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S. HRG. 108–970 

INTERCITY PASSENGER RAIL FINANCE 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED EIGHTH CONGRESS 

FIRST SESSION 

JUNE 5, 2003 

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

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED EIGHTH CONGRESS 

FIRST SESSION 

JOHN MCCAIN, Arizona, Chairman 

TED STEVENS, Alaska 

CONRAD BURNS, Montana 

TRENT LOTT, Mississippi 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

SAM BROWNBACK, Kansas 

GORDON H. SMITH, Oregon 

PETER G. FITZGERALD, Illinois 

JOHN ENSIGN, Nevada 

GEORGE ALLEN, Virginia 

JOHN E. SUNUNU, New Hampshire 

ERNEST F. HOLLINGS, South Carolina, 

Ranking 

DANIEL K. INOUYE, Hawaii 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

JOHN B. BREAUX, Louisiana 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

JEANNE BUMPUS, Republican Staff Director and General Counsel 

ROBERT W. CHAMBERLIN, Republican Chief Counsel 

KEVIN D. KAYES, Democratic Staff Director and Chief Counsel 

GREGG ELIAS, Democratic General Counsel 

SUBCOMMITTEE ON SURFACE TRANSPORTATION AND MERCHANT 

MARINE 

KAY BAILEY HUTCHISON, Texas, Chairman 

TED STEVENS, Alaska 

CONRAD BURNS, Montana 

TRENT LOTT, Mississippi 

OLYMPIA J. SNOWE, Maine 

SAM BROWNBACK, Kansas 

GORDON H. SMITH, Oregon 

GEORGE ALLEN, Virginia 

DANIEL K. INOUYE, Hawaii, Ranking 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

JOHN B. BREAUX, Louisiana 

RON WYDEN, Oregon 

BARBARA BOXER, California 

FRANK R. LAUTENBERG, New Jersey 

(III) 

C O N T E N T S 

Page 

Hearing held on June 5, 2003 ................................................................................. 1 

Statement of Senator Hollings ............................................................................... 2 

Prepared statement .......................................................................................... 3 

Statement of Senator Hutchison ............................................................................ 1 

Statement of Senator Lautenberg .......................................................................... 5 

Statement of Senator Lott ...................................................................................... 44 

Statement of Senator Smith ................................................................................... 47 

Prepared statement .......................................................................................... 47 

Statement of Senator Wyden .................................................................................. 7 

WITNESSES

Hall, Sonny, President, Transport Workers Union of America, AFL–CIO; 

President, Transportation Trades Department, AFL–CIO ............................... 34 

Prepared statement .......................................................................................... 36 

Hamberger, Edward R., President and Chief Executive Officer, Association 

of American Railroads ......................................................................................... 15 

Prepared statement .......................................................................................... 16 

Morales, Jeff, Director, California Department of Transportation 

(CALTRANS) ........................................................................................................ 24 

Prepared statement .......................................................................................... 26 

Query, James (Rocky), Senior Vice President, Lehman Brothers ....................... 39 

Prepared statement .......................................................................................... 42 

Rutter, Hon. Allan, Administrator, Federal Railroad Administration ................ 9 

Prepared statement .......................................................................................... 11 

Serlin, Robert, President, Rail Infrastructure Management, LLC ...................... 30 

Prepared statement .......................................................................................... 31 

APPENDIX

Capon, Ross B., Executive Director, National Association of Railroad Passengers, prepared statement ............................................................................... 55 

Response to written questions submitted by Hon. Ernest F. Hollings to: ..........

Allan Rutter ...................................................................................................... 60 

Edward R. Hamberger ..................................................................................... 61 

Jeff Morales ....................................................................................................... 64 

Robert Serlin ..................................................................................................... 67 

Sonny Hall ........................................................................................................ 72 

James (Rocky) Query ........................................................................................ 73 

Simpson, Thomas, Executive Director, Railway Supply Institute, Inc., prepared statement ................................................................................................... 57 

(1) 

INTERCITY PASSENGER RAIL FINANCE 

THURSDAY, JUNE 5, 2003 

U.S. SENATE, SUBCOMMITTEE ON SURFACE TRANSPORTATION AND

MERCHANT MARINE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10 a.m. in room 

SR–253, Russell Senate Office Building, Hon. Kay Bailey 

Hutchison, Chairman of the Subcommittee, presiding. 

OPENING STATEMENT OF HON. KAY BAILEY HUTCHISON, 

U.S. SENATOR FROM TEXAS 

Senator HUTCHISON. Good morning. I’m very happy to see all of 

you. This is the second hearing that the Commerce Committee has 

had pertaining to Amtrak reauthorization and today the Subcommittee is going to examine the financing issues for intercity 

passenger rail. I support Amtrak. I believe we can have a viable 

national passenger rail system. Unfortunately, we’re not realizing 

that goal. Outside the Northeast Corridor, trains seldom run on 

time and service is abysmal. Lateness is often measured in days, 

not hours. Several years ago, when airlines’ on-time rate fell below 

75 percent, it was considered a national emergency. At Amtrak, ontime records under 50 percent are business as usual. 

Rail critics point to low ridership as the reason why we starve 

the national system. I contend that starvation is a big part of the 

reason for low ridership. In the Northeast, a passenger can board 

a train at Union Station and reasonably expect to be in New York 

City, about 225 miles away, in less than 3 hours. If one of my constituents buys a ticket from Austin to Forth Worth, a trip 38 miles 

shorter than D.C. to New York, the best she can expect is a ride 

of 41⁄2 hours. 

The Texas Eagle meets its schedule 35 percent of the time, so we 

are going to try to improve service on the national system, but it 

will require creative thinking and innovative financing. We can’t 

continue to fund Amtrak just enough to keep it going until the next 

crisis. What we must look at is private investment, state participation, and the cooperation of the freight railroads all being critical 

to achieving service upgrades. We will never have a better opportunity to accomplish this goal than now, in the reauthorization 

cycle. That is why I plan to introduce legislation to bring the national system up to Northeast Corridor standards. 

In Texas, most trains are forced to operate at less than 30 miles 

per hour because of track conditions and freight operations. The 

2 

national system needs at least $40 billion in capital improvements 

to allow both freight and passenger trains to meet a reasonable 

schedule. The Northeast Corridor requires approximately $10 billion to avoid an increased risk of accidents and a systemwide slowdown. Passenger rail should have the same commitment that we 

give to our highways and mass transit programs, and I believe Amtrak must meet these objectives to avoid deterioration of our rail 

system. 

Making this investment will include leveraging capital and that 

is what I think is going to be the key ingredient. Municipal bonding and private investment are necessary components of any plan 

to restore and improve rail infrastructure. Making the investment 

will upgrade freight operations throughout the country and improve passenger service. In exchange for investment in upgrading 

the tracks, the freights must agree to allow Amtrak to meet its 

schedule. 

I realize the critical role played by freight railroads in the American economy. I know this industry has seen better days. That is 

why I urge them to work with us to achieve a mutually beneficial 

solution. If we work together, freight railroads will enjoy capital 

improvements that they could not otherwise hope to afford as we 

secure the future of passenger rail in this country. It should be a 

win-win situation. 

I agree with Amtrak’s critics that the railroad stewardship of the 

national system has been inadequate, and I was deeply disappointed to see Amtrak’s proposed 5-year capital plan call for 

nearly all of its capital budget to be spent in the Northeast Corridor. The national system deserves more than the crumbs left over 

after the Northeast Corridor needs have been met. We must be required to have an 80 percent on-time arrival rate, and once that 

has happened, we think that it can fairly be evaluated from a costbenefit perspective. If Amtrak is unable to meet this performance 

requirement on a route 80 percent on-time delivery, that route 

should be open to other operators for bidding. 

We must decide whether we want to create a viable national system or settle for a single rail corridor providing ever-deteriorating 

service to only one sector of the country. When President Eisenhower put the national highway system in place, he asked for the 

commitment of everyone for the entire system. That is what I think 

we should require for Amtrak today, not just the Northeast Corridor, but it will also be in the best interest of the Northeast Corridor if we have a full national system. 

Thank you, and I would like to now turn to the distinguished 

Ranking Member of the Committee, Senator Hollings. 

