    To put it plainly, you get more bang for your buck by 
investing your transportation dollars in passenger rail than by 
investing that same dollar in new highway or airport 
construction. That is why 36 States are working with Amtrak on 
passenger rail projects and demonstrating a real commitment to 
high-speed rail on the part of the States. But States will be 
limited in how much they can do because of the regional nature 
of passenger rail systems.
    If we truly want, which I believe we do--want a national 
railroad system that we can really justly be proud of and that 
is economically competitive, we have to muster the will and 
national commitment to pay for it.
    That is precisely what your bill, H.R. 3700, does. It 
authorizes Amtrak to issue $1 billion annually in bonds for 10 
years, the proceeds of which would primarily support the 
development of high-speed rail corridors. Twenty percent of 
these funds would be set aside in escrow, as you know, to 
guarantee the repayment of the bonds. States would then be 
required to match the Amtrak investment in a particular project 
by 20 percent, thus making the $1 billion whole for investment.
    Amtrak would not be allowed to invest bond receipts without 
the State partnership. The Federal Government would provide tax 
credits to bondholders in lieu of interest payments. The cost 
to the Federal Government would be minimal. The Joint Committee 
on Taxation places it at $762 million over 5 years and $3.3 
billion over 10 years.
    But as I have already explained, the benefits to this 
country would be phenomenal. The private market guarantees 
these bonds, so there is no risk to the Federal Government.
    Already this bill enjoys broad support from a range of 
interests. With your permission, I would like to introduce for 
the record a complete set of endorsements for the bill.
    I would also like to quickly note that just today the U.S. 
Conference of mayors joined us by endorsing the bill at a 
hearing in the Senate Finance Committee.
    Mr. Chairman, for the past half century or so I think it is 
fair to say that passenger railroads have been virtually 
relegated to the dustbin of history. It has gotten to the point 
where last year, in 1 year, the Federal Government spent more 
than $33 billion in highways, $33 billion, more than $11 
billion in aviation, which will rise to $14 billion this year, 
and I don't criticize them for getting the money, more than $6 
billion on mass transit, while we at Amtrak have really been 
Cinderella, the poor stepchild. We have had to fight for $500 
million in Federal funds, like dogs for table scraps.
    But the tide is beginning to turn, thanks to you. Americans 
are beginning to realize that our national railroad system is a 
precious treasure that was unwisely neglected for decades. They 
have also begun to recognize what the cost of not investing in 
high-speed rail comes to: More gridlock in our interstates, 
more air pollution in our cities, and a highway construction 
bill that dwarfs the cost of upgrading the rails.
    Americans have also become aware of something else: Amtrak 
is here to stay. Our high-speed rail projects make us 
competitive with other modes of intercity transportation. We 
are highly recognized as a powerful engine for economic growth 
in cities as well as States across the Nation.
    I just want to quickly tell you that I am so happy about 
these figures, that last month Amtrak had its highest ridership 
in the past 9 years, and we set an all-time record, all-time 
record for ticket revenues of more than $100 million in 1 
month. That is amazing for Amtrak.
    The third quarter ridership and revenue results are running 
a full 8 and 13 percent higher respectively than a year ago. 
Importantly, automated ticket sales in just the past several 
weeks, spurred in good measure by the recently announced 
satisfaction guarantee--we are guaranteeing everybody will be 
satisfied--up by 16 percent. Thanks to the demand generated by 
the satisfaction guarantee, we expect revenue and ridership to 
continue to grow and grow strongly.
    In the long run, meeting that demand will mean delivering 
on our promise, the promise of America for high-speed rail.
    In short, we have a crucial role to play in the 
transportation industry, Mr. Chairman and Members, in the 
economy of the 21st century. We respectfully, please, ask you, 
the distinguished Members of this Subcommittee, to help us play 
that role and be successful by giving us the tools, the 
innovative funding mechanism we need to do our job. That 
mechanism is your bill, H.R. 3700.
    Thank you, Mr. Chairman and all the Members, for your 
leadership on this very important issue for Amtrak, but, more 
importantly, for America.
    Chairman Houghton. Thank you very much, Governor Thompson. 
You are great to fly in to give this testimony.
    [The prepared statement follows:]

STATEMENT OF HON. TOMMY THOMPSON, GOVERNOR OF WISCONSIN, AND CHAIRMAN, 
AMTRAK REFORM BOARD, NATIONAL RAILROAD PASSENGER CORPORATION

    Mr. Chairman:
    As both Chairman of the Amtrak Reform Board and as a 
Governor of one of the 36 States currently pursuing high-speed 
rail, I am honored to appear before your Subcommittee to 
discuss innovative ways through which the federal government 
can help finance high-speed rail. I'll be focusing on the High 
Speed Rail Investment Act--H.R. 3700--which I believe is a 
truly creative and historic piece of legislation. But I'd like 
to preface my remarks with a few words about the role of the 
federal government in promoting the general welfare.
    As you know, I'm a Republican--and proud of it! I believe 
that the government's role in our nation's life should be 
limited. That was clearly what our Founders intended, and 
that's what we Republicans have fought for over the years.
    But believing in limited government is very different from 
not believing in any government at all. Where the public 
interest is served by federal action, Republicans recognize 
that such action is warranted. As the father of our party, 
Abraham Lincoln, put it 146 years ago, ``The legitimate object 
of government is to do for a community of people whatever they 
need to have done, but cannot do at all, or cannot so well do 
for themselves--in their separate and individual capacities.''
    There, Mr. Chairman, is the rationale for an innovative 
federal role in developing high-speed rail: to help Amtrak and 
the states do what needs to be done--what we are, in fact, 
already attempting to do--but what we cannot do nearly so well 
without the federal government's involvement and assistance.
    Like most Republicans, I look to the example of Abraham 
Lincoln for inspiration and guidance. In 1862, Congress passed 
a measure that President Lincoln had long championed--the 
Homestead Bill. Giving enterprising Western farmers 160 acres 
of public land for a nominal sum, the Homestead Bill, in 
historian Paul Johnson's words, was ``one of the most important 
laws in American history''--a law that caused a tremendous 
burst of economic growth and led to the rapid settlement of the 
West.
    The Homestead Bill was a remarkable--and highly original--
piece of legislation. As Johnson puts it, after the Homestead 
Bill, ``it may be said [that] the United States no longer just 
allowed farming to `happen'--it had a policy for it.'' That 
policy can be summarized as expanding economic opportunity for 
all Americans by providing incentives that promoted greater 
choice.
    Unfortunately, in the area of transportation policy, 
Americans have lost sight of Lincoln's vision. As with farming 
in the pre-Lincoln era, we have just allowed transportation to 
``happen''--and the results have been appalling: massive 
gridlock on our highways, growing congestion at our airports, 
and a dangerous and growing dependence on a handful of OPEC 
tyrants.
    Most alarmingly, we have permitted matters to reach the 
point where Americans are increasingly forced to use 
automobiles whether they want to or not. If I may say so, Mr. 
Chairman, this is a form of ``transportation slavery'' that 
violates everything America stands for.
    It's time to reverse these dangerous trends--and that's 
what H.R. 3700 proposes to do. It will emulate Lincoln's 
Homestead Bill by offering economic incentives to promote 
economic growth and restore freedom of choice. The purpose of 
this landmark legislation is to promote the modernization of 
our passenger rail infrastructure and the creation of new high-
speed rail corridors. H.R. 3700 will increase America's 
productivity, protect our environment, enhance our safety, 
create more jobs, and promote ``smart growth'' through the 
economic development of our downtown urban centers. It will 
reduce congestion on our roads and in our skies.
    The simple truth is that our nation's passenger 
transportation system is in serious trouble. One of the 
clearest statements of the nature of the trouble appeared last 
December in a Los Angeles Times editorial. With your 
permission, Mr. Chairman, I'd like to read a brief excerpt from 
that editorial:
    ``California faces the millennium with its transportation 
stuck in the freeway-mad, jet-age 1960s. The state that 
pioneered the instantaneous connections of e-mail and e-
commerce stands on the verge of a broadband revolution that 
promises to pipe feature movies into homes in seconds. But 
residents still pack themselves into automobiles that travel at 
Eisenhower-era speeds for most intercity journeys. Or into 
shuttle jets that spend more time waiting for takeoff and 
circling their destinations than en route.''
    What's true of California is true of the rest of the 
nation, as well. Indeed, a study issued by the Texas 
Transportation Institute last year points to the fastest and 
most pervasive growth in highway congestion that we've ever 
experienced. Meanwhile, our nation's aviation system is 
likewise becoming increasingly congested--especially in our 
larger cities. In 1991, for example, 23 airports experienced 
annual flight delays in excess of 20,000 hours. Today there are 
27 airports with at least that amount, and that number is 
expected to grow to 31 before the end of the decade.
    No wonder governors, public policymakers, business and 
labor leaders are all coming to appreciate the benefits that 
passenger rail can provide. Even before the recent rise in oil 
prices, the National Governors' Association unanimously voiced 
its strong collective support for Amtrak and high-speed rail 
corridor development. Amtrak also enjoys strong support from 
the National Conference of State Legislatures, the U.S. 
Conference of Mayors, the National League of Cities, and many 
other influential organizations. Most recently, a new 
grassroots organization--States for Passenger Rail--has been 
formed to support high-speed rail funding.
    What are the benefits that high-speed rail offers? A study 
conducted for the Coalition of Northeastern Governors listed 
five distinct gains:
     Improved mobility, due to the diversion of 
passengers from highways to high-speed rail;
     Greater dependability, as rail operations are 
least affected by inclement weather relative to road or air 
travel;
     Increased safety--the study estimated a reduction 
of nearly 1,000 accidents in the Boston to New York Corridor 
alone;
     Lower travel costs, since the existence of a 
strong new competitor in the travel marketplace will serve to 
keep all travel prices down;
     And a reduced need for expensive and politically 
difficult construction of new airports by freeing up gate and 
arrival/departure slots for long-distance flights.
    The Governors' study also dealt with the environmental 
benefits of high-speed rail. For example, it estimated that the 
introduction of high-speed rail in the Boston to New York 
Corridor will save 20 million gallons of jet fuel alone each 
year, resulting in a reduction of 511 tons of carbon monoxide, 
123 tons of hydrocarbons, and 270 tons of nitrogen oxide. 
Savings from fewer automobile trips were placed at 4.5 million 
gallons of gasoline annually.
    Additionally, investment in high-speed rail has an 
unusually powerful impact on the entire economy. An analysis 
prepared by the Center for Urban Transportation Research at the 
University of South Florida demonstrated that the economic 
benefits of an investment in high-speed rail are greater than 
an equivalent investment in the manufacturing, communications 
or service industries, in all categories but job creation, 
where high-speed rail is roughly equivalent. High-speed rail 
yielded, on average, $3.2 in output for each dollar invested, 
compared to manufacturing, communications and services, which 
generate $1.8, $1.9, and $2.1 of output per dollar of 
investment, respectively.
    Finally, I should point out that although I have been 
talking about the benefits of investment in passenger rail, the 
upgrading of our underutilized passenger railroad network will 
simultaneously bring with it a radical improvement in the 
capacity of freight railroads to transport their cargo. That's 
because in most areas of the United States today, passenger and 
freight trains share the same track. But because high-speed 
passenger rail infrastructure is used most extensively during 
the day and evening, an additional benefit of investment in 
high-speed rail is an improved infrastructure useable for 
carrying freight at night, or sometimes concurrently with 
passenger operations. In other words, when you invest in high-
speed rail, not only do you help passengers by relieving 
gridlock and ``winglock''--you're also helping business by 
unclogging the arteries of our nation's commerce.
    Mr. Chairman, so far I have talked about the economic, 
environmental, safety and mobility benefits of high-speed rail 
mainly in absolute terms. But to fully understand the critical 
importance of high-speed rail to our nation's future, it is 
necessary to examine the benefits of investing in high-speed 
rail in relative terms, as well--that is, as compared to making 
investments in new highways and airports. And once you do that, 
one fact is glaringly obvious: the costs of building new 
highways and airports are going way up; the costs of adding to 
our rail capacity are coming way down. You don't need to be a 
rocket-scientist to figure out that as the marginal cost of 
highway and airport construction rises, while the marginal cost 
of increasing our passenger rail capacity falls, rail becomes 
cost-effective relative to other transportation modes. To put 
it plainly, you get more ``bang for your buck'' by investing 
your transportation dollar in passenger rail, than by investing 
that same dollar in new highway or airport construction.
    There are many ways I could illustrate this point, but let 
me provide just one telling comparison. A supply of highway 
salt that would cover this country's needs for 12 winter months 
costs $1.2 billion, which is about what it costs to build the 
entire high-speed rail infrastructure from New York to Boston. 
Think about it: 115 miles of continuous welded rail, 6.5 miles 
of additional track to accommodate commuter traffic, 487,000 
tons of ballast, 455,000 concrete ties, 115 bridge locations, a 
new signal system, 25 electric power stations, 14,000 
foundations, 12,000 poles, 1,500 miles of wire for the overhead 
catenary system, 21 miles of new fencing, and a new Route 128 
Station, all for about the price of three winters' worth of 
highway salt. And when the rail infrastructure is complete, 
you've got a high-speed rail service that will spark 
extraordinary economic growth throughout the Northeast. It 
seems to me that's worth a heck of a lot more than a big puddle 
of salt water.
    As I said, Mr. Chairman, you don't need to be a rocket--
scientist to figure all this out. Even politicians like myself 
get it. That's why 36 states are working with Amtrak on 
passenger rail projects. California, for example, plans to 
invest $700 million out of a $5 billion infrastructure bill 
expected to be earmarked for intercity passenger rail 
investment next year. Also, as part of the $5 billion Midwest 
Regional Rail Initiative, Illinois plans to spend $140 million; 
Michigan spent $25 million; and my own state, Wisconsin, plans 
to spend $60 million. The state of Washington has invested $125 
million, New York will invest $100 million and both North 
Carolina and Pennsylvania are investing $75 million in high-
speed rail projects. Virginia recently approved $75 million in 
new spending for the Richmond-Washington high-speed rail 
corridor, and Georgia recently approved $200 million out of $2 
billion planned for investment in high-speed rail and commuter 
rail in that state.
    What's so significant about these investments is not simply 
that they are happening, but that they are taking place without 
a federal guarantee of funding. That indicates a real 
commitment to high-speed rail on the part of the states. But 
states will be limited in how much they can do because of the 
regional nature of passenger rail systems. Like with the 
genesis of the interstate highway system, the federal 
government must lead the way with vision and financial 
assistance.
    For our part, Amtrak is working closely with the states to 
help meet the growing demand for high-speed rail. We would like 
to do a lot more, and if H.R. 3700 is adopted and long-term 
capital funding becomes available for high-speed rail--the way 
it now is for highways, airports and mass transit--believe me, 
Mr. Chairman, we will do a lot more. In the 21st century, we 
envision a national passenger railroad system consisting of 
regional high-speed rail networks linked by market-responsive 
long-distance service. This national system will empower 
Americans to choose the fastest, safest, most efficient, and 
most convenient way to reach their destinations. It will give 
travelers more options--including the option not to travel by 
car if they choose not to. Fundamental to the success of our 
vision will be the fostering of mutually-beneficial 
partnerships with states, with the freight railroads, with 
other commercial enterprises, and yes--with the federal 
government.
    Mr. Chairman, the truth of the matter is that a modern 
national railroad doesn't come cheap. Germany, for example, 
spent more than $7.5 billion to develop the 215-mile Hanover-
Frankfurt corridor, and is planning to spend about $70 billion 
on its railroad system over the next decade. France spent over 
$12 billion on its TGV (Train a' Grande Vitesse) system and 
plans to spend even more. The European Community is planning to 
link key cities by a 12,000-mile high-speed rail network to 
cost, when completed, $100 billion. If we want a national 
railroad system that we can be proud of and that is 
economically competitive, we have to muster the will and 
national commitment to pay for it.
    That is precisely what H.R. 3700 does. It authorizes Amtrak 
to issue $1 billion in bonds annually for ten years, the 
proceeds of which would primarily support the development of 
high-speed rail corridors. Twenty percent of these funds would 
be set aside in escrow to guarantee repayment of the bonds. 
States would then be required to match the Amtrak investment in 
a particular project at 20 percent thus making the $1 billion 
whole. Amtrak would not be allowed to invest bond receipts 
without state partnerships--thereby ensuring that these funds 
will take into account both the more easily measured financial 
benefits as well as the more difficult to measure public 
benefits so critical to states. The federal government would 
provide tax credits to bondholders in lieu of interest 
payments. The cost to the federal government would be minimal--
the Joint Committee on Taxation places it at $762 million over 
5 years, and $3.2 billion over 10 years--but as I have already 
explained, the benefits to the country would be phenomenal and 
the private market guarantees these bonds, so there is no risk 
to the Federal Government.
    Mr. Chairman, as you and your colleagues well know, 
Congress gave Amtrak a mandate to achieve operational self-
sufficiency by 2003. I think the record-breaking ridership and 
revenue numbers we've achieved demonstrate the considerable 
progress we've already made in turning this company around. 
There is no doubt in my mind, however, that having a stable 
source of capital funding would help Amtrak do the long-term 
planning necessary to reach, maintain and surpass our goal of 
operational self-sufficiency.
    Mr. Chairman, for the past half-century or so I think it's 
fair to say that passenger railroads have been virtually 
relegated to the dustbin of history. The passage of the 1956 
Interstate Highway Act brought America's love affair with great 
passenger trains like the ``Empire Builder'' and the 
``Twentieth Century Limited'' to an abrupt end. Once it became 
possible to ``see the USA in your Chevrolet'' Americans did 
precisely that, and railroad ridership plummeted. It has gotten 
to the point where, last year--in one year--the federal 
government spent more than $33 billion on highways, more than 
$11 billion on aviation, more than $6 billion on mass transit, 
while we at Amtrak have had to fight for $500 million in 
federal funds like dogs for table scraps.
    But the tide is beginning to turn. Americans are growing 
increasingly tired of spending billions to build more highways 
and airports--and still getting stuck in gridlock and winglock. 
They're beginning to realize that our national railroad system 
is a precious treasure that we've unwisely neglected for 
decades. They've started to understand that better utilization 
of our railroads could free our highways and airports to better 
fulfill their potential roles. They've also begun to recognize 
what the cost of not investing in high-speed rail comes to: 
More gridlock on our interstates, more air pollution in our 
cities, and a highway construction bill that dwarfs the cost of 
upgrading the rails.
    Americans have also become aware of something else: Amtrak 
is here to stay. Our high-speed rail projects make us 
competitive with other modes of intercity transportation. We 
are widely-recognized as a powerful engine for economic growth 
in cities and states across the nation--a way to get cars off 
of our gridlocked highways and to open up badly-needed slots at 
our congested airports. In short, we have a crucial role to 
play in the transportation industry of the 21st century--and we 
respectfully ask the distinguished Members of this Subcommittee 
to help us play that role by giving us the innovative funding 
mechanism we urgently and desperately need to do the job: H.R. 
3700.
    Thank you, Mr. Chairman, and thank you for your leadership 
on this issue.

                                

    Chairman Houghton. Just a couple of things. I don't know 
whether anybody has an opening statement.
    John, do you have an opening statement, or Wes?
    Mr. Lewis of Georgia. Mr. Chairman, I don't have an opening 
statement, but I would like to take this opportunity to welcome 
a friend and a longtime leader in the area of transportation 
and planning, Dr. Catherine Ross from the State of Georgia, who 
is doing a wonderful job; a former professor at Georgia Tech, 
and now she is heading up the whole transportation planning for 
the State of Georgia, and doing a great job to try to do 
something about our transportation problem in metro Atlanta and 
all over the State of Georgia.
    Ms. Ross. Thank you, Congressman.
    Mr. Lewis. Welcome, and we look forward to your testimony.
    Chairman Houghton. Thanks very much, John.
    Wes, do you have any remarks?
    Mr. Watkins. No comments.
    Chairman Houghton. Dr. Ross, if you and Mr. King would bear 
with us for a minute, Congressman Oberstar has come here. I 
know that you are a very busy guy.
    Mr. Chairman, if you would like to give your testimony, 
stick around for questions, or else whatever you think is 
appropriate, and then I will go into the others.

   STATEMENT OF HON. JAMES L. OBERSTAR, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MINNESOTA

    Mr. Oberstar. Thank you very much for your courtesy. I 
apologize for not getting here at the outset. My other hats 
have held me up this afternoon on other matters.
    Thank you for taking the lead and working together with me 
to initiate this legislation, for holding this hearing, for 
your sense of looking over the horizon. It has been my pleasure 
to serve with you for many years in this body, and also on the 
Canada-U.S. Interparliamentary Group, where you have, again, 
shown the way to look at problems from a different perspective. 
This is what we really need here.
    I also want to express my appreciation to Senator 
Lautenberg for cosponsoring a companion bill, S. 1990, over in 
the Senate.
    Mr. Chairman, this legislation puts us on the threshold of 
a bold new era in transportation, one that has been preceded in 
its significance only by the mobility given us by the Highway 
Trust Fund and the Interstate Highway System, and the speed and 
world access given us by the Aviation Trust Fund and our 
aviation program.
    Moving on high-speed rail for relatively short distances, 
for intercity trips, is the answer to the congestion and the 
Armageddon of gridlock that lies ahead of us in America.
    I will not go into all the specifics of the bonding 
authority to acquire rolling stock, rights-of-way, and signal 
systems, or the State match in funds and the overall financing. 
Those are all made clear in the legislation. You have probably 
already discussed in your opening remarks.
    The question that we have to address is not so much the 
how, but the why and whether we have the will. For the first 
time outside of the Northeast Corridor, we would have the 
ability to finance systems of 500 to 700 miles in length of 
high-speed rail and to actually build them, instead of 
continuing to support a cottage industry of consulting firms 
that have grown up around this issue.
    Numerous studies have been undertaken over the past 30 
years. We don't need more studies, we need to move forward and 
began to build them. This legislation gives, I think, the most 
practical and realistic and effective means of doing it. It 
also provides for partnerships between States and private 
firms.
    The whether questions, whether we can and whether we 
should, ought to be answered by the example of other countries. 
The Japanese in the sixties began a commitment to high-speed 
rail with the Shinkanshen, which I have ridden and probably 
others in this room have also. The bullet train between Tokyo 
and Osaka, a distance of 322 miles, reduced the travel from 8 
hours to 2-1/2 hours. The Japanese now have a 25-mile long test 
track for a maglev train that had been operating on a 12-mile 
track. The expanded maglev test track has allowed them to 
travel at speeds of well over 300 miles an hour.
    Similarly, in Germany maglev technology proceeded almost to 
the point of deployment when they had a change of government 
which rethought the strategy, but will come back to it, I am 
sure. They would have moved passengers between Hamburg and 
Berlin, a distance of 288 miles, in just over an hour carrying 
some 15 to 20 million passengers a year, according to their 
studies. They are ready to do it.
    In France, there is the TGV, that has achieved under test 
conditions speeds of 300 miles an hour. TGC regularly travels 
at 175 to 185 miles an hour, depending on which of the five 
networks you are using. The French invested $12 billion in the 
TGV, and now you can travel between Paris and Brussels at about 
50 minutes. When I traveled from Paris to Bruxelles on a train 
as a graduate student, it took a good 6 hours. Now you do it in 
under an hour. It takes you less time to go to London by train 
than it does to fly.
    In Germany, the Intercity Express Train, the ICE, is 
achieving the same speeds as the French have achieved with the 
TGV on high-speed rail service. The German plan to invest $70 
billion in their rail system much of it on them ICE system.
    Contrast that with the United States, in which 94 percent 
of paid intercity travel is by air. Only forty percent of paid 
intercity travel in Europe is by air. Most of the rest is by 
train.
    We hear the argument time and again. Oh, the Americans' 
love affair with the automobile will never allow them to move 
from the car to the train. But, people fail to realize that the 
most popular places for tourism in America are rail history 
museums. Go to Sacramento where they have the most expansive, 
detailed, and exciting rail history center. It is flooded with 
people. Go to Scranton, Pennsylvania, to Steamtown, USA. It 
too, is flooded with visitors; to Duluth, Minnesota, to the 
Rail History Center, and it is flooded with visitors year 
round, the city's most popular travel stop; and in St. Paul, 
the same thing.
    There is a love affair by Americans with travel by rail, 
but they don't love traveling at slow speeds, at uncertain 
times, and on risky rail beds. We have to completely rebuild 
much of our rail metwork and reformulate our thinking about 
intensity travel.
    The policy in France is that for distances of under 500 
kilometers or less, rail gets the preference for public 
investment dollars. For distances between 500 and 750 
kilometers, it is a toss-up between rail and air, but rail has 
usually won. Between 750 and 1,000 kilometers or longer, there 
is a preference for investment in air services.
    In Europe there are limits on the number of operations that 
can be handled at airports, the type of aircraft that can serve 
the airport, on the noise the airports' neighbors will 
tolerate, and on about emissions of NOX and other emissions 
from aircraft.
    We are now in a duel with the European community over 
whether American D.C.-97 or B-727 reengineered and hush-kitted 
aircraft can be sold to other countries and permitted to fly 
into the European community airspace. They don't want the 
noise.
    At Charles DeGaulle, FedEx opened a $250 million cargo hub. 
In exchange for the increased noise at night from these 
operations, the airport had to agree to an overall limitation 
of 250,000 operations a year at Charles DeGaulle Airport, 
limiting its capacity and limiting the number of passengers, 
unless you use more wide-bodied aircraft.
    The limits that the Europeans have had to face are now 
coming to America. In the congested East Coast Corridor, it 
makes no sense to fly the average flight stage of 300 miles. It 
makes no sense to fly. Train serves you better.
    The other question is, can we do it? Of course we can. We 
have the capacity. We have the funding. Governor Thompson has 
just cited the billions of dollars we are spending on our 
highway system; the transit systems, and on our aviation 
system. Can not we afford the dollars to make an investment 
that will improve the quality of life and the access of people 
and preserve our highly level of mobility in this country?
    Let me tell you how it was done in France. In 1968, 
President Charles DeGaulle commissioned a study of a high-speed 
train. A year later the Commission reported to DeGaulle and his 
Cabinet. After the presenter concluded his remarks, the 
Minister of Finance of the (French expression) said, (French 
sentence), ``That is impossible, France cannot spend this 
much.'' the Minister of Defense said (French expression), ``No, 
we can't do this, this is going to hurt the defense of the 
Motherland,'' and on it went through every Cabinet officer.
    And DeGaulle said, simply, (French expression), ``Is there 
another country in the world that has this technology?'' and 
the answer was no. And DeGaulle said, (French expression), 
``Then France will be the first.'' and they were.
    And now America is a distant second. With your bill, we can 
be first. Thank you, Mr. Chairman.
    Chairman Houghton. Thank you very much, Jim.
    [The prepared statement follows:]

STATEMENT OF HON. JAMES L. OBERSTAR, A REPRESENTATIVE IN CONGRESS FROM 
THE STATE OF MINNESOTA

    Mr. Chairman, Ranking Member Coyne, and Members of the 
Subcommittee, thank you for holding this important hearing on 
the tax treatment of financing of our Nation's transportation 
infrastructure.
    I welcome this opportunity to testify today on HR 3700, a 
bill to create a new source of funding for developing the 
infrastructure for high-speed rail passenger service. I would 
like to thank Chairman Houghton for his leadership on this 
issue, and as the principal sponsor of this legislation in the 
House. I would also like to recognize Senator Lautenberg for 
sponsoring the companion bill in the Senate, S1900. Both bills 
offer an innovative approach to financing the construction of 
high-speed rail systems.
    Pursuant to ISTEA and TEA-21 a number of corridors around 
the Nation have been designated as high-speed rail corridors 
eligible for federal assistance. Amtrak, or any other 
organization willing and able to build such systems, would, 
under our bill, have the authority to issue bonds to help 
finance them.
    HR 3700 authorizes $10 billion in bonding authority between 
FY2001 and FY2010. These funds could be used, for example, by 
Amtrak to acquire rolling stock and to make improvements to 
rail rights of way and signal systems to allow 100+ mile per 
hour (mph) operations on a major Midwest route, such as between 
Chicago-St. Louis. In order to ensure that the monies go to 
projects with the most potential for success, the states are 
required to provide a 20 percent match that would be deposited 
in a trust account. These funds and the interest they draw 
would be used to redeem the bonds. Requiring the states to 
provide the match also helps ensure that only projects with 
substantial support receive funding.
    Bondholders, instead of receiving interest payments, would 
be eligible for a federal tax credit equivalent in value to 
what they would have received in interest. This tax credit 
would be transferable in cases where the bondholder could not 
make use of the credit. The cost to the U.S. Treasury for our 
proposal would be much less than an equivalent amount in grant 
money.
    For the first time outside the Northeast Corridor, 
sufficient funds would be available to do more than merely 
study the potential for high-speed rail service. Over the 
years, countless studies of the potential economic, energy, and 
environmental benefits of high-speed rail passenger operations 
have been conducted for different proposed projects scattered 
around the Nation. A virtual cottage industry of consulting 
firms has grown up to undertake these analyses. But, even when 
the consultants identify significant economic potential, the 
financial resources haven't been there to carry out the 
project. Our proposal seeks to rectify that problem. By 
partnering with the states and private firms, the revenues from 
the bond sales will leverage sufficient resources to actually 
build high-speed rail systems.
    Around the world, other advanced industrial nations have 
long recognized the need for a balanced system of intercity 
transportation and have invested heavily in high-speed rail. 
They continue to do so.
    In the 1960s, the Japanese made the world's first major 
commitment to high-speed rail by building the famous 
Shinkansen, or ``bullet'' train between Tokyo and Osaka, a 
distance of 322 miles. These trains, operating over a dedicated 
right-of-way, reduced the travel time between these two cities 
from 8 hours to 2\1/2\ hours. The service proved so successful 
that the Japanese have built additional lines. Nor have they 
rested on their laurels. Today, the Japanese are at the 
forefront in developing Maglev technology--a technology, I 
might add, that was invented here in the United States.
    The French were quick to emulate the Japanese. Beginning in 
1981, the French began operating the Train a Grande Vitesse 
(TGV) between Paris and Lyon. These trains cruise along at 
nearly 200 miles-per-hour (mph) and have demonstrated the 
capability, under test conditions, to travel faster than 300 
mph. The French have spent $12 billion on a network of TGV 
trains that now stretches for more than 800 miles, and they 
plan to invest more. The Germans followed suit in the 1980's 
with their Intercity Express trains (ICE). Over the next decade 
Germany will invest $70 billion in its railroad network, much 
of it on high-speed rail service. At the same time, Germany is 
continuing to research and develop the Maglev technology at its 
test facility in Emsland in Northern Germany. Spain, Italy, and 
other European nations are also investing heavily in high-speed 
rail.
    Some have argued that the European and Japanese experiences 
are not relevant to the United States. They claim that 
demographic and geographic differences make high-speed rail 
more workable in Europe and Japan than in the U.S. They also 
point to the enormous investments we have made in our highways 
and in our aviation system and claim that most Americans simply 
prefer to drive or fly. However, what these critics often fail 
to realize is that travel choices are greatly influenced by 
public policy choices. The governments of Europe and Japan made 
conscious policy decisions to provide high-speed rail for short 
and intermediate distance trips while reserving scarce airport 
and airway capacity for long-distance (primarily international 
and intercontinental) travel. They have developed multi-modal 
and intermodal solutions to meet the travel needs of their 
citizens. They provide the mode of transportation best suited 
to the type of trip.
    In fact, following the introduction of both the Shinkansen 
in Japan and the TGV in France, there were dramatic declines in 
airline traffic between Tokyo and Osaka and Paris and Lyon 
respectively. Airport slots and other facilities that had been 
taken up by these short-distance, feeder operations were now 
available to accommodate the flights serving longer distance 
markets. This is simply good economics--reserving scarce 
resources for their highest and best uses.
    I have spent nearly all my 25 years in the Congress working 
on transportation-related issues. I have been especially 
involved in the aviation area, serving as Chairman of the 
Aviation Subcommittee between 1989 and 1994. Never have the 
nation's airports and airways been as congested as they are 
today. Nightmarish delays are becoming an almost nightly 
feature on the evening news. Recently the Congress enacted the 
Aviation Investment and Reform Act for the 21st Century (AIR21) 
and that legislation will help the nation meet its future 
aviation infrastructure needs, but it will not completely solve 
the problem of demand outpacing supply.
    Europe and Japan have long faced serious aviation system 
capacity constraints. We in the United States have generally 
not had the same aviation system capacity problems as the 
Europeans and Japanese. Only a few of our airports were 
capacity constrained. But now, our nation's airports and 
airways are becoming more and more congested. It is very 
difficult to expand system capacity by building new airports or 
new runways. Except for the New Denver Airport, which opened 5 
years ago, no new airport has been constructed in the past 
quarter century. Noise considerations limit our ability to 
shift more flights to off peak periods. Land use considerations 
make it difficult to build whole new facilities or even add new 
runways.
    Therefore, we need to allocate scarce air system capacity 
to where it is most needed--primarily long haul domestic and 
international operations. Intercity trips of 400-500 miles or 
less by high-speed rail can be time competitive with air. We 
need to begin to invest in high-speed rail systems so that this 
option is available to the traveling public.
    In addition, we need to embrace intermodalism. The concept 
of intermodal transportation is central to modern logistics 
management. Those responsible for shipping freight organize 
their use of the modes of transport to get the best service at 
the lowest cost. We need to do the same for passenger travel. A 
high-speed train between Detroit and Chicago, for example, that 
served O'Hare Airport could eliminate the need for many short 
distance feeder flights as well as much air travel between 
Chicago and Detroit. This would free up space at O'Hare to 
handle the types of traffic that must go by air.
    Investing in high-speed rail transportation now is 
essential if we are to preserve for future Americans our 
precious right to mobility. Our bill is a downpayment on 
America's future freedom to travel.
    Again, thank you, Mr. Chairman, for your leadership on this 
issue and I look forward to working with you in the hope of 
seeing HR 3700 enacted this fall.