STATEMENT OF HON. ERNEST F. HOLLINGS, 

U.S. SENATOR FROM SOUTH CAROLINA 

Senator HOLLINGS. Thank you very much, Madam Chairman. Let 

me commend you on having this hearing, and particularly your 

leadership on this score. As you well know, we have before the 

Committee a bipartisan bill of authorization for Amtrak with 32 cosponsors, and we are delighted to yield to your leadership and work 

with you on fashioning your bill. Let’s see if we can get something 

really done. 

3 

Let me ask consent that I include my prepared statement. I’m 

sorry for the conflict. I have to go to another one. 

Senator HUTCHISON. Without objection. 

Senator HOLLINGS. The frustration is that with this Administration, quite candidly, we keep meeting and we don’t get anything 

from them. I don’t know whether Mr. Rutter has a national plan 

for a national passenger rail system, but we will see and listen. 

I’ve been on this Committee now since we joined with Transportation, even before the Transportation assignment was given to us. 

We’ve got a dedicated system for air, we’ve got a dedicated funding 

for the highways, we’ve even got it for the Coast Guard, the interwaterways system and everything else of that kind, but when we 

come to the rail, we go down off on this tangent of privatizing, and 

by reference, we don’t have to print the book, let me ask that this 

‘‘Amtrak Privatization: The Route to Failure,’’ by the Economic Policy Institute, be included. 

Senator HUTCHISON. Without objection. 

[The information previously referred to is retained in the Committee files.] 

Senator HOLLINGS. I thank the Chairman. As you can see, we’ve 

tried privatization. In fact, when I was here, the private rails came 

to us and said, ‘‘for Lord’s sakes, take it. We’ll give you the equipment and everything else. We can’t run it.’’ They’d had it in the 

early seventies and turned it back over to us. 

I have studied all of the Japanese, French, German, British, and 

other systems and if you can find me one that operates at a profit, 

I will be glad to adopt it. We can’t find one. There isn’t such a 

thing. The privatization, if you go to London, which I’ve just come 

through, there’s complaint after complaint after complaint of everything being a disaster there, that so-called privatization. We can 

use private assistance of a combined effort, fine, but let’s stop kidding ourselves and continue now. 

This has been now 2 years going on 3 years that we have danced 

around the fire. We’ve talked about a passenger rail system. Your 

leadership has really called for a national system that I believe in. 

Otherwise, the President has got an outstanding individual in Mr. 

Gunn, who’s ready, willing, and able to run one. If we don’t give 

him the assistance, rather than each year struggling to give him 

enough to keep up, repair the equipment or keep a few lines going 

and not knowing where he’s going and everything else, someone of 

that caliber is just going to leave us. 

So we’ve reached a critical point here on the Committee and in 

the Congress for really providing for a national rail system, find 

out how we’re going to get a dedicated support of funds for it, so 

I thank you, and yield. 

Thank you, ma’am. 

[The prepared statement of Senator Hollings follows:] 

PREPARED STATEMENT OF HON. ERNEST F. HOLLINGS, 

U.S. SENATOR FROM SOUTH CAROLINA

We are now facing a transportation crisis that is going to force us to decide how 

we are going to save passenger rail service in this country. Until now, we have been 

supporting our passenger rail system with piecemeal legislation that year after year 

provided money for Amtrak to survive but never thrive. The last time we reauthorized Amtrak, in 1997, the legislation did nothing to strengthen passenger rail but 

4 

outlined a self-fulfilling prophecy for Amtrak’s critics to use against the passenger 

railroad. We agreed to language requiring Amtrak to be profitable, imposing a business model on a public service. The business model is is not appropriate for transportation services, which is essentially a government function. Yesterday, the Economic Policy Institute issued an insightful analysis of Amtrak privatization, written 

by Professor Elliott Sclar of Columbia University, which I would like to provide for 

the record. 

Now, we hear a lot about how Amtrak’s problems come from years of mismanagement, corporate inefficiencies and poor routing. But Amtrak’s problems were not created by mismanagement, inefficiencies, and bad routes. They were created by us 

and our lack of commitment to properly invest in Amtrak’s infrastructure and a 

whole transportation system so vital to our country. David Gunn has worked wonders to cut costs, eliminate waste, and improve Amtrak’s credibility. But even if he 

finds a way to manage the railroad without wasting so much as a paper clip, he 

cannot perform enough miracles to make Amtrak live up to its potential until passenger rail receives strong Federal support and steady infrastructure funding. 

I understand that we are not here today to talk about Amtrak in particular. We 

are here to talk about how we are going to pay for intercity passenger rail travel. 

But whether it is Amtrak or some other intercity passenger rail operation, the issue 

is the same. Our passenger rail system needs two things. The second thing it needs 

is long-term planning, because it is only through a long-term planned funding 

stream that we will be able to get it the first thing it needs, which is money. 

In the past 50 years, we have given strong Federal leadership and extensive funding to develop our interstate highway system and our aviation system. Between 

1971 and 2001, we invested over $570 billion of Federal funding in our highways 

and in our aviation system. At the same time, we spent a mere $25 million on passenger rail. In fact, the amount of funding that only the aviation industry has received during the last two Fiscal Years is almost double the funding that has been 

invested in passenger rail over the last 30 years. Why, then, is everyone so surprised and dismayed that Amtrak is in a deep financial crisis? If passenger rail is 

to succeed, it must be a real Federal priority. We must invest in the development 

of its infrastructure using Federal dollars to support both capital and operating 

needs like we have done in the other modes of transportation. 

High speed passenger rail has proven to be effective between Washington, D.C. 

and Boston where Amtrak’s Northeast Corridor relieves the pressures of congestion 

on highways and at airports, and provides a more balanced system of transportation 

alternatives. In fact, as many people choose to take the train as the plane between 

New York City and Washington, D.C., and the majority of travelers between Washington and Philadelphia choose the train over flying (83 percent v. 17 percent). 

Passenger rail also provides security through transportation alternatives. Of 

course, we all know the great service Amtrak was able to provide for the Northeast 

Corridor after September 11 when airports were closed (and remember, National 

Airport was closed for weeks) and American travelers in the East were desperate 

for an alternate means of transportation. We need to determine how we should invest in our passenger rail infrastructure in the Northeast and then duplicate its success in the rest of the country. 

For our passenger rail system, we have neglected to furnish a long term, stable 

funding source like we did for aviation, highways and transit systems. Without a 

major Federal commitment, national passenger rail service will be a thing of the 

past. Congress is being presented with a number of ideas for financing rail passenger service in the future. There are tax credit bonds, tax credits, a rail trust 

fund, and loan guarantees. In the last Congress, I introduced the National Defense 

Rail Act, S. 1991, which received the approval of this Committee in a vote of 20 to 

3. I have re-introduced The National Defense Rail Act, S. 104, in this Congress with 

bi-partisan support of more than 30 cosponsors. This legislation provides for the development of high-speed rail corridors, which are the building blocks of a national 

passenger rail system, and it fully funds Amtrak operations. My legislation would 

be funded through general revenues, but I am interested in working with Chairman 

Hutchison on how we might provides long term financing for a national high speed 

rail system. 

There are those who argue that we can best achieve success if we restructure our 

passenger rail system through privatization. Privatization initiatives used in other 

countries are often touted as holding the secret to Amtrak’s future success. However, we must not be led to believe that the privatization of Amtrak will decrease 

the Federal cost of passenger rail. Many countries in Europe and in the Pacific Rim 

have highly successful and effective passenger rail systems. But every first-rate passenger rail system in the world—whether it is public, private or something in between—has been expensive to build and to maintain. Those countries with first-rate 

5 

passenger rail systems have them because they have chosen to invest the funds necessary to build them and run them. We must carefully examine any privatization 

proposal that tends to show we can save and even strengthen our passenger rail 

system ‘‘on the cheap.’’ We must ensure that any privatization scheme does not exacerbate the already delicate financial condition of passenger rail in this country, 

or worse, do so at an unacceptable cost to safety and service, as our friends in Britain have unfortunately experienced. After it was privatized, British Rail experienced 

tragic accidents, insolvency, and increased public subsidies, all the while private investors received returns on their investments in the failing rail operation. 

The time is now for the Congress to take strong leadership in preserving and expanding our passenger rail infrastructure, just like it nurtures our interstate highway system, our aviation system, and our transit systems with constant and sufficient funding. We have a world-class highway system, a world-class aviation system, 

and we are investing steadily in developing world-class transit systems for our cities. It is time for us to commit to having a world-class passenger rail system. 