                                

    Chairman Houghton. Now I am going to call on David King, 
deputy secretary of transportation for North Carolina.

       STATEMENT OF DAVID D. KING, DEPUTY SECRETARY FOR 
 TRANSPORTATION, NORTH CAROLINA DEPARTMENT OF TRANSPORTATION, 
                    RALEIGH, NORTH CAROLINA

    Mr. King. Mr. Chairman, this is patently unfair, having me 
follow Representative Oberstar. We pronounce TGV somewhat 
differently in North Carolina. After those two eloquent 
speakers, I am humbled, but I do join them--in their enthusian 
for rail transportation and this bill.
    Chairman Houghton. Can you say something in French?
    Mr. King. Like my two predecessors, I appreciate the fact 
that you have taken the lead on this and have called us here. 
This legislation is something I have been waiting an entire 
career for.
    As you said in your opening statement, there is a giant 
void in our transportation programs nationally, and it is in 
intercity rail. The Federal partner in intercity rail has been 
missing.
    I am here today representing the coalition of States for 
Intercity Passenger Rail, ably led by Governor Thompson's 
Secretary of Transportation Terry Mulcahy. We have 18 members. 
Our only objective is to try to help find a way to get capital 
funding into intercity rail service.
    I have submitted my comments for the record, but I want to 
make just a very few points in my brief time. The most 
important point is that I would hope that you and your 
colleagues look at this bill not as an Amtrak capital program, 
but as a intercity rail capital program for States.
    We expect to work with Amtrak. We will look to them for 
their expertise and experience, particularly in operating 
trains and in buying train sets. But States are good at major 
transportation capital projects. We simply have never had a 
Federal partner with which to work on the intercity rail side. 
But with this bill, including a means of selecting projects 
that ensures that we select the most meritorious projects 
across the country, and that those selections are equitable and 
give the dozen or so high-speed rail corridors we have in this 
country an opportunity to make incremental progress, we believe 
that the very sort of scenario that Congressman Oberstar just 
painted will, in fact, come to pass.
    In North Carolina, our Governor for the last 8 years, 
Governor Jim Hunt, has been pushing us to connect Raleigh and 
Charlotte with 2-hour service. Right now we average 46 miles an 
hour and the schedule is 3 hours and 45 minutes. But with 
relatively modest investments, and I say that with respect to 
the kinds of investments we make every day in highways, that 
time can be 2 hours. It takes you 2 hours and 45 minutes to 
drive it. We believe that reduced trip times will make a 
significant difference in the number of people who choose the 
mode of intercity rail.
    We as a Department of Transportation in North Carolina 
awarded $1.25 billion in highway projects last year, so we know 
how to build major transportation projects. Our two major Class 
1 railroads in North Carolina are Norfolk Southern and CSX. We 
have developed relationships with both of those railroads that 
will allow them, we believe, to work with us on a positive 
basis to get this work done, to do it expeditiously, to do it 
honoring the planning processes that we must follow when we 
build major highway projects, to get public involvement, to be 
conscious of grade crossing protection and community impacts 
and all the sorts of things we have to do when we manage our 
highway projects.
    We look forward to working with Amtrak and calling on their 
vast expertise, but we want you to consider this a State 
program. I think it gets colored the wrong way, frankly, when 
it is characterized as an Amtrak capital program, when in fact 
we intend to build infrastructure with and in partnership with 
Amtrak, but in partnership with Class 1 railroads and other 
entities as well, including local and regional transit 
providers who are also sharing these corridors and, in many 
cases, sharing the stations that serve these corridors. State 
funds will satisfy the 20% match requirements, not Amtrak 
funds.
    So that is the single most important point, Mr. Chairman, 
that I would bring to your attention. I hope that this bill 
will be considered by this Committee, and the others in this 
Congress who are looking at these bills, as a State government-
based DOT capital program for intercity rail, filling that void 
that you mentioned in your opening statement, Mr. Chairman.
    We have a more stable and larger Federal program for 
bicycle transportation in my Department than we do for 
intercity rail. We need a Federal partner.
    The final point I would make is that we feel a sense of 
urgency. I hope that there will be a way to move your bill this 
year. We are ready to go. Our partners up and down the East 
Coast, from Georgia, South Carolina, North Carolina, and 
Virginia, who are working together, those four States are ready 
to go.
    We have projects that are ready to go. We have match money 
for our 20 percent match that is ready to go. We are ready to 
move. We do feel a sense of urgency. We have serious air 
quality concerns as do others. We believe this is a very real 
way to begin to address that problem.
    Mr. Chairman, I look forward to any questions you and your 
colleagues may have, but I do commend you for your leadership 
on this. We really hope this bill will meet with some success 
this year.
    Chairman Houghton. Thank you, sir, very much, Mr. King.
    [The prepared statement follows:]

STATEMENT OF DAVID D. KING, DEPUTY SECRETARY OF TRANSPORTATION, NORTH 
CAROLINA DEPARTMENT OF TRANSPORTATION, RALEIGH, NORTH CAROLINA

    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 highways, 
ferries, aviation, bicycles and pedestrians, public 
transportation and rail.
    I testify today on behalf of the States for Intercity 
Passenger Rail. States for Intercity Passenger Rail is a grass 
roots organization of state departments of transportation. 
North Carolina is one 18 of states in the group ably chaired by 
Secretary Terry Mulcahy of the Wisconsin DOT. Our growing 
membership is drawn from around the country and includes states 
with existing passenger rail service as well as those in the 
implementation stages. From large states and small states, we 
span the political persuasion continuum with varied interests 
and geography. We are quite a diverse group and we are a 
national group. Our strength is initiative created and 
supported by states which share a common goal. It is refreshing 
to characterize our state-based transportation group as 
national after the fractious, regionally based alignments that 
characterized the TEA-21 debate.
    Five basic principles provide the foundation of States for 
Intercity Passenger Rail:
    First, intercity passenger rail complements existing 
intercity passenger and freight systems. Those systems, mainly 
road and air, are 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. We have made the business decision that we 
receive a greater return on investment by increasing the 
capacity of passenger rail rather than by making alternative 
investment decisions. An example is the cost of adding a lane 
of interstate is more expensive than improving a segment of 
rail.
    Second, because intercity passenger rail trips tend to be 
100 to 500 miles in length, many of the corridor planning, 
analysis, and construction management tools routinely used at 
the state level apply. States can and do plan, build and 
maintain interstate transportation corridor systems. We meet a 
myriad of environmental, planning, and safety standards. These 
projects require massive investments and we deliver them every 
day.
    Third, improved intercity passenger rail is attractive to 
states because it is incremental. Our programs are publicly 
funded to deliver public services, and states must make prudent 
investments. We recognize that 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, existing shippers, and labor. The freight 
railroads own most of the assets outside the Northeast 
Corridor. Publicly and privately held railroad assets are 
currently shared in part by commuter agencies. Our emphasis 
will be to assure that nothing we do to improve rail passenger 
service diminishes the ability of the freight railroads to 
provide safe, reliable freight service. All workers have a 
right to expect equitable compensation and decent working 
conditions. The burden is on the states to learn and work with 
our partners effectively.
    Fifth, the federal government has a role to play in 
intercity passenger rail because financial investment is in the 
national interest. Beyond the interest of the individual states 
and groups of states in nearly a dozen corridors, it is in the 
interest of the Nation to have series of vibrant, well built, 
well operated 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. They 
anchor an integrated system of public transportation services 
including local and regional transit and access to major 
airports. States, however, cannot accomplish this laudable goal 
alone or even collectively; transportation federalism dictates 
a need 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.
    We need a federal partner that provides a stable, 
dedicated, long-term financial commitment. Further, these 
financial resources must expand the overall level of financial 
commitment to all modes of transportation. The lack of progress 
nationally in improving intercity rail passenger service is 
directly attributable to the lack of a meaningful federal 
partner.
    More specifically:
    The complex, long-term nature of corridor development 
dictates a multi-year tool. The federal government, through the 
tax code, can provide useful means of organizing larger amounts 
of investment capital. States are currently investing in 
intercity passenger rail. These funds can be used as match for 
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. A broadening of the sources 
of eligible matching funds should be encouraged. The 
combination of federal, state and other funds can help achieve 
both economies of scale and funding levels attractive to 
investors.
    Further, we need to increase investment in transportation 
infrastructure. 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 of the 21st Century of 1998'' or ``TEA-21.''
    States for Intercity Passenger Rail do not want to re-open 
TEA-21. Rather, we wish to draw upon a major strength of the 
bill--its commitment to financial innovation and equity. The 
Transportation Infrastructure Finance and Innovation Act 
(TIFIA) is especially instructive. It is encouraging to note 
that one of the first TIFIA investments was Pennsylvania 
Station in New York City, which is in part an intercity 
passenger rail facility.
    HR 3700: ``The High Speed Rail Investment Act'' is a highly 
significant financial innovation for states and their partners.
    The structure of HR 3700 benefits all levels of 
transportation federalism. For the federal partners it provides 
significant additional capital without unduly straining budget 
resources and the appropriations process. On the state side it 
provides a stable, long-term, source of financial resources.
    HR 3700 maintains the integrity of TEA-21. By capping the 
amount of funding any single corridor can receive, it is more 
likely that an equitable distribution of the funds will occur.
    States for Intercity Passenger Rail support enactment of HR 
3700 as amended.
    I believe three areas merit perfecting language:
    1. Project development: What constitutes a worthwhile 
project? Characteristics of an appropriate project need to be 
described in greater detail.
    2. Project selection: Is there a more effective means of 
ensuring that the most meritorious projects move forward?
    3. Project management: States should manage the projects.
    We do not believe that these are insurmountable problems. 
Individually and collectively we are eager to work with the 
committee, the subcommittee and others to clarify language to 
strengthen the bill.
    Clarification can promote the success of the bill. A clear 
understanding of the roles and responsibilities of the partners 
will lead to prompt implementation. All the partners should 
focus on the strengths and experiences they bring to the 
effort.
    In this regard we view Amtrak as a partner whose strength 
is to operate passenger rail services as well as mail and 
express business. This bill should not be seen in any way as an 
alternative for Amtrak funding. Our National Railroad Passenger 
Corporation has a continuing need for capital investment at the 
levels provided in authorizing legislation.
    We value our partnership with Amtrak but we believe that 
giving states a choice of providers and partners will lead to a 
stronger and more efficient Amtrak.
    North Carolina is ready to move forward, now.
    Based on Governor Jim Hunt's unwavering support for 
intercity rail over the past eight years, North Carolina is 
ready to implement this legislation now. Two years ago we 
invested over $72 million to acquire control of the North 
Carolina Railroad. We have invested nearly $40 million in train 
stations around the state. We are poised to invest another $48 
million in track and signal improvements this year. Our high-
speed rail corridor forms an integral part of North Carolina's 
freight and passenger rail network and will serve all North 
Carolinians.
    We feel a sense of urgency from our citizens who perceive 
correctly that despite our record levels of investment in 
transportation infrastructure, congestion and air quality 
continue to be problematic. We look forward to working with you 
on this critical project. Thank you for allowing me the 
opportunity to testify before you today.

                                

    Chairman Houghton. Dr. Ross.

  STATEMENT OF CATHERINE L. ROSS, EXECUTIVE DIRECTOR, GEORGIA 
      REGIONAL TRANSPORTATION AUTHORITY, ATLANTA, GEORGIA

    Ms. Ross. Thank you, Mr. Chairman. I want to commend 
yourself and the panel for your leadership in this arena. 
Leadership not only matters, it is critical. A particular 
thank-you to Congressman Lewis, who has made such an 
outstanding contribution not only to the citizens of the State 
of Georgia, but to the citizens of the United States of 
America. Again, thank you.
    I am particularly pleased to have this opportunity to bring 
you a perspective on how a State agency views the High-Speed 
Rail Corridor Investment Act, H.R. 3700, in terms of innovative 
infrastructure financing.
    First, let me tell you a bit about the Georgia Regional 
Transportation Authority, or, as it is better known in Atlanta, 
as GRTA. We are a very unique agency. GRTA was established by 
the Georgia legislature to deal with the problems of the 13-
county region of metropolitan Atlanta in reaching conformity 
with the Clean Air Act. We can plan, finance, and operate 
transportation systems, cause counties to build transportation 
facilities, and generally implement regional solutions to 
traffic congestion and poor air quality.
    Frankly, there are few transportation choices in Atlanta. 
Ironically, Atlanta, which was founded as a railroad terminus, 
now only has the two-county MARTA heavy rail station, and a 
twice-a-day Amtrak service via the Southern Crescent.
    For too long, our solution to congestion was another 
highway lane. But that was the last century. We now have a 
Governor and legislature and, I believe, most of the people of 
the region who are committed to alternative forms of 
transportation.
    In acknowledging that passenger rail transportation in 
Georgia needs a new focus, Governor Barnes proposed that the 
Georgia Department of Transportation, the Georgia Rail 
Passenger Authority, and the Georgia Regional Transportation 
Authority form a program management team comprising two members 
from each agency.
    I am speaking today on behalf of the Georgia Rail Passenger 
Program Management Team whose chairman, Walter Deriso, is also 
vice chairman at GRTA. This team is now in charge of developing 
a rail passenger network in the State.Seven of these rail lines 
under study would link up in downtown Atlanta and provide key 
commuter rail service in the region. Two routes, Atlanta to 
Athens and Macon to Atlanta, could open as early as 2004.
    Let me pause for a moment to thank Representative Mac 
Collins, a member of the Ways and Means Committee, for his help 
in moving the Macon-to-Atlanta line along. The Congressman 
provided the State $30 million in TEA-21 funding for the Macon 
corridor.
    I also want to thank Representative John Lewis, a Member of 
this Subcommittee, and Senator Max Cleland, who provided a 
combined $20 million to help construct an intermodal passenger 
terminal in downtown Atlanta. Their efforts provided an 
extraordinary boost to our commuter rail program.
    But, Mr. Chairman, we cannot count on those earmarks in the 
future. The total estimated cost of Georgia's intercity rail 
service is $1.5 billion. Georgia is now beginning to ``flex'' 
highway dollars into commuter rail, and the 3-year 
transportation improvement program for the Atlanta region has 
programmed $230 million in State and Federal funds for rail 
passenger service, but we are still a long way off from 
reaching $1 billion.
    That is why the High-Speed Rail Corridor Investment Act is 
so important to our future. We need more investment tools if we 
are going to establish a rail passenger network. The currently 
designated Southeast High-Speed Rail Corridor from Charlotte to 
Atlanta follows Amtrak's Southern Crescent route. The corridor 
itself extends to Macon and would follow our planned commuter 
rail connection. Eventually, we would like to see the corridor 
designation extend to the coast, where it would link up with 
Amtrak's Eastern Seaboard trains.
    Railroads were popular in the 1800s and early 1900s for one 
simple reason: They were the fastest form of transportation 
available to most people at that time. If we expect people to 
ride trains today, we have to make them as fast as we feasibly 
can.
    But if we want to provide rail service in the 21st century, 
we cannot offer 20th century service. Nostalgia isn't going to 
get the job done. Additional funding that could be provided 
under H.R. 3700 would allow us to improve safety at grade 
crossings, provide modern signaling systems, realign track, and 
cut about 20 minutes off the travel time along the Atlanta-to-
Maconline.
    The Southeast High-Speed Rail Corridor will be the backbone 
of our State's rail network and will link our system to a 
national rail passenger network. That is why this bill has been 
endorsed by the Georgia Department of Transportation, the 
Georgia Passenger Rail Authority, and the Georgia Regional 
Transportation Authority.
    I believe it is important that we seek Federal assistance 
as provided under H.R. 3700. The State of Georgia will pay its 
share and will meet the 20 percent match required under H.R. 
3700.
    However, we could not hope to finance this system if we 
have to come to our congressional delegation each year seeking 
Federal funding. That is a heavy burden when we are already 
seeking help for our regional transportation solutions. We need 
desperately an innovative investment strategy, and the bonds 
program as provided in H.R. 3700 would be precisely the kind of 
tool we envision.
    The modernization of our rail infrastructure and the 
creation of high-speed rail corridors will improve the 
efficiency of our overall transportation system and reduce 
congestion on our roads. Innovative financing is critical if we 
are to provide the transportation investment we need if 
Georgia--and our Nation--is to remain economically competitive. 
Thank you very much.
    [The prepared statement follows:]

STATEMENT OF CATHERINE L. ROSS, EXECUTIVE DIRECTOR, GEORGIA REGIONAL 
TRANSPORTATION AUTHORITY, ATLANTA, GEORGIA

    Thank you, Mr. Chairman.
    I appreciate the opportunity today to bring you a 
perspective on how a state agency views the High-Speed Rail 
Corridor Investment Act, H.R. 3700, in terms of innovative 
infrastructure financing.
    First, let me start off by explaining that the Georgia 
Regional Transportation Authority is a unique agency. GRTA was 
established by the Georgia Legislature to deal with the 
problems of the 13-county region of metropolitan Atlanta in 
reaching conformity with the Clean Air Act. We can plan, 
finance and operate transportation systems, cause counties to 
build transportation facilities and generally implement 
regional solutions to traffic congestion and poor air quality.
    Frankly, there are few transportation choices in Atlanta. 
Ironically, Atlanta, which was founded as a railroad terminus, 
now only has the two-county MARTA heavy rail system, and a 
twice-a-day Amtrak service via the Southern Crescent. For too 
long our solution to congestion was another highway lane. But 
that was the last century. We now have a governor and 
Legislature, and I believe most of the people in the region, 
who are committed to alternative transportation.
    In acknowledging that passenger rail transportation in 
Georgia needs a new focus, Governor Barnes proposed that the 
Georgia Department of Transportation, the Georgia Rail 
Passenger Authority and GRTA form a Program Management Team 
comprising two board members from each agency.
    I am speaking today in behalf of the Georgia Rail Passenger 
Program Management Team, whose chairman, Walter Deriso, is also 
vice chairman at GRTA. This team is now in charge of developing 
a rail passenger network in the state. Seven of these rail 
lines under study would link up in downtown Atlanta and provide 
key commuter rail service in the region. Two routes, Athens to 
Atlanta and Macon to Atlanta could open as early as 2004.
    Let me take a moment here to thank Rep. Mac Collins, a 
member of the Ways and Means Committee, for his help in moving 
the Macon to Atlanta line along. The Congressman provided the 
state $30 million in TEA-21 funding for the Macon corridor. I 
also want to thank Rep. John Lewis, a member of this 
subcommittee, and Sen. Max Cleland who provided a combined $20 
million to help construct an intermodal passenger terminal in 
downtown Atlanta. Their efforts provided an extraordinary boost 
to our commuter rail program.
    But, Mr. Chairman, we cannot count on those earmarks in the 
future. The total estimated cost of Georgia's intercity rail 
service is $1.5 billion. Georgia is now beginning to ``flex'' 
highway dollars into commuter rail, and the 3-year 
Transportation Improvement Program for the Atlanta region has 
programmed $230 million in state and Federal funds for rail 
passenger service. But, we are still a long way off from 
reaching a billion dollars.
    That is why the High-Speed Rail Corridor Investment Act is 
so important to our future. We need more investment tools if we 
are going to establish a rail passenger network. The currently 
designated Southeast High-Speed Rail Corridor from Charlotte to 
Atlanta, follows Amtrak's Southern Crescent route. The corridor 
itself extends to Macon and would follow our planned commuter 
rail connection. Eventually we would like to see the corridor 
designation extend to the coast where it would link up with 
Amtrak's eastern seaboard trains.
    Railroads were popular in the 1800s and early 1900s for one 
simple reason -they were the fastest form of transportation 
available to most people at that time. If we expect people to 
ride trains today, we have to make them as fast as we feasibly 
can. But if we want to provide rail service in the 21st 
Century, we can't offer 20th Century service. Nostalgia isn't 
going to get the job done. Additional funding that could be 
provided under H.R. 3700 would allow us to improve safety at 
grade crossings, provide modern signaling systems, realign 
track--and cut about 20 minutes off the travel time along the 
Atlanta-to-Macon line.
    The Southeast High-Speed Rail Corridor will be the backbone 
of our state's rail network and will link our system to a 
national rail passenger network. That is why this bill has been 
endorsed by the Georgia Department of Transportation, the 
Georgia Passenger Rail Authority, and the Georgia Regional 
Transportation Authority. I believe it is important that we 
seek Federal assistance as provided under H.R.3700. The State 
of Georgia will pay its share, and will meet the 20 percent 
match required under H.R. 3700.
    However, we could not hope finance this system if we have 
to come to our congressional delegation each year seeking 
Federal funding. That is a heavy burden when we are already 
seeking help for our regional transportation solutions. We need 
an innovative investment strategy and the bond program as 
provided in H.R. 3700 would be the kind of tool we need. The 
modernization of our rail infrastructure and the creation of 
high-speed rail corridors will improve the efficiency of our 
overall transportation system and reduce congestion on our 
roads. Innovative financing is critical if we to provide the 
transportation investment we need if Georgia--and our nation--
is to remain economically competitive.
            Thank you.
      

                                

    Chairman Houghton. Thank you, Dr. Ross.
    We have been joined by Mr. Portman, and also Mr. Hulshof 
down here.
    Gentlemen, do you have any opening statements you would 
like to make?
    Mr. Hulshof. No, sir.
    Mr. Portman. No, thank you.
    Chairman Houghton. We will go to questions. I will turn to 
Mr. Coyne.
    Mr. Coyne. Thank you, Mr. Chairman.
    Governor, I wonder if you could expand a little bit on why 
tax-exempt bond financing is critical to Amtrak's development 
process.
    Governor Thompson. As you know, we are under the 
Accountability Act that was passed by Congress. We have to be 
self-sufficient operationally by 2003. We are on a glide path 
to do that. The first year we were up by $500,000. Last year we 
exceeded our glide path by $800,000. This year we are going to 
fall short because the high-speed trains have not been able to 
get on board as soon as expected, but as soon as they are, that 
will generate about $180 billion in additional profit. So we 
are on our glide path. We are going to be able to follow the 
congressional law that we will be self-sufficient.
    But capital, we are so short on capital and we don't have 
any way to finance new equipment, improve our railbeds, and be 
able to develop the high-speed corridors. This is our answer. 
This is our way of getting the capital to really establish 
high-speed corridors and be able to do it.
    The tax credit way is cheaper for Congress. Over 5 years, 
the financing, the mark-down is about $700 million. Over 10 
years it is $3.3 billion. We know we cannot come and get the 
amount of money we need for capital even though we need it. So 
this is one way we can finance it. The tax credits gives us the 
opportunity to go into the private sector and get the money for 
it.
    The 20 percent set-aside will help us repay it at the end 
so there will not be any liability to the United States 
government.
    Mr. Coyne. Thank you, Mr. Chairman.
    Chairman Houghton. Mr. Watkins?
    Mr. Watkins. Thank you, Mr. Chairman.
    In your statement, I would like to just reemphasize--
because I like to find equity, especially in the Plains area, 
in Oklahoma. We just recently got Amtrak not too long ago.
    Governor Thompson. It is doing well, much better than we 
anticipated, Congressman.
    Mr. Watkins. Thank you, Congressman. We do exist in this 
great United States--Oklahoma.
    Mr. Thompson. Yes, we recognize that, Congressman. That is 
why we put the rail in there.
    Mr. Watkins. I enjoy the Eastern Corridor, but they forget 
our area. Mr. Chairman, we don't get even our tax dollars back 
to the Highway Trust Fund. We don't get the portion we are 
supposed to or we send back in.
    Mr. Chairman, I would like to make sure everyone heard the 
Chairman's statement. We have to have equity if we are going to 
really participate in this. If not, it is hard for me to go 
back and sell it to the people.
    The Chairman said the tax-exmpt status helps to address the 
special needs of the transportation sector, but has not always 
provided uniform assistance. I take that, when I read that, 
that it has not provided uniform assistance geographically. I 
know we have not had it maybe in the highways, rail, or 
airfields; but when I read that, that touches me real closely, 
because we have not had that equity.
    I would just ask, Mr. Thompson, you have done a great job 
as Governor of your State, and have done a great job now of 
trying to make sure we have equity, so some of us, we are 
enthusiastic about this type of legislation. I basically would 
be in favor of it. But as we look at it, how do we make sure 
some of these States--I think one of the worst votes I have 
ever cast was the deregulation of airlines.
    For instance, the hubs do not--they discriminate against 
States like Oklahoma. I don't want to vote for anything else 
that is going to discriminate against my home State. We don't 
even have a lot of the things coming in by air. It is 
ridiculous. It is crazy, what we have done in this country with 
our airlines.
    That is part of the reason why we also, in the Chairman's 
statement, hear about all of the problems in the airways and 
all of the things that are at the top of the agenda this very 
day over in the Senate.
    What kind of assurance can I go back and tell my people 
that we will have if this is passed; that Oklahoma will be able 
to participate with equity in the program, have the right kind 
of equity in the program?
    Governor Thompson. Congressman, I applaud you for asking 
the question. It is the same question that I ask myself. When 
you were talking about Oklahoma being somewhat shortchanged in 
all these formulas, I can only think of my own State.
    Mr. Watkins. Yes.
    Governor Thompson. We are ranked 49th. We are treated even 
more shabbily than you are, Congressman, in Wisconsin. We only 
get--we are the 49th poorest State as far as getting money back 
from the Federal Government.
    I know what you are talking about, and I can assure you as 
Chairman of Amtrak and as Governor of the State of Wisconsin, 
that we want to grow Amtrak. We want to make sure that Oklahoma 
and Wisconsin, North Carolina, Georgia, and every State in 
America gets service.
    There is also a limitation on this bill, H.R. 3700, that 
the maximum amount of 30 percent could only go into the 
Northeast Corridor. We wrote that in to assure that the rest of 
the country could be assured of getting some of this extra 
money.
    We have put Amtrak rail service now in into Oklahoma, and, 
as I said, it is doing much better than anybody had 
anticipated. We had a market survey done of all of our Amtrak 
rails across America. What we are trying to do as an Amtrak 
board and management, we are trying to grow Amtrak. We want 
every State covered by Amtrak service, and we want to expand 
rail service. We don't want to curtail and cut back, we want to 
expand. That is going to include Oklahoma.
    So I can give you my assurance as chairman of the board 
that we are going to make sure that Oklahoma and Wisconsin and 
every other State gets their just due.
    Mr. Watkins. I will bet Wisconsin is not at the bottom by 
the time you get through.
    Governor Thompson. I will not be doing my job if it is.
    Mr. Oberstar. Mr. Watkins, if I might supplement the 
Governor's statement, Mr. Chairman----.
    Chairman Houghton. Mr. Oberstar.
    Mr. Oberstar. The idea of this legislation is not 
necessarily to achieve geographic balance by directing funds to 
one or another part of the country, but, rather, to assure that 
those projects with the greatest promise of success will get 
the funding.
    The way you do that is to ensure the State match, so we 
want States to be up front partners. They are required to have 
a 20 percent match that would be deposited in a trust account. 
Those funds and the interest they draw would be used to redeem 
the bonds. What we are looking at here is a grassroots-up 
initiative. Those areas of the country like your State of 
Oklahoma--and if you think you are left out, we don't have--
Minnesota and Wisconsin do not have the world's greatest rail 
service either, but with the improvements that are being made 
in Amtrak, it is getting better.
    But that is the way you achieve the objective, is to get 
the States in at the first rung, at the ground floor to develop 
the plans, provide the match, and assure that those projects 
that have the best chance for success will get the priority 
funding.
    Mr. Watkins. I appreciate that, Mr. Chairman.
    Let me say, I really appreciate the kind of commitment that 
I have heard here today. I am an enthusiastic believer and 
rider of Eurail when I go to Europe--or Britrail. It is a 
tremendous way to travel. I get there with all the college 
students, and I get out there and really have a good time.
    Chairman Houghton. OK. Thanks very much.
    Mr. Lewis.
    Mr. Lewis. Thank you very much, Mr. Chairman. Mr. Chairman, 
I would like to piggyback, I guess I could use that phrase; 
piggyback, one of those transportation things, with my 
colleague, the gentleman from Oklahoma. I think we have some of 
the same problems, Governor Thompson, in the South and in the 
Southeast.
    All of the Census data, all of the projections, tend to 
show this movement of the population to the Sunbelt, to the 
heart of the South, and the Southwest. But under this 
legislation, I think Dr. Ross testified to the fact that in a 
city like Atlanta that we consider the capital of the South, 
this growing international city with a major airport, the 
busiest commercial airport maybe in the world, that we have 
three interstate highways running through the heart of the 
city, but at the same time we only have twice-a-day Amtrak 
service.
    You have to arrange to get on the train before. People have 
to make reservations far in advance. Is there some way that 
some of these resources from H.R. 3700 can serve to help North 
Carolina, and say to Georgia, to Alabama, to Tennessee, that we 
are going to have improved service?
    Governor Thompson. That is the reason for the capital. That 
is the reason for H.R. 3700. We don't have the capital to 
expand our purchase of new rolling stock. We don't have the 
capital in Amtrak right now to improve the railbeds. What we 
need is an infusion of capital, and H.R. 3700 gives us the 
opportunity to do that.
    We are setting up high-speed corridors across America, with 
no money to implement them. The South has one of those. The 
Crescent comes in there, but we would like to have a high-speed 
corridor so Atlanta could be serviced. We would like to have a 
high-speed corridor up in Wisconsin and Minnesota serviced, so 
the hub would be Chicago. Atlanta would be the hub in the 
South. We want to make sure our high-speed trains get up and 
running in the Northeast Corridor.
    What we are trying to do is grow Amtrak. Just to give some 
idea, we are spending $33 billion a year on highways, I don't 
begrudge them at all, and $14 billion on airports, and I don't 
begrudge them for getting that, and $6 billion on mass transit. 
We are only spending $521 million on Amtrak.
    What we are trying to do is just trying to get some parity. 
We are trying to be able to get some new rolling stock so we 
can show America that we can have high-speed corridors 
developed and have good, modern equipment placed on there to 
really service all of America.
    That is what we are trying to do. We won't be able to 
service every State, but we want to be able to start getting 
high-speed corridors in the densely populated areas where they 
can be profitable and where we can show America that we can 
move the population.
    Mr. Lewis. Thank you very much, Governor.
    Dr. Ross, are you interested in commuter rail, in high 
speed? Are you more interested in moving people in and out of 
Atlanta, or are you interested in both?
    Ms. Ross. Both.
    Mr. Lewis. Do you have a priority?
    Ms. Ross. We do. Atlanta to Macon and Atlanta to Athens in 
terms of commuter service, we are looking at those two lines.
    The Governor has basically--Amtrak had their board meeting 
in Atlanta not long ago, and our Governor addressed the board 
and made a commitment at that point in time to Georgia doing 
its share in regard to the match, if this bill passes and we 
have something to match, so that we can look at the development 
of a comprehensive system, with Atlanta being the place we 
envision jump-starting such service, but then spreading it out 
to eventually look at the high-speed corridor from Atlanta to 
Charlotte and to eventually Macon, perhaps.
    So we have taken a comprehensive approach. That is why he 
established this oversight Committee, responsible for all of 
rail transportation in the State of Georgia, where we are 
simply starting to begin to look at Atlanta.
    We have coined a phrase, I know you are all familiar with 
the term, ``in-filled housing.'' I think in a way, nationally, 
regionally, locally, we are beginning to do in-filled 
transportation planning. What is the difference? We are not so 
much looking at new frontiers, we are saying how do we go back, 
invest in systems, take opportunities or missed trains, if you 
will, opportunities we should have put in place, service we 
should have been committed to?
    We did make that commitment, and now it is really at a 
critical juncture in terms of air quality, in terms of 
alternative transportation, in terms of the new millenium and 
the kind of preparedness a region and the country has to 
address to continue to be competitive.
    So we have taken a very comprehensive approach. Our 
Governor is very, very much committed to it. He is doing a lot 
of political work so he can do his financial planning, if you 
will, to make sure that when these opportunities present 
themselves, we are well positioned to take advantage of them.
    Mr. Lewis. Mr. King, would you agree with Dr. Ross that in 
cities like Atlanta, Raleigh, Durham, Charlotte, that we need 
to find ways to make it easier for people to move between the 
cities, get them out of their cars, have cleaner air, bring in 
cities and communities and neighborhoods closer together?
    Mr. King. We in North Carolina, as you may have heard us 
say before, looking at Atlanta, it is where Charlotte may be in 
a couple of years, and hope to learn some lessons and be like 
the Atlanta that is good, and avoid those things that have not 
turned out so well. And congestion and air quality are two of 
them.
    So absolutely, the marriage of high-speed intercity and 
regional rail, where you knit your surrounding communities that 
are 40 to 50 miles away and form the commutershed of the 
economic engine, in your case Atlanta, in our case Charlotte 
and the Triangle, and then local bus service and connections to 
airports, all of that needs to work together.
    The spine, in our case, the Southwest Corridor from Atlanta 
to Washington, pairing up with the Northeast Corridor here in 
Washington, is what all of that hangs on. Without it you are 
missing the strategy piece of the integrated transportation 
puzzle. So I think our situation is very analogous to Atlanta.
    Mr. Lewis. Thank you very much. Thank you, Mr. Chairman.
    Chairman Houghton. Thank you.
    Mr. Hulshof.
    Mr. Hulshof. Thank you, Mr. Chairman. I thank all of you 
for being here.
    Governor Thompson, I appreciate your passion. In your last 
remarks you mentioned the different trust funds. You mentioned 
the Highway Trust Fund and the amount of priority that we put 
as far as the amount of money.
    I accept your point. But I think it also then goes to what 
my friend, Wes Watkins said, is that as far as the Highway 
Trust Fund and the billions of dollars that are committed to 
the Highway Trust Fund, there are highways all across the 
United States, whereas Amtrak is not available throughout the 
United States.
    So I think there is a little bit of caution that needs to 
be used as far as comparing the amount of money that we commit 
to highways. And even, too, in Missouri, Mr. Watkins, we think 
Oklahoma is flyover country.
    Just kidding. I am just kidding.
    Mr. Oberstar. There you go.
    Mr. Hulshof. I am just kidding.
    Mr. Oberstar. So much for your hub.
    Mr. Hulshof. On a serious note, regarding the tax-exempt 
financing available through H.R. 3700, I have had a running 
commentary on a different matter, but somewhat related with the 
United States Treasury Department regarding similar financing 
instruments on Qualified Zone Academy Bonds. They are called 
QZABs.
    I am not going to go into that today, but my general 
questions that I ask of Treasury, let me ask to anybody on the 
panel: How do you believe or how does Amtrak believe that the 
private financial community would find bonds created under H.R. 
3700 an attractive investment? Because we haven't seen that 
with QZABs as far as Qualified Zone Academy Bonds and school 
construction. There are various ways to talk about school 
construction. That is sort of the premise of my question. But 
the private financial community has not seen fit as far as 
QZABs to find them an attractive investment.
    What would be the difference here? 
    Governor Thompson. So far, Congressman, we have discussed 
it with Wall Street, many different bonding houses. Everybody 
has indicated that this would be very easily placed. It is 
something that we need.
    We cannot expand and do what America needs and have a 
national rail passenger service without capital. We can limp 
along and meet the obligations of the congressional law of 
being operationally self-sufficient. I know that you have big 
concerns, Congressman, about tax credits. Sometimes I applaud 
your position, but not in this case.
    It is one way that we can become more private. It is one 
way in which we can go to the market with tax credits and tell 
the market that we have a way to pay these things back by the 
20 percent set-aside by the States. We have the tax credits 
there to enhance them, that they have indicated is what they 
need in order to buy the bonds and give us the capital so we 
can expand, so we can give the kind of rail passenger service 
that America wants and needs.
    So it is basically the most reasonable way for the Federal 
Government to help us out. It gives us the opportunity to go to 
the market and be more like a private company, which Congress 
wants us to do. We can pay it back without any difficulty 
whatsoever. That is why this financing is so important to us--
and the beauty of this financing.
    Mr. Hulshof. What assurances--and maybe it is in the 
legislative language; and Jim, I may ask you this question, 
too, but what guarantees would we have to make sure that the 
bond proceeds would not be used to pay for, say, operating 
expenses? You mentioned capital investment.
    Governor Thompson. The language is in there, Congressman.
    Mr. Oberstar. There is protective language to ensure that.
    Mr. Hulshof. Is it strong enough, Jim? Are you satisfied 
that it creates a firewall that we don't have to be concerned 
about?
    Mr. Oberstar. We fought this fight over Amtrak 
reauthorization 3 years ago; that none of the new capital 
provided should go to operating expenses for Amtrak in 
providing the unused tax credits from the predecessor railroads 
to finance the capital investments for Amtrak. So the language 
that is included in this legislation is built on that, against 
that background.
    Mr. Hulshof. OK. The other question that I have in the 
remaining minutes, Mr. Chairman, I am told that about 2 or 3 
weeks ago, a new public relations campaign called Service 
Guarantee----.
    Governor Thompson. That is correct.
    Mr. Hulshof. Under the program, I am told, ``You are 
satisfied, or the ride is free.'' i AM looking forward to my 
Amtrak ride on Sunday to the City of Brotherly Love.
    Governor Thompson. Philadelphia. I will be there to meet 
you, Congressman.
    Mr. Hulshof. I hope the city is ready for us, Governor. I 
hope it is the City of Brotherly Love when we get there.
    How is the program going? I know it has just been a couple 
of weeks. Does anybody want to comment on that?
    Governor Thompson. Our ridership has been up by 16 percent. 
This past month is the first month we have ever, in Amtrak's 
history--and you will like this, Congressman. We went over $100 
million in revenue, the first time in our history. Our 
ridership is up. Our guarantee is working 99.6 percent. We are 
expecting it to 99.9 percent.
    I will be there after you get off. If you are not 
satisfied, we will give you a free trip back, Congressman.
    Mr. Hulshof. Thank you all.
    Thanks, Mr. Chairman. I yield back.
    Chairman Houghton. I have just one question.
    Jim, what is it going to take to make us number one?
    Mr. Oberstar. The last thing I said in my opening remarks 
is political will: The vision to see what is needed and the 
will to undertake it. That is what DeGaulle provided, that is 
what was done by President Eisenhower when he initiated the 
interstate highway system.
    It was, again, President Eisenhower who saw a need to 
finance airports, and in 1958 launched the beginnings of our 
national airport system, an integrated system of airports 
across the United States that needed the investment of Federal 
funds to get started. Until then, it was cities that financed 
airports. It took a national vision to do this.
    When I was a graduate student in Bruge and traveled from 
Parhelion, Lyons the second largest city of France. It was a 4-
\1/2\ hour trip in 1957. I came back a few years later, as 
staff director of the Committee on Public Works and 
Transportation, to look at an air track cushion-suspended light 
rail train system they were developing in France at the time. 
The trip then had improved. It was then 4 hours instead of 4-
\1/2\ hours.
    In 1989, as Chair of the Aviation Subcommittee, in pursuit 
of aviation security issues in Paris, I said, I want to try the 
TGV, which had now been operating for just a few months.
    American Airlines had opened a hub in Lyons and a pair-city 
arrangement in the United States. There were 3 million air 
passengers between Paris and Lyons and 500,000 rail passengers. 
But with the TGV, the trip, instead of 4-\1/2\ hours, now took 
2 hours and 1 minute. Within 6 months, American pulled down 
their hub.
    There are now 5 million rail passengers a year between 
Paris and Lyons and 500,000 air passengers. The TGV system not 
only is paying back the $12 billion capital investment made by 
the French government, it is also subsidizing the rest of the 
French rail system, including freight rail.
    Now, that took vision. That took political will to launch 
this system. But today we have a track record on which to 
build. I think that that is the essential ingredient. In these 
densely populated corridors where air traffic is congested, 
where speed and mobility are important, if we do not move some 
people off the highways and out of the airways, then the vision 
of Apocalypse will not be fire raining down upon the Earth, it 
will be all of us sitting in our cars on America's highways, 
firmly gripping the steering wheel while we run out of gas.
    Mr. Watkins. Mr. Chairman, may I inquire?
    Chairman Houghton. Yes.
    Mr. Watkins. We talk about vision. What is a master plan 
and what is a vision for all of America, not just this 
corridor, but for all of America?
    Mr. Oberstar. That is the idea, is to move out, move out of 
the East Coast Corridor.
    Mr. Watkins. Show me the master plan. We will help you get 
a will. We have to build a will.
    Governor Thompson. We have a master plan. We would love to 
sit down and talk to you about it, Congressman.
    Mr. Oberstar. There are high-speed rail corridor plans all 
across the country, but no money to implement them.
    Mr. Watkins. All of America, not just the high-density 
area. If we are at the tail end of it, we never get served. So 
we have to be included, just what you are saying about the 
French. It supports all the rest of the area. If you just take 
the one area, then you run out of the rest of it.
    Excuse me, Mr. Chairman.
    Mr. Oberstar. To the gentleman from Oklahoma, I just want 
to say there is a reason I am supporting this legislation. It 
moves us beyond the East Coast Corridor.
    Chairman Houghton. We will have to get at the overall plan 
somehow. I think it will be helpful.
    You were suggesting you would like to sit down and explain 
to us what it is. I think it would be helpful if we could 
sometime. You have a piece of your skin in this, and so do we. 
We would like to know more about it.
    Thank you very, very much. I certainly appreciate your 
being with us.
    Governor Thompson. Could I just have 15 seconds, Mr. 
Chairman?
    We have moved our board to a different location across the 
country. We are in Atlanta. We were out in California. I just 
would like to give you one figure. We were in California and 
one of the speakers came up and said, by the year 2020, 
California will have 18 million more people living in the State 
of California. That means 45 million people. There is no way 
that California can survive by building enough highways or 
siting enough airports. The only solution is high-speed rail 
for all America.
    Chairman Houghton. Thank you very much. Now we are going to 
have our second panel.
    Mr. Gillespie is Manager of government Relations of ALSTOM 
Transportation, Inc.; Mr. George, Senior Vice President of 
Parsons Transportation Group, on behalf of the American Road & 
Transportation Builders Association; Timothy Stowe, Vice 
President, Transportation and Planning, Anderson & Associates 
Inc., on behalf of the American Consulting Engineers Council.
    I hope you can all hear me.
    James Query is the Principal, Public Finance, Morgan 
Stanley Dean Witter. We have Mr. Gillespie, Mr. George, Mr. 
Stowe. We are delighted to have you here. Thank you for your 
patience.
    Chairman Houghton. Mr. Gillespie.

  STATEMENT OF TIM GILLESPIE, MANAGER, GOVERNMENT RELATIONS, 
       ALSTOM TRANSPORTATION, INC., CHEVY CHASE, MARYLAND

    Mr. Gillespie. Thank you, Mr. Chairman. I appreciate you 
inviting us to appear before the Committee today to talk about 
H.R. 3700, the High-Speed Rail Investment Act. We appreciate 
your leadership and sponsorship of this bill.
    My name is Tim Gillespie. I represent ALSTOM 
Transportation, a manufacturer of rail passenger equipment. 
ALSTOM is also a member of the Railway Supply Industry, the 
Railway Progress Institute, and the American Passenger Rail 
Coalition. We are also supporters of this legislation.
    As you know, ALSTOM has a strong interest in the 
development of high-speed rail in the United States. I know you 
have visited the facility in Hornell, Mr. Chairman, and are 
familiar with the fact that ALSTOM took over that facility a 
few years ago, with 50 employees. There are now about 800 
employees, and with plans to expand by another 350 people in 
the not too distant future, with the support of the State of 
New York, I might add.
    Frankly, had it not been for the high-speed rail project in 
the Northeast Corridor, ALSTOM probably would not have a 
facility in the United States, but as you know, they are a 
partner with the Acela project, with Bombardier, and that is 
working well.
    I am here today, Mr. Chairman, as a representative of 
business, and specifically of the passenger rail supply 
industry, to tell you that in addition to the obvious benefits 
of increasing the efficiency of our transportation system and 
producing environmental benefits, the development of high-speed 
rail in the United States under this legislation is good public 
policy because it will also provide economic benefits.
    Investments in passenger rail directly create jobs in the 
construction, engineering, manufacturing, and service 
industries, and indirectly in the local economies where 
increased commerce takes place because of the existence of 
improved transportation options.
    After a summer of headlines about delays in air traffic and 
traffic congestion on the highways, and heightened airline 
passenger frustration and high gas prices, this legislation is 
good news because it would help put more balance in our 
transportation system and provide an alternative for short-
distance intercity travelers looking for ways to avoid delays 
being experienced at airports and on our highways.
    Mr. Chairman, H.R. 3700, the High-Speed Rail Investment 
Act, is critical to the success of high-speed rail. 
Unfortunately, the cold reality is that the transportation 
appropriations process is not capable of assisting in the 
development of high-speed rail service in this country.
    Mandatory spending programs in transportation have reduced 
the ability of Congress to provide the funds necessary for 
high-speed rail development through the transportation 
appropriations bill. About 85 percent of the resources in the 
bill, the DOT appropriations bill, are for guaranteed spending 
programs, but there are no guarantees for rail passenger 
service. As a result, there is very little available for high-
speed rail projects within the remaining 15 percent of 
discretionary funding in transportation. That 15 percent is 
usually used for things like Coast Guard, FAA, and 
transportation safety programs.
    As you know, H.R. 3700 allows for the sale of $10 billion 
in bonds over a 10-year period, and provides the bondsholder 
with a tax credit in lieu of interest payments. It also 
requires participating States to provide at least a 20 percent 
match.
    Because the full faith and credit of the Federal Government 
is not pledged, there is no risk to the Federal Government. The 
Joint Committee on Taxation has scored the cost of the program 
at a modest $13 million for the first year and $762 for over 5 
years.
    We think that H.R. 3700 is exactly the kind of tax policy 
that is good for taxpayers, good for the economy, good for the 
environment, and good for American businesses. Apparently, so 
do many Members of Congress. To date, over 130 House Members 
and half the Senate are cosponsors of this legislation.
    As Congress struggles to assemble legislation that 
represents a tax policy acceptable to Congress and the 
administration, H.R. 3700 would be an attractive addition to 
consider as part of any tax package that Congress passes this 
year. This bill would bring a significant amount of support to 
the table at a very low cost, enhancing the prospects of 
enacting an overall tax bill that would be good for all 
Americans.
    As you know, this legislation will encourage the 
development of high-speed rail projects for States who are 
interested in relieving congestion, enhancing the environment, 
and improving the economy. Because we can no longer depend on 
traditional transportation infrastructure funding for rail, 
this Committee should be commended for taking the initiative on 
such a creative funding alternative, particularly because it 
limits the exposure of the taxpaying public and involves 
private sector funding.
    Mr. Chairman, many States have already begun to take the 
initiative on developing high-speed rail projects through 
planning and engineering studies. We are ready to begin 
implementation of the infrastructure improvements necessary for 
high-speed rail, and as Mr. Oberstar said, we just need to do 
it. Once enacted, the United States can again count itself 
among the leaders of the world that provide high-quality 
balanced transportation for its citizens, and as we approach 
the end of the second session of the 106th Congress, it is 
critical that this Committee do everything that it can to 
include this legislation in the appropriate vehicle that will 
get enacted this year.
    H.R. 3700 is the last opportunity in this Congress to 
ensure that States will be able to progress their plans for 
high-speed corridor development.
    Mr. Chairman, again I want to thank you and the Members of 
the Committee today for the opportunity to appear here and for 
your leadership on this important issue.
    Thank you, sir.
    Chairman Houghton. Thank you very much.
    [The prepared statement follows:]

STATEMENT OF TIM GILLESPIE, MANAGER, GOVERNMENT RELATIONS, ALSTOM 
TRANSPORTATION, INC., CHEVY CHASE, MARYLAND

    Mr. Chairman, my name is Tim Gillespie, ALSTOM 
Transportation Inc., Government Relations.
    ALSTOM is among the world's leaders in manufacturing rail 
equipment. As you know, ALSTOM has a facility for manufacturing 
and re-building railroad passenger equipment in Hornell, New 
York. We have a significant interest in high-speed rail 
development in the United States and are a part of the 
consortium responsible for building the high-speed rail 
equipment for the Northeast Corridor. Frankly, without the 
Northeast Corridor high-speed rail project, ALSTOM would not be 
in the United States.
    We were pleased to have you and Governor Pataki participate 
in the recent ground breaking ceremony in Hornell for the first 
phase of our expansion. When ALSTOM took over the facilities in 
Hornell a few years ago, there were less than 50 employees. 
Today we employ nearly 800 workers and with our plans for 
expansion we expect the employment level to grow by another 350 
people over the next few years.
    If we are to continue and sustain the employment growth at 
our facility in Hornell, the American passenger rail industry 
must grow. And the only way for this to happen is for federal 
government to make a commitment to help develop a 
transportation financing mechanism for high-speed rail in the 
United States. The bill before this committee today would do 
just that.
    I am here today as a representative of business, and 
specifically, of the passenger rail supply industry, to tell 
you that in addition to the obvious benefits of increasing the 
efficiency of our transportation systems and producing 
environmental benefits, developing high speed rail corridors in 
this country will provide significant economic benefits, 
especially in job creation. Investments in passenger rail 
creates jobs directly in the construction, engineering, 
manufacturing, and service industries, and indirectly in the 
local economies where increased commerce takes place because of 
the existence of improved transportation options.
    The high-speed project in the Northeast Corridor provides 
an excellent example of increased employment through 
development of passenger rail. Our story of moving from 50 to 
800 employees in Hornell in just a few years is just one of 
many similar stories. The Acela project, with 70% Buy America 
participation overall, created contracts with over 70 suppliers 
in 23 states. In the process, over 10,000 construction and 
manufacturing jobs were created. Spending from these jobs 
provides businesses an opportunity to grow and enhances the 
financial health of the communities in which they are located.
    I am delighted that, as our home-town representative in 
Congress, you are the sponsor of H.R. 3700, the High Speed Rail 
Investment Act, and that you are taking the time to hold a 
hearing on this important legislation. Your active support for 
this bill demonstrates your knowledge of the value of this 
legislation to your district and the nation.
    Today, highways, transit and airports all have dedicated 
sources of federal funding that are guaranteed to those 
entities in law under ``contract authority,'' but passenger 
rail does not. As a result, obtaining the funds necessary for 
high-speed rail development will be very difficult. As you 
know, Amtrak has had to struggle in a very competitive federal 
funding environment for limited capital resources. Under 
current law, it is very difficult for the Appropriations 
process to provide the type of funding necessary to meet 
Amtrak's basic capital needs and almost impossible to obtain 
the funding necessary for the development of high-speed rail. 
That is why I applaud your efforts to support such an 
innovative funding concept that allows the development of high-
speed rail, minimizes the amount of federal outlays, and 
involves the states as funding partners for these critical 
infrastructure improvements.
    As you know, under this bill states must provide at least a 
20 percent match, and bondholders would get federal tax credits 
rather than interest payments. The 20 percent state payments 
would go directly to the projects. An interest earning escrow 
account would be established with $200 million of the proceeds 
of the original bond sale, which would be managed by an 
independent trustee, and this would be used to pay off the 
principal. Because the full faith and credit of the Federal 
government is not being pledged, there is no risk to the 
Federal government. The Joint Committee on Taxation has scored 
the cost of the program--providing $10 billion over ten years 
to develop high speed corridors nationwide--at a modest $13 
million for the first year, $762 million over five years, and 
$3.2 billion over ten years.
    We think that H.R. 3700 is exactly the kind of tax policy 
that is good for taxpayers, the economy and American 
businesses. It is this type of legislation that will encourage 
the development of high-speed rail where states are interested 
in relieving congestion, enhancing the environment and 
improving the economy. Americans cannot continue to rely on 
traditional transportation infrastructure funding to accomplish 
these goals. This committee should be commended for taking the 
initiative on creative funding alternatives that limit the 
exposure of the tax paying public and, at the same time, 
provide improvements to its overall transportation 
infrastructure.
    Mr. Chairman, even in the absence of federal support for 
high-speed rail, the states have begun to initiate high-speed 
rail projects. They are ready, Amtrak is ready and the industry 
is ready to begin the task of implementing the infrastructure 
improvements required for high-speed rail. But, to meet the 
growing demand for high-speed rail, a federal role is 
necessary. Once that support is forthcoming, the United States 
can once again count itself among the leaders in the world that 
provide high-speed rail service for its citizens.
    As we approach the end of the Second Session of the 106th 
Congress, it is critical that this committee do everything that 
it can to include this legislation in any tax bill that 
Congress moves prior to the end of the session. It is clear 
that the restraints within the Department of Transportation 
Appropriations bill will not permit the level of funding 
necessary to allow for high-speed rail development. The bill 
before you today is the last opportunity in this Congress to 
ensure that states will be able to progress their plans for 
corridor development.
    Thank you for the opportunity to appear before this 
committee and for your leadership on this important matter.

                                

    Chairman Houghton. Mr. George.

STATEMENT OF WILLIAM H. GEORGE, SENIOR VICE PRESIDENT, PARSONS 
    TRANSPORTATION GROUP, ON BEHALF OF THE AMERICAN ROAD & 
              TRANSPORTATION BUILDERS ASSOCIATION

    Mr. George. Mr. Chairman, Members of the Subcommittee, good 
afternoon. I am William H. George, Senior Vice President of 
Parsons Transportation Group, which is headquartered here in 
Washington, D.C. Our company specializes in the planning, 
design, engineering, and program management of transportation 
projects in all modal areas.
    Today I am representing the American Road and 
Transportation Builders Association, or ARTBA. I am president 
of ARTBA's Planning and Design Division and chairman of its 
Railroad and Public Transportation Advisory Council.
    ARTBA, founded in 1902, represents all sectors of the 
transportation construction industry. Our members are on the 
frontlines of building, designing, and managing transportation 
infrastructure projects.
    I would like to commend Chairman Houghton and other Members 
of the Subcommittee for convening today's hearing. A safe and 
efficient transportation network is critical to the nation's 
economy, public health, and quality of life. This Committee 
plays a key role in ensuring that the necessary financial 
resources are available to build and maintain it.
    One of the core principles underlying U.S. transportation 
policy is the imposition of Federal transportation excise 
taxes, or user fees, to generate the revenue necessary for 
improving the safety and efficiency of the nation's 
transportation infrastructure. It is a principle that ARTBA 
wholeheartedly supports.
    This policy directly links Federal transportation capital 
improvement programs and Federal tax laws. The transportation 
user fee financing concept has been a clear success, but the 
nation still has a long way to go to meet its transportation 
capital needs.
    One conspicuous hole in transportation capital financing is 
the lack of a dedicated funding source for intercity passenger 
rail capital improvements. The Federal Government currently 
invests general fund revenue in passenger rail through the 
annual appropriations process. I cannot overemphasize the 
importance of reliable Federal investment for all modes of 
transportation. Transportation infrastructure projects, by 
their nature, are highly capital-intensive and often require 
multiple years to plan, design, and construct. Funding 
uncertainty at the Federal level can disrupt and delay the 
delivery of transportation projects.
    Congress has moved decisively to minimize such uncertainty 
in Federal highway, mass transit, and airport investment by 
enacting TEA-21 and AIR-21. We strongly recommend enactment of 
a similar reliable funding mechanism for intercity passenger 
rail.
    For that reason, ARTBA is pleased to endorse H.R. 3700, 
introduced by Chairman Houghton earlier this year. This measure 
would provide $10 billion in bonding authority for high-speed 
rail projects over the next 10 years. H.R. 3700 also recognizes 
the key role that public-private partnerships can play in 
financing the development of transportation facilities.
    These partnerships, which are becoming more widely accepted 
and used across the nation, provide a crucial supplement to 
traditional financing mechanisms. Enactment of H.R. 3700 would 
also help minimize unproductive conflicts between modal 
advocates over how to pay for passenger rail improvements. For 
example, some now propose using Federal Highway Trust Fund 
revenues to support intercity passenger rail. Such proposals 
force policymakers to make a false choice between 
transportation solutions. As the saying goes, it is robbing 
Peter to pay Paul. ARTBA vigorously opposes this approach 
because the nation has enormous unmet highway and bridge 
capital needs, not because we oppose rail improvements.
    Mr. Chairman, that leads me to the final point I would like 
to make today. Just as highway and aviation users pay Federal 
user fees to finance capital improvements for those modes of 
travel, so should rail passengers pay a Federal user fee to 
help support capital improvements for Amtrak and high-speed 
rail. There should be a Federal rail passenger ticket tax, like 
there is a gasoline tax and an aviation ticket tax.
    Intercity and high-speed rail are expensive propositions. 
They are also critical to meeting the nation's future mobility 
needs. We should not be shy in saying we need to raise money as 
a nation for these endeavors, and users should pay their fair 
share. That has been a successful formula for other 
transportation modes. It can be successful for passenger rail, 
as well.
    Thank you, Mr. Chairman, for inviting us to participate in 
this hearing.
    Chairman Houghton. Thanks very much, Mr. George.
    [The prepared statement follows:]

STATEMENT OF WILLIAM H. GEORGE, SENIOR VICE PRESIDENT, PARSONS 
TRANSPORTATION GROUP, ON BEHALF OF THE AMERICAN ROAD & TRANSPORTION 
BUILDERS ASSOCIATION

    Chairman Houghton, members of the subcommittee, thank you 
for convening this hearing of the Subcommittee on Oversight to 
review transportation-related federal tax law and for allowing 
the American Road & Transportation Builders Association 
(ARTBA) to take part in this important dialogue.
    My name is William H. George. I am senior vice president of 
the Parsons Transportation Group, which specializes in the 
planning, design, construction engineering, and program 
management of transportation projects from concept through 
construction. Our company maintains offices in 21 states, the 
District of Columbia, and 17 countries.
    I am appearing today as a representative of the American 
Road and Transportation Builders Association. I am honored to 
serve as the as president of the ARTBA Planning and Design 
Division and chairman of the association's Railroad and Public 
Transportation Advisory Council. ARTBA, founded in 1902, is the 
only national association that exclusively represents the 
collective interests of all sectors of the U.S. transportation 
construction industry before the White House, Congress and 
federal agencies.
    ARTBA supports the development and maintenance of a safe 
and efficient, multi-modal U.S. transportation network that 
allows Americans to choose their mode of travel.
    The U.S. transportation construction industry, which ARTBA 
represents, generates more than $175 billion annually in U.S. 
economic activity and provides employment for more than 2.2 
million Americans.

Transportation and Tax Law

    Mr. Chairman, the imposition of federal transportation 
excise taxes--or user fee--to generate revenue for improving 
the safety and efficiency of the nation's transportation 
infrastructure is one of the core principles underlying U.S. 
transportation policy. It is a principle ARTBA wholeheartedly 
supports. This policy directly links federal transportation 
capital improvement programs and federal tax laws. The user-fee 
concept distinguishes the transportation programs from other 
federal programs in that they are largely self-financing.
    The 1998 ``Transportation Equity Act for the 21st 
Century,'' or TEA-21, established a direct linkage between 
federal highway user fee revenue collections and federal 
highway investment. This landmark provision of TEA-21 has led 
to dramatically increased investment for the federal highway 
and transit capital programs.
    Congress and the Clinton Administration earlier this year 
enacted the ``Aviation Investment and Reform Act for the 21st 
Century,'' or AIR-21. Like TEA-21, AIR-21 ensures that revenues 
generated by user fees paid by air travelers will be invested 
to improve the safety and efficiency of the nation's aviation 
system. This legislation will increase airport capital 
investment more than 60 percent.
    The user fee concept to finance transportation programs has 
been a clear success. In poll after poll, Americans indicate 
their support for paying user fees to improve the nation's 
transportation network. Despite the effectiveness of this 
policy, our nation still has a long way to go to meet its 
transportation system needs.