Senator HUTCHISON. Well, I certainly thank you for the interest 

that you have had and the commitment that you have had to Amtrak, and I do hope we can fashion a financing bill such as mine 

that will create the leverage needed to really have tracks that can 

work, or alleviate the freight railroads’ problems of having Amtrak 

on their tracks, so I thank you for your interest, and hope that you 

will work with me on the legislation that combines everything with 

reauthorization. 

Senator Lautenberg. 

STATEMENT OF HON. FRANK R. LAUTENBERG, 

U.S. SENATOR FROM NEW JERSEY 

Senator LAUTENBERG. Thank you, Madam Chairman. That wording always bothers me, but I don’t know what else to call you except ‘‘friend,’’ so thank you, Madam Chairman. 

I appreciate the fact that we’re holding this hearing today, and 

I believe that the single most important task for this Subcommittee 

this year is to address the passenger rail needs of our country. For 

too long, the Federal Government has been sitting idly by as a 

chronically underfunded national rail system has slowly deteriorated. 

The last passenger rail reauthorization mandate from this Committee to Amtrak in 1997 was simply unrealistic, and Amtrak was 

asked to do something that no railroad in the world does, as Senator Hollings has just said—operate at a profit. And I believe in 

American innovation, but we’ve never given Amtrak the proper 

tools to perform such a miracle, and I’ve said it in the past, and 

I will say again, I believe passenger rail is a vital component in the 

transportation system of this country, and I, too, Madam Chairman, would hope that we could bring rail service to other parts of 

the country. Obviously, coming from New Jersey, the Northeast 

Corridor sits right in front of my office all the time, and the volume 

of traffic that’s carried and the congestion that otherwise ensues 

begs for an investment of serious proportion, but for too long, Lilliputian thinking has prevented us from truly making a meaningful 

investment when it comes to interests in rail. 

The Administration’s SAFETEA proposal continues its theme by 

not addressing passenger rail infrastructure. Unless their forthcoming proposal on Amtrak contains real money to address real 

service needs, the traveling public will continue to lose out. The 

public pays for this neglect, by the way. $72 billion a year is the 

6 

cost of highway congestion, measured in wasted fuel, wasted time, 

according to the Texas Transportation Institute, and that was in 

1999. 

The importance of rail service became apparent in the Northeast 

long ago as we dealt with the myriad transportation planning and 

congestion issues that many other states are just now facing. These 

states are joining us Northeasterners in looking to the Federal 

Government to provide leadership needed to ensure that passenger 

rail is made a priority in our transportation system. 

Some claim that privatization is the answer to Amtrak’s problems, but I think Senator Hollings adequately handled it. The birth 

of Amtrak came from private hands, and there is still this notion 

that the private sector can do things cheaper and more efficiently. 

Well, I spent more than 30 years in the private sector, and I’m 

aware of what wonderful things can be accomplished, but talk of 

privatizing rail passenger service is simply putting the cart before 

the horse. Without sufficient infrastructure no railroad, including 

Amtrak, can sustain. 

Have we learned nothing from other developed countries, Great 

Britain, Argentina, Australia, and Mexico? These countries, looking 

for cheap solutions for passenger rail service, paid more in the end. 

Japan and Germany, France and Sweden, those countries that invested in the necessary passenger rail infrastructure now have 

world-class systems, and those systems have paid dividends to 

their societies in ways that we can’t even begin to imagine. 

Here in our country, the private sector was eager to rid itself of 

passenger rail service in 1970. That’s why we have Amtrak. The 

Federal Government bailed out the freight railroads because they 

couldn’t provide passenger, or didn’t want to provide passenger rail 

service and make a profit doing it, and I haven’t heard any of the 

freight railroads banging down the door of the Department of 

Transportation asking to be able to run trains again. They couldn’t 

make money doing it 30 years ago. They still can’t today. 

Railroads are highly complex operations. Running a railroad 

safely and efficiently costs money, but we have to realize this isn’t 

going to change. The Federal Government needs to step up, take 

charge with a strong program to support passenger rail service. 

The states are interested, the traveling public is interested, and we 

risk paying more if we wait until another time when we have no 

other choice, no other choice, I point that out, but to invest. 

And all we have to do is look back to 9/11 and remember that 

horrible day and the consequences of that attack, but we have to 

remember that Amtrak was the only means of transportation between Washington and New York that was available that day. It 

was tragedy upon tragedy, people separated from their families, 

people doing important work to come from Washington and help 

solve the problem, there was no other way to get there. You could 

try it on the highway, but the chances of getting through were almost nil. 

So we have to remember that rail service is an important aspect 

of our transportation system, and you cannot avoid it, and when we 

wake up to the fact one of these days, and I hope it isn’t a tragedy 

that brings us to the point, but one of these days we’re going to 

look back and say why didn’t we, when we had a chance to build 

7 

a railroad that made sense at prices a heck of a lot less than 

they’re going to cost years from now. We ought to get on with the 

task, and I look forward to hearing from our witnesses. Thank you, 

Madam Chairman, for indulging us. 

Senator HUTCHISON. Thank you, Senator Lautenberg, for your 

long-time support of Amtrak. Of course, you’re vitally affected in 

the Northeast Corridor, but you’ve always helped look at a full national system, which I think is going to be essential for all of us, 

and except for having a very bad basketball team, you’re very good 

on Amtrak issues. 

[Laughter.] 

Senator LAUTENBERG. I take back all of the nice things I said. 

[Laughter.] 

Senator HUTCHISON. One to zero. 

[Laughter.] 

Senator HUTCHISON. Senator Wyden. 

STATEMENT OF HON. RON WYDEN, 

U.S. SENATOR FROM OREGON 

Senator WYDEN. Thank you, Madam Chair, and having gone to 

school on a basketball scholarship, I’m not going to touch this basketball brawl, but I will say I’m very much looking forward to 

working with you, Madam Chair, on these issues. You have been 

just exceptionally helpful over the years as we have tried to come 

up with a plan for a nationwide system. It’s very clear that people 

in this country, particularly in Texas and Oregon and other areas, 

don’t want our communities to become transportation sacrifice 

zones where we see significant amounts of transportation dollars 

paid into the system and then get very little service in return, and 

you have really been a coalition-builder. I’m looking forward to 

working with you and our good friend from New Jersey as well. 

It’s pretty clear, Madam Chair, that the country suffers from a 

chronic transportation deficit disorder, and I am of the view that 

it really threatens to paralyze our transportation system and our 

economy. What we’ve got to do is come up with a way to provide 

a transfusion of new funds to reverse this trend. Amtrak is going 

to need billions of dollars—$2 billion per year—certainly a big increase from the $721 million. 

The list goes on and on with respect to transportation needs. I’ve 

come to the conclusion that a real premium, Madam Chair, ought 

to be put on coming up with new, creative ideas to come up with 

additional revenue for transportation. Senator Jim Talent and I 

have found one, we believe, and I’m just going to discuss it briefly, 

but I’m anxious to work with you and Senator Lautenberg in the 

days ahead. 

What Senator Talent and I have introduced in the last few weeks 

is a program to issue $50 billion worth of bonds that would fund 

transportation projects in all modes of transportation, including 

rail, highway, transit, airport and waterway infrastructure. Under 

the Talent-Wyden legislation what we would issue are Build America bonds so that we could get the American people involved in 

building our infrastructure. 

I see, for example, our kids, and I know you have a youngster 

as well as I do, getting involved in our country’s future when their 

8 

parents and their grandparents give them a Build America bond 

that would be part of an effort to generate some additional money 

for transportation needs in our country. As I got involved with Senator Talent in this area, one of the things that I was struck by is 

that the Federal Government is about the only governmental entity 

on the planet that really isn’t using a bonding capability in a creative way. 

We issue bond for state governments, we issue bonds for local 

governments, we issue all kinds of bonds, other than the Federal 

Government playing an activist role in the transportation area. At 

a time when we have these huge needs for capital investment I see 

America, the Build America bonds providing a significant chunk of 

additional money on top of what is already out there in a way that 

I think the private sector and the bond market will react well to, 

and will also give us a chance to involve every citizen of this country in a way to help bring about the positive changes that our 

transportation system needs. 

So I intend to ask some of our witnesses, some of whom already 

have been meeting with Senator Talent and myself about this 

issue, what they think, but I did want to discuss it just briefly this 

morning. I look forward to working with you and Senator Lautenberg on it. We’ve had an awful lot of battles over the years between 

regions, between modes of transportation. This is something that 

can bring different parts of the country together. It is consistent 

with the view that you and I have talked about that we need a national transportation system. 