Passenger Rail

    One conspicuous hole in transportation capital financing is 
the lack of a dedicated funding source for intercity passenger 
rail. The federal government currently invests general fund 
revenue in passenger rail through the annual appropriations 
process. It has also provided occasional infusions of capital 
resources, such as the Amtrak provision in the ``Taxpayer 
Relief Act of 1997.'' Unlike federal highway, transit and 
airport infrastructure programs, however, intercity passenger 
rail does not enjoy a reliable, dedicated funding source for 
capital improvements.
    Mr. Chairman, I would like to take a moment to emphasize 
the importance of reliable federal investment for all modes of 
transportation. Transportation infrastructure projects, by 
their nature, are highly capital intensive. They frequently 
require multiple years to complete the necessary environmental 
approvals, design work and construction. Developing an 
effective national transportation infrastructure is also a 
long-term, ongoing process that requires continual attention.
    Clearly, uncertainty about the level of federal investment 
for any transportation facility can be disruptive for project 
owners, such as Amtrak and state departments of transportation, 
and the construction industry that is charged with developing 
these facilities. The inevitable fluctuations that occur from 
year-to-year in the appropriations process can impede or delay 
needed transportation projects.
    Congress moved decisively to minimize the volatility of 
federal transportation investment in the highway and aviation 
areas by enacting TEA-21 and AIR-21. As a result, states, 
transit authorities and airports now have a predictable level 
of federal transportation infrastructure investment they will 
receive through 2003. We strongly recommend that Congress enact 
similar reliable funding mechanisms for intercity passenger 
rail.
    In that regard, the American Road and Transportation 
Builders Association is pleased to endorse the "High-Speed 
Rail Investment Act of 2000," (H.R. 3700) introduced by 
Chairman Houghton earlier this year. H.R. 3700 has 130 
bipartisan cosponsors from all regions of the United States. 
Senator Frank Lautenberg has introduced a similar measure, S. 
1900, in the Senate that has 49 bipartisan cosponsors. The 
diversity of support for these bills demonstrates the key role 
of passenger rail service as part of the nation's 
transportation network. The broad interest in these bills also 
again showcases the unifying role of transportation 
infrastructure as a means to improve thequality of life for all 
Americans.
    H.R. 3700 would provide $10 billion in bonding authority 
for high-speed rail projects over the next 10 years. These 
bonds would be used exclusively for capital projects to improve 
existing high-speed rail lines and develop new ones. Through 
the use of this innovative financing mechanism, the federal 
government would be able to leverage its investment in 
passenger rail to generate $1 billion per year for high-speed 
rail capital projects.
    The funding mechanism in H.R. 3700 also capitalizes on the 
increasing trend of federal, state and private sector 
partnering that is being utilized in all modes of 
transportation to meet the nation's growing transportation 
infrastructure needs. ARTBA's Public-Private Ventures Division, 
which consists of financial professionals, has been a leading 
proponent of new innovative transportation financing techniques 
and increased private sector involvement in the development of 
transportation capital projects. Innovative financing 
proposals, like H.R. 3700, are critical supplements to the core 
federaltransportation programs and will play a key role in 
future federal transportation policy initiatives. Consequently, 
we urge this subcommittee to continue to explore other tax 
measures that will encourage the use of innovative financing 
for transportation projects.
    A final observation about the merits of H.R. 3700 is that 
this measure could help to prevent unproductive conflicts 
between the various modes of transportation. The lack of a 
dedicated funding source for intercity passenger rail has led 
some to propose allowing the use of Highway Trust Fund revenues 
for high-speed rail. Given the nation's enormous highway and 
bridge capital needs, ARTBA opposes this.
    Proposals that attempt to "rob Peter to pay Paul" 
forcepolicy makers to make false choices between transportation 
solutions.
    Mr. Chairman, given this situation and the nation's 
passengerrailway needs, we also believe it is time that 
Congress seriouslyconsider the imposition of a federal rail 
passenger user fee to helpfinance capital improvements. Just as 
the users of the highway andaviation systems help finance the 
infrastructure they use, so shouldrail passengers.
    When one travels from Washington, D.C., to New York City by 
auto,they are paying federal and state gasoline taxes and tolls 
inMaryland, Delaware, New Jersey and New York. Most of this 
collectedtax revenue is put back into roadway improvements.
    When one flies between Washington, D.C., and New York City 
by air,they are investing eight percent of their ticket price 
in the federalAirport and Airway Trust Fund. On a $400 round-
trip ticket, that is$32 that is going to support the air 
traffic control system andairport improvements.
    When one travels between Washington, D.C., and New York 
City viaAmtrak, however, not a penny is collected by government 
that could bededicated toward Amtrak capital investments. That 
is not right. And weurge the Ways and Means Committee to 
address this issue.
    Again, this approach would lessen, if not eliminate, the 
pressureat the state level to seek money for passenger rail at 
the expense ofroad and bridge improvements.

Other Tax Issues Impacting Transportation

    Mr. Chairman, as I have previously mentioned, the concept 
behindthe Highway Trust Fund and the imposition of a federal 
tax on motorfuels is simple: those who drive should contribute 
to the developmentand upkeep of the nation's road and bridge 
system in a mannercommensurate with their use of the system. 
The more motor fuel youuse, the more you contribute--through 
motor fuel excises-to theHighway Trust Fund.
    A car operating on gasohol causes as much wear and tear on 
ourroadways and bridges as does a car operating on gasoline. 
But thegasohol/ethanol user is not now paying his or her fair 
share to theHighway Trust Fund.
    The motorist using gasoline contributes 18.3 cents per 
gallon tothe Highway Trust Fund through the federal gas tax--
15.44 cents pergallon to the trust fund's Highway Account and 
2.86 cents per gallonto the fund's Mass Transit Account. (An 
additional 0.1 cents pergallon is contributed to the Leaking 
Underground Storage Tank TrustFund.)
    The motorist using gasohol (with 10 percent ethanol), 
however, isonly contributing 9.8 cents per gallon to the 
Highway Trust Fundthrough federal excises--6.94 cents per 
gallon to the trust fund'sHighway Account and 2.86 cents per 
gallon to the Mass Transit Account.
    It is also worth noting that 3.1 cents of the federal per 
gallonexcise on 10 percent gasohol and 2.5 cents of the tax on 
less than 10percent gasohol is deposited in the federal General 
Fund.Consequently, not only are ethanol fuels not paying their 
fair shareto improve the nation's roadways and bridges, but 
also ethanol'scurrent tax status returns the favor to the 
federal government byproviding over $400 million per year to 
the federal General Fund.During these times of escalating 
federal budget surpluses, there is nojustification for a 
portion of a federally imposed highway user fee tobe dedicated 
to the federal General Fund.
    The computations below in Table 1, based on 1998 ethanol 
use datareported in the Federal Highway Administration's ``1998 
Highway Statistics Report,'' show federal tax policy toward 
ethanol supported motor fuels costs the nation's highway 
improvement program nearly $1.1 billion per year!

Table 1

    10 percent gasohol usage: 10,487,912,000 gallons
    5.4 cents per gallon subsidy: $566,347,248
    3.1 cents per gallon to the general fund:$325,125,272
    Highway Trust Fund shortage: $891,472,520
    Less than 10 percent gasohol usage: 3,490,851,000 gallons
    3.1 cents per gallon subsidy:$108,216,381
    2.5 cents per gallon to the general fund: $87,271,275
    Highway Trust Fund shortage: $195,487,656

    Total Highway Trust Fund shortage: $1,086,960,176

    This highway robbery is occurring at the same time the 
U.S.Department of Transportation reports 58.7 percent of the 
nation's roadmiles are in need of repair and 29.6 percent of 
the nation's bridgesare structurally deficient or functionally 
obsolete. The same reportfinds available highway and bridge 
investment from all levels ofgovernment falls short of the 
amount necessary to improve theseconditions by $45.3 billion 
each year!
    Given these staggering needs, we suggest federal tax 
subsidies forethanol is poor public policy. If promotion of 
ethanol use in motorvehicles is intended to provide federal 
support to agriculturalinterests, it should be financed, like 
all other discretionaryagriculture programs, through the 
General Fund. At a minimum, we urgethis subcommittee to explore 
why current federal tax law supports aportion of the ethanol 
excise being used to contribute to the budgetsurplus instead of 
improving the safety and efficiency of the nation'sroadways.
    In a related matter, ARTBA also urges repeal of the 4.3 
cents pergallon federal motor fuels tax on diesel fuel that is 
currently paidby freight railroads. The revenue from this 
excise is deposited in thefederal General Fund for deficit 
reduction purposes. Much like theportion of the ethanol tax 
that is directed to the General Fund, thegrowing federal budget 
surplus eliminates the need for the railroadsto pay a federal 
fuels tax that generates revenue fornon-transportation 
infrastructure purposes.
    The revenue from the 4.3 cents per gallon federal motor 
fuels taxpaid by highway users that previously went to the 
General Fund wasredirected to the Highway Trust Fund by the 
Taxpayer Relief Act of1997. Congress included a provision 
repealing the 4.3 cents per gallontax paid by the railroads as 
part of a larger tax bill in 1999 thatwas vetoed by President 
Clinton. We urge the Ways and Means Committeeto continue 
pursuing the elimination of this unwarranted tax.

Conclusion

    In conclusion, Mr. Chairman, the American Road & 
TransportationBuilders Association greatly appreciates the 
opportunity to appearbefore your subcommittee. As my testimony 
indicates, there arenumerous critical issues that impact the 
nation's transportationinfrastructure network that fall within 
the jurisdiction of the HouseWays and Means Committee. We hope 
you and other committee members willcontinue to review these 
important matters. We also look forward toworking with you and 
the other supporters of H.R. 3700 to see thislegislation 
enacted.
    Thank you again for the opportunity to testify today and I 
would behappy to answer any questions regarding my testimony or 
other issues.

                                

    Chairman Houghton. Mr. Stowe.

  STATEMENT OF TIM STOWE, VICE PRESIDENT, TRANSPORTATION AND 
    PLANNING, ANDERSON & ASSOCIATES, INC., ON BEHALF OF THE 
  AMERICAN CONSULTING ENGINEERS COUNCIL, BLACKSBURG, VIRGINIA

    Mr. Stowe. Good afternoon, Mr. Chairman, Members of the 
Subcommittee. My name is Tim Stowe and I am representing the 
American Consulting Engineers Council today. We strongly 
support H.R. 3700.
    I am Vice President of Transportation and Planning for 
Anderson & Associates, a consulting engineering firm located in 
Blacksburg, Virginia. I also serve as chairman of the Committee 
on Transportation and Infrastructure for ACEC. I am delighted 
to have this opportunity to address you on behalf of ACEC, the 
largest, oldest organization representing engineering firms. We 
have a membership of about 5,700 engineering firms that 
represent 250,000 design professionals, and about 77 percent of 
our firms are small businesses with 30 or less employees. I 
would also note that we are primarily engineers who do design 
work. We are not qualified to drive trains.
    ACEC members are deeply involved with every aspect of our 
Nation's transportation systems, designing roadways, bridges, 
railroads, transit systems, airports, runway facilities. We 
have a sense of environmental stewardship and public safety, 
and we regularly provide infrastructure projects, designs and 
plans for infrastructure that improve the safety and capacity 
of our Nation's transportation systems.
    In recent years, we have enjoyed a tremendously vibrant 
economy here in our country. There have been numerous 
opportunities for businesses and individuals to grow as part of 
our economic growth. For example, in the growth of our economy, 
it has been possible for businesses to move into new 
facilities, to expand, and for their employees to also expand 
into new homes and new facilities.
    But an important part of this vibrant economy that sustains 
all levels is a strong transportation system. As our Nation's 
growth has occurred, our members have witnessed significant 
increases in demands that are placed on our Nation's 
transportation infrastructure.
    One system experiencing this significant increase in demand 
is our Nation's highway systems. The Congress recognizes this 
and, through the passage of the TEA-21 legislation about 2 
years ago, provided substantial resources in order to address 
some of the shortcomings that have been recognized in the 
highway system.
    Another highly overworked transportation system is our air 
transportation. Congestion relief in our airways and traveler 
safety was a major concern on the minds of Members of this body 
when Congress passed the Aviation Investment and Reform Act for 
the 21st century earlier this year.
    These two pieces of legislation have provided a significant 
flow of resources to our highway and air systems, but not 
anything for the high-speed rail system infrastructure.
    Within the United States, there are a number of densely 
populated travel corridors in which the highways and airports 
are chronically congested. In these densely developed areas, 
the costs and impacts of providing highway improvements is 
extraordinary and, many locations, not practical at all. It is 
in these areas that we feel significant benefits can be 
recognized and lessons can be learned and can be expanded out 
into other parts of the country as well.
    Having a self-sufficient alternative mode of transportation 
that is fast, efficient, and environmentally friendly would be 
a very appealing alternative to thousands of stranded highway 
travelers. As our Nation's population and numbers of travelers 
continues to grow, we will see more and more demands being 
placed on this transportation infrastructure.
    We see one of the benefits of H.R. 3700 not only lies with 
Amtrak, although the investment would be with Amtrak and their 
rolling stock and in their systems, but much of the railroad 
that Amtrak operates on is also owned by other freight 
railroads. We see some spinoff benefits that those systems 
would recognize, thereby providing an overall improvement in 
the rail transportation system, not just for Amtrak. We think 
that is a significant benefit for the country as we look at 
this program.
    However, all of this cannot happen without a funding source 
for the intercity rail program. As I mentioned previously, TEA-
21 provided resources for highways, AIR-21 provided resources 
for our air system, and we see a definite need for the 
dedicated revenue source needed for the air travel as well.
    We at ACEC strongly support H.R. 3700, which provides 
authorization for the sale of $10 billion worth of bonds for 
the purposes of infrastructure, rolling stock, and other 
necessary improvements and upgrades in the high-speed rail 
corridors. We see this initiative as a catalyst that is needed 
to boost the rail system to the level where it would be a 
viable travel mode alternative throughout a number of 
geographic regions in our country.
    We also see the benefits associated with the tax-exempt 
status of the bonds, very similar in nature to another piece of 
legislation being considered in this Committee, which is the 
Highway Innovation and Cost Savings Act. We see a lot of 
parallels between these two packages.
    We frequently see news about doc-com companies and e-
commerce, but most of this e-commerce would not occur without a 
strong infrastructure, a transportation network in place to 
deliver the merchandise and goods being sold over the Internet. 
Adequately funding and maintaining all parts of this 
transportation system is paramount to sustaining a vibrant 
economy in this country. We applaud the leadership of this 
Committee and Subcommittee to seek and create tools by which 
the needs for our rail systems can be addressed.
    Thank you, Mr. Chairman.
    Chairman Houghton. Thanks very much.
    [The prepared statement follows:]

STATEMENT OF TIM STOWE, VICE PRESIDENT, TRANSPORTATION AND PLANNING, 
ANDERSON & ASSOCIATES, INC., ON BEHALF OF THE AMERICAN CONSULTING 
ENGINEERS COUNCIL, BLACKSBURG, VIRGINIA

    Good Morning, Mr. Chairman and members of the subcommittee, 
my name is Tim Stowe, I'm representing the American Consulting 
Engineers Council and we strongly support HR 3700.
    I am Vice President of Transportation and Planning for 
Anderson and Associates, a consulting engineering firm in 
Blacksburg, VA. I also serve as Chairman of the Transportation 
Committee for the American Consulting Engineers Council. I am 
delighted to have the opportunity to address you on behalf of 
ACEC, the largest and oldest organization representing 
engineering firms. The American Consulting Engineers Council 
(ACEC) is the largest national organization of engineers 
engaged in the independent practice of consulting engineering. 
ACEC has more than 5,700 member firms employing nearly 250,000 
professional engineers, land surveyors, scientists and 
technicians who design over $150 billion in construction 
projects annually. More than 77 percent of these firms are 
small businesses with fewer than 30 employees each. In 
accordance with the terms of rule XI, clause 2(g)(4), of the 
Rules of the House of Representatives, neither myself nor ACEC 
has received, any federal grant, contract or subcontract in the 
last two years.
    ACEC members are deeply involved with virtually every 
aspect of our nation's transportation system, designing roads, 
bridges, transit and rail systems, and airport and runway 
facilities in every state. Our member firms have a strong sense 
of environmental stewardship and public safety, and regularly 
provide engineering solutions that improve the safety and 
capacity of our nation's transportation systems.
    Mr. Chairman, in recent years we Americans have enjoyed a 
tremendously vibrant economy that has provided numerous 
opportunities and benefits for our businesses and citizens. The 
growth of our economy has made it possible for business to grow 
into new facilities, and for the employees of these businesses 
to grow into new homes. An important part of maintaining a 
vibrant economy is having an efficient and balanced 
transportation system. This system must be made up of all modes 
of travel including highway, air, rail and transit services.
    As our nation's economic growth has occurred, our members 
have witnessed significant increases in the demands placed on 
our Nation's infrastructure systems. One such system is our 
highway system. Through the passage of the Transportation 
Equity Act for the 21st Century, Congress (TEA-21) provided 
$128 billion for our highway and transit systems.
    Another highly overworked infrastructure system is our air 
transportation system. Congestion in our airways and traveler 
safety were major considerations earlier this year when 
Congress passed the Aviation Investment and Reform Act for the 
21st Century (AIR-21) which provided a $10 billion increase in 
the nation's aviation system.
    These two pieces of legislation have provided a significant 
flow of resources to our highway and air systems, but not for 
high-speed rail.
    Within the United States there are a number of densely 
populated travel corridors in which the highways and airports 
are chronically congested. In these densely developed areas the 
cost and impacts of providing highway improvements is 
extraordinary, and in many locations not practical at all. It 
is in these areas that we at ACEC feel significant benefits can 
be recognized from investments in the inter-city rail program. 
Providing a self-sufficient alternative mode of transportation 
that is, fast, efficient and environmentally friendly would be 
a very appealing to thousands of stranded highway and air 
travelers.
    As our nation's population and number travelers grows we 
will see more and more demands being placed on our 
transportation infrastructure. Having modal choices in travel 
will serve to balance travel demand among those modes thereby 
alleviating overcrowding and congestion of a single mode.
    There will be a broad-based set of benefits to the overall 
railroad community. A majority of infrastructure improvement 
work will occur on freight lines. This program will now improve 
those tracks which means freight will receive indirect 
benefits. This translates into a better overall transportation 
program.
    However, all of this cannot happen without a funding source 
for the inter-city passenger rail program. As I mentioned 
previously, TEA-21 provided resources for our highways and AIR-
21 provided resources for our air system. A dedicated revenue 
source is needed for rail travel as well. We at the American 
Consulting Engineers Council support HR 3700, which provides 
authorization for the sale of $10 billion dollars of bonds for 
the purpose of infrastructure, rolling stock and other 
necessary improvements and upgrades in high-speed rail 
corridors. This initiative will provide the catalyst that is 
needed to boost the rail system to a level where it will be a 
viable travel mode alternative throughout a number of 
geographic regions.
    I also want to reiterate ACEC's support of the Highway 
Innovation and Cost Savings Act. This bill, sponsored by 
Congresswoman Dunn, would help increase the private sector's 
role in delivering highway and bridge projects and eliminates 
the disincentive that exists in the tax law.
    Under current law tax exempt financing is available for 
projects built and operated by the federal government and non-
highway public-private partnerships. We encourage Congress to 
pass this legislation.
    Conclusion
    We frequently see news about DOT COM companies and E-
Commerce, but most of the E-Commerce would not occur without a 
strong transportation network in place to deliver the 
merchandise being sold over the Internet. Adequately funding 
and maintaining all parts of this transportation system is 
paramount to sustaining a vibrant economy in this country and 
we applaud the leadership of this Committee to seek create 
tools by which the needs of our rail systems can be addressed.
    At the appropriate time, I'd be happy to answer any of your 
questions.

RESOLUTION OF THE AMERICAN CONSULTING ENGINEERS COUNCIL (ACEC) 
TRANSPORTATION COMMITTEE

Relating to Intercity High Speed Rail

    WHEREAS, an improved, efficient balanced transportation 
system, including highway, air, rail and transit services, is 
vitally important to the mobility of American businesses and 
citizens as we enter the twenty-first century; and
    WHEREAS, the federal Transportation Equity Act for the 21st 
Century, commonly known as TEA 21, included significant 
increases in dedicated funding for highway and transit 
programs; and
    WHEREAS, the Congress passed and the President recently 
signed the reauthorization of the federal aviation program, 
commonly known as Air 21, that includes significant increases 
in dedicated funding for aviation programs; and
    WHEREAS, neither TEA-21 nor AIR-21 includes significant 
dedicated federal funding to support existing or future capital 
needs of a high density intercity rail passenger corridor 
program; and
    WHEREAS, legislation has been introduced in the United 
States Congress as Senate Bill'S 1900 and House Bill HR 3700 
providing $10 billion in bonding over 10 years for high-speed 
passenger rail infrastructure, without impacting existing 
highway, transit or aviation funding sources; and
    WHEREAS, there exist in the United States several high 
density intercity travel corridors with chronically congested 
airports and highways that cannot be reasonably expanded, and 
where high speed rail would provide a choice for improved 
mobility and congestion relief; and
    WHEREAS, high speed rail services in the appropriate 
corridors can provide excellent mobility benefits while 
conserving energy and resulting in low pollution, and with 
operating revenue covering operating costs; and
    NOW, THEREFORE, the ACEC Transportation Committee supports 
a significantly increased dedicated capital funding program to 
be applied to intercity high speed rail projects, and supports 
Senate Bill'S 1900 and the companion House Bill HR 3700.

                                

    Chairman Houghton. Mr. Query.

STATEMENT OF JAMES B. QUERY, PRINCIPAL, PUBLIC FINANCE, MORGAN 
        STANLEY DEAN WITTER, PHILADELPHIA, PENNSYLVANIA

    Mr. Query. Mr. Chairman, distinguished Members of the 
Subcommittee, my name is James Query. I am a Principal in the 
Public Finance Department at Morgan Stanley Dean Witter. We are 
an international investment banking firm. I presently serve as 
manager for the firm's efforts as financial advisor and 
underwriter for surface transportation and transit agencies 
nationally.
    I have worked in public finance for more than 15 years, and 
our firm has been fortunate enough to work with a number of the 
country's largest transit and transportation agencies. I thank 
you for the opportunity to appear before this Committee to 
testify for Amtrak on transportation financing for intercity 
passenger rail, and specifically speak to the benefits to be 
realized from the proposed High-Speed Rail Investment Act, H.R. 
3700.
    I would like to address two basic questions in my time this 
afternoon. Both of them are from the perspective of a 
participant in the private capital markets.
    The first question is, is there a need for innovative 
capital funding proposals for high-speed rail of the sort 
provided by H.R. 3700; and second, can the funding mechanism 
that has been proposed by H.R. 3700 be an effective approach to 
meeting a portion of the capital needs faced by intercity 
passenger rail over the next several years? The answer to both 
questions in my view is, without question, an emphatic yes.
    The need for innovative capital funding by government for 
high-speed rail can be demonstrated in a number of ways. When 
we look at the transportation industry among all the different 
types of industry that need to finance themselves in the 
capital markets today, without question, transportation is one 
of the most capital-intensive industries. We recognize this as 
a basic fact of transportation.
    It depends upon large-scale sustained capital support of 
the major infrastructure that supports it. This is true for all 
the many different segments of the passenger transportation 
industry that you have talked about this afternoon, including 
rail, highways, and air transportation.
    Each of these sectors depends upon reliable, ongoing 
governmental support for much of the basic capital 
infrastructure which supports the system. This is true not only 
across transportation modes, but across governmental 
jurisdictions around the world as well.
    We are aware of no major provider of rail passenger transit 
service, here or in any other country, that does not rely upon 
significant ongoing governmental support to meet its capital 
funding needs for infrastructure. This long-term, reliable, 
governmental support is a necessary part of any dependable, 
efficient transit service, irrespective of how well managed the 
system may otherwise be or whether service is provided by 
public or private corporate entities.
    I just want to underscore that again. From the market's 
perspective, it is not a question of how well the agency is 
run. It should be run well and we certainly will look for 
evidence of how well it is run. But in addition, the market 
looks for the ongoing support for basic infrastructure needs 
that is part of any successful system.
    Amtrak has been very successful in recent years in relying 
upon the private capital markets in a variety of ways to meet 
its capital financing needs. It has used the lease market to 
provide financing for rolling stock; it has used the taxable 
and tax-exempt fixed income markets to meet other 
infrastructure needs, and it has called upon major financial 
institutions such as ourselves to provide direct lending 
support. Through these efforts, Amtrak has established itself 
as a creditworthy institution, recognized by independent credit 
rating analysts as being of investment grade quality. Amtrak's 
management team, its financial management team, has established 
considerable credibility with both investors and private market 
analysts.
    The major question in the minds of the private capital 
market participants such as ourselves at this point in Amtrak's 
history is whether or not the Federal Government will continue 
to provide the long-term ongoing capital support needed for 
infrastructure investment that all transit systems everywhere 
rely upon.
    Passage of legislation such as that provided by H.R. 3700 
would provide the evidence of long-term Federal support that 
private investors would find of greatest value. As a result, 
H.R. 3700 not only provides direct capital assistance that 
Amtrak needs, but in addition, by demonstrating that Federal 
support, it can strengthen Amtrak's ability to use the capital 
markets independently and more cost-effectively as well.
    To address the second question quickly, the innovative tax 
credit bonds proposed by H.R. 3700 can be a very effective 
capital funding tool for intercity passenger rail needs. It has 
several elements which I believe can be of great value.
    First, the requirement for State matching funding 
contributions recognizes the partnership approach that 
characterizes many, if not most, infrastructure projects 
underway in the country today. As has been true of many recent 
Federal efforts, such as the Transportation Infrastructure 
Finance and Innovation Act, this legislation leverages limited 
governmental transportation dollars as effectively as possible.
    As we have heard already this afternoon, many States are 
eager to invest their transportation dollars in such projects. 
What they are looking for is a viable source of investment 
funds from legislation such as this to create an effective 
partnership.
    Second, H.R. 3700 benefits from recent legislative efforts 
to expand the use of tax credit bonds for infrastructure needs. 
There has been significant discussion by capital market 
participants of various tax credit proposals, such as the 
Qualified Zone Academy Bonds authorized by the Taxpayer Relief 
Act of 1997; the proposed Qualified School Modernization Bonds, 
and Better America Bonds. H.R. 3700 takes advantage of 
reactions made to these earlier proposals by allowing for some 
very important features which will improve upon the funding 
mechanism here versus what has been seen to date.
    Some of those features include the strippability of the tax 
credit and the underlying debt instrument so that the tax 
credit aspect of this financing vehicle can be separated from 
its investment component; and second, features such as matching 
of quarterly credit dates to generate improved cash flow 
benefits for investors.
    Perhaps most importantly, by providing that the State match 
be used to fund an escrow for the repayment of principal on the 
bonds at maturity, H.R. 3700 will create a high credit quality 
financial instrument that should find greater investor appeal.
    At this point, questions necessarily remain. It is not 
clear how large the market for investors for these high-speed 
rail bonds will be at this point in time. Every market clearly 
grows with use. The proposal is extremely well structured to 
begin the process of market development.
    Mr. Query. This program is large enough to provide some 
investor liquidity, which has been sorely missing from programs 
such as the QZAB program to date, and it is also flexible 
enough to attract tax credit investors. We are confident that 
there will be a ready market for investors for these 
securities.
    There are a few questions of implementation that would be 
helpful to address. It would be helpful to make it clear, for 
example, that States can use tax-exempt debt to fund their 
State match requirements with appropriate exemptions from 
arbitrage restrictions, and it is important that the 
regulations establishing the interest rate on which the credit 
will be based are keen and sensitive to the market rate of 
returns that will be necessary to have this investment vehicle 
hold its own among others.
    Overall, let me say that H.R. 3700 will not answer all the 
capital funding challenges faced by Congress, Amtrak, the 
States, transit authorities, and private investors as they 
jointly face the financing needs of infrastructure for 
intercity high-speed rail. This legislation, however, 
represents a significant commitment of governmental support at 
a particularly important time that will sustain and accelerate 
the research and development and effort that has already been 
put into place.
    These efforts will benefit all who depend on a 
transportation system that clearly is growing increasingly 
complex, expensive, and interdependent among its various modes.
    Thank you very much. I welcome any questions you might 
have.
    [The prepared statement follows:]

STATEMENT OF JAMES B. QUERY, PRINCIPAL, PUBLIC FINANCE, MORGAN STANLEY 
DEAN WITTER, PHILADELPHIA, PENNSYLVANIA

    Chairman Houghton, Distinguished Committee Members:
    My name is James Query. I am a Principal in the Public 
Finance Department of Morgan Stanley Dean Witter, an 
international investment banking firm. I presently serve as 
manager for the Firm's efforts as financial advisor and 
underwriter for surface transportation and transit agencies 
nationally. I have worked in the public finance industry for 
more than 15 years. Our Firm has worked with a number of the 
country's largest transit and transportation agencies. I thank 
you for the opportunity to appear before this distinguished 
committee to testify for Amtrak on transportation financing for 
intercity passenger rail and specifically on the benefits to be 
realized from the proposed High Speed Rail Investment Act, HR 
3700.
    Mr. Chairman, I would like to address two basic questions 
in my testimony today. First, is there a need for innovative 
capital funding proposals for high-speed rail of the sort 
provided by HR 3700? Second, can the funding mechanism proposed 
in HR 3700 be an effective approach to meeting a portion of the 
capital needs faced by intercity passenger rail over the next 
several years? The answer to both questions, in my view, is an 
emphatic yes.
    The need for innovative capital funding by government for 
high-speed rail can be demonstrated in a number of ways. First, 
transportation is a capital-intensive industry; it depends upon 
large scale, sustained capital support of major infrastructure. 
This is true for the many different segments of the passenger 
transportation industry including rail, highways and air 
transportation. Each of these sectors depends upon reliable, 
ongoing governmental support for much of the basic capital 
infrastructure which supports the system. This is true not only 
across transportation modes but across governmental 
jurisdictions around the world as well. I am aware of no major 
provider of rail passenger transit service, here or in any 
other country, that does not rely upon significant governmental 
support to meet its capital funding needs for infrastructure. 
This long-term, reliable, governmental support is a necessary 
part of any dependable, efficient transit service irrespective 
of how well-managed the system may otherwise be or whether 
service is provided by public or private corporate entities.
    Amtrak has been successful in recent years in relying upon 
the private capital markets in a variety of ways to meet its 
capital financing needs. It has used the lease market to 
provide financing for rolling stock; it has used the taxable 
and tax-exempt fixed income market to meet other infrastructure 
needs and it has called upon major financial institutions to 
provide direct lending support. Through these efforts, Amtrak 
has established itself as a creditworthy institution recognized 
by independent credit rating analysts as being of investment 
grade quality. The major question in the minds of private 
capital market participants at this point in Amtrak's history 
is whether or not the federal government will continue to 
provide the long-term, ongoing capital support needed for 
infrastructure investment that all transit systems rely upon. 
Passage of legislation such as that provided by HR 3700 would 
provide the evidence of long-term federal support that private 
investors would find of greatest value. As a result, HR 3700 
can provide not only direct capital assistance for Amtrak, but 
it can strengthen Amtrak's ability to use the capital markets 
independently and cost-effectively as well.
    To address the second question, the innovative tax-credit 
bonds proposed by the HR 3700 can be a very effective capital 
funding tool for intercity passenger rail needs. It has several 
elements which I believe can be of great value:
    First, the requirement for state matching funding 
contribution of 20% recognizes the partnership approach that 
characterizes many, if not most, infrastructure projects 
currently. As has been true of many recent federal efforts such 
as the Transportation Infrastructure Finance and Innovation Act 
(TIFIA), this legislation leverages limited governmental 
transportation dollars as effectively as possible.
    Second, HR 3700 benefits from other recent legislative 
efforts to expand the use of tax-credit bonds for 
infrastructure needs. There has been significant discussion by 
capital market participants of various tax-credit proposals 
such as the Qualified Zone Academy Bonds (QZABs) authorized by 
the Taxpayer Relief Act of 1997, the proposed Qualified School 
Modernization Bonds (QSMBs) and Better America Bonds (BABs). HR 
3700 takes advantage of reactions made to earlier proposals by 
allowing for features including:
     strippability of the tax credit and the underlying 
debt instrument
     quarterly credit dates to generate improved cash 
flow benefit for investors.
    Perhaps most importantly, by providing that the state match 
be used to fund an escrow for the repayment of principal on the 
bonds at maturity, HR 3700 will create a high credit quality 
financial instrument that should find greater investor appeal.
    Questions necessarily remain. It is not clear how large the 
market of investors for these high-speed rail bonds will be. 
Every market grows with use. The proposal is well structured 
however, to begin the process of market development. In 
expanding the usefulness of this measure, it would be helpful 
to address certain implementation issues. For example, it would 
be useful to make it clear that states can use tax-exempt debt 
to fund their state match requirement.
    Overall, let me say that HR 3700 will not answer all of the 
capital funding challenges faced by Congress, Amtrak, the 
states, transit authorities and private investors as they 
jointly face the financing needs of infrastructure for 
intercity high speed rail. However, this legislation does 
represent a significant commitment of governmental support that 
will sustain and accelerate the investment and effort that has 
already been made.
    These efforts will benefit all who depend on a 
transportation system that grows increasingly complex, 
expensive and interdependent.
            Thank you.