It is bipartisan. We’ve gotten good reactions so far from business 

groups, labor groups, groups across the philosophical spectrum, and 

I look forward to working with you on it. 

Senator HUTCHISON. Well, thank you, Senator Wyden. I do think 

we need the leverage of public financing. Just straight cash outlays 

are not going to be enough, and I would love for you and Senator 

Lautenberg and Senator Talent to look at the bill that I have drafted that also has $50 billion of financing backed with the rail tax 

that is already in place—4.3 cents—and Mr. Hamberger will have 

a few things to say about that, but it is a tax that is in place, and 

we believe that by leaving it there and having that be the backup 

for the revenue bonds or the municipal bonds that we would then 

be able to sell them easily and leverage that money, and give back 

to the railroads better trackage and perhaps get Amtrak out of 

their hair in some places, which they would also think is positive, 

so I think we have a lot of ideas, and I think the time is here for 

bold ideas. 

No longer do any of us want to continue to have Amtrak coming 

to Congress at the very last minute trying to get in supplemental 

appropriations and just living shoestring to shoestring. We need to 

fix this in a way that gives the capability to succeed, and that’s 

what I would like to do as Chairman of this Subcommittee. 

With that, let me call on our first witness, and we want to hear 

fully from you. We will have a 5-minute light. If you can stay within that, it would be good, but certainly we have taken time, and 

we want to hear fully from you, so Mr. Allan Rutter, who is the 

Federal Rail Administrator. 

9 

STATEMENT OF HON. ALLAN RUTTER, ADMINISTRATOR, 

FEDERAL RAILROAD ADMINISTRATION 

Mr. RUTTER. Thank you, Madam Chairman. As one UT graduate 

to another, I appreciate the invitation to appear before your Subcommittee this morning. I’ve submitted written testimony, and I 

ask—— 

Senator HUTCHISON. Does this mean that you agree with me 

about Senator Lautenberg’s team? 

[Laughter.] 

Mr. RUTTER. Well, the team I was cheering for last night was not 

the Nets, let’s just put it that way. I’ve submitted—actually let me 

rephrase that. Yes, absolutely. 

[Laughter.] 

Mr. RUTTER. I’m not really sure why I missed that one. I will ask 

the testimony we have submitted already be entered into the 

record. Before responding to questions about that testimony, let me 

say a few things about the purpose of this hearing and our vision 

at the Administration for the future of intercity passenger rail. 

First, any discussion about funds for intercity passenger rail inevitably gets to the question, why don’t we have dedicated funding 

for rail when we have it for other modes? Why shouldn’t rail have 

funding that’s above the vagaries of the annual appropriations 

process? I think it might be instructive to spend a minute reviewing the circumstances that previous Congresses were responding to 

in creating dedicated funding sources. 

In 1956, with the creation of the interstate highway system and 

the highway trust fund, Congress was considering how to accommodate 76 million licensed drivers who were generating 631 million 

vehicle miles. As a comparison, in 2002, Amtrak provided 368 million vehicle miles. 

In 1970, Congress created the aviation trust fund because there 

were 169 million commercial airline enplanements, 2 billion vehicle 

revenue miles, and 108 billion passenger miles. In 2002, Amtrak 

generated 5.4 billion passenger miles. 

And in 1982, when public transit got its first dedicated penny 

into the mass transit account, there were 8 billion unlinked passenger trips. In 2002, Amtrak ridership was 23 million. 

I think the relative scope of those transportation services explains why there might not have been a dedicated source of passenger rail funding to date, and we all need to also remember the 

trust funds themselves do not necessarily guarantee against yearto-year fluctuations. Highway funding is in flux due to the changing revenue-aligned budget authority that has proved unpredictable. Aviation trust funds are dwindling as incoming passenger tax 

revenues have contracted, just as commercial aviation has struggled. 

We’re wrestling and struggling with the same facts that have led 

you to hold this hearing. Where is the money going to come from 

for passenger rail? 

As for a rail trust fund, not only would the current level of passenger traffic probably not support a trust fund for passenger rail, 

taxing freight railroads to create a trust fund frankly would exacerbate the competitive disadvantage railroads already face relative to 

motor carriers, and a rail shipment tax would likewise lead to a 

10 

seismic shift in modal shares of total freight volumes which not 

only will leave railroads in dire financial shape, but could result in 

even more highway congestion as more trucks hit the roads. 

Well, what about bonds, or TIFEA, or even our own RRIF program? All of these mechanisms require repayment of principal and 

some level of interest. Few passenger rail operations, current or 

planned, will generate sufficient operating revenues to support debt 

repayment on top of operating and maintenance cost. Tax credit 

bonds are appealing to just about everybody but the folks responsible for the Federal Treasury, as the Treasury bears a disproportionate share of the cost of that kind of debt. 

What you’re left with is general funds and annual appropriations, and frankly, each additional billion dollars for passenger rail 

has to come out of another Federal transportation program to fit 

within those budget allocations, a very tough choice for Congress 

to make. As more money within the transportation budget goes to 

passenger rail, whose airport won’t get expanded, what highway 

projects won’t get built, and whose transit property will wait for a 

new light-rail line? 

If money is that tight, and the choices of those modes are so 

dear, we believe we should invest some energy into getting more 

out of the money we spend, or want to consider spending. We’re the 

first Administration in decades willing to propose a fundamentally 

new structure for delivering passenger rail. We are proposing a 

completely new program for Federal and State capital for passenger rail projects. We’ve heard from a number of states that 

we’ve been talking to as we’re completing our legislation that 50 

percent Federal capital dollars is better than what they have now, 

which is zero percent. 

We’re proposing a capital partnership that offers the potential for 

multiyear capital projects that makes States’ dollars go farther. We 

want to invest those dollars in a national passenger rail program 

that offers incentives for better choices. We want to offer Federal 

and State lawmakers more accurate information about what current services actually cost, how to control those costs, and what 

kinds of investments would be necessary to reduce operating subsidies of those services and provide higher quality service. 

We foresee a system that encourages choices for services that 

take people where they want to go when they want to get there 

using better technologies, operating newer equipment with higher 

reliability and more frequency. We see a system that maximizes 

the talents and contributions of the thousands of Amtrak employees that know how to operate, maintain, and staff passenger trains, 

and they’ll be doing that regardless of the organizational structure 

chosen. 

Six years ago, the FRA produced an examination of the commercial potential for better passenger rail services and it outlined the 

circumstances under which travelers could choose passenger rail. 

Now, when we consider traveler’s choices among modes now, much 

has changed since then. Rural highways are experiencing double 

digit increases in motor carrier volumes which makes long distance 

driving more difficult. Air quality conformity problems mean that 

many urban areas cannot make the kinds of highway investments 

that might lead to reduced urban congestion. Security considerVerDate Nov 24 2008 07:27 Nov 25, 2013 Jkt 075679 PO 00000 Frm 00014 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\85625.TXT JACKIE
11 

ations and a contracting aviation industry means that air travel 

takes longer, may cost more, or just not be available. 

All of this means that passenger rail has the potential and the 

possibility for competing better among travelers’ modal choices in 

a number of major intercity markets. We want to create a system 

that offers a more competitive, higher quality passenger rail product. As we struggle with where to find the money, let’s not lose 

sight of what better system that money could be used to produce. 

Thank you. 

[The prepared statement of Mr. Rutter follows:] 

PREPARED STATEMENT OF ALLAN RUTTER, ADMINISTRATOR, 

FEDERAL RAILROAD ADMINISTRATION

Chairman Hutchison and members of the Subcommittee, I appreciate this opportunity to appear before you today to discuss rail finance, focusing on equipment and 

infrastructure investments for intercity passenger rail service. I will be brief. 

In order to discuss rail finance, the Administration has focused on two questions 

that first must be answered: what intercity rail passenger service should America 

have and who decides this type of service? The answers to these questions strongly 

affect the answer to the question of how to finance intercity passenger rail service 

in this country. 

The present Amtrak route system has changed little over Amtrak’s thirty years 

of existence, seemingly locked in place by history and politics. That is starkly anomalous in America’s transportation system. What other transportation company or 

mode of travel has changed its routes and service so little in the last thirty years? 

Most transportation providers have changed their systems dramatically over that 

time span in response to changes in travel patterns driven by economics and demographics. If Amtrak’s system were not so ossified, perhaps Amtrak would serve more 

passengers today than it did thirty years ago. It appears that moving decision-making on routes and service closer to the customers would be a very good thing. 

This observation appears to be borne out wherever states have taken a strong role 

in determining what routes will be operated to serve their citizens, what kind of 

equipment should be used, what kind of service should be provided, and on what 

schedule. The states of California, North Carolina, and Washington are all excellent 

examples of states stepping up to the plate and meeting this challenge, paying for 

what they want above and beyond what Amtrak would otherwise provide, and getting noticeably better rail service for their citizens as a result. Citizens have responded to those investments: three California state-supported routes have attracted 2.35 million riders in the first seven months of this Fiscal Year, almost 44 

percent of the total ridership for the same period on the Northeast Corridor Acela, 

Metroliner and Regional services. 

The Administration proposes to build on the examples set by these states to reform and strengthen the Federal role in passenger rail to mirror much more closely 

the current Federal program supporting mass transit. The Federal Government 

would continue to define rail safety standards and enforce them. The Department 

of Transportation would provide capital grants directly to states and interstate consortia of states that want passenger rail. State government agencies would determine the level of passenger services needed and the price for such service, and contract with third-party operators to provide long-distance and corridor trains. The 

same program would apply to legacy long distance routes, current and new corridor 

services—at higher speeds or not. To the extent that states’ service choices require 

operating subsidies, state governments would be required to provide that subsidy. 

It is possible that in the early part of the authorization cycle, the Federal Government would provide limited subsidies for corridor and long distance trains, and fund 

the capital backlog for certain passenger rail projects. By the end of the authorization cycle, however, state governments would be responsible for at least 50 percent 

of needed capital investment for all intercity passenger rail service—similar to Federal capital investments in the Federal Transit Administration’s ‘‘New Starts’’ program. Similarly, by the end of the authorization period all rail operational costs will 

be borne by riders or states or state rail consortiums. 

We believe this an appropriate division of state and Federal transportation responsibilities. It reflects the way the Federal Government handles other transportation programs. After an appropriate transition period, only services states are 

willing to pay for would be continued. 

12 

Like other Federal programs that invest in transportation, intercity passenger rail 

service would require careful thought and planning up front before either the states 

or the Federal Government make significant investments. Intercity passenger rail 

service should be part of state transportation plans already required by Federal surface transportation legislation. Careful passenger rail planning should go a long way 

toward overcoming the long-term problem that our modes of intercity passenger 

transportation, which were conceived independently for the most part, do not interrelate well. States, however, have a powerful interest in enabling their citizens to 

navigate our transportation system seamlessly. The states that do so stand to reap 

considerable economic advantages, such as being more attractive as a location for 

businesses. A sound planning process should also help make sure that intercity passenger rail service goes where people want to travel, when they want to go, and at 

an appropriate price. 

This may result, for example, in a lot more attention being paid to some of the 

submarkets along long distance routes, instead of the points of origin and of final 

destination for these routes. As I understand it, on many long-distance routes few 

passengers travel the entire length of the route. Instead, most passengers start and 

stop at intermediate points along the way. It would make sense for a state or two 

neighboring states having a submarket that attracts a lot of passengers to want 

more service on that part of the longer route and to invest accordingly. North Carolina is doing that between Charlotte and Raleigh. Oregon and Washington are doing 

that between Eugene, Portland, Seattle and Vancouver, British Columbia. Those 

states are reaping significant benefits from doing that and we should help them. 

In many places, states may decide that it is more important to have fast, frequent, timely, and reliable service in relatively short corridors that have a lot of 

business travel. In such corridors, rail can compete effectively with air and highway 

for business travelers. The Northeast Corridor, where Amtrak is the dominant carrier, is the best illustration of that prospect. Especially where airports and highways 

are already overcrowded and land is so scarce that it will be hard to build more 

airports or highways, it is especially important to make full use of existing rail capacity. Since states will be making the key decisions about whether to build additional airports or highways, it makes sense to have them make key decisions about 

passenger rail service and if it should be expanded, reduced, or eliminated altogether. Then the states can comprehensively plan the best ways to get their citizens 

from one place to another without needless constraints on modal choice. 

Another part of effective planning for transportation systems is compliance with 

environmental laws. Before major Federal funding decisions can be made, without 

regard to the type of funding used, assessments of environmental impacts must be 

completed, environmental impact statements or findings of no significant impact 

prepared, and all necessary permits obtained. State governments are very familiar 

with these processes and have learned to negotiate them successfully. They can be 

expected to handle compliance with the environmental laws as quickly and efficiently as it can be done. California, North Carolina and Virginia, and Florida are 

doing that very effectively right now for the additional rail service they are seeking 

with higher speed rail projects. 

Thorough planning also involves thorough discussions and negotiations with the 

freight railroads which own the rights-of-way and tracks over which most of the Nation’s current and future passenger rail services operate outside the Northeast Corridor. Passenger rail services pose significant operational challenges for freight railroads, and expansions of current services or new service on intercity corridors 

should not impair the current capacity for carrying freight, lest such investments 

will lead to increased congestion of our highways by more trucks. Better yet, states 

considering passenger rail investments should make capacity improvements that 

benefit both passenger and freight users to maximize the congestion relief afforded 

by the projects. Policymakers may need to decide whether the current pricing mechanisms of passenger rail access at incremental costs will lead to the most efficient 

use of public and private infrastructure assets. 

Of course, it is also important to provide funding for intercity passenger rail service in a way that best assures that the taxpayers get their money’s worth. The 

standard grant agreement relationship used by the Federal Government to provide 

most financial assistance affords reasonable controls on and accountability by recipients. Properly used, grant agreements make clear what the public will get, when 

the public will get it, and what it will cost. Reasonable and workable financial controls are used. All aspects of the program are ‘‘in the sunshine’’ and audited. This 

is a prudent means of seeing that Federal funds are well spent and produce the benefits intended by the Administration and Congress. This kind of thorough financial 

planning is also mirrored in proposals in the Administration’s surface transportation 

13 

reauthorization (‘‘SAFETEA,’’ mentioned below), in which states are required to develop financial plans for Title 23 projects over $100 million. 

This Administration has a strong record of support for innovative financing for 

surface transportation projects, as the recently introduced Safe, Accountable, Flexible, and Efficient Transportation Equity Act (‘‘SAFETEA’’) reauthorization proposal 

demonstrates. The Transportation Infrastructure Finance and Innovation Act 

(TIFIA) established a Federal credit assistance program that is already available for 

intercity rail projects. SAFETEA proposes to expand the use of TIFIA credit assistance by broadening eligibilities to include private freight rail facilities and reducing 

the project size threshold for TIFIA projects to $50 million from $100 million. States 

would be allowed to impose user charges on federal-aid highways, including the 

Interstate System, provided that such charges were part of a program to relieve congestion and/or improve air quality. Transportation projects (highway facilities and 

surface freight transfer facilities) will be eligible for tax-exempt private activity 

bonds, exempted from a state’s private activity ceilings, encouraging private operation of transportation projects. States will be given more freedom to use innovative 

project delivery methods such as design/build, which are often a key in setting fixed 

prices for projects to attract private investment. 

One of the common threads in most innovative financing mechanisms for surface 

modes—state revenue bonds, toll roads, TIFIA, Grant Anticipation Revenue Vehicles—is that most of these financial instruments require repayment. Debt instruments used for transit and road construction either pledge dedicated tax revenues, 

dependable funding streams from Federal or state programs, or reasonably expected 

revenues from transportation facility users. 

Various kinds of debt instruments are proposed from time to time to fund intercity passenger rail service. The Administration does not think dedicated debt instruments are suitable for this purpose. Unlike most other transportation debt financing 

mentioned above, intercity passenger rail does not generate adequate cash flows to 

service significant additional debt, nor is it supported by reasonably anticipated, 

long-term dedicated funding streams from the Federal Government. We believe that 

there may be corridors in which passenger rail services can cover costs of operations 

and maintenance, but few corridors will generate revenues sufficient to provide adequate coverage beyond operating and maintenance expenses to repay interest and 

principal of debt raised for project capital costs. 