                                

    Chairman Houghton. I would just like to make a statement 
before I turn to Mr. Coyne.
    I think the point that you make about the States and their 
having bonding capacity is really important. We do not have 
that in the bill, and I think we probably ought to add that. 
Thanks very much.
    Mr. Coyne.
    Mr. Coyne. Thank you, Mr. Chairman.
    Mr. Query, what is your understanding of who would be 
liable for the debt of the tax-exempt bond structure that is 
proposed by Amtrak?
    Mr. Query. As we have looked at the bill, our reaction is 
basically to look at it in its two components: Who will pay the 
interest on this debt, and how will principal be repaid.
    The interest on the debt, inasmuch as it is coming in the 
form of a tax credit from the Federal Government, when it comes 
to the individual investor, they have great comfort that, in 
fact, the Federal Government will make good on that promise of 
the tax credit over time. So with regard to its interest rate 
payments, the investor is fully protected and comfortable.
    From the question of who will repay principal on this debt, 
they will be looking to this escrow once again established by 
the State match contribution. We anticipate that that escrow 
would be of the highest possible credit rating, similar to the 
types of escrows that you would see for refunding of securities 
in the tax-exempt market today. As a result, it would again 
carry the highest possible credit rating.
    That is one of the primary differences that we see between 
this type of tax credit vehicle and some of the others that 
have been structured to date. Many of the investor concerns 
with regard to the nature of the credit quality of this 
investment vehicle will be answered, put to rest, and investors 
can concentrate simply on the rate of return for this 
particular instrument and understanding how it works.
    Mr. Coyne. In your testimony, you point out H.R. 3700 will 
create a high credit quality financial instrument that should 
find greater investor appeal.
    Mr. Query. Right.
    Mr. Coyne. Are you talking about AAA, or AA----.
    Mr. Query. AAA, based upon the nature of the securities in 
the escrow, with the assumption that the securities themselves 
are AAA quality, which, again, is achieved in other markets by 
using a variety of Treasury securities or agency securities, or 
triple-A-rated guaranteed investment contracts of one form or 
another. We should be able to achieve that type of rating 
level.
    Mr. Coyne. Also in your testimony you point out that, and I 
quote, ``It is not clear how large the market of investors for 
these high-speed rail bonds will be.'' .
    Could you expand on that a little bit?
    Mr. Query. I can expand on it to this point: I thought it 
was important to recognize the fact that this is an important 
new investment vehicle. In that regard, we are building a new 
market. QZABs have been an experiment in that market, but given 
the fundamental nature of that program, the limitations they 
have put on investors, it hasn't been a very clearcut 
demonstration of exactly what the market potential is.
    We think the size of this program gives important liquidity 
for investors. It also gives a focus for investors who clearly 
understand the single purpose for which this investment vehicle 
is intended, and they can clearly understand the single type of 
credit that is being dealt with.
    As a result, we are quite comfortable that the dollar 
volumes that are being looked to for this program are very 
achievable. It is the perfect way to, in fact, start the 
introduction of a tax credit vehicle such as this. I can't 
think of a better way.
    Mr. Coyne. Thank you.
    Chairman Houghton. Thank you.
    Mr. Watkins?
    Mr. Watkins. Just a quick question.
    Mr. Query, you indicated the interest would be backed up by 
tax-exempt bonds; Federal, like a lot of tax-exempt bonds that 
exist out there today, but also the principal would be backed 
up by the States. So these will be limited and issued just from 
State to State and will not be from the entire system? That is 
a point that I want to try to make sure that I make here.
    Mr. Query. Representative Watkins, as I have understood the 
program, since it is structured in such a way to ensure a 
partnership approach between the provider of intercity rail 
service and the State trying to introduce high-speed rail 
service in conjunction with this larger program, the 20 percent 
State match again is contributed to an escrow in order to fund 
the principal at repayment. The investor dollars that are 
raised for the other 80 percent, if you will, are going to 
build the bricks and mortar, if you will pardon the expression 
because it does not really apply to rail, but the rail and 
rolling stock necessary to support the rail service.
    So it is up to the States, if you will, to find the 
revenues necessary to make their State match contribution.
    I think it is just important to recognize that as States go 
about finding their match, just as is the case for highway and 
for other transportation priorities in a State, they look to a 
variety of funding sources. Sometimes it is straight gas tax 
moneys; sometimes it is other funds available to the State 
general fund. Frequently it is debt issued by the State and 
supported by the State.
    I just think it is very important to make sure this bill 
allows States to fund it in that way.
    Mr. Watkins. Let me ask a follow-up with this. We have a 
cap of 30 percent for a certain area, for a State----.
    Mr. Hulshof. Corridor.
    Chairman Houghton. Northeast Corridor.
    Mr. Watkins. What is the minimum, the floor? Do you have a 
minimum floor?
    Mr. Query. I'm sorry?
    Mr. Watkins. A minimum floor that we could expect in a 
rural populated area of the Nation?
    Mr. Query. I think I understand the question: How small an 
issue might be acceptable to the marketplace; is that the 
question?
    Mr. Watkins. Well, we are going to cap the high populated 
areas. What can we expect that we would get in the rural areas 
of the country?
    Mr. Gillespie. Mr. Watkins, I think there is a provision in 
the bill that allows up to 10 percent of the funds available to 
be used for nondesignated corridors, so an area like Oklahoma, 
if it had its 20 percent match, may be able to apply with 
Amtrak to use some of the revenues generated by the bonds to 
put into that service in Oklahoma. I think--I believe it is up 
to 10 percent.
    Mr. Query. Representative Watkins, one thing that I thought 
was particularly interesting about this bill basically was that 
by setting it up so that the States were required to put up 
this 20 percent matching contribution, essentially it allowed a 
State like the State of Oklahoma to place high-speed rail 
within its own transportation priorities. So it actually had 
the opportunity to say, this is how important an investment it 
is to us. And to the extent that you reach the determination 
that it is extremely important to you, and you make that 
investment, you have the opportunity then to----.
    Mr. Watkins. I was just trying to see if there would be 
anything left when it gets around to Oklahoma.
    Mr. Query. I understand.
    Mr. Watkins. Let me say this, I want to be for this. Like I 
say, I enjoy Eurail, I enjoy Britrail. I spent quite a bit of 
time on those. I have not learned how to speak French out of it 
all, like Oberstar, but in my area I'm trying to figure out how 
I can be for this. I want to be for it.
    I want to be able to get up on the floor and speak for this 
type of legislation, because we look around and we realize we 
do not have this. I think it could be of great assistance for 
transportation.
    I got on three different airlines yesterday trying to get 
back here. Let me tell you, I know we have a mess out there in 
the airlines. I was on American, Midway, and finally USAir 
trying to get back here.
    I want to be for it, and I want to work with the Chairman, 
but I have to make sure that when we get down, that the bucket 
is not empty. We want to try to have some help. Ten percent is 
not very much for undesignated areas when there is a huge 
undesignated area out across America right today.
    Thank you, Mr. Chairman.
    Chairman Houghton. Thank you.
    Mr. Hulshof?
    Mr. Hulshof. Mr. Chairman, if this were the game show 
Jeopardy, I would say, I will stay with Mr. Query for $800.
    Mr. Chairman, I say this as nonconfrontationally as I can 
be.
    I respect the last part of your statement, Mr. Query, about 
you cannot think of a better way or a better goal. Perhaps Mr. 
Rangel and Mrs. Johnson from this Committee might disagree. 
They have a similar idea about school construction, and using 
similar instruments for that priority as well.
    You have anticipated some of my questions. I looked through 
your testimony before you got up here. This is just from 
memory. I think when Treasury was before us in the Full 
Committee, back with the Taxpayer Relief Act of 1997, I think 
we authorized about $800 million in bonding authority for 
QZABs. I think over the last 2 years we have asked Treasury to 
update us, and their most recent figure was less than $300 
million in bonds have been allocated.
    I respect your point, and let's talk a little about it. In 
the Chairman's bill we are talking about $10 billion of bonding 
authority over 10 years, so it is roughly $1 billion a year.
    You say that under the Chairman's bill that we take 
advantage of reactions made to these earlier proposals. You 
talk about strippability or salability of a tax credit and the 
underlying debt instrument.
    I guess the quarterly credit dates, that is also to provide 
some more liquidity, built-in liquidity?
    Mr. Query. That is correct.
    Mr. Hulshof. When we talked to Treasury about QZABs, one of 
the things they had to acknowledge was that many of these bonds 
are sold below par. How can we be assured that in this 
instance--I guess there are really no guarantees, but what 
would you say regarding that factor; that, OK, maybe we address 
the liquidity, but how do we ensure that these bonds are not 
sold below par, at least substantially below par?
    Mr. Query. Right. A few quick differentiations between this 
structure and the QZAB structure.
    We have already talked about the size difference. I cannot 
overemphasize how important liquidity is to the marketplace to 
allow investors in this new instrument the opportunity to 
basically get out. The more liquid this investment is, the more 
readily we can attract investors into the market as well.
    The size of this program is a fundamental improvement over 
the size of the individual QZAB issues that we have been 
looking at, which typically have been less than $5 million 
individually. Infrequently they have been more than $10 
million. So while Treasury may estimate $300 million in total, 
my guess is that that represents somewhere north of 50 
individual issues, often more, and it is frankly very, very 
difficult for individual investors to deal with that amount of 
complexity, each one of them being, frankly, a different form 
of credit related to the individual school district that may be 
issuing the QZAB.
    The second and perhaps most fundamental barrier, from our 
perspective, to attract ready investment is the requirement for 
a 10 percent private business contribution. It is not that it 
is a bad idea, it simply creates an obstruction to finding the 
right match between someone who is in a position to invest and 
someone who is also in a position to make that private business 
contribution.
    There is an explicit limitation on the type of investors in 
the QZAB legislation. It specifically addresses banks, 
insurance companies, and other lenders. Obviously, by 
eliminating those types of restrictions, you are just 
broadening the market. We would think that for this type of 
tax-advantaged investment, you would find a ready market among 
corporations as well as individuals.
    Last, there is credit quality itself. Rather than dealing 
with that diverse body of credit quality, here you have AAA 
credit quality.
    As for the significant discount, in fact, I think one of 
the attractions, if you will, of the QZAB program, even though 
it may be a disappointment from certain perspectives, the 
discount has allowed that instrument, in spite of all the 
limitations, to find a home, if you will. So I think allowing 
for that discount is a very important market feature, but I 
think you are absolutely right to try to design the program in 
such a way that that discount is minimized.
    That is for a couple of different reasons. One is the 
budgetary costs that imposes on the user of that vehicle, if 
you will. Second, as well, it just means that the right 
attention has been paid at the time of drafting and regulations 
to the amount of tax credit that is intended to be given to 
investors in the first place.
    Mr. Hulshof. Not to switch trains here, but how conversant 
are you with the school construction piece, and how does H.R. 
3700 compare as far as some of the specifics, such as--in this 
country there are QZABs, but I am talking about the Rangel-
Johnson idea on school construction. How does this bonding 
authority compare with that?
    Mr. Query. I would say that the advantages that that bill 
offers as compared to QZABs have been incorporated into this 
bill in the form of both strippability and the more close 
matching of cash flows from investors----.
    Mr. Hulshof. But as far as school construction and this, 
are these essentially the same?
    Mr. Query. I would say the fundamental difference between 
the two is the credit quality of the two instruments. Again, I 
think this is a preferable vehicle from a market perspective 
because the credit will actually be more readily understood.
    Mr. Hulshof. Thank you, Mr. Chairman.
    Thank you, Mr. Query.
    Chairman Houghton. Thank you.
    I don't think I have a question, but I do think that this 
has enormous ramifications. I don't think there has been 
anything like this in years. It is really a turning around of 
the railroad industry.
    Obviously, this has an impact as far as you are concerned, 
Mr. Gillespie, in terms of an old railroad town that is now a 
railroad town in a different way, coming from zero employment 
up to, what are you, 1,200 now?
    Mr. Gillespie. It is 800 now, sir, and with the anticipated 
growth, another 350 in the next few years.
    Chairman Houghton. That is very important, and also what 
this is doing to increase land value and what it is doing to 
station development and intermodal transportation within 
cities. It is very, very important.
    So I appreciate your being here. Thank you for your 
testimony. We will look forward to talking to you further. 
Thanks very much.
    We will have the next panel.
    The next panel is Mr. Gutschewski, vice president and tax 
counsel of Union Pacific; and Mark Dysart, president of the 
High Speed Ground Transportation Association; and Jean Godwin, 
executive vice president and general counsel of the American 
Association of Port Authorities.
    Ken, would you like to introduce Mr. Gutschewski?
    Mr. Hulshof. We are glad to have him. Go ahead, Mr. 
Chairman.
    Chairman Houghton. All right.
    All right, Mr. Gutschewski. Please begin your testimony.

  STATEMENT OF BERNARD R. GUTSCHEWSKI, VICE PRESIDENT, TAXES, 
  UNION PACIFIC CORPORATION, ON BEHALF OF THE ASSOCIATION OF 
              AMERICAN RAILROADS, OMAHA, NEBRASKA

    Mr. Gutschewski. Good afternoon, Mr. Chairman, and Members 
of the Subcommittee. My name is Bernie Gutschewski. I am Vice 
President of Taxes of Union Pacific Corp. I am testifying today 
on behalf of the Association of American Railroads, a trade 
association representing major freight and passenger railroads.
    The AAR appreciates the opportunity to discuss key 
infrastructure tax issues impacting the railroad industry, and 
we wholeheartedly support your objective of attaining equity 
between the different transportation modes.
    As I explained in my written statement, the tax laws impose 
several major burdens on our industry and place us at an unfair 
disadvantage compared to our chief competitors and other modes 
of transportation. Should Congress create a level playingfield, 
individual railroad companies would be better able to obtain 
the capital necessary to build and maintain their 
infrastructure, which clearly advances the public's desire and 
need for a growing railroad industry.
    The most immediate tax inequity facing our industry is the 
discriminatory deficit reduction fuel tax that continues to be 
imposed on railroads. The AAR urges Congress to promptly repeal 
this tax. The current tax structure imposes an inequitable 
deficit reduction tax on the railroad industry. The 
transportation industry was singled out to pay this tax because 
it is based on fuel consumption. Today within the 
transportation industry only railroad and barge companies 
continue to pay such a tax.
    The deficit reduction fuel tax places the railroad industry 
at a significant economic disadvantage compared to its chief 
competitor, the trucking industry. More than 2 years ago 
Congress determined that all revenues from fuel taxes paid by 
the truckers should be directed into the Highway Trust Fund, to 
be used for improvements and maintenance of highway 
infrastructure, a direct benefit to the trucking industry. 
Therefore, while railroads continue to contribute to the 
financing of a nonexistent deficit, the truckers are merely 
funding their own infrastructure improvements. Meanwhile, the 
railroad industry builds and maintains its own private 
transportation network. In 1999 alone, freight railroads spent 
$7.7 billion maintaining and improving their own 
infrastructure.
    Further, Congress should reject suggestions that the 
railroads' fuel tax be transferred into a government-
administered railroad trust fund. Under the proposed scenarios, 
the beneficiaries of the funds, while having contributed little 
or nothing, would profit from a cross-subsidy from the large 
freight railroads. We believe cross-subsidies are bad public 
policy, and the fuel tax revenues paid by freight railroads are 
needed to meet their own significant infrastructure needs.
    Moreover, large railroads do not care to finance their own 
infrastructure needs by inefficiently sending funds to 
Washington, D.C., simply to be returned to them minus 
administrative and overhead costs.
    Other tax laws also burden the railroad industry, which is 
the most capital-intensive component of the industrial sector 
of the U.S. Economy. These burdens are more fully explained in 
my written statement.
    Very briefly, the existing capital recovery rules require 
railroads to capitalize and depreciate the vast majority of 
their infrastructure costs. In contrast, the vast majority of 
trucking infrastructure costs are paid in the form of fuel 
taxes, which are immediately deductible. This competitive 
advantage enjoyed by trucking under the income tax laws is 
further exacerbated by the advantage heavy trucks obtain by 
paying less than two-thirds of the infrastructure damage costs 
they generate.
    Other taxes on the industry, like the $453 million of 
annual property taxes paid by railroads on their privately 
owned right-of-ways, and sales taxes paid on infrastructure 
materials, are not paid by trucking companies and further 
magnify the disparate infrastructure cost comparison.
    Finally, railroads' payroll taxes are substantially higher 
than any other industry.
    In summary, the AAR urges Congress to eliminate the tax 
inequities that competitively disadvantage the railroad 
industry and that unnecessarily burden our customers and hamper 
their international competitiveness.
    The AAR urges the prompt enactment of H.R. 1001 repealing 
the deficit reduction fuel tax as a first step in this area. 
Beyond this first step, the AAR strongly recommends that 
Congress eliminate all the inequities in current tax laws, 
thereby leveling the tax playingfield and allowing railroads 
better access to additional sources of capital to enhance the 
industry's ability to more efficiently and safely meet the 
freight transportation requirements of a growing economy.
    Thank you.
    Chairman Houghton. Thank you.
    [The prepared statement follows:]

STATEMENT OF BERNARD R. GUTSCHEWSKI, VICE PRESIDENT, TAXES, UNION 
PACIFIC CORPORATION, ON BEHALF OF THE ASSOCIATION OF AMERICAN 
RAILROADS, OMAHA, NEBRASKA

    Good afternoon, Mr. Chairman and members of the 
subcommittee, my name is Bernard R. Gutschewski, and I am Vice 
President--Taxes of Union Pacific Corporation. I am testifying 
as a representative for the Association of American Railroads 
(AAR). The AAR is a trade association representing major 
freight and passenger railroads.\1\ The AAR appreciates the 
opportunity to present its members views regarding key tax 
issues impacting the railroad industry. After providing you 
background information about the railroads, I will use this 
opportunity to address how the tax laws impose major burdens on 
our industry and place us at an unfair disadvantage compared to 
our chief competitors and other modes of transportation. This 
competitive disadvantage arises under federal excise, income, 
and employment tax laws, as well as under state and local tax 
laws. Should Congress create a level playing field, individual 
railroad companies would be better able to make the much-needed 
capital investments in their infrastructure, which clearly 
advances the public's desire and need for a growing railroad 
industry.
---------------------------------------------------------------------------
    \1\ AAR's membership includes freight railroads that operate 75 
percent of the line-haul mileage, employ 91 percent of the workers, and 
account for 93 percent of the freight revenue of all railroads in the 
United States; and passenger railroads that operate almost all of the 
nation's intercity passenger trains and provide commuter rail service.

---------------------------------------------------------------------------
Railroads Play a Vital Role in Today's Economy

    Freight railroads move just about everything--from lumber 
to vegetables, from coal to orange juice, from grain to 
automobiles, from chemicals to scrap iron--and connect 
businesses with each other across the country and with markets 
overseas. They carry 40 percent of the nation's inter-city 
freight--more than trucks, barges, pipelines, airplanes or 
automobiles; 70 percent of vehicles from domestic 
manufacturers; 64 percent of the nation's coal; and 40 percent 
of the nation's grain. In 1999, railroads hauled 18 million 
carloads of freight, plus over 9 million trailers and 
containers, nearly tripling the intermodal volume of 1980.
    The U.S. freight railroads directly contribute $13 billion 
a year to the U.S. economy in wages and benefits to more than 
200,000 employees; U.S. rail employees are among the very best 
compensated and most productive in all of U.S. industry. Beyond 
this, railroads spend several billion dollars every year to 
purchase materials, equipment and services. The railroad 
industry pays significant taxes. In 1999 alone, Class I 
railroads \2\ paid $3 billion in taxes in addition to federal 
income taxes:
---------------------------------------------------------------------------
    \2\ The Surface Transportation Board defines a Class I railroad for 
1999 (latest available) as any railroad earning annual operating 
revenues of $258.5 million or more.
---------------------------------------------------------------------------
     $2.1 billion in federal payroll taxes
     $453 million in property taxes on their privately-
owned right-of-way;
     $164 million in federal fuel taxes\3\ and
---------------------------------------------------------------------------
    \3\ This figure includes both the deficit reduction fuel tax and 
the LUST tax.
---------------------------------------------------------------------------
     $260 million in other taxes.\4\
---------------------------------------------------------------------------
    \4\ FORTUNE 500 Annual Survey of Assets to Revenue (April 2000). 
See also U.S. Department of Commerce Bureau of Census Annual Survey of 
Manufacturers (1996) for capital expenditures as a percent of sales.
---------------------------------------------------------------------------
    All of these facts are evidence of how integral the 
railroads are to the continued vitality of the U.S. economy.
    The ability of the U.S. railroads to continue to provide 
the transportation services that the country needs has been, in 
large part, dependent upon the nature of regulation to which it 
is subject. I will not belabor the history of how pervasive and 
intrusive economic regulation almost destroyed the private 
sector U.S. freight rail industry prior to 1980. The troubles 
of the rail industry at that time, when railroads owning almost 
one-quarter of the nation's rail trackage were in bankruptcy 
and many others were teetering on the edge, are well 
documented. The freight railroads overall have become much 
sounder financially in the nearly 20 years since enactment of 
the Staggers Rail Act of 1980, which provided much-needed 
regulatory reform. Moreover, deregulation has benefited 
railroad customers as well. On average it costs 28 percent less 
to move freight by rail now than it did in 1981 and 57 percent 
less in inflation-adjusted dollars.
    In order to continue to satisfy the country's demands for 
safe and efficient railroad transportation, the industry must 
find the capital funds needed to make critical infrastructure 
improvements. Funding of these infrastructure improvements 
while operating on an uneven playing field is among the most 
critical challenges now facing the industry.

The Deficit Reduction Tax Imposed on the Railroads Creates 
Competitive Inequities

    The most immediate tax inequity facing our industry is the 
discriminatory deficit reduction fuel tax that continues to be 
imposed on railroads. AAR urges Congress to promptly repeal 
this tax that adds to other tax burdens already imposed on the 
railroads--burdens that extend well beyond those imposed on our 
chief competitors. The transportation industry was singled out 
to pay this deficit reduction tax because it is based on fuel 
consumption. Moreover, within the transportation industry, 
today only railroad and barge companies continue to pay such a 
tax. The deficit reduction fuel tax rate has varied over time, 
and currently stands at 4.3 cents per gallon on diesel fuel 
consumed. Since inception of the tax in 1990, freight railroads 
have paid nearly $1.6 billion in deficit reduction fuel taxes. 
The inequities of the current tax structure affect railroads 
directly, but also unnecessarily burden our customers and 
hamper their international competitiveness.
    The deficit reduction fuel tax places the railroad industry 
at a significant economic disadvantage compared to its chief 
competitor, the trucking industry. More than two years ago, 
Congress determined that all revenues from fuel taxes paid by 
the truckers should be directed into the Highway Trust Fund to 
be used for improvements and maintenance of highway 
infrastructure--a direct benefit to the trucking industry. 
Therefore, while railroads continue to contribute to the 
financing of a non-existent deficit, the truckers are merely 
funding their own infrastructure improvement.
    Even though trucking companies pay various federal and 
state fuel and other taxes that are dedicated to highway 
construction and maintenance, heavy trucks on average pay less 
than two-thirds of the cost of the damage they cause to the 
national highway system. In effect, a substantial portion of 
the cost of building and maintaining the trucking industry's 
infrastructure is subsidized through fuel taxes paid by general 
public highway users.
    By contrast, none of the deficit reduction fuel tax paid by 
railroads is used for rail infrastructure; instead, the 
railroad industry builds and maintains its own private 
transportation network. In 1999 alone, freight railroads spent 
$7.7 billion maintaining and improving their own 
infrastructure. Other taxes, like the $453 million of annual 
property taxes paid by railroads on their privately owned 
right-of-ways, and sales taxes paid on infrastructure 
materials, are not paid by trucking companies and further 
magnify the disparate infrastructure cost comparison.
    The chart below illustrates the inequity of the current tax 
structure:

                                    Tax Comparisons by Transportation Sector
----------------------------------------------------------------------------------------------------------------
                                           Railroads      Trucks        Barges       Pipelines       Aviation
----------------------------------------------------------------------------------------------------------------
                                    Non-Infrastructure Fuel Taxes (cents/gal)
----------------------------------------------------------------------------------------------------------------
General Fund                                     4.3          None           4.3          None              None
LUST Fund                                        0.1           0.1            01          None               0.1
----------------------------------------------------------------------------------------------------------------
                                      Infrastructure (Right of Way) Costs:
----------------------------------------------------------------------------------------------------------------
Paid By                                     Industry    Government    Government      Industry        Government
                                                        Subsidized    Subsidized                      Subsidized
Method of                                    Private     24.3 Cent     20.0 Cent       Private         21.8 Cent
Funding                                      Capital      Fuel Tax      Fuel Tax       Capital          Fuel Tax
Tax Recovery Period                       7-50 Years        1 Year        1 Year      15 Years            1 Year
(exclusing repairs)
AMT Exposure Due to                              Yes            No            No           Yes                No
Infrastructure
Property                                         Yes            No            No           Yes                No
and Sales
Taxes on
Infrastructure
----------------------------------------------------------------------------------------------------------------
 AAAAAAANote: Information in bold indicates the sector at a competitive disadvantage when compared to the other
     sectors.

    Congress has recognized the inequity of the current tax 
structure, and the elimination of the unfair fuel tax imposed 
on railroads and barges is widely supported. The Taxpayer 
Refund and Relief Act of 1999, passed by Congress on August 5, 
1999, acknowledged the current inequity and included repeal of 
this tax.
    (The Act was vetoed for reasons other than the repeal of 
the fuel tax.) Moreover, other entities have supported the 
railroads' efforts to seek the repeal of the unfair tax. The 
U.S. Chamber of Commerce and the American Road and 
Transportation Builders Association have adopted policies in 
support of repealing the 4.3-cent deficit reduction fuel tax. 
Numerous agriculture groups, including the American Farm Bureau 
Federation, American Soybean Association, National Association 
of Wheat Growers, and the National Corn Growers Association, 
are also on record supporting the repeal of this tax.

Other Tax Laws Also Burden The Railroad Industry

Income Taxes

    Railroads--the most capital-intensive component of the 
industrial sector of the U.S. economy\5\
---------------------------------------------------------------------------
    \5\ Tier I of Railroad Retirement, which is functionally equivalent 
to social security (both in terms of rates and benefits), is financed 
by a 7.65 percent payroll tax (including the Medicare portion) on 
employees and employers. Railroad employers and employees pay an 
additional 21 percent payroll tax (16.1 percent employer and 4.9 
percent employee) into Tier II of Railroad Retirement, which is the 
only industry retirement plan in which contributions and benefits are 
regulated and administered by the federal government.
---------------------------------------------------------------------------
    --are further disadvantaged vis a vis their competitors by 
existing capital recovery provisions of the income tax laws. 
For income tax purposes, railroads must capitalize and 
depreciate, over a period of years, the costs incurred in 
building new or expanding their existing infrastructure. In 
addition, the Internal Revenue Service argues that railroads 
must capitalize many of the costs of repairing and maintaining 
that existing infrastructure. In contrast, the fuel taxes paid 
by trucking companies (used for both new capital expenditures 
and highway repair and maintenance) can be deducted 
immediately. As a result, trucking companies obtain an economic 
advantage for each infrastructure dollar they spend. For 
example, $100 capitalized by railroads produces depreciation 
deductions with a net present value of only $26, resulting in a 
$74 true economic cost. In contrast, $100 of fuel tax paid by 
trucking companies produces a $35 immediate tax benefit, 
resulting in a $65 true economic cost. If a railroad is subject 
to the Alternative Minimum Tax (AMT), the disparity in the true 
economic cost of capitalized infrastructure investment is 
further exacerbated, since accelerated depreciation deductions 
are a preference item for calculating the AMT but fuel tax 
deductions are not. This economic advantage enjoyed by trucking 
companies under the income tax laws is in addition to the 
economic advantage heavy trucks obtain by paying less than two-
thirds of the infrastructure damage costs they generate.

Employment Taxes

    Railroads' payroll taxes are higher than any other 
industry. Railroad employees are covered by the Railroad 
Retirement System, which is significantly more expensive than 
the Social Security System, further disadvantaging the freight 
railroads' ability to compete. In total, rail employers and 
employees pay retirement payroll taxes of 36.3 percent compared 
with 15.3 percent paid by their competitors.\6\ Over and above 
the social security equivalent, railroad employers annually 
contribute some $2.0 billion and railroad employees contribute 
$560 million into the railroad retirement system. Rail 
employers also fund a government-administered supplemental 
pension plan for railroad workers; this additional obligation 
cost the industry over $141 million in fiscal year 1999. 
Moreover, government imposed investment restrictions on 
railroad retirement funds significantly limit their returns, 
making the system more expensive for the industry.\7\
---------------------------------------------------------------------------
    \6\ For example, average annual returns on the railroad retirement 
Tier II account were 9.1 percent compared with 15.2 percent for large 
multi-employer plans and 16.3 for large single employer plans.
    \7\ For example, average annual returns on the railroad retirement 
Tier II account were 9.1 percent compared with 15.2 percent for large 
multi-employer plans and 16.3 for large singel employer plans.
---------------------------------------------------------------------------

State and Local Taxes

    Railroads historically have been subject to discriminatory 
state and local taxes, so much so that in 1976, Congress passed 
legislation intended to prohibit future discriminatory taxation 
of railroads by states. In recent years, however, the United 
States Supreme Court has been expanding states rights in many 
areas. This expansion threatens the protection from predatory 
state taxation provided to the industry by the 1976 
legislation.

Relieving the Railroad Industry of Inequitable Tax Treatment 
Would Facilitate Much-Needed Investment by the Industry in its 
Infrastructure

    A prompt leveling of the playing field would be the most 
effective means to correct the competitive inequity caused by 
the current structure and to facilitate much-needed railroad 
infrastructure investment. Since 1980, major freight railroads 
have spent more than $260 billion to maintain and improve their 
infrastructure and equipment. Despite such enormous 
investments, over the next 20 years the railroad industry will 
need to make new expenditures equal to the cost of rebuilding 
that infrastructure twice over to meet the country's 
transportation needs. Elimination of the inequities in current 
tax laws would help provide railroads with access to additional 
sources of capital to enhance the industry's ability to more 
efficiently and safely meet the freight transportation 
requirements of a growing economy.