Let me also speak in general terms about tax credit bond financing, even though 

such matters are not our agency’s primary responsibility (and such matters are considered by tax-writing committees in the Congress). As an example of the concept, 

you may wish to learn more about Qualified Zone Academy Bonds http:// 

www.ed.gov/offices/OESE/SST/qzab.html), a program that offers limited amounts 

of tax credit bonds for equipment and rehabilitation of schools in empowerment 

zones and enterprise communities or schools serving a student population of which 

at least 35 percent are eligible for free or reduced-cost lunches. These are the only 

form of tax credit bond currently allowed. This program, by limiting the total term 

of the bonds, currently to fifteen years, roughly splits the cost of a qualifying project 

in half. The Federal Government pays the interest (through tax credits) and the 

local school district repays the principal. (As you can see, this equal sharing of financial exposure is similar to the kind of financial participation we contemplate in 

a federal/state capital partnership for intercity passenger rail). The total size of the 

Qualified Zone Academy Bond program is limited to $400 million per year in new 

issues, and only certain qualified buyers can purchase these bonds (lending institutions such as banks and insurance companies). These provisions limit the administrative complications and costs to the Treasury of these financial instruments. 

If larger amounts of tax credit bonds are issued, the permitted holders of these 

bonds would likely have to be expanded to include, for example, individuals and mutual funds, thus making them much more complex and increasing the administrative burdens placed on the Internal Revenue Service. If longer terms of maturity 

are considered for intercity passenger rail purposes, then the overall exposure of the 

Treasury is increased relative to any matching funds from passenger revenues or 

state participation. If the tax credit debt is issued in an amount that not only covers 

capital costs but is also used to create sinking funds from which principal is eventually repaid as interest accrues in the sinking fund then the Treasury is effectively 

footing the entire bill for the capital costs. Further, because there is very little liquidity in the market for these bonds the market would impose a significant premium, thereby reducing the amount of actual funding and raising the effective costs 

to the taxpayers of using this funding mechanism compared to more traditional 

means. For these reasons, the Administration would oppose such a financing mechanism for intercity passenger rail. 

14 

Before Congress considers more debt for intercity passenger rail, Congress should 

consider the difficulty Amtrak is having with the enormous debt it has already incurred. Amtrak’s total debt grew from $1.7 billion in 1997 to $4.8 billion in 2002. 

Figure 1 illustrates the growth in Amtrak’s total debt. 

Because of this increased debt, naturally Amtrak’s annual debt service has grown 

substantially, adding a large up-front cost to its business plan. Annual debt service 

requirements (principal and interest) are forecasted to be $278 million in FY 2004 

(up from $111 million in 1997). This means that debt service will consume over 15 

percent of Amtrak’s requested FY 2004 appropriation of $1.8 billion. Amtrak’s accumulated debt is a significant burden weighing down future passenger rail development. The FRA is not surprised by this massive debt and calls for its accelerated 

retirement. In 1983, Amtrak was unable to pay the debt service on $880 million in 

loans guaranteed by the Government under section 602 of the Rail Passenger Service Act. FRA paid $1.119 billion to honor its guarantee of principal and interest on 

Amtrak’s debt, and in return the Federal Government was given a lien on Amtrak’s 

assets and given $1.119 billion of preferred plus to one share of preferred stock for 

each dollar of future financial assistance given to Amtrak. That preferred stock has 

a par value of $10 billion. So you can see that our past experiences with passenger 

rail debt, necessarily colors our current view that future financing for passenger rail 

depends on shaky promises of project revenues or future funding dependability. 

That is not to say that we are opposed to the involvement of the private sector 

in passenger rail development, either in service delivery or financial participation. 

Indeed, earlier testimony before this committee demonstrated our confidence in the 

ability of the private sector to become involved in a number of ways in providing 

passenger rail services to state governments. We are convinced that the private sector may be interested in pursuing commercial applications along the Northeast Corridor, and such commercial uses may provide income streams for future corridor 

capital projects. Yet, we have listened to many commuter rail agencies and freight 

railroads that use the Northeast Corridor and the states that support such operations, and they have cautioned us against private ownership and control of the 

Corridor. We are taking these comments and concerns under consideration as we 

continue drafting reauthorization legislation for the national passenger rail system. 

Thank you again for the opportunity to appear before this committee. I will be 

happy to answer any questions you may have. 

Senator HUTCHISON. Thank you very much. Mr. Ed Hamberger, 

representing the Association of American Railroads. 


605RUTTE1.eps
15 

STATEMENT OF EDWARD R. HAMBERGER, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, ASSOCIATION OF AMERICAN 

RAILROADS 

Mr. HAMBERGER. Thank you, Madam Chair. On behalf of the 

AAR, I am grateful for the opportunity to present freight railroads’ 

views concerning passenger railroading and the ways to finance it. 

At the outset, let me emphasize that freight railroads agree that 

passenger rail can play a role in alleviating highway and airport 

congestion, decreasing dependence on foreign oil, reducing pollution, and enhancing mobility and safety. 

At the same time, it is important for policymakers to remember 

that our freight rail system is a tremendous national asset that 

moves more freight more efficiently and at lower rates than any 

other system in the world. Freight railroads are responsible for 

moving 42 percent of our Nation’s intercity freight goods, and 

therefore freight railroad already plays a key role in congestion 

mitigation by taking trucks off the highway, improving air quality, 

and saving energy, because we are, according to Government studies, at least three times more fuel efficient and environmentally 

friendly than our friends in the trucking industry, so policymakers 

must find a way to provide the passenger rail service that America 

wants and needs without placing operational or financial burdens 

on the freight rail system. In other words, to improve passenger 

rail at the expense of freight rail will not accomplish the laudable 

goals that this Committee seeks. 

Freight railroads are wiling to work with the relevant Government entities both at the State, local, and Federal levels to determine if and where a public-private partnership is appropriate. Consistent with my opening comments, of course, such a partnership 

must accommodate freight capacity. 

A number of proposals have been put forth regarding how public 

funding could be made available for passenger rail-related projects, 

such as expansion of the CMAQ program, congestion mitigation air 

quality program, or expansion of the RRIF program that Administrator Rutter referenced. We support both of those approaches, and 

we also believe, consistent with Senator Wyden’s opening statement, that a thorough evaluation of the various bond financing concepts being discussed must go forward expeditiously. 

We have adopted a series of principles regarding the future of 

passenger rail service to ensure that future development of passenger rail will not harm the ability of the freight rail industry to 

serve its customers. We will analyze the various proposals using 

these principles. There are six of them. I will run through them 

quickly. 

1. Passenger rail cannot exist without significant Government 

subsidy. Amtrak came into existence because freight railroads were 

losing several hundred million dollars annually running passenger 

trains. No passenger system in the world covers both operating and 

capital cost. 

2. Freight railroads should receive full compensation for the use 

of their assets by passenger operators. Today, we do not. Amtrak 

statutorily has access on an incremental cost basis. A recent analysis by the AAR shows that in 2001 Amtrak payments failed to 

cover freight railroads’ variable costs by $240 million systemwide, 

16 

so I point this out because there is already a cross-subsidy built 

into the statute where the freight rail is already subsidizing passenger rail over $200 million annually. 

3. Freight railroads should not be expected to further subsidize 

intercity passenger rail service either through new taxes or the diversion of existing taxes, including the infamous 4.3 cents per gallon deficit reduction fuel tax and, of course, that does deserve special mention. It is in the energy bill that has passed the House, immediate repeal beginning January 2004. 

The Senate Finance Committee adopted an amendment offered 

by Senator Lott to immediately repeal that 4.3 cents, again in January 2004, and an amendment offered to divert that into a trust 

fund was defeated soundly 16 to 4, and the reason for that is because I think people agree with Administrator Rutter that such a 

tax merely exacerbates the already tilted playing field on which we 

find ourselves competing for business with the trucks, so we hope 

that this Committee will endorse the Finance Committee action. 

And just to divert a second, Madam Chair, the various bond proposals that are floating out there, I’m not the expert that some of 

our future witnesses are from Wall Street, but it seems as though 

there is a way to accommodate a bond proposal without using the 

4.3 cents as the revenue stream, or a charge on rail freight, so I 

would ask that as you put together your bill, that you might take 

a look at that and see whether or not there is a way to accommodate it without using the 4.3 cents. It appears that, at least from 

the financial side of the house, that there is a way to do that. 

4. Safety requirements and the integrated nature of railroading 

necessitates that intercity passenger rail be provided by one entity, 

and we believe that entity should be Amtrak. A subsidiary part of 

this principle, Amtrak’s right of access, preferential access rates 

and operating priority should not be transferred or franchised. 

5. The obligations of passenger railroads, notably those under the 

Railroad Retirement Act and the Railroad Unemployment Insurance Act, must not be shifted to the freight rail industry and its 

employees. 