Trust Funds Are Not the Answer

    Congress should reject suggestions that the railroads' fuel 
tax be transferred into a government-administered railroad 
trust fund. Several proposals to use the 4.3 cents per gallon 
deficit reduction fuel tax paid by the railroads and barges 
have been made, including the creation of new government trust 
funds to finance short-line/regional railroad improvements, 
inter-city or commuter passenger rail needs, and highway-rail 
crossing traffic control devices. In these scenarios, the 
beneficiaries of the funds, while having contributed little or 
nothing, would profit from a cross-subsidy from the large 
freight railroads. Large freight railroads oppose contributing 
to a trust fund that could be used to finance infrastructure 
improvements of competing railroads, and it is inappropriate to 
expect the large railroads to provide additional funding 
support for passenger rail, short-lines, or highway-rail 
traffic control devices. Cross-subsidies are bad public policy, 
and the fuel tax revenues paid by freight railroads are needed 
to meet their own significant infrastructure needs. Finally, 
large railroads do not care to finance their own infrastructure 
needs by inefficiently sending funds to Washington, D.C., 
simply to be returned to them, minus bureaucratic 
administrative and overhead costs.

Conclusion

    As the first step toward eliminating the tax law inequities 
that competitively disadvantage the railroad industry, the AAR 
urges Congress to eliminate the unfair tax burden imposed on 
the railroad industry by the deficit reduction fuel tax. The 
AAR urges the prompt enactment of H.R. 1001 repealing the 4.3-
cent deficit reduction fuel tax. This unfair tax increases the 
tax burdens already imposed on railroads, burdens that already 
extend well beyond those imposed on our chief competitors. The 
elimination of this unfair tax would contribute toward 
increased infrastructure spending by railroads, thus 
encouraging a growing and prospering railroad industry, 
consistent with sound public policy. Beyond this first step, 
the AAR strongly recommends that Congress eliminate all of the 
inequities in current tax laws thereby leveling the tax playing 
field and allowing railroads better access to additional 
sources of capital to enhance the industry's ability to more 
efficiently and safely meet the freight transportation 
requirements of a growing economy.

                                

    Chairman Houghton. Mr. Dysart?

  STATEMENT OF MARK R. DYSART, PRESIDENT AND CHIEF EXECUTIVE 
     OFFICER, HIGH SPEED GROUND TRANSPORTATION ASSOCIATION

    Mr. Dysart. Thank you, Mr. Chairman. I am Mark Dysart, 
president of the High Speed Ground Transportation Association. 
We are honored to have the opportunity to appear before this 
Committee to speak in support of H.R. 3700.
    The HSGTA is now in its 18th year as a trade association 
with a very broad-based membership that includes engineering 
firms, railcar and locomotive manufacturers, railway equipment 
suppliers, Federal, State, and local transportation agencies, 
academia, other transportation associations, and organized 
labor. Our membership represents or employs nearly 3 million 
American citizens.
    HSGTA engages in advocacy on three major issues: One, the 
expansion of intercity passenger rail through incremental 
upgrades such as the Northeast Corridor, Pacific Northwest and 
the Midwest Regional Rail Initiative; two, the development of a 
world-class high-speed rail as we have seen in Japan and Europe 
over the past 25 years and presently envisioned in California 
and elsewhere; and three, we represent and advocate for the new 
promising magnetic levitation technology, generally known as 
maglev.
    The intercity passenger rail industry is at a turning 
point. H.R. 3700 will provide an opportunity to develop high-
speed rail in this country. If we allow this chance to slip 
away, it will be years before it comes by again.
    Many States have taken advantage of the provisions of TEA-
21 to do extensive investigation of high-speed rail corridors. 
There is not only tremendous enthusiasm generated from these 
studies, there is also intense financial commitment in the 
various States. By my reckoning, over $1.3 billion so far has 
been spent or committed to high-speed rail and intercity 
passenger rail by the States of this Nation.
    ISTEA and TEA-21 established federally designated corridors 
that are eligible to receive Federal funding for high-speed 
rail development. Unfortunately, no mechanism has been 
established to fund these corridors. H.R. 3700 will do just 
that.
    In addition to the conventional rail approach, there are 
seven State and regional projects vying to become the first to 
build a, magnetically levitated ground transport system capable 
of moving travelers at over 300 miles per hour, as Congressman 
Oberstar mentioned. There is more interest in intercity 
passenger rail and maglev at this time than we can ever recall.
    I must say that I have been with this association since day 
1 for 18 years, and this is a very exciting day to know that we 
may actually reach our goal of seeing high-speed rail and 
intercity passenger rail in general put on an even keel, in 
some ways at least, with highways and transit.
    It is fair to say that in a very short time, the States 
have moved past the Federal vision in their plans for high-
speed rail. The transportation community at the State level 
simply has the best grasp of their future options, and the 
realization is quickly sinking in that the only real untapped 
source of intercity transportation capacity at this point lies 
with the rail system.
    In our view, it is no longer a question of whether the 
Federal and State governments move toward utilization of 
passenger rail, it is really a question of when and how. Our 
airways and highways are at or past capacity and need relief. 
Intercity passenger trains can and will provide that relief as 
a complement to our national transportation system. Intercity 
ground transportation will add an alternative mobility we badly 
need to sustain our economy and protect our environment. 
Intercity passenger rail is the missing element in our Nation's 
intermodal passenger transportation system.
    Technology is advancing quickly to ensure safer and more 
efficient rail service. The only real impediment to moving 
forward at this time is the political will to find an 
acceptable financing methodology for capital improvements. To 
this end, we believe that H.R. 3700 provides the best 
alternative available to meet this need.
    The up front commitment of the 20 percent match will compel 
States to choose the most economic and responsible projects 
before the bonding process moves forward. The HSGTA is 
confident that taxpayers will get their money's worth with H.R. 
3700.
    The United States Department of Transportation has an 
already established due diligence process to deal with capital 
programs financed by credit instruments. Such as TIFIA projects 
like the Alameda Corridor.
    The Federal Government's leverage is large; $3.2 billion of 
tax expenditure yields $10 billion of rail improvements. This 
does not include the downstream revenue generation from the 
taxes yielded by the goods produced, nor does it include the 
benefits yielded to the overall transportation system in 
general in terms of congestion mitigation, cleaner air, and 
less dependence on imported oil.
    H.R. 3700 will provide a long-term source of funds for rail 
that is currently only available to highways and transit. The 
yield in dollars from H.R. 3700 is very much like a penny from 
the gas tax. The equitable distribution of dollars is a 
necessary prerequisite to good tax legislation. I wish Mr. 
Watkins were still here, because H.R. 3700 does ensure that 
benefits are equally distributed geographically. There is ample 
evidence to show that real improvement needs are very 
widespread around the country.
    The High Speed Ground Transportation Association, Mr. 
Chairman, thanks you for your leadership in exploring how the 
tax laws affect the national transportation infrastructure and 
the transportation industry's ability to serve the public. We 
thank you for the opportunity to testify in favor of H.R. 3700, 
and look forward to working with the Committee and its staff as 
this legislation moves forward.
    Chairman Houghton. Thank you very much.
    [The prepared statement follows:]

STATEMENT OF MARK R. DYSART, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
HIGH SPEED GROUND TRANSPORTATION ASSOCIATION

    I am honored to have the opportunity to appear before this 
committee to speak in support of H.R. 3700 on behalf of the 
members of the High Speed Ground Transportation Association. 
The HSGTA, now in its 18th year, is a trade association with a 
broad-based membership and an equally broad advocacy agenda. 
The HSGTA's membership includes engineering firms, railcar and 
locomotive manufacturers, railway equipment suppliers, Federal, 
State and local transportation agencies, academia, other 
transportation associations, organized labor and individuals. 
Our membership represents or employs nearly 3 million citizens. 
We engage in advocacy for three major issues:
    1. The expansion of intercity passenger rail through 
incremental upgrades such as in the Northeast Corridor, Pacific 
Northwest and the Midwest Regional Rail Initiative.
    2. The development of world class high-speed rail as in 
operation in Europe and Japan over the past 25 years and 
presently envisioned for California.
    3. The new, highly promising magnetic levitation technology 
known generally as maglev.
    The intercity passenger rail industry is at a turning 
point. H.R. 3700 will provide an opportunity to develop high-
speed rail in this country. If we allow this chance to slip 
away, it will be years before the opportunity will be available 
again.
    Many states have taken advantage of the provisions of TEA-
21 to do extensive investigation of high speed rail corridors. 
There is not only tremendous enthusiasm generated from these 
studies, there is also financial commitment showing up in 
numerous states for various projects. For example; California 
plans to invest $700 million over the next year on intercity 
passenger rail, Illinois $140 million, Wisconsin $60 million, 
New York $100 million, North Carolina, Virginia and 
Pennsylvania $75 million each, and Georgia $200 million for 
commuter and intercity rail. Michigan has spent $25 million and 
the state of Washington $125 million. In all, 36 states are 
pursuing expanded intercity passenger rail. This is real 
commitment.
    ISTEA and TEA-21 established Federally designated corridors 
that are eligible to receive Federal funding for high-speed 
rail development. Unfortunately no mechanism has been 
established to fund these corridors. H.R. 3700 will fill that 
need.
    In addition to the conventional rail approach, there are 
seven state and regional projects vying to become the first to 
build a magnetically levitated ground transport system capable 
of moving travelers at 300 miles per hour as part of the 
Federal Railroad Administration's Maglev Deployment Program. 
There is more interest in intercity passenger rail and maglev 
at this time than we can ever recall. The need is there, the 
desire by States to build more ground transport systems is 
there, but we need the Federal Government to provide the 
funding catalyst and program the development of interstate 
commerce. H.R. 3700 and its Senate companion S. 1900 will 
provide that catalyst.
    It is fair to say that in a very short span of time, the 
individual states have moved past the federal vision at this 
point in their plans for high speed rail. The reasons for this 
are quite clear. Self-interest is at the heart of the matter. 
The transportation community at the State level simply has the 
best grasp of their future options; and the realization is 
quickly sinking in that the only real untapped source of inter-
city transportation capacity at this point lies with the rail 
system. As highway and air routes continue to become more 
congested (and by inference more expensive to the consumer and 
the general economy), this realization will become more and 
more apparent over time.
    In our view, it is no longer a question of whether the 
Federal and State governments move toward utilization of 
passenger rail, it is really a question of when and how. Our 
airways and highways are at or past capacity and need relief. 
Intercity passenger rail in its many forms can and will provide 
that relief as a complement to our national transportation 
system. Intercity ground transportation will add an alternative 
mobility we badly need to sustain our economy and protect our 
environment. Intercity passenger rail is the only missing link 
in our nation's funded transportation system.
    Technology is advancing quickly to ensure safer and more 
efficient rail service. The only real impediment to moving 
forward at this time is the political will to find an 
acceptable financing methodology for capital improvements. To 
this end, we believe that H.R. 3700 provides the best 
alternative available to meet this need.
    The upfront commitment of the 20% match will compel states 
to choose the most economic and responsible projects before the 
bonding process moves forward. The HSGTA is confident that 
taxpayers will get their money's worth with H.R. 3700. Along 
with the State's internal project review process the U. S. 
Department of Transportation will have oversight ensuring the 
viability of projects before applicants projects are approved. 
The U.S. DOT has an already established due diligence process 
to deal capital programs financed by credit instruments. TIFIA 
capital program financed projects such as the Alameda corridor 
and Penn Station rehabilitation are recent examples.
    The Federal government's leverage is large. Under H.R. 
3700, $3.2 Billion of tax expenditure yields $10 Billion of 
rail improvements. This does not include the downstream revenue 
generation from the taxes yielded by the goods produced. Nor 
does it include the benefits yielded to the overall 
transportation system in general in terms of congestion 
mitigation, cleaner air and less dependence on imported oil.
    H.R. 3700 will provide a funding mechanism for rail that is 
currently only available to highways and transit. (The yield in 
dollars from the bonds is just under what would be generated by 
1 penny of the gas tax) The bonding mechanism proffered by H.R. 
3700 has a long and historical relationship with transportation 
projects. In just one example, airports such as Dulles 
International and Reagan National have taken advantage of the 
process.
    The bonding program will necessarily be reviewed three 
years from now in the TEA-21 reauthorization process. If 
necessary, adjustments in program implementation can be made at 
that time.
    The High Speed Ground Transportation Association favors the 
language in H.R. 3700 that allows for State DOT's and other 
rail carriers to receive these funds.
    The equitable distribution of tax dollars is a necessary 
prerequisite to good tax legislation. The HSGTA favors the 
provisions in H.R. 3700 that ensure benefits are equitably 
spread around the country. There is ample evidence to show that 
rail improvement needs are very widespread around the country. 
The High Speed Ground Transportation Association thanks you for 
your leadership in exploring how the tax law affects the 
national transportation infrastructure and the transportation 
industries' ability to serve the public.
    We thank you for this opportunity to testify in favor of 
this innovative legislation, and would appreciate the chance to 
work with the Committee and its staff as the legislation 
progresses.

                                

    Chairman Houghton. Ms. Godwin.

STATEMENT OF JEAN GODWIN, EXECUTIVE VICE PRESIDENT AND GENERAL 
COUNSEL, AMERICAN ASSOCIATION OF PORT AUTHORITIES, ALEXANDRIA, 
                            VIRGINIA

    Ms. Godwin. Thank you, Mr. Chairman. It is hard being the 
last witness on a long afternoon. I notice the room is a little 
emptier, so I will try to be brief.
    We also appreciate the opportunity to testify this 
afternoon on behalf of our 83 U.S. public port members on the 
tax treatment of port infrastructure development.
    Currently more than 95 percent of all U.S. foreign commerce 
flows through the ports along our Nation's coastlines and the 
Great Lakes. Deep-draft commercial ports in the U.S. handle 
more than $600 billion a year in international trade. Our ports 
serve as key import/export links to other transportation 
infrastructure, such as rail, trucking, barge, and pipeline 
operations that transport goods to all 50 States.
    In announcing this hearing, you said, and I quote, 
``Without the efficient movement of people and products, the 
continued growth in our economy could be jeopardized.'' That is 
really the statement that I would like to focus on while we are 
testifying here, because a variety of Federal tax policies can 
really make or break the efficiency of the waterborne 
transportation system.
    The message that I want to leave with you today is that by 
the year 2010, the value of the international trade is expected 
to double. By the year 2040, some forecasts have indicated that 
imports and exports will increase eightfold. These numbers are 
very dramatic. The increase will impact not only ports, but 
also the other transportation modes that carry cargo from the 
ports, such as rail, truck, and waterways. This growth will 
just increase congestion if improvements and alternatives are 
not provided.
    One number that struck me recently is that on the east 
coast alone, that level of growth could mean more than 1,100 
more rail containers and 10,000 more trucks along the I-95 
Corridor every day. That is a truck every 270 yards between 
Miami and Boston, a very significant growth.
    The question of whether or not this country will be ready 
to absorb that kind of growth really, again, depends on some of 
the tax policies that you have before you in this Committee. 
The health of our Nation's ports depends on a strong and 
longstanding partnership between the local public port 
authorities that we represent and the Federal Government.
    Unfortunately, the Federal Government appears less and less 
willing to uphold its end of the partnership. My members are 
State and local agencies which are already making significant 
investments to try to handle these increased volumes. In 1998 
alone, they spent $1.5 billion, and they plan to spend another 
$9.1 before 2002.
    The use of bonding authority has been very important in 
being able to come up with the local capital needs. In 1998, 
revenue bonds accounted for nearly 41 percent and general 
obligation bonds more than 5 percent of the total investment 
our members made. We have also sought simplification of 
arbitrage rebate regulations and looked for an acceleration of 
the increase in private activity bond caps to try to facilitate 
more capital for our members, to make more financing 
alternatives available.
    Despite the significant local financial investment over the 
years, we have had to continue to fight for money in 
appropriation cycles. The Federal Government has slowly and 
continually shifted away from its financial responsibilities 
for funding dredging. These are issues that will come before 
this Committee. Prior to 1986, the Federal Government paid for 
all dredging, including new construction and maintenance 
dredging. In 1986, the funding was changed by instituting the 
Harbor Maintenance Tax on goods to fund maintenance dredging 
and requiring our members, the local sponsors, to cost-share 
the construction projects. While the export portion of the 
Harbor Maintenance Tax has been declared unconstitutional, the 
remainder of the tax has been subject to challenge by our 
trading partners before the WTO. This issue will come squarely 
before this Committee, probably in the near future.
    While the administration has proposed to remedy the 
situation by imposing nearly $1 billion in new taxes on ocean 
carriers, that proposal would allow the Federal Government to 
completely abdicate its financial responsibility for dredging, 
including the Federal cost share for new projects. We are very 
pleased that Congress rejected that proposal during this year's 
budget debate.
    We spent a number of years looking at this issue as the 
case went through the Supreme Court. We have come to the 
conclusion that there is no user fee that can really equitably 
raise revenues in reasonable relation to the distribution of 
benefits to the Nation, because the difficulty we had coming up 
with the proposal in eighties we still face today. You cannot 
allocate a flat user fee without hurting our low-value exports. 
At the same time increasing fees can cause diversion of cargo 
to non-U.S. ports, a concern to our members.
    We support H.R. 1260, which Mr. Oberstar, who was here, 
sponsored along with Congressman Borski, to repeal the Harbor 
Maintenance Tax and return to the original system of 
authorizing general revenues to pay for maintenance dredging. 
We believe this industry is already very heavily taxed. The GAO 
report last year showed there were 124 Federal fees and 
assessments on maritime commerce that collected over $22 
billion in 1998, with about $20 billion of that going directly 
into the General Treasury. Some folks have looked at the 
Customs-related fees and said, maybe we should look at that to 
fund dredging. Again, either of those types of alternatives 
would require PAY-GO.
    These are issues on your horizon. I know they are not on 
the agenda at the present time. We do ask you to start looking 
at these issues and consider some of the tax policies that do 
affect the movement of freight in this country. We would be a 
happy to come back and participate in any other discussions you 
have on these issues.
    Chairman Houghton. Thank you.
    [The prepared statement follows:]

STATEMENT OF JEAN GODWIN, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL, 
AMERICAN ASSOCIATION OF PORT AUTHORITIES, ALEXANDRIA, VIRGINIA

    Good afternoon. I am Jean Godwin, Executive Vice President 
and General Counsel for the American Association of Port 
Authorities (AAPA). I am testifying today on behalf of the 83 
U.S. public port members of AAPA. Founded in 1912, AAPA 
represents virtually every U.S. public port agency, as well as 
the major port agencies in Canada, Latin America and the 
Caribbean. AAPA members are public entities mandated by law to 
serve public purposes--primarily the facilitation of waterborne 
commerce and the generation of local and regional economic 
growth.
    Mr. Chairman, we are pleased to come before you today to 
discuss tax treatment of port infrastructure. Ports are 
critical links in this nation's ability to internationally 
transport goods and people. Since colonial times, waterborne 
commerce has stimulated the economic growth and vitality of 
this great nation.
    A modern, world-class, well-maintained port system is 
essential to our nation's competitiveness, international trade, 
and national security. A large measure of this country's 
unprecedented economic growth is due to the increased 
productivity of the American economy and foreign trade. In 
order to remain competitive in the global marketplace, U.S. 
businesses must have an efficient and reliable transportation 
system. Ports provide just that. Currently, more than 95 
percent of all U.S. foreign commerce flows through ports along 
our nation's coastlines and the Great Lakes. Deep-draft 
commercial ports in the U.S. handle more than $600 billion in 
international trade. Ports serve as key import/export links to 
other transportation infrastructure such as rail, trucking, 
barge, and pipeline operations that transport goods to all 50 
states. Principal commodities carried by marine transportation 
include petroleum and petroleum products, coal, farm products, 
chemical and allied products, forest products (wood, chips, 
pulp and paper), crude materials (sand, stone, iron and non-
ferrous ore, scrap, sulphur, clay and salt) and other 
manufactured goods. Ports also provide the gateway for the 
cruise industry--serving over five million U.S. passengers a 
year.
    Foreign trade is an increasingly important part of the U.S. 
economy, accounting for over 27 percent of the Gross Domestic 
Product in 1999. U.S. manufacturers increasingly rely on 
multinational products; retailers similarly source and sell 
globally. More than 11.5 million U.S. jobs now depend on 
exports. Significantly, wages for jobs supported by exports are 
13 to 17 percent higher than non-export-related jobs.
    U.S. exports and imports currently represent about $1.7 
trillion worth of goods. By the year 2010, the value of 
international trade is expected to more than double, and by the 
year 2040 forecasts indicate that imports and exports will 
increase eightfold. The demand on port services to meet this 
growth in international trade is already being felt and will be 
even greater as we move toward the opening of international 
markets. Between 1998 and 2010, liner trade growth is projected 
to increase 95 percent in terms of the volume of cargo carried. 
This increase will impact not only ports, but other 
transportation modes that carry cargo from the port such as 
rail, truck, and waterways. Such growth will increase 
congestion if improvements and alternatives are not provided--
on the East Coast alone such growth could mean 10,000 more 
trucks in the I-95 corridor (or one truck every 270 yards 
between Boston and Miami) and 1,100 more rail containers per 
day.
    Ports are already making significant investments to develop 
the landside infrastructure to handle these increased volumes. 
In 1998 alone, local investment in port facilities was nearly 
$1.5 billion; an additional $9.1 billion of non-Federal 
investment is expected before 2002. The use of bonding 
authority, including tax exempt bonds, is a significant factor 
in generating revenue for much-needed port development. In 
1998, revenue bonds accounted for nearly 41 percent, and 
general obligation bonds more than five percent, of the total 
investment. Locally, ports are responding to the service 
challenges presented by their customers and providing economic 
development opportunities for their communities by upgrading 
existing terminals and investing in new, more flexible 
equipment and technology. They are installing larger cranes, 
building on-dock rail, and improving rail and truck grade 
separations. Because of the importance of industrial 
development bonds, AAPA supports implementing a full increase 
of the private activity bond volume cap to the greater of $75 
per capita or $225 million. This will provide state and local 
authorities with the additional resources necessary to support 
one of the economic development community's most successful 
public-private partnership programs. Under current law this 
change will not become effective until 2007.
    Paying for maintenance and improvement of port 
infrastructure is a challenge. While the Federal government 
currently spends nearly $35 billion per year on surface 
transportation projects, less than $1 billion is spent by the 
Federal government on harbors. The health of our nation's ports 
depends on the strong and long-standing partnership between 
local public port authorities and the Federal government. 
Navigation channels are our nation's highways to the 
international marketplace and the world. We must continue to 
work together to strengthen the partnership between local 
public port authorities and the Federal government to ensure 
that the United States has the most efficient, safe, and 
environmentally responsible marine transportation system in the 
world.
    As called for in the Constitution, the Federal government 
has sole jurisdiction over this nation's navigational 
waterways--a function primarily delegated to the U.S. Army 
Corps of Engineers but paid for by specialized Federal taxes, 
and other Federal, state and local money. Local port 
authorities and industry provide funding for land 
infrastructure. Port authorities are also responsible for 
dredging berthing areas and access channels connecting port 
facilities to the Federal navigation channels, and providing 
required cost-sharing financing of dredging. Local, state, and 
Federal government funds are also used to support intermodal 
landside access to ports, some of which is paid through the 
Highway Trust Fund.
    Despite the significant local financial investment, over 
the years, the Federal government has slowly and continuously 
shifted its financial responsibilities for funding dredging to 
others. Prior to 1986, the Federal Government paid for all 
construction, operation and maintenance of Federal navigational 
channels. In 1986, Congress changed the funding mechanism by 
instituting the Harbor Maintenance Tax on goods and passengers, 
and by requiring a local sponsor to cost share construction and 
some operation and maintenance for deeper channels. In 1991 
this tax was tripled to 0.125 percent on the value of the cargo 
in order to pay for 100 percent of operation and maintenance of 
these Federal channels.
    While the export portion of this tax was declared 
unconstitutional, the current tax is still a significant burden 
on shippers and it increases the possibility of diversion of 
goods to Canadian ports. (Goods that are off-loaded at Canadian 
ports and then transported to the U.S. are not subject to the 
Harbor Maintenance Tax.) The ports most hard hit by this 
increase are those in close proximity to Canada--the North 
East, North West, and Great Lakes. The latest attempt to 
transfer the financial burden for navigational channels is the 
Administration's proposal to establish a Harbor Services Tax 
that would allow the Federal government to completely abdicate 
its financial responsibility including the Federal cost share 
for new construction projects by imposing $1 billion in new 
taxes on ocean carriers. We commend Congress for rejecting this 
poorly crafted proposal during this year's budget debate.
    There are several other problems with the Harbor 
Maintenance Tax that Congress will need to address in the 
future. First, the balance of the trust fund has continued to 
grow because Congress has not appropriated the entire amount 
collected due to overall Congressional spending limits. The 
most recent report from the Corps of Engineers shows that the 
surplus for FY 1999 exceeds $1.9 billion. This surplus comes at 
the same time that the Corps of Engineers projects an operation 
and maintenance backlog of $180 million within the deep-draft 
area.
    Perhaps the biggest driver for change is the U.S. Supreme 
Court decision in 1998 that declared the export portion of the 
law unconstitutional and repealed the application of the tax on 
exports. The Constitution prohibits a tax on exports, the Court 
found, although user fees are allowable. Due to the fact that 
there was a surplus in the trust fund and that there was not a 
close correlation between what shippers pay in and what they 
get out, the Court also found that the Harbor Maintenance Tax 
was not a true ``user fee.'' Therefore, the tax is currently 
being collected only on domestic and imported goods. However, 
the import portion of the tax is expected to be brought to the 
World Trade Organization as an unfair trade practice, and 
Congress and this Committee need to respond by repealing the 
complete tax.
    AAPA has spent three years looking at possible alternatives 
to the Harbor Maintenance Tax. In that process, AAPA identified 
four criteria that U.S. ports believe must be addressed in any 
alternative user fee, and we urge the Committee to use these 
criteria as well as it considers possible options.
     There should be equity among ports so that each 
port gets a reasonable return for fees paid on cargo moving 
through it;
     The fee should not add to the price of the 
nation's bulk or breakbulk export products (e.g., grain, coal, 
paper products), making these commodities uncompetitive in 
international markets;
     The fee should not alter the competitive position 
among U.S. ports or induce the diversion of cargo from U.S. 
ports to non-U.S. ports; and,
     The fee should meet the constitutional test set 
out by the Supreme Court that it should be reasonably related 
to the service provided.
    During our study, we were unable to identify any user fee 
that can equitably raise revenues in reasonable relation to the 
distribution of benefits to the nation. Therefore, AAPA 
endorses H.R. 1260, the ``Support for Harbor Investment 
Program'' Act (The SHIP Act) sponsored by Representatives 
Borski and Oberstar to repeal the Harbor Maintenance Tax and 
return to the original system of authorizing general revenues 
to pay for operating and maintaining our Federal navigational 
channels. The commercial maritime industry already pays 
significant fees directly into the General Treasury. A study 
last year from the General Accounting Office concluded that 
there are 124 Federal fees and assessments on maritime commerce 
that collected $22 billion in 1998, with approximately $20 
billion of this going directly into the General Treasury. Most 
of this money is from Customs-related fees, therefore, some 
have recommended setting aside a portion of the Customs 
receipts for harbor dredging since most are collected from 
users of ports. The biggest problem to these solutions is the 
revenue off-set rules applied to the budget. Since this tax is 
broken, however, we hope that Congress will forgo the ``pay-
go'' rules to address this issue.
    In summary, let me thank you for allowing me to testify 
today to brief the Subcommittee about the vital role ports play 
in the transportation system in the United States and the 
Federal taxes that impact this infrastructure. To ensure our 
nation's continued international competitiveness, it is now 
more important than ever to continue to invest in an improved 
and efficient water transportation system.