6. And finally, future high-speed passenger rail corridors should 

be separate, dedicated, and sealed. A mix of heavy, slow-bulk commodity trains running with high-speed passenger trains does not 

work from either a safety or an operational standpoint. High-speed 

trains require different levels of track maintenance, and so we suggest that high-speed requires a sealed, dedicated right-of-way. 

Fashioning a realistic, fair, and workable solution to the serious 

financing problems facing passenger rail in the U.S. is, indeed, a 

difficult mission, but we look forward to working cooperatively with 

this Committee, the Administration, Amtrak, rail labor, and other 

stakeholders to achieve this worthy goal. 

Thank you. 

[The prepared statement of Mr. Hamberger follows:] 

PREPARED STATEMENT OF EDWARD R. HAMBERGER, PRESIDENT AND CHIEF

EXECUTIVE OFFICER, ASSOCIATION OF AMERICAN RAILROADS

On behalf of the members of the Association of American Railroads (AAR), I am 

grateful for the opportunity to present freight railroads’ views concerning passenger 

railroading and ways to finance it. 

17 

1 By contrast, Amtrak accounts for approximately 0.3 percent of intercity passenger travel nationwide. 2 Commuter rail is distinct from heavy rail (also known as ‘‘subway’’ or ‘‘elevated rail’’) and 

light rail (also known as ‘‘streetcar,’’ or ‘‘trolley car.’’). Although most issues involving freight 

railroads and passenger rail involve intercity or commuter rail, to the extent that heavy or light 

rail operations also involve freight railroads in some fashion, the points made in this testimony 

apply to them as well. 

It is important to note at the outset that freight railroads agree that passenger 

rail has a role in alleviating highway and airport congestion, decreasing dependence 

on foreign oil, reducing pollution, and enhancing mobility and safety. Freight railroads will continue to work reasonably and cooperatively to help passenger rail succeed. 

We also know that passenger rail is extremely costly. Indeed, funding passenger 

rail has always been difficult—and continues to be so today, when budget constraints present enormous challenges to all levels of government. 

Freight railroads believe very strongly, though, that it is not the responsibility of 

our nation’s privately-owned freight railroads to subsidize passenger rail. Indeed, as 

you consider the future of passenger rail in this country, we urge you to keep in 

mind that, while passenger railroading is important to our country, it pales in comparison to the importance of freight railroading. Our freight rail system is a tremendous national asset that moves more freight, more efficiently, and at lower rates 

than any other system in the world. The safe and cost-effective transportation service that freight railroads provide is critical to the domestic and global competitiveness of our nation. Freight railroads are responsible for 42 percent of our nation’s 

intercity freight transportation service (measured by ton-miles).1 Therefore, policymakers must find the most effective way to provide the passenger rail service that 

America wants and needs, but without burdening the freight rail system—operationally, financially, or in any other way. 

Freight railroads are willing to work with the relevant government entities to determine if a public-private partnership is appropriate. It is important to recognize, 

of course, that in such circumstances any public-private partnership must provide 

a replacement of freight capacity and a fair return on the private freight railroad 

assets used for public purposes. 

Overview of Passenger Rail in the United States 

Any passenger rail system that operates on or crosses freight rail facilities is of 

interest to freight carriers. This applies especially to commuter rail 2 and intercity 

rail. 

Commuter rail, which provides passenger rail service between a central city and 

its suburbs or an outlying region, is offered in 20 or so U.S. cities. In 2002, commuter rail accounted for approximately 1.5 million unlinked passenger trips per 

business day, or 411 million trips for the year. Millions of these trips were on tracks 

that are actually owned by freight railroads but over which a commuter railroad has 

operating rights. 

Most existing commuter railroads plan to increase the frequency of their service, 

and several plan to extend existing lines or add new ones. In addition, in approximately 30 metropolitan areas throughout the country, entirely new commuter rail 

operations have been proposed. The vast majority of existing commuter passenger 

operators that want to expand their service, as well as nearly all proposed new commuter operations, hope to use freight railroad facilities for their operations. 

Amtrak is the sole provider of intercity passenger rail service in the continental 

United States. Amtrak operates over more than 22,000 route miles, carries more 

than 23 million passengers annually, and serves more than 500 stations in 46 states 

and the District of Columbia. Amtrak is also the nation’s largest contract provider 

of commuter rail service, serving an additional 54 million commuter passengers per 

year in California, Connecticut, Maryland, Massachusetts, and Virginia. Amtrak has 

22,000 employees. 

Amtrak could not exist without the facilities and services of freight railroads. Amtrak owns approximately 730 route-miles, primarily in the Northeast Corridor 

bounded by Boston and Washington. Nearly all of the remaining 97 percent of Amtrak’s system consists of tracks owned and maintained by freight railroads. Freight 

carriers also furnish other essential services to Amtrak, including train dispatching, 

emergency repairs, station maintenance, and, in some cases, police protection and 

communications capabilities. 

So far, 11 corridors have been designated by the U.S. DOT as high-speed intercity 

rail corridors. Like Amtrak, these commuter and high speed proposals would involve 

service over existing freight lines, or acquisition of part of a freight railroad rightof-way to permit construction of passenger tracks. 

18 

3 Interstate Commerce Commission, ‘‘Railroad Passenger Train Deficit, Report Proposed by 

Howard Hosmer, Hearing Examiner, Assisted by Robert A. Berrien, Fred A. Christoph, and Raymond C. Smith, attorney advisers,’’ Docket No. 31954, 1958. 4George W. Hilton, The Transportation Act of 1958, Indiana University Press, 1969, p. 13. 

The map below illustrates the extent of existing and proposed passenger rail service in the United States and how it overlays the national freight rail network. 

Passenger Rail History 

As you deliberate the future of U.S. passenger rail service and ways to finance 

it, it might be helpful to reflect briefly on the history of passenger railroading and 

the conditions that led to the creation of Amtrak and other passenger rail carriers. 

Well into the 20th century, railroads were the primary means by which both people and freight were transported in this country. In 1930, for example, the rail share 

of both the intercity freight and passenger markets was around 75 percent. Over 

time, though, a number of factors, especially the enormous expansion of our nation’s 

highway system and the development of commercial aviation—both accomplished 

with the help of hundreds of billions of dollars in government subsidies—brought 

enormous competitive pressures to bear on passenger railroading. 

In fact, by the 1930s, passenger railroading had become clearly unprofitable. By the late 1950s, private railroads were losing $750 million per year (nearly $4 billion 

in today’s dollars) in fully distributed costs on passenger service, according to an 

Interstate Commerce Commission (ICC) study.3 In fact, a noted transportation 

scholar wrote ‘‘it is no exaggeration to say that by 1958 railroad passenger service 

had demonstrated itself to be the most uneconomic activity ever carried on by private firms for a prolonged period.’’ 4 These massive losses continued largely because 

state and federal government regulators often refused railroad requests to eliminate 

passenger trains no matter how much money the railroads were losing. 

By the late 1960s, railroads had managed to obtain regulatory approval to discontinue many purely local trains and were pursuing the elimination of major trains 

that comprised the basic elements of the national passenger rail network. By 1970, 

passenger rail ridership had plummeted to just 11 billion passenger-miles (an 88 

percent decline from its 1944 peak of 96 billion) and the cumulative ‘‘passenger deficit’’—the losses that government regulators forced privately-owned railroads to bear 

through mandated passenger operations—had reached many billions of dollars. 

Unfortunately, the massive passenger losses, in combination with unrelenting 

competition for freight business from subsidized trucks and barges, led to railroad 

bankruptcies, line abandonments, deferred maintenance, service deterioration, and 

general financial decline. In 1970, the largest U.S. railroad, the Penn Central, went 

into bankruptcy. At the time, it was the largest bankruptcy of any company in U.S. 

history. Not coincidentally, the Penn Central was also the largest passenger railroad 

in the country. 

In response to the crisis in passenger rail, in 1970 Congress passed The Rail Passenger Service Act of 1970 (RPSA). RPSA was a reaction to the real possibility that 

the United States would soon have no intercity passenger rail service at all, and 

a recognition that passenger rail losses were a serious threat to the viability of 

freight railroading. Given the huge financial pressure they faced, it is no surprise 

that when the RPSA created Amtrak, railroads welcomed the opportunity to rid 

themselves of their hopelessly unprofitable passenger obligations. 