                                

    Chairman Houghton. Mr. Hulshof?
    Mr. Hulshof. I do, Mr. Chairman, briefly, and again a 
comment, Mr. Gutschewski. It has been a busy day for you. It 
has been a good day for you, because I note, number one, in 
your conclusion of your written testimony on page 9, you say 
you urge the prompt enactment of H.R. 1001, and about 6 hours 
ago we did that, so you are a very powerful man. I do 
appreciate you being here today.
    Also, as one of really the chief authors of H.R. 1001, I 
want to thank Mr. Coyne and Mr. Houghton and you for 
cosponsoring that legislation.
    While we did not spend a lot of time with it in the Full 
Committee today, while I have a chance to get you on the record 
and maybe help develop the record a little bit more, let me 
say, first of all, I think we need to make sure that everyone 
understands that a repeal of the 4.3 cent deficit reduction tax 
on diesel fuel for your industry, for the barge industry, does 
not take any money out of transportation funds. Is that true?
    Mr. Gutschewski. That is correct.
    Mr. Hulshof. Second, even as we were having our hearing 
today in the Full Committee on Ways and Means, you probably 
knew that one of the other Committees here on Capitol Hill was 
discussing the possibility of a railway trust fund.
    Mr. Hulshof. Now you indicate in your testimony, again, 
that that is not something that Union Pacific and I assume your 
industry, AAR, does not support; is that a fair statement?
    Mr. Gutschewski. AAR does not support the trust fund.
    Mr. Hulshof. Would you again--I know you touched on it 
briefly--but just reiterate again why you believe that is a bad 
idea.
    Mr. Gutschewski. We would rather administer the funds 
ourselves, as opposed to creating a trust fund, paying into the 
trust fund, sending it to Washington, D.C., and then have it 
flow back to us. We are a private enterprise system, and that 
is the way we prefer to operate.
    Mr. Hulshof. You mentioned not only the inefficient way of 
Washington collecting money and then doling it back to you, but 
also you mentioned cross-subsidies; and amplify that point for 
me again, if you would, of why these--or how there would be 
cross-subsidies were such a trust fund to be created.
    Mr. Gutschewski. Well, it is a function of who actually 
takes the money out of the trust--and who pays it in. The large 
freight railroads, being the major users of the fuel, would pay 
in the vast majority of the tax into the fund, and there is 
certainly no guarantee that we would get our fair share out of 
the fund. So we would rather get rid of the tax, not have the 
fund, and manage our own infrastructure.
    Mr. Hulshof. And let me amplify that point if I could, 
because in your testimony you talk about--in your written 
statement as well--you indicate, rightly so, that having this 
additional 4.3 cent excise tax that you pay, that the trucking 
industry does not, puts you and actually the barge industry at 
a competitive disadvantage, say, vis-a-vis the trucking 
industry; but even beyond that competitiveness, if you had the 
money, I mean, what would happen to infrastructure generally as 
far as your industry is concerned?
    Mr. Gutschewski. We have tremendous infrastructure needs, 
not much different than the discussion we heard earlier this 
afternoon about the public sector with their tremendous 
infrastructure needs. Since 1980 we have spent, I think, over 
$260 billion on our private interstate highway system, so to 
speak, for the freight railroads. In the next 20 years we will 
spend two times over the cost to replace that system.
    So there are tremendous infrastructure needs, and they are 
funded privately by the freight railroads.
    The difference between most of the testimony that has 
occurred today and what I am saying is the freight railroads in 
the private sector, operating without subsidies, and that is 
how we want to remain. We are not intending to advocate any 
changes to current law that would detrimental to other 
tranportation industries. Rather we appreciate the opportunity 
to be able to point out how we are disadvantaged by the tax 
laws as they impact to our ability to find capital to fund our 
infrastructure needs.
    Mr. Hulshof. And I think one other quick point, Mr. 
Chairman, if I may. My congressional district in Missouri has 
the Missouri River as part of its boundary and the Mississippi 
River forming the eastern boundary, and so, you know, river 
traffic is important as well. In the Inland Waterway Trust 
Fund, there are moneys that have accumulated in that trust fund 
that have not been put into infrastructure for the waterways. 
So my fear is--I echo what you say about creating a new railway 
trust fund--my concern is that suddenly you have a trust fund 
and then moneys accumulate and that money doesn't actually go 
into investment or modernization of infrastructure, and so I 
echo what you say.
    And, Mr. Chairman, again I am appreciative that--I know 
this hearing had been set for some time and we were able to get 
the 4.3 cent deficit reduction included in the railroad 
retirement bill that passed our Full Committee today.I 
appreciate the fact that we had 36 of 39 members on the Ways 
and Means Committee who cosponsored the repeal of the deficit 
reduction tax, and I am hoping that the Senate will take this 
up and hopefully that the President would sign it into law.
    So thank you for this opportunity, and thank for your 
testimony.
    Chairman Houghton. Thank you, Mr. Hulshof. Thanks so much 
for your leadership on H.R. 1011.
    There are two money issues. One is the issue of taxes, both 
Federal and State, which hurts your operation, and the other is 
the issue in terms of infusion of money. And I assume, unless 
there is anything to the contrary, that the bonding mechanism 
has been pretty successful in a whole variety of ways, 
particularly in port authority; is that right?
    Ms. Godwin. Yes, sir, that is correct.
    Chairman Houghton. So in taking a look at this first cut 
here of the railroads, what we want to do is sort of take a 
larger look and then a larger and then a larger, to see what we 
can do really to make this an extraordinary operation and not 
just stop with this $10 billion funding.
    What other things do you think we ought to do? What other 
taxes are terribly important to the operations of the 
railroads? Would you like to answer that?
    Mr. Gutschewski. I point them out in more detail in the 
written statement, but the deficit reduction fuel tax is key. 
Beyond that, for our basic infrastructure spending, as I said, 
we capitalize and depreciate over a period of years the 
substantial majority of the costs we spend. The trucking 
industry funds their infrastructure costs with fuel taxes, and 
they obviously thereby get an immediate deduction. So there is 
a significant disparity there. Further, because we own and 
maintain our own private interstate highway system in essence, 
we pay State property taxes on that. I do not know of anything 
that Congress can do about that. As a matter of fact, in 1976, 
Congress passed the 4-R Act which prevents discriminatory State 
taxation of railroads, nevertheless--we still pay $450 million 
a year in state property tax because we own our infrastructure. 
Most of our transportation competitors do not own the 
infrastructure upon which they operate.
    What we wanted to point out were some of the issues that 
create inequities.
    On the depreciation issue, that is a difficult question to 
answer because different freight railroads are in different 
taxpaying positions, and we don't have a single answer yet in 
the freight industry as to what final approach result we would 
want to use to address that inequity. But it is a significant 
disadvantage for the private freight railroads in terms of the 
tax treatment that their infrastructure dollars receive, versus 
the tax treatment of the fuel tax that the truckers pay.
    Chairman Houghton. I know in New York there have been 
extraordinary taxes on real estate, and it has been very 
hurtful for the railroads that operate there. And so you can 
have a great system in Pennsylvania and a great one in Vermont 
and New Hampshire, and you have to go through New York and it 
is very, very difficult. So that is of concern.
    The other thing I think about is in terms of other 
financing needs. If we are really going to sort of leap ahead 
and take advantage of the technologies, whether it is high-
speed rail, whether it is maglev, or whatever, I can see a 
whole series of other bonding opportunities coming along. Do 
you feel this way also?
    Mr. Dysart. Absolutely. I think it seems apparent that some 
sort of trust fund or use of trust funds is not going to be 
politically acceptable at least at this point in time. So we 
have to find innovative ways to finance what we need to do. 
There is no doubt we have indeed--and yes, Mr. Chairman, I 
think indeed we will find some other things that need bonding 
and there will be opportunities for those that issue bonds and 
buy them.
    Chairman Houghton. Thank you. Ms. Godwin have you got any 
other comments that you would like to make?
    Ms. Godwin. I don't really have anything to add on the rail 
side, sir, but again there are a lot of different policies out 
there that increase costs in different places along the way, 
taxes on trade, in a variety of aspects. If you are all 
interested in looking at that, I would be happy to provide you 
with some more information.
    Chairman Houghton. Well, thank you very much to the panel. 
We appreciate your testimony, all the information. The hearing 
is adjourned.
    [Whereupon, at 4:25 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

STATEMENT OF AMERICAN SOCIETY OF CIVIL ENGINEERS

    Mr. Chairman and Members of the Subcommittee:
    The American Society of Civil Engineers (ASCE) is pleased 
to offer this statement for the record on the tax treatment of 
transportation infrastructure.
    ASCE was founded in 1852 and is the country's oldest 
national civil engineering organization. The Society represents 
more than 125,000 civil engineers in private practice, 
government, industry and academia who are dedicated to the 
advancement of the science and profession of civil engineering. 
ASCE is a 501(c)(3) non-profit educational and professional 
society.
    We have a longstanding interest in increased investment in 
our national transportation infrastructure as a proven method 
to enhance America's productivity and global competitiveness. 
America's public capital stock, which is the sum of the 
nation's existing public facilities, is the foundation on which 
the economy stands and grows. As the economy grows, so must the 
capital stock. Without increased infrastructure investment, the 
added burden of a larger economy will stress the existing 
infrastructure beyond its capacity to perform.
    For this reason, ASCE has long supported the use of 
targeted federal tax policies as a means of supporting the 
required investment in all forms of infrastructure, especially 
that relating to transportation.
    Since the inception of the Highway Trust Fund in 1956, ASCE 
has supported the use of federal excise taxes on gasoline and 
other motor fuels to raise the funds necessary to finance 
federal-aid highway construction projects. Indeed, the Society 
helped to lead the fight in Congress to enact the 
Transportation Equity Act for the 21st Century (TEA-21), Pub.L. 
105-178, June 9, 1998, 112 Stat. 107. A key provision of the 
Act was the extension of the federal excise tax on gasoline and 
other fuels to support the Highway Trust Fund.
    Similarly, ASCE supported passage of the Wendell H. Ford 
Aviation Investment and Reform Act for the 21st Century (AIR-
21), Pub.L. 106-181, Apr. 5, 2000, 114 Stat. 61, which extended 
the federal excise tax on aviation fuel to finance the Airport 
Improvement Program (AIP).

    The Need for Investment in the Transportation Infrastructure
    ASCE strongly supports the concept of transportation 
infrastructure investment. Furthermore, we believe that this 
investment ought to come in the form of designated trust funds 
that are apart from the unified federal budget or have revenues 
that are segregated from other federal program revenues.
    The lack of adequate investment in America's infrastructure 
has left us with a vast backlog of deteriorated facilities that 
no longer meet our nation's increasing demands. We reported in 
the Report Card for America's Infrastructure in 1998 that the 
nation will need to spend more than $1 trillion by 2003 to 
upgrade and modernize its entire infrastructure.
    Moreover, we agree with the Congressional Budget Office 
that the federal government needs to better account for the 
costs of capital acquisition and improvements.
    Under current [budgeting] practice, acquisition costs are 
frequently paid for by an account other than that of the user, 
and the holding costs of capital are almost never recognized. 
Purchases are often paid for by a funding source outside the 
program, such as a central capital account, an agency other 
than the user, or even a different level of government. And 
once an asset is acquired, neither the decline in its value 
from aging and use nor the interest on the public debt that 
could be retired if the asset was sold is recognized as a cost 
of the decision to retain and use that asset. In fact, the 
costs of acquiring and holding capital are reflected in the 
operating costs of the using entity only in the unusual case in 
which the asset is purchased by the program agency with funds 
borrowed from the Treasury.
    June E. O'Neill, Director, Congressional Budget Office, 
Statement on Capital Budgeting before the President's 
Commission to Study Capital Budgeting (Apr. 24, 1998) /
www.cbo.gov/showdoc.cfm?index=440&from=3&sequence=0>

    Federal Tax Policies and the Infrastructure
    A number of federal tax policies already have some impact 
on transportation infrastructure. The taxes have a variety of 
policy purposes; some are designed to assist in infrastructure 
funding and development, others to mitigate the environmental 
impact of an expanding infrastructure and still others to alter 
the transportation mix, which in turn affects infrastructure 
development policy choices. Among these policies are:
     A local tax on aviation fuel that may be levied as 
long as the local law requires all revenues to be used 
exclusively for capital or operating expenditures for an 
airport or for ``any other local facility that is owned or 
operated by the... entity that owns or operates the airport. . 
..'' .''
     A 10 percent tax credit (not to exceed $4,000) for 
any year in which a taxpayer places a ``qualified electric 
vehicle'' in service. The credit will be phased out, ending 
entirely in 2004 under current law.
     A federal excise tax (currently set at five 
percent) on any passenger vehicle that costs $30,000 or more. 
This tax will expire on December 31, 2002, under current law.
     An excise tax (currently set at 20 cents a gallon) 
on fuel used in commercial transportation on inland waterways 
to finance the Inland Waterways Trust Fund.
     An excise tax of 7.5 percent of the ticket price 
on all air travel to support the Airport Improvement Program. 
In addition, a tax of $2.50 is currently imposed for each 
flight segment on all domestic flights.
     An excise tax of $3 on each passenger who boards a 
passenger vessel in the United States.
    ASCE supports stable funding for all transportation 
infrastructure systems, i.e., aviation, highways, harbors, 
inland waterways and mass transit. The revenues must be steady 
to provide orderly and predictable allocations to meet current 
and future demand. Each of the taxes discussed above satisfies 
some of the transportation infrastructure needs of the country 
and should be retained in substantially their present forms.

    The Harbor Maintenance Trust Fund
    A significant long-term transportation infrastructure 
funding issue still remains to be resolved by Congress. Before 
1986, general funds from the U.S. treasury were used to pay 65 
percent of the cost to operate ocean and inland ports and to 
maintain and deepen their channels. The other 35 percent was 
paid by ports, or by state or local governments.
    Congress enacted the Harbor Maintenance Tax (HMT) in the 
Water Resources Development Act of 1986. Pub.L. 99-662, Nov. 
17, 1986, 100 Stat. 4082. HMT revenues were to cover not more 
than 40 percent of the cost (i.e., what had been the local 
share) of maintaining U.S. ports and harbors. The balance came 
from the general fund. In 1990, Congress amended the law to 
eliminate the general fund and local shares entirely in order 
to have the tax on passengers and cargoes cover all of the 
costs of maintaining the harbors. See Water Resources 
Development Act of 1990, Pub.L. 101-640, Nov. 28, 1990, 104 
Stat. 4604, 4641.
    The HMT applied a uniform charge on the shipment of goods 
shipped from and arriving in U.S. ports. In 1998, the U.S. 
Supreme Court overturned the export provision of the HMT on 
constitutional grounds. See U.S. v. U.S. Shoe Corp., 118 S.Ct. 
1290 (1998). The Supreme Court ruled that the Export Clause of 
the Constitution prohibits a tax on exports.\1\
---------------------------------------------------------------------------
    \1\ In Princess Cruises Inc. v. U.S., 201 F.3d 1352 (2000), 
however, the U.S. Court of Appeals for the Federal Circuit upheld the 
constitutionality of the HMT on passengers traveling on commercial 
cruise vessels (`` 'Articles' and `goods' [under the Export Clause] 
relate to items of commerce, not people.'').
---------------------------------------------------------------------------
    In addition to the tax on cruise ship passengers, the HMT 
continues to be collected on imports arriving at U.S. ports and 
on domestic cargo shipped within the U.S. The HMT on 
passengers, domestic cargo and imports raised $551.3 million in 
fiscal year 1999. The Harbor Maintenance Trust Fund surplus 
totaled $1.6 billion in FY 1999.
    In August 1998, the Clinton Administration proposed to 
replace the entire HMT (including the levy on imports and 
cruise passengers) with a tax on vessel cargo capacity. This 
Harbor Services User Fee (HSUF), which might--or might not--
meet the Supreme Court's constitutional objections to an export 
tax, would raise about $1 billion a year and continue the 
requirement that the entire cost of port and waterway 
maintenance be borne by the shipping industry. This proposal is 
somewhat controversial and has not yet been enacted.
    The Corps of Engineers predicts that the Harbor Maintenance 
Trust Fund surplus will grow to approximately $2.5 billion by 
fiscal year 2004 without any change in current tax law (in part 
because congressionally authorized expenditures from the Trust 
Fund in fiscal years 1999-2000 totaled only about $12 million 
together).
    That otherwise rosy picture is clouded by a legal challenge 
from the European Union (EU) to the tax on imports, which 
accounts for about 60 percent of total Harbor Maintenance Trust 
Fund revenues. Europe views the import tax as a barrier to 
international trade. If successful, the EU challenge would 
drastically reduce revenues available for port and harbor 
maintenance.\2\
---------------------------------------------------------------------------
    \2\ The EU filed a complaint with the World Trade Organization 
(WTO) in early 1998, alleging that the HMT on goods arriving in the 
United States violates the General Agreement on Tariffs and Trade 
(GATT) of 1994. The dispute remains unresolved. See European 
Commission, REPORT ON UNITED STATES BARRIERS TO TRADE AND INVESTMENT: 
2000 19 (2000).
---------------------------------------------------------------------------
    ASCE therefore supports efforts to preserve the financial 
integrity of the Harbor Maintenance Trust Fund. This may 
require innovative methods of financing infrastructure capital 
projects or the continued use of methods that have been proven 
successful in the past. These methods include:
     Tax-exempt bond financing and related 
infrastructure funding strategies for establishing public-
private partnerships, expanding state revolving loan funds, and 
creating a Federal Infrastructure Bond Bank.
     State infrastructure financing agencies supported 
in part by federal loans to provide low interest loans for new 
construction, rehabilitation or replacement.
     User fees for operation, maintenance, replacement 
or rehabilitation of transportation infrastructure.
     Development fees and impact fees to pay for new 
infrastructure construction.
     Dedicated user taxes and trust funds for specific 
classes of infrastructure such as highways, airport systems and 
ports and harbors.
    We think that these methods, or a combination of them, 
would be appropriate to place the Harbor Maintenance Trust Fund 
on a secure long-term footing. In addition, Congress may wish 
to consider a tax on the draught of vessels or their dock 
capacity to relate the tax more closely to the benefit received 
from well-maintained port facilities. This would more closely 
resemble a classic user fee than would the cargo capacity tax 
proposed by the Administration.
    Finally, Congress may wish to add a general fund component 
to the fiscal mix in order to spread the costs of the harbor 
and port maintenance program, which benefits all Americans.
    Mr. Chairman, that concludes our prepared statement. Thank 
you for your interest in our concerns. If you have any 
questions, please contact Michael Charles of our Washington 
Office at (202) 789-2200 or by e-mail at ``[email protected].

                                

STATEMENT OF BOND MARKET ASSOCIATION

    The Bond Market Association appreciates the opportunity to 
comment on the effect of tax laws on the development of 
transportation infrastructure, and in particular, on issues 
related to innovative financing for public projects. The Bond 
Market Association represents approximately 200 securities 
firms and banks that underwrite, trade, and sell debt 
securities both domestically and internationally.
    We are pleased Chairman Houghton has chosen to explore the 
use of innovative financing solutions to fund transportation 
infrastructure. The High-Speed Rail Investment Act (H.R. 3700) 
introduced by Chairman Houghton is an example of such a 
solution. The legislation would authorize issuance of tax-
credit bonds, a new public financing structure that seeks to 
substitute tax credits for interest payments.
    The Bond Market Association generally supports policy 
initiatives designed to leverage private capital and provide 
innovative financing solutions to policy issues. In this 
statement we focus on the structure of tax-credit bonds from a 
capital markets perspective, including for Qualified Intercity 
Passenger Rail Carrier Bonds (QIRB) and for other tax-credit 
bond proposals.

    The Background of Tax Credit Bonds
    In a traditional debt financing, bond investors (lenders) 
earn periodic interest income paid by bond issuers (borrowers). 
In contrast, buyers of tax-credit bonds earn the ability to 
claim federal income tax credits which are designed to be in 
lieu of interest payments by bond issuers. The amount of the 
credit is equal to a credit rate set daily by the Treasury 
Department times the amount of tax-credit bonds an investor 
holds. If tax-credit bonds work as designed, issuers should 
receive zero-cost financing on their borrowing. Theoretically, 
all the return earned by investors results from the tax credit. 
The Taxpayer Relief Act of 1997 authorized $800 million of tax-
credit bonds over two years in the form of Qualified Zone 
Academy Bonds (QZABs). Congress later reauthorized and extended 
the program through 2001. QZABs are designed to subsidize 
borrowing by targeted public school districts to finance 
improvements to school infrastructure.
    Tax-credit bonds, despite their limitations, have the 
potential to provide deep subsidies to state and local 
government borrowers. Although in most instances tax-credit 
bonds have not lived up to their promise of offering zero-cost 
financing, they provide a lower cost of capital for states and 
localities than any other available source except for direct 
grants. Still, the structure could be improved significantly by 
adopting several targeted changes.

Problems with Current QZABs

    In order to be successful and offer states and localities 
the lowest possible cost of borrowing, tax-credit bonds for 
land conservation or greenspace preservation should be 
appealing to investors and other capital markets participants. 
The success of QZABs under current law has been hampered by 
several elements of their structure.

The timing of tax-credits may be mismatched.

    A QZAB investor earns the ability to take an annual credit 
on the anniversary date of a bond's issuance. However, the 
credit becomes economically valuable to the investor only when 
it has the effect of reducing a tax payment, and that occurs 
only on a day when an investor is required to make a federal 
tax payment. For some investors, tax payment dates occur only 
once per year. The mismatch in timing between the time a credit 
is earned and the time it generates a cash flow for the 
investor can significantly reduce the value of the credit.

The program is small.

    Congress has authorized only $400 million of QZAB issuance 
per year for four years, only a small portion of which has 
actually been used. This $1.6 billion amount is allocated among 
all the states, so any one state receives a relatively small 
allocation. The small size and short term of the program 
results in several problems. First, it is difficult for bond 
issuers, attorneys, underwriters, investors and others 
associated with municipal bond transactions to commit resources 
to developing expertise on a new and unknown financing vehicle 
when very little issuance will be permitted to take place. 
Second, the small issuance volume has resulted in no 
significant secondary market for QZABs. A lack of market 
liquidity discourages investors and raises costs for issuers.

Investors are limited.

    Only three classes of investors are permitted to earn 
federal income tax credits by holding QZABs: banks, insurance 
companies and ``corporations actively engaged in the business 
of lending money.'' Individual investors, a potentially strong 
source of demand for tax-preferred investments, are excluded as 
QZAB investors. Recently proposed changes to the program would 
open the market for QZABs to other investors, including 
individuals.

Changes to the Structure of Tax-Credit Bonds in H.R. 3700

    The structure of the tax-credit bonds provided for in the 
High-Speed Rail Investment Act include a number of positive 
changes from the original QZABs program. Some key improvements 
in H.R. 3700 include:

Strippability.

    Under H.R. 3700, it would be possible to strip the tax 
credit from the underlying debt instrument and market the tax 
credit separately. This change would help ensure that those 
investors who bought and held the credit would be those most 
likely to actually incur a tax liability over the term of the 
credit, and would help ensure that the credit is priced more 
efficiently. It would also permit the debt portions of tax-
credit bonds to be sold to tax-exempt investors such as pension 
funds. A similar stripping provision applied to traditional 
tax-exempt bonds would improve pricing and efficiency in that 
market, as well.

Quarterly credit dates.

    Under H.R. 3700, credit accrual dates would be quarterly 
and would be timed to match quarterly estimated tax payment 
dates. This would help minimize a mismatch in timing between 
when a tax credit accrues and when it generates a cash flow for 
an investor. H.R. 3700 places no limitations on how long the 
credits can be carried forward.

Transferability.

    Under H.R. 3700, there would be no limit on the 
transferability of the credit through sale and repurchase. 
Moreover, an investor would need to hold a bond only on the 
allowance date in order to qualify for the credit that quarter. 
This would permit an investor who had no tax liability in a 
given period to ``repo out'' a tax-credit bond--sell the bond 
temporarily to another investor at a price that reflects the 
value of the tax credit--and still benefit from the credit.

Exemption from ``arbitrage'' restrictions.

    Tax-credit bond issuers under H.R. 3700, would not be 
required to limit the return on the investment of bond 
proceeds. Issuers would not be required to rebate arbitrage 
earnings to the federal government as is the case with other 
tax-exempt bonds. (Arbitrage restrictions place limits on 
profits issuers of tax-exempt bonds can earn from investing the 
proceeds of the bonds.) This would substantially reduce the 
costs of projects financed with tax-credit bonds. Arbitrage 
restrictions applied to traditional municipal bonds have 
resulted in uneconomic incentives and have imposed significant 
compliance costs on states and localities.

No Limit on Investors

    H.R. 3700 places no restrictions on who is able to hold a 
QIRB and claim the corresponding credit, thus effectively 
expanding the market for the bonds compared to other current 
law.

Additional Issues and Recommendations

    Despite these significant improvements to the tax-credit 
bond structure in the High-Speed Rail Investment Act, there 
remain significant limitations that would erode the value of 
tax-credit bonds and increase costs to school districts and 
other issuers. These include:

Consequences of issuer violations

    The bill does not address cases where an issuer fails to 
comply with the conditions of the program while bonds remain 
outstanding. The only remedy in such a case would be to rescind 
the ability of investors to claim credits for the bonds in 
question.
    This provision would impose risks on investors and would 
hamper the success of tax-credit bonds. Similar risks exist for 
investors in tax-exempt municipal bonds. The tax risk for tax-
credit bond investors, however, is greater than for tax-exempt 
bonds. With a tax-exempt bond, only a portion of an investor's 
after-tax return results from the tax preference. If the tax-
exemption on a municipal bond issue were repealed, investors 
would still earn a cash flow from the bond's issuer, albeit at 
a much lower after-tax return than originally anticipated. For 
tax-credit bonds, all the return earned by investors results 
from the tax preference. If the tax preference were rescinded, 
investors' rates of return would fall to zero.
    It is unreasonable to impose a penalty--the loss of tax 
credits--on investors who have no control over issuer 
compliance with the terms of the program. The tax-credit bond 
structure should be amended so that in cases of issuer 
violations of the terms of the program, the government's only 
course of remedy would be against bond issuers. Investors 
should not be subject to penalties for violations they did not 
commit.

Secondary market

    The overall size of the QIRB program would result in 
relatively small and illiquid secondary markets. (``Secondary 
market'' refers to the buying and selling of securities after 
they are issued. ``Liquidity'' refers to the ease with which an 
investor can buy or sell a bond on the secondary market.) The 
bill would authorize $1billion of QIRB issuance per year for 10 
years. In the context of the capital markets overall, however, 
this is a relatively small volume of issuance, especially given 
the novelty of the financing structure.
    In contrast, there are approximately $1.5 trillion of 
traditional municipal bonds currently outstanding. As in any 
market with a small total outstanding volume of securities, the 
relatively small size of the tax-credit bond market would 
ensure that little secondary market trading took place. Tax-
credit bonds would be illiquid instruments. As a result, 
investors would demand a liquidity premium, or a higher rate of 
return from bond issuers to compensate for the risk and cost of 
illiquidity. Short of authorizing substantially higher levels 
of tax-credit bond issuance--an impractical policy--the ability 
to mitigate this effect is limited. One possible remedy would 
be to encourage states and localities to employ pooled 
financing arrangements in order to generate larger bond issue 
sizes.

Additional issues

    Market participants have identified other limitations of 
pending tax-credit bond proposals that QIRBs share. The 
features would tend to limit their attractiveness to bond 
issuers. Many of these appear to be purposeful limitations 
designed to restrict or target the level of subsidy associated 
with tax-credit bonds. The following are three examples:
     The credit rate for QIRBs would be set on the day 
before the day of issuance and would be based on yields on 
corporate bonds rather than taxable municipal bonds. The 
interest rate should be continuously set to reflect as best as 
possible current conditions in the credit markets.
     The maximum maturity for QIRBs would be limited to 20 
years, whereas many public infrastructure projects currently 
are financed with debt up to 30 years in maturity and sometimes 
longer.
     The tax-credit itself would be treated as taxable income, 
which would make the instruments less attractive to targeted 
investors.

Related Legislation

    Another bill (H.R. 859) introduced in the House would also 
provide preferential tax treatment for the financing of 
transportation infrastructure. The legislation, introduced by 
Rep. Jennifer Dunn (R-WA), would permit on a pilot basis tax-
exempt private-activity bond financing for highways and other 
surface transportation projects. The Bond Market Association 
fully supports this proposal.
    The tax-exemption on municipal bonds is one of the most 
important sources of federal assistance to states and 
localities for investment in infrastructure. However, state and 
local issuance of tax-exempt bonds is subject to a complex set 
of federal regulations and restrictions, especially when the 
projects being financed involve more than a de minimis level of 
private participation. Some of the limits on state and local 
borrowing are reasonably designed to ensure that only worthy 
projects can benefit from the federal assistance inherent in 
the tax-exemption. Many of the restrictions, however, 
unreasonably limit the amount of public investment that states 
and localities can undertake and limit the financial 
flexibility of state and local governments in new 
infrastructure development, especially in utilizing public-
private partnerships. One such restriction is the prohibition 
on tax-exempt bonds issued to finance highway projects that 
involve private concessions.
    H.R. 859 would allow the Department of Transportation to 
approve a limited number of pilot highway projects that would 
be eligible for tax-exempt private-activity financing. The 
financing of private highway concessions in the tax-exempt bond 
market would permit such projects to be built faster, more 
efficiently and at a lower cost than if the projects were 
wholly public. The Bond Market Association also believes the 
proposal is entirely justifiable on tax policy grounds, since 
all the projects that are likely candidates for the pilot 
program would probably be undertaken by the public sector and 
financed with tax-exempt bonds anyway. Indeed, it is possible 
the pilot program would result in no net additional tax-exempt 
bond issuance--and, depending on the efficiencies inherent in 
utilizing private-sector involvement, perhaps even less 
issuance--than under current law.
    Permitting the bonds to be issued outside of state private-
activity bond volume caps, as H.R. 859 would allow, will make 
the pilot program more effective. Highway projects are so large 
that without an exemption from the volume caps, the pilot 
program would be of very limited usefulness. Many projects 
would simply exhaust too large a portion of a state's annual 
cap allocation.
    There is no public policy justification for the current-law 
prohibition on private-activity, tax-exempt financing of 
highways. The Bond Market Association has long argued highways 
should be included as permitted ``exempt facilities'' under 
Section 142 of the Internal Revenue Code. H.R. 859 is a welcome 
move in that direction.

Conclusions and Recommendations

    The Bond Market Association supports the use of creative 
financing mechanisms that allow states and localities to 
leverage the capital markets to address policy issues. In this 
respect, we believe that tax-credit bonds could potentially 
provide an attractive form of federal assistance to states and 
localities to help finance capital investment. Most important, 
tax-credit bonds could potentially give issuers a lower cost of 
capital than they could achieve with any other instrument. 
However, a key element of the proposal--the ability of the IRS 
to rescind the tax credit in cases of issuer violations--would 
impose undue risks on tax-credit bondholders. If Congress 
considers tax-credit bonds, we urge the adoption of an 
amendment to hold bondholders harmless in cases of issuer 
violations. In addition, we recommend that the proposal be 
amended with respect to the treatment of sinking funds under 
arbitrage limitations as specified above.

                                

STATEMENT OF ROSS B. CAPON, EXECUTIVE DIRECTOR, NATIONAL ASSOCIATION OF 
RAILROAD PASSENGERS

    Thank you for the opportunity to submit this statement. Our 
non-partisan Association--whose members are individuals--has 
worked since 1967 towards development of a modern rail 
passenger network in the U.S. We strongly support H.R.3700 and 
greatly appreciate your initiative in sponsoring it.
    The traveling public's thirst for high-speed rail is 
reflected in impressive ridership growth on today's trains, as 
reflected in the table below. With improvements such as this 
bill would permit, the growth will be even more impressive.
    Ridership Growth in Selected Amtrak Corridors

----------------------------------------------------------------------------------------------------------------
                                                                                                  San Diego-Los
                        Empire Corridor (NY       Pacific          Chicago-       San Joaquin     Angeles-Santa
                               State)          Northwest (1)      Milwauke e         Valley          Barbara
----------------------------------------------------------------------------------------------------------------
               1975                652,600          244,900    ...............         63,040          353,600
               1993    .....................    226,000 (2)    ...............  ...............  ...............
            FY 1999              1,262,700          565,100          413,000          674,900        1,540,200
           % change                   +93%            +150%             +69%            +971%        +336% (3)
----------------------------------------------------------------------------------------------------------------

    Note (1): Initially, Seattle-Portland only; now extends 
south to Eugene, Oregon, and north to Vancouver, B.C.
    Note (2): First year of the Amtrak/State of Washington 
partnership.
    Note (3): This understates growth of passenger rail in this 
corridor, because today's extensive commuter-rail service along 
most of this line did not exist in 1975.
    Improved passenger rail service means a U.S. transportation 
system with more:
     Capacity to move people--a requirement for a 
growing economy;
     Reliability--since modern trains are less 
vulnerable to bad weather;
     Choices available to travelers;
     Energy efficiency--and thus less vulnerability to 
future energy crises; and
     Flexibility to use varied energy sources (where 
lines are electrified).
    Thus far, federal funding for intercity passenger rail 
partnerships with states has been severely limited, primarily 
to those situations where a courageous state has had a program 
ready at one of those serendipitous moments when Amtrak had the 
ability to offer matching funds. I say ``courageous'' because 
it is tough for state rail people to explain to other state 
officials (including legislators) why rail investments are 
appropriate when those investments leverage little or no 
federal money, while highway and aviation investments usually 
leverage 80% federal funding.
    Federal policy treats the aviation and highway trust funds 
essentially as ``mode-specific money machines'' which encourage 
investment in more road and aviation capacity even where rail 
could do the job better. With no indication of any near-term 
change in that philosophy, rail passenger progress depends on 
meeting the challenge to find other federal funding sources. 
The principle embodied in H.R.3700 and S.1900 appears to meet 
that challenge.
    The popularity of rail is reflected not just in the 
ridership growth on trains that are slow by European and Asian 
standards, but also in the number of co-sponsors these bills 
have. What's more, the most common reasons we have heard for 
failure to co-sponsor are:
    (a) fear that the legislator's corridor will not get a big 
enough share of the money; and
    (b) lack of a corridor in the affected state or district.
    There is little or no substantive opposition to improving 
passenger rail corridors.
    Thank you very much for the opportunity to submit this 
statement.

                                

STATEMENT OF HON. BUD SHUSTER, CHAIRMAN, COMMITTEE ON TRANSPORTATION 
AND INFRASTRUCTURE, AND A REPRESENTATIVE IN CONGRESS FROM THE STATE OF 
PENNSYLVANIA

    Thank you, Mr. Chairman, for allowing me the opportunity to 
submit my views on a current proposal for assisting in the 
upgrade of rail passenger infrastructure. It is my 
understanding that H.R. 3700 will be discussed in some detail 
at this hearing.
    H.R. 3700 deals extensively with Amtrak, and therefore 
affects not only implementation of the Amtrak Reform and 
Accountability Act of 1997, but also future federal policy 
toward rail passenger service and its infrastructure. I would 
like to offer some pertinent observations on Amtrak's situation 
and H.R. 3700. With your permission, I would also request that 
my remarks be included in the record of the Subcommittee's 
hearing.
    H.R. 3700 Infrastructure Funding
    The bill would authorize the issuance of $10 billion in 
bonds to be issued nominally by any rail passenger carrier. 
These bonds, instead of being marketed on the basis of the 
creditworthiness of the issuer and prevailing rates of 
interest, would carry a federal income tax credit calculated to 
equal the value of the prevailing interest rate on high-quality 
corporate bonds. The tax credits would also be saleable and 
transferable (page 12, lines 1-4 of the bill). To put the size 
of this fund in perspective, $10 billion is almost half of the 
entire cumulative federal spending on passenger rail since 
1970.
    The bond proceeds would constitute an infrastructure fund 
intended for various rail corridors that would be at least 
partially improved with a view to future high speed rail 
passenger service. States or groups of states could only access 
this fund for use on their respective rail corridors by 
providing a 20 per cent contribution, with the project funded 
from the bond/infrastructure fund.
    I want to point to a very positive difference between H.R. 
3700 and its counterpart in the other body, S. 1900. The House 
bill (p. 13, lines 16-20) affirms that any Amtrak-issued bonds 
are backed by Amtrak only, not the U.S. Treasury. This upholds 
the current state of the law, as reflected in two rulings of 
the Comptroller General in 1986 and 1997-that the federal 
government is not liable for any of Amtrak's corporate 
obligations.
    Conflict with the 1997 Repeal of Amtrak's Former Monopoly
    One concern I have with H.R. 3700 as introduced is that the 
ability to issue bonds appears, in practical effect, to be 
limited to Amtrak only. H.R. 3700 (p. 5, lines 5-6) permits the 
special bonds to be issued by any ``intercity rail passenger 
carrier,'' and defines such a carrier (page 8, line 24 through 
page 9, line 4) as one meeting the definition in Amtrak's own 
statute (49 U.S.C. 24102(7)). Although such a ``rail carrier'' 
can include ``a unit of state or local government,'' the 
definition adopted in the bill could well preclude direct 
hiring of non-Amtrak contract operators by a state or group of 
states, especially if such operators did not constitute ``rail 
carriers'' under the existing federal statutes.
    A core element of the 1997 reform law was the elimination 
of Amtrak's former statutory monopoly over intercity rail 
passenger service. Although Amtrak alone still possesses 
compulsory access and eminent domain powers respecting the rail 
network owned by private freight railroads, the reform law 
sought to subject Amtrak to competitive market discipline and 
incentive by empowering new alternative operators to enter the 
market. (When the Interstate Commerce Commission was abolished 
in 1995, federal entry and exit regulation over rail passenger 
service was also eliminated.) Any measure that in practice 
makes Amtrak-or any operating company--the sole source of 
infrastructure assistance for future high-speed rail corridors 
directly contradicts that policy.
    Direct and Delegated Decisions on High-Speed Rail 
Infrastructure Resource Allocation
    H.R. 3700 also contains no statutory structure (other than 
that states contribute at least 20 percent of the cost of each 
project) establishing the respective roles of federal and state 
government in upgrading rail passenger infrastructure. Instead, 
the ``intercity rail passenger carrier'' is given control and 
discretion over the allocation of resources. To take but one 
extreme example, there is no assurance that a state that 
proffers the required 20 per cent contribution will receive any 
funding. The Secretary of Transportation would have to 
``approve'' a project (page 5, line 13-15), but there are no 
criteria for such approval, and if the issuer-operator refused 
to seek DOT approval for a state-supported project, DOT could 
potentially play no role at all.
    This contrasts with the statutes governing our existing 
infrastructure programs for airports, highways, and transit, 
under which the relationship between the Department of 
Transportation and state governments is spelled out clearly, 
along with the parties' respective rights and responsibilities.
    I also have concerns about Amtrak's ability to manage such 
a large amount of capital funds. A report I commissioned from 
the General Accounting Office (GAO/RCED/AIMD-00-78, February 
2000) concluded that Amtrak spent some 90 per cent of the 
examined sample for unauthorized purposes. More importantly, 
GAO found that Amtrak had no workable internal tracking or 
accounting procedures to assure that the money was properly 
spent in accordance with the Internal Revenue Code directives. 
Amtrak has also engaged in what is, in my view, the highly 
questionable practice of ``borrowing'' from the refund-
statutorily limited to capital use-for other purposes. This 
practice has no sanction in the 1997 tax law.
    Another area that requires further analysis is the 
distribution of project funds. On a broader level , H.R. 3700 
provides only very general geographic limits on total 
expenditures. Specifically, the bill sets a $3 billion, or 30 
percent, maximum for use of bond proceeds on the Amtrak-owned 
Northeast Corridor (page 8, lines 7-11). There is also a 10 
percent, or $1 billion, cap on resources for all potential U.S. 
high-speed rail corridors other than the Northeast Corridor and 
those already designated by DOT under existing law (page 7, 
lines 7-14). By default, the corridors outside the Northeast 
already designated by DOT have unlimited access up to the full 
$10 billion limit.
    I want to be sure that investments in corridors are made 
wisely and in a coordinated fashion. In TEA 21, we created a 
similar program to upgrade High Priority Highway Corridors. In 
that program, we required corridor management plans and other 
safeguards to ensure that corridor investments were made in a 
coordinated manner. I would like to see similar safeguards 
here.
    I applaud efforts to arrange for a stable, long-term 
program of rail passenger infrastructure improvement. The use 
of bond-issuing technique itself may prove to be a viable 
method of channeling much needed resources into rail passenger
corridors. But any such effort must be consistent with the 
Congressional decisions embodied in the 1997 Amtrak reform law, 
and must reflect a comprehensive set of reasoned national 
priorities, formulated in cooperation with the states, and 
empowering the states to make many of the important end-use 
decisions.
    Newest GAO Information on Amtrak Cost Structure and Capital 
Needs
    I have recently released a report, completed by GAO at my 
request, on Amtrak. It is entitled Intercity Passenger Rail: 
Amtrak Will Continue to Have Difficulty Controlling Its Costs 
and Meeting Its Capital Needs (GAO/RCED-00-138, May 2000). I 
would like to share with you a few highlights of the report, to 
provide some context for evaluating Amtrak's current condition, 
management, and prospects. I will only touch on a few salient 
points, and recommend the entire report to your Subcommittee.
    1. Costs Versus Revenues
    GAO found that Amtrak's total operating costs have 
increased from 1995 to 1999 more than 12 percent above the rate 
of inflation (pp. 8, 18). As in its handling of the 1997 tax 
``refund,'' Amtrak apparently lacks an orderly internal 
accounting system to help it control these costs. For example, 
GAO found that Amtrak has no line-of-business measures of labor 
productivity, even though labor costs are half of total 
operating costs, and have been growing at 10 per cent above the 
rate of inflation, net of any productivity savings (pp. 22, 
25). On commuter railroads, the comparable rate of increase was 
1.5 per cent above inflation (p. 22, note 6).
    On the other side of the ledger, Amtrak met its revenue 
targets in only 2 of these 5 years (p. 38). During the same 
five years, Amtrak's debt obligations more than doubled, from 
$890 million to $1.9 billion (p.29).
    2. Amtrak's Capital Needs Without Additional High-Speed 
Rail Corridors
    GAO concluded that Amtrak will require over $9.1 billion in 
capital through 2015-a period equal to only three-quarters of 
the life of the bonds created under H.R. 3700 (p. 40). The 
Northeast Corridor alone will require $1.4 billion by 2004, 
just to return it to a state of good repair (p. 41). Another 
$4.4 billion will be required there through 2015 (p. 52). In 
short, Amtrak is facing huge capital requirements, along with 
inadequately controlled costs, just with its existing routes 
and infrastructure-not a whole new network of high-speed 
corridors.
    These figures represent GAO analyses of Amtrak data; 
amazingly, Amtrak has no long-term capital plan whatever, and 
for the last 3 years, has prepared capital plans with only a 1-
year timeline (p. 58). According to GAO, without any long term 
plan, ``Amtrak is incapable of ensuring effective use

    of these funds'' (pp. 5859). I would add that this is all 
the more reason not to make Amtrak the exclusive and unfettered 
conduit for federal resources to assist the development of 
high-speed rail corridors.
    I hope that your Subcommittee will find this information 
useful in your hearing and any subsequent legislative action. 
Thank you again for considering my views and making them a part 
of your hearing record.

                                

STATEMENT OF JEAN-PIERRE RUIZ, CHIEF EEXECUTIVE OFFICER, TALGO, INC.

    Mr. Chairman. My name is Jean-Pierre Ruiz and I am the 
Chief Executive Officer of Talgo, Inc. with main offices in 
Seattle, Washington. I am very pleased to submit this testimony 
in support of HR 3700, the High Speed Rail Investment Act.
    Talgo, Inc. is an American rail passenger car manufacturer, 
wholly owned by Patentes Talgo, S.A. (PTSA). PSTA has been 
building rail passenger cars on a unique design for over 50
    years. In fact, the very first Talgo trains were build here 
in the United States in 1949. Our design permits us to build 
high speed passenger trains that tilt naturally--using mother 
nature instead of high technology to achieve a safe, smooth, 
comfortable, high speed ride on track that is not specifically 
designed for such traffic. And it can do that at less cost 
because it does not need to install or maintain costly 
computers and mechanical devices to achieve this end.
    We wish to commend the provisions of HR 3700 to the 
Committee for a number of important reasons. But the main 
reason is that the time for efficient, timely, reliable 
Intercity Rail is now
    Talgo America is a US company incorporated under the laws 
of the State of Delaware. Talgo America, and its US 
subsidiaries, design, manufacture and maintain intercity 
passenger railcars and locomotives. At present, four (4) Talgo 
passenger trainsets are being operated by Amtrak in the Pacific 
Northwest Corridor under the brand name: Amtrak Cascades. The 
Washington Department of Transportation (``WSDOT'') owns two of 
these trainsets, and Amtrak owns another two. These trains 
operate between Seattle (WA) and Vancouver (BC), and between 
Seattle (WA) and Portland and Eugene (OR). Since the 
introduction of Talgo's equipment, this corridor has seen 
growth in excess of 150%.\1\  In 1999, some 570,000 
people rode the Cascades. More than 60% of the operating costs 
were covered by fare box revenues.\1\ The entire corridor has 
been revitalized with an estimated 400 permanent jobs 
created.\1\
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    \1\ Washington State Department of Transportation.
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    The success of the Amtrak Cascades is but an indication of 
the need for and the acceptance of intercity rail in America. 
Far from being competition to the automobile and the airplane, 
efficient, timely, reliable Intercity Rail will complement 
those other modes of transportation. In effect, intercity rail 
is the third leg of a three-legged stool. It is undeniable that 
a complete and efficient transportation network is the backbone 
of a strong economy and only by making each leg as strong as 
the other will America have such a network.
    Independent statistics demonstrate the waste resulting from 
congested highways and airports. Furthermore, Amtrak's results, 
in the corridors where it is allowed to succeed, demonstrate 
the public's acceptance of this mode of transportation.
    Not so long ago, America had the most efficient rail 
transportation network in the world! This was because it was 
the most efficient transportation mode of its time. Hence, in 
1929 there were 20,000 passenger trains in the US. That number 
had dwindled to 11,000 by 1946, and 500 by 1970.\2\
---------------------------------------------------------------------------
    \2\  A further 100 were in the process of discontinuance. ``Off the 
track,'' D. Itzkoff, Greenwood Press (ed. 1985).
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    When the US government began to actively subsidize the 
automobile and the airplane, shortly after World War II, rail 
was doomed. Initially, the results of such a shift in 
transportation thinking were favorable. At a time when 
Americans were beginning to travel extensively and businesses 
were becoming national vs. regional, the loss of rail was 
easily overcome. But as the volume increased, the lack of third 
leg on the three-legged transportation stool became noticeable. 
Hence, America is literally being paved over. We now have some 
4 million miles of roada...enough to circle the planet more 
than 157 times, or go to the moon and back more than 8 
times.\3\ Between 1970 and 1995, passenger travel nearly 
doubled, growing by an average of 2.7% a year. Over the same 
period, passenger-miles per person increased from 11,400 to 
17,200 miles per year. The rise in automobile use grew by 1 
trillion passenger-miles, while air travel more than tripled 
from 118 billion to 415 billion passenger-miles (a 5% growth 
rate). As a result, in 1995, the average distance cars and 
lights trucks (mostly SUVs and pick-ups) were driven equaled a 
journey nearly halfway around the world. The total mileage was 
2.2 trillion miles, or nearly \1/10\ of the distance to the 
nearest star outside our solar system. And it's not likely to 
get any better. USDOT's Volpe Center estimates that miles 
traveled will continue to grow at an average annual rate of 
2.2-2.7% between 2000 and 2030.\4\ In fact, the Volpe Center 
also reports that vehicle miles traveled grew by 40% in only 7 
years, between 1983 and 1990.\5\
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    \3\ USDOT, Bureau of Transportation Statistics.
    \4\ ``Description of VMT Forecasting Procedure for `Car Talk' 
Baseline Forecasts.'' Volpe Center, USDOT.
    \5\ ``Travel Behavior Issues in the 1990s.'' National Personal 
Transportation Survey, USDOT (1992).
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    If all this travelling were efficient there would be little 
to comment on. However, transportation accounts for \2/3\ of 
America's total oil consumption, with highway vehicles 
accounting for the largest share followed distantly by air 
transportation.\6\
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    \6\ USDOT. Bureau of Transportation Statistics.
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    In 1994 automobiles used 39% of all transportation energy, 
while light trucks (i.e., mini-vans, SUVs and pick-ups) used 
20%, for a combined total of 59%. We Americans now spend 
approximately $100,000/minute to buy foreign oil for cars and 
trucks ($9B a year)! \7\ That's 6B gallons of gasoline each and 
every year.\8\  Enough to fill 670,000 gasoline tank 
trucks. Or 134 super tankers. For each driver, that means 100 
gallons wasted waiting in traffic each year. American 
households now spend more of their income on transportation 
than on any expense category other than housing.\9\ And the 
situation is getting worse.
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    \7\ Union of Concerned Scientists.
    \8\ ``Annual Mobility Report.'' Texas Transportation Institute 
(1999).
    \9\ ``Our Nation's Travel.'' USDOT (1999).
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    The Energy Information Administration estimates that 
imported oil will supply 60% of US oil demand by 2005.\10\ 
Moreover, air pollution from automobiles hasten the death of 
some 64,000 Americans every year, while acidic air pollution 
from cars and trucks cause some $2-3B-worth of damage to 
agricultural crops every year.\11\ Each year cars and light 
trucks cause nearly \2/3\ of all CO2; \1/3\ of all NO; and, 
nearly of all hydrocarbons. In 1994 some 3.4 million people 
were injured in motor vehicle crashes, of which some 428,000 
were incapacitated, at a cost to the economy of some $150.5B. 
Lastly, it is estimated that we Americans waste some $65B in 
congested highways and airways (i.e., non-productive driving 
time).\12\ Imagine if all that lost productivity could be 
``injected'' into the economy!!!
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    \10\ ``Urban Mobility Study.'' USDOT (1999).
    \11\ Union of Concerned Scientists.
    \12\ ``Annual Mobility Report.'' Texas Transportation Institute 
(1999).
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    Rail was and remains the most effective means of 
transportation in a circle of 100-400 miles. A single railroad 
track can carry as many people as a 10-lane highway at a 
fraction of the cost.\13\ The success of European and Asian 
railways are sufficient testimony to this fact. However, we 
should not speak of ``high-speed'' rail in the USA. We are 
simply not ready. The infrastructure has been neglected and the 
transportation consumer needs to be reeducated. Rather, we 
should focus on efficient, reliable, timely Intercity Rail. 
This is a more logical, and less expensive, solution to 
gridlock and winglock. Hence, efficient, reliable, timely 
Intercity Rail is faster and safer than travel by automobile. 
It is more affordable than travel by air, and in some cases 
more affordable than travel by car. It is less prone to be 
adversely affected and is infinitely friendlier to senior 
citizens and handicapped travelers.
---------------------------------------------------------------------------
    \13\ Rail tracks cost some $1.5-3.5M/mile, less than \1/10\ that of 
highway construction.
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    Let us also readily face the fact that the other two modes 
of transportation ``thrive'' because of governmental subsidies. 
Hence, between 1982 and 1994 $145.3B was spent by the 
government to construct, operate and maintain a national air 
traffic system and airport network.\14\ This does not include 
the many direct cash subsidies as well as federal, state and 
local tax breaks received by the airline industry. Similarly, 
between 1982 and 1994, the government spend $725.4B for road 
construction (a $1Trillion since the 1920s). In 1956, the 
Highway Trust Fund was established ensuring a continuous flow 
of money for road building. Of course, this industry too 
received generous federal, state and local tax breaks. The 
passenger rail industry? Unfortunately, it received no tax 
breaks whatsoever or financial subsidies after the expiration 
of the land program in the 19th century. In fact, Amtrak is 
burdened with heavy property taxes on each of its passenger 
terminals! It is interesting to note that Amtrak's 1999 budget 
request of $571M was smaller than the budget INCREASE granted 
to highways for that same year.
---------------------------------------------------------------------------
    \14\ USDOT.
---------------------------------------------------------------------------
    Offered similar subsidies (i.e., let the federal government 
build the rail tracks as it builds the highways and the 
runways, along with building the train stations as it builds 
airport terminals and rest areas on highways, not to mention 
dispatch the trains as it does the airplanes through the FAA) 
and watch Amtrak succeed beyond the government's wildest hopes. 
However, burdened as it is, it is little surprise that Amtrak 
has not yet achieved self-sufficiency. In fact, it is a 
tremendous achievement on Amtrak's part to even attempt to be 
self-sufficient by 2003 under the present rules. The playing 
field is simply neither level nor fair. The result has become 
disastrous and continues to worsen. But there is hope!
    Amtrak serves some 519 US cities and communities providing 
essential mobility for congested metropolitan areas and for 
hundreds of small urban and rural communities.\15\ In 1997, 
more than 20 million passengers relied on Amtrak trains to get 
to and from work everyday. Without Amtrak, an additional 7,500 
fully-booked 757 airplanes (over 20 a day) would fill the skies 
each year. Each year Amtrak purchases approximately $500 
million in goods and services. All the while, it recovers more 
of its costs of operation than any other passenger railroad in 
the world. \15\ But Amtrak can be so much more if given the 
chance.
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    \15\ American Passenger Rail Coalition.
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    The success of incremental rail in the State of Washington 
demonstrates amply what can be achieved. This is a partnership 
between Talgo, WSDOT, Amtrak Wes and Burlington Northern Santa 
Fe. The Seattle-Everett corridor ranks as the 2nd most 
congested urban area and with an average population growth of 
9%. \16\ Studies indicate that total traffic delay time will 
grow from some 0.8 billion-person-hours in 1990 to 4 billion-
person-hours by 2020.\16\ This would represent a productivity 
loss of $40B by 2020, up from $10B in 1990.\16\ Average vehicle 
freeway speed would drop from some 27 mph in 1990 to less than 
10 mph in 2020. The WSDOT embarked on 20-year, $2.1B 
incremental high-speed rail program to reduce congestion and 
pollution.\17\ What that meant is that, instead of spending 
billions of dollars in building dedicated tracks and/or 
electrifying the corridor to provide service at 150 mph or 
above, WSDOT decided to progress by steps, with minimal 
investment at each step. That way, if the venture did not pan 
out, the loss would be kept to a minimum.
---------------------------------------------------------------------------
    \16\ Annual Mobility Report. Texas Transportation Institute (1999).
    \17\ Washington State Department of Transportation.
---------------------------------------------------------------------------
    WSDOT began by leasing a Talgo Pendular trainset to provide 
service between Seattle (WA) and Vancouver (BC-Canada). 
Although this route had been abandoned some 10 years before, 
the introduction of new equipment and exceptional service from 
Amtrak's onboard personnel soon led to the service running at 
capacity. In fact, the venture was so successful that the lease 
was later renewed for a year and, in 1996, WSDOT and Amtrak 
purchased brand new equipment. Talgo's tilting feature allowed 
for the immediate reduction of travel time between the 
destination points without significant infrastructure 
expenditure. Hence, WSDOT literally could have ended the 
experiment at any time for a minor investment. Instead of 
believing that if they build it, people would come, as is the 
case with dedicated high-speed rail; they decided that if they 
build it and people came, they would build some more.
    By 1999, the service known as the Amtrak Cascades had 
increased its ridership in excess of 150%, from 226,391 in 1993 
to over 570,000. Fully 54% of the time, the trains rode at 
capacity (i.e., 198 days out of 365). Most telling, 98% of 
riders deemed themselves satisfied or very satisfied with the 
service (80% were very satisfied), and 84% of riders would ride 
the Cascades again.\17\ As a result, the service diverted more 
than 30M miles of regional highway traffic while eliminating 
more than 690 tons of air pollution.\17\ The service has 
created more than 400 permanent jobs; more than $18M in annual 
wages; and more than $3M of goods and services are purchased 
every year from local companies.\17\ Revenues have increased in 
excess of 575%.\17\ In 1998 alone, revenues increased by 31%, 
covering more than 60% of operating costs. It is predicted that 
revenues will cover 100% of operation costs by 2015.\17\ All of 
this with only 4 trains ... and without the support of the 
federal government. Imagine the possibilities!!!
    This indicates the viability of efficient, reliable, timely 
Intercity Rail. But does this mean that ``high-speed'' rail is 
not feasible. We do not believe so. But it is not feasible 
today. The vast sums of funds needed to create such a network 
are an unneeded burden upon the states and the federal 
governments. Particularly at a time when this resource is 
scarce and getting more so. Even more so for the uncertain 
financial returns that such a network may offer. However, once 
an efficient, reliable, timely Intercity Rail system is 
operational and accepted, the time will come to ``graduate'' to 
high-speed rail. efficient, reliable, timely Intercity Rail 
also counters suburban sprawl, pulling people, jobs and 
businesses back to urban centers and encouraging downtown 
development. It reduces commuter flights at congested airports, 
freeing gates for more cost-effective longer flights. It 
promotes tourism and intra-regional transfer of goods, while 
stations encourage economic development in generally 
economically challenged areas. It creates temporary jobs during 
construction and permanent jobs thereafter. In fact, studies 
reveal that each $1 invested in passenger rail creates 314 jobs 
the year after the investment is made, while businesses realize 
a gain in sales 3 times the investment capital (i.e., each $10M 
invested leads to a $32M increase in business sales).\18\ Give 
a strong economy the chance to grow stronger. Listen to the 
states and the constituents. Give rail a chance to complement 
the other modes of transportation. Open the market to new 
technologies. Support the states, the regional initiatives and 
the FRA in their efforts. Let Amtrak succeed. A well-integrated 
efficient, reliable, timely Intercity Rail can makes us 
stronger. A divided transportation network will fall upon 
itself.
---------------------------------------------------------------------------
    \18\ Washington State Department of Transportation.
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    Congress can begin to avoid that unnecessary disaster by 
passing HR 3700. The states will provide 20 percent match that 
will go directly into the projects, thus demonstrating the 
states' vital interests in this transportation mode. There is 
no risk to the Federal government because its ``full faith and 
credit'' is not being pledged. The escrow account that would be 
established under this bill would earn interest and be managed 
by an independent trustee. The principle would be repaid from 
this escrow account.
    It is time for the United States to take full advantage of 
all its modes of transporting its citizens to where they need 
to go. No one mode meets every need with equal efficiency and 
convenience. But, neither can we achieve those important goals 
if any one mode is neglected. Rail passenger service has been 
neglected and we all have suffered consequences in our economy, 
environment and efficiency. HR 3600 leads us away for that 
oversight and to a full, flexible, versatile transportation 
system this great nation deserves.

                                

STATEMENT OF SID MORRISON, SECRETARY OF TRANSPORTATION, WASHINGTON 
STATE DEPARTMENT OF TRANSPORTATION

    Thank you Mr. Chairman and members of the Committee, for 
the opportunity to provide testimony for the record in support 
of House Resolution 3700 (HR 3700), the High Speed Rail 
Investment Act of 2000.
    I am Sid Morrison, Secretary of Transportation for the 
Washington State Department of Transportation (WSDOT).
    HR 3700 is vital to the states that are developing both 
high speed and conventional rail service as a viable method of 
moving our citizens. In Washington State, we believe that a 
balanced transportation system that provides mobility options 
to our citizens is the only way to ensure that we maintain our 
economic vitality. Many of our fellow states have reached a 
similar conclusion. It is anticipated that the Pacific 
Northwest region of eight million people will grow by 50% over 
the next 20 years, with intercity travel increasing by 75% 
during the same time period.
    The Central Puget Sound is already considered the fourth 
worst congested area of the nation for highway travel. The fact 
is that we cannot accommodate our growth, nor can we hope to 
reduce the impacts of congestion by only building more roads. 
Our geography, pre-existing development, and environmental 
regulations make it virtually impossible, and cost prohibitive, 
to expand highway capacity in many areas. Even with highway and 
airport expansion, travel demand will outstrip capacity in the 
future. Rail provides a safer, environmentally superior, and 
cost effective method for increased travel capacity.
    WSDOT, at the direction of our Governor, the Legislature, 
and our Transportation Commission, began developing the Pacific 
Northwest Rail Corridor in 1993. This corridor reaches 466 
miles, from Vancouver, British Columbia, connecting with 
Seattle, Portland, and southward to Eugene, Oregon. It is one 
of the original federally designated high speed rail corridors 
to be developed. This effort is a partnership of the States of 
Washington and Oregon, the Province of British Columbia, 
Amtrak, the host freight railroads, our ports, and regional and 
local governments.
    We are proud of the fact that the development of the 
Pacific Northwest Rail Corridor is a resounding success. We 
have received a great deal of attention nationwide as being a 
``blueprint'' for developing rail passenger service. Our 
incremental approach to rail corridor development is now being 
pursued in at least 16 other states. Corridor ridership has 
increased more than 170% since 1993, with more than 560,000 
riders last year. Double digit increases continue each 
successive month. We are the first corridor to introduce modern 
European style equipment--purchased with state funds--in 
regular service.
    Our Amtrak Cascades service is continuously ranked the best 
in the entire United States for customer satisfaction. We have 
developed and begun a logical series of intercity rail capital 
and operating improvements. Washington State has invested more 
than $125 million to improve local Amtrak service between 1993-
1999. Our partners invested more than $325 million during that 
same time period.
    We have made wonderful progress in the Pacific Northwest. 
However, we have a very long way to go. Our vision includes 
hourly service in each direction between major metropolitan 
destinations, with travel times that are more than competitive 
with other modes of travel by 2018. We believe that proper and 
timely capital investment will allow for the operations in our 
corridor to eventually pay for themselves. HR 3700 is the key 
to our ability, as well as the ability of other regions of our 
nation, make the capital investment required to provide this 
cost-effective method of moving people that is desperately 
important to our future.
    HR 3700 provides the states the main ingredient that has 
been missing in the development of high speed rail in the 
United States--a long term, dedicated source of capital 
funding. Because the funds will be generated by the sale of 
bonds, funding for highway, aviation and transit systems will 
not be impacted. These funds are critical to Washington, as 
well as other states, if we are going to make high speed rail a 
reality. In an era of uncertain state resources for 
transportation, it is vitally important that Washington and 
other states seize this opportunity to further leverage 
federal, state, regional and private investments.
    Although the HR 3700 authorizes Amtrak to issue bonds, it 
is important to clearly understand that this is a bill for the 
States. In fact, we are willing to have third party 
administration of the program so long as Wall Street would not 
object, or penalize us with higher interest rates. One 
possibility would be through the office of the USDOT Associate 
Deputy Secretary for the Office of Intermodalism. Corridor 
development is performed at the direction of the States.
    The primary use of the funds generated by these bonds would 
directly benefit the States. In our state, as well as 
nationwide, Amtrak is our contracted operator of service and 
has provided capital partnership opportunities when it has been 
available. Amtrak is an important partner, however, the states 
should continue to remain the senior partners of high speed 
rail development.
    Further evidence of HR 3700 being a bill for the States is 
the bill language that limits the Amtrak owned and operated 
Northeast Corridor to no more than 30% of the funds made 
available over the life of the bill. The corridor states feel 
that such a cap is a prudent safeguard to protect the primary 
intent of the bill--the development of designated high speed 
rail corridors that are being developed at the direction of the 
states, throughout the country.
    On behalf of Washington State, and other rail corridor 
states, I urge your support in the passage of HR 3700. The 
development of high speed rail passenger service is an 
increasingly important component of a balanced transportation 
system we need to ensure the mobility of our citizens and our 
nation's continued economic vitality.

Amtrak Cascades Ridership

    How Many People Ride Amtrak in the Northwest and British 
Columbia?
    In 1998 more than 550,000 people rode Amtrak within the 
Pacific Northwest Rail Corridor. This diverted more than 30 
million miles of traffic from regional highways. Ridership 
growth continues in 1999, but has slowed. The WSDOT Rail Office 
currently estimates 1999 ridership growth will increase more 
than 3 percent to 571,000. Annual ridership has increased more 
than 150 percent since 1993. Sold-out trains during peak travel 
times; changes in seat availability, particularly during peak 
travel times; and increased ticket prices to maximize revenue 
all contribute to slowing ridership growth.

What Is the Average Ridership on Amtrak Cascades Trains?

    Average ridership in January of 1999 was 97 per train. 
Average ridership in August of 1999 was 153 per train. Average 
ridership in October of 1999 was 99 per train. Average 
ridership varies by season. January is representative of off-
season travel, August off-peak season travel and October off-
shoulder season travel. Ridership also varies by day of week. 
Trains routinely sell out at peak travel times throughout the 
year, particularly Fridays and Sundays.

What Is the Average Ridership on Seattle-Portland Amtrak 
Cascades Trains?

    Average ridership in January 1999 was 115 per train. 
Average ridership in August 1999 was 165 per train. Average 
ridership in October 1999 was 124 per train.

What is the Average Ridership on Seattle-Vancouver, BC Amtrak 
Cascades Trains?

    Average ridership in January 1999 was 85 per train. Average 
ridership in August 1999 was 191 per train. Average ridership 
in October 1999 was 83 per train.

How Many Seats are on Each Train?

    The number of seats per Amtrak Cascades Talgo train varies 
depending upon customer demand and train operations 
requirements. When feasible, seat capacity is adjusted to 
maximize ridership and revenue. Because Amtrak Cascades Talgo 
trains are articulated--adjacent cars share an axle--it is more 
difficult to adjust train capacity to customer demand than on 
other passenger trains. However, enhanced safety and reduced 
travel times are benefits of these articulated trains. The 
number of available seats can range dramatically, from slightly 
more than 100 to slightly less than 300. Trains have recently 
been reconfigured to add seats to more popular schedules and 
reduce available seats on less popular schedules.

Do Customers Like Amtrak Cascades Service?

    Customer satisfaction remains among the highest in the 
nation. Convincing people to sample Amtrak Cascades service 
remains important. Ninety eight (98) percent of people who ride 
the Amtrak Cascades say they will recommend riding the Amtrak 
Cascades to family and friends. Eighty four (84) percent of 
people who ride the Amtrak Cascades say they will ride again 
during the next year.

    How Often are Amtrak Cascades Trains Sold Out?

    In Federal Fiscal Year 1999 (October 1998 through September 
1999) at least one Amtrak Cascades train was sold out on 198 
days. This means that on more than half of the days of the year 
at least one train is completely full and potential customers 
are being turned away. Fridays, Saturdays, Sundays, days 
surrounding holiday weekends and the summer are the most busy. 
At least one train was full on all but four days in August 
1999.

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