605HAMB1.eps
19 

5 Incremental (or avoidable) costs are those direct costs which result from additional traffic/ 

volume or which would be eliminated by the discontinuance of traffic or a particular activity. 

Fully distributed (or fully allocated) costs include a proportionate share of both variable and 

fixed costs (including the cost of capital necessary to provide the service) allocable to the traffic 

or service in question. As discussed later, freight railroads must reimburse Amtrak at a fully 

allocated cost level for the use of Amtrak’s Northeast Corridor, even though Amtrak only reimburses freight railroads at the substantially lower incremental cost level for the use of their facilities. 

However, the RPSA exacted a hefty price from freight railroads for permission to 

exit the intercity passenger rail business. 

First, freight railroads were required to capitalize Amtrak in cash, equipment, or services. These payments to Amtrak totaled $200 million (approximately $750 million in today’s dollars). 

Second, the RPSA authorized Amtrak to operate wherever it wished over the privately-owned freight rail network. Amtrak was also granted the power to force 

freight carriers to convey property to it (subject to constitutionally-mandated ‘‘just 

and reasonable’’ compensation) if the property were necessary for intercity rail passenger transportation. 

Third, the RPSA explicitly ordered freight railroads to grant preference to Amtrak 

trains over their own freight trains and all other customers. 

Fourth, the RPSA gave the ICC the authority to intervene if Amtrak and the host 

freight railroad could not agree on the compensation due the owner for Amtrak’s 

access. A 1973 ICC decision that ordered Amtrak to pay a rate of compensation 

greater than incremental or avoidable cost was overridden by a 1973 amendment 

to the RPSA, which allowed Amtrak to pay just the incremental costs of the owning 

freight railroad caused by Amtrak’s use of the tracks.5

Railroads that refused to accept the statutory terms offered in the RPSA were required to continue their passenger operations—despite any losses they would 

incur—for at least four more years. Thereafter, they could seek relief before regulatory agencies, but received no guarantee that they would be permitted to discontinue unprofitable service at that point. All but a few of the railroads accepted 

the terms of the RPSA and immediately turned over passenger operations to Amtrak, rather than face continuing losses and the uncertainty of the regulatory process. 

Access to Freight Rail Facilities by Passenger Railroads 

As noted above, by law freight railroads must grant Amtrak access to their track 

upon request and give priority status to Amtrak trains. Amtrak pays fees to freight 

railroads to cover the incremental costs of Amtrak’s use of freight railroad tracks, 

but these fees do not come close to covering the full costs borne by the host freight 

railroads associated with the operation of Amtrak trains over their tracks. 

In fact, a recent analysis by the AAR found that in 2001 alone Amtrak payments to freight railroads were approximately $240 million less than the variable costs to 

the freight railroads associated with hosting Amtrak service. 

This figure substantially understates Amtrak’s full cost responsibility for a number of reasons. First, it does not consider delay and opportunity costs. Operation of 

Amtrak trains over freight lines creates major scheduling difficulties, since Amtrak 

trains must be given priority, the typically higher passenger train speeds necessitate passing slower freight trains, and disturbances in one part of the rail network 

ripple through the system and disrupt freight operations elsewhere. Second, railroads’ fixed costs (costs that do not vary with traffic levels) are excluded. Any company that wants to continue to operate must recover both its variable and fixed 

costs. Third, the additional costs to freight railroads associated with the higher level 

of liability inherent in passenger operations were not included. Fourth, a portion of 

Amtrak’s route system is operated over freight railroads that were not participants 

in the study, and therefore their costs were not included. 

Non-Amtrak passenger rail operators, including commuter operators, do not have 

the same statutory rights as Amtrak regarding access to freight-owned track. Instead, they must first reach agreement with the owning freight railroad on a wide 

variety of engineering, operational, and legal issues—such as hours of operations, 

the number of passenger trains, access fees, liability provisions, and many others— 

before they can begin passenger service. Often, where freight railroad system capacity is available, mutually beneficial arrangements are negotiated and agreement is 

reached. Just last week, the Burlington Northern and Santa Fe Railroad and Sound 

Transit agreed on a plan that will result in the start of commuter rail service between Everett, Washington and Seattle later this year. 

Capacity issues have become increasingly important in recent years. In contrast 

to, say, 30 years ago, when the U.S. rail network had significant surplus capacity 

20 

6Prior to passage of the Staggers Rail Act of 1980, regulatory strictures made it very difficult 

for railroads to dispose of unwanted or excess lines. Between 1980 and 2002, Class I railroads 

reduced their miles of road owned by approximately 65,000 miles. Many of these former Class 

I miles were taken over by short line or regional railroads, rather than abandoned completely. 

(and, not coincidentally, most U.S. railroads were in serious financial difficulty), 

today U.S. freight railroads operate networks that are carefully designed to match 

capacity with existing traffic levels or traffic levels expected in the near future. The 

intensely competitive environment in which freight railroads operate does not allow 

them the luxury of operating redundant main lines or a network of lightly-operated 

branch lines.6

At the same time that rail mileage has been falling, rail traffic has been increasing. Rail ton-miles—the movement of a ton of freight one mile, a standard measure 

of freight volume—rose from 919 billion in 1980 to 1.51 trillion in 2002, a 64 percent 

increase. The concurrent rationalization of low-density rail mileage and increase in 

traffic volume mean that the rail network is used far more intensively and far more 

productively today than in the past. Capacity constraints mean that many freight 

corridors have no capacity available for new or expanded passenger operations; in 

other corridors, expected increases in freight traffic will consume available capacity, 

precluding passenger operations, unless capacity is expanded. 

Ton-miles per mile of road owned, a measure of freight traffic density, illustrates 

the capacity issue. This metric has risen from 3.9 million in 1970 (when Amtrak 

was established) to 15.1 million in 2002—a 288 percent increase. Largely because 

of this enormous increase in the intensity of infrastructure utilization, train ‘‘slots’’ 

on major freight corridors have become increasingly valuable. 

Moreover, because rail customers often no longer carry large inventories at their 

plants, railroads must meet their customers’ requirements for ‘‘just-in-time’’ or more 

predictable freight arrival. Consequently, asset utilization has become a crucial 

management tool and rail infrastructure, crews, communications, and customer satisfaction have come to depend on precise and efficient operations. 

Thus, when passenger trains fill prized corridor ‘‘slots’’ at bargain prices, the result is a major cross-subsidy from freight to passenger service. It also limits the 

overall size of certain freight rail markets (because slots are not available to freight 

trains) and affects the reliability freight railroads can offer their customers. Indeed, 

priority status by passenger railroads results in detrimental impacts on the numerous freight trains on and approaching the corridors traveled by the passenger carrier that are typically much greater than simply the value of the ‘‘slot’’ occupied by 

that carrier. 


605HAMB2.eps
21 

It is interesting to note that when freight railroads run freight trains over the 

Northeast Corridor, which is owned by Amtrak, Amtrak charges the freight railroads fully allocated costs, not just incremental costs. In fact, the fees that freight 

railroads pay Amtrak are many times greater (on a per car basis) than the fees 

which freight railroads must accept from Amtrak. Thus, railroads are prohibited by 

statute from treating Amtrak the same way that Amtrak treats freight railroads. 

Freight railroads should be fully compensated for Amtrak’s use of their property as 

Amtrak is compensated for use of Amtrak’s property. 

Funding Capacity Enhancements 

The addition or expansion of passenger operations on freight-owned facilities requires a thorough analysis of the effect that passenger service would have on existing and future freight operations, and the investments needed to ensure safe operations that do not impede the owning freight railroad. 

Funding is, of course, a critical—and sometimes controversial—issue. Each specific case must be evaluated based on its unique circumstances and merits, but in 

general freight railroads should be expected, and are willing, to pay for infrastructure investments that truly benefit them and that they actually want. Conversely, 

there is no reason to expect freight railroads to pay for investments that do not benefit them or that they do not want. 

This is a crucial point. As profit-driven entities, freight railroads cannot afford to 

make investments that yield primarily public benefits, and the benefits of passenger 

rail are primarily public benefits. Freight railroads have no shortage of potential infrastructure investment projects, but financial markets provide stern discipline to 

ensure that investments are made only where they will provide a reasonable promise of a direct economic benefit to the investing railroad. This discipline is necessary 

and appropriate in a market economy, but it discourages investments—including investments in capacity that would benefit passenger railroads—that would yield significant public benefits (e.g., congestion mitigation, emissions relief, enhanced mobility, improved highway safety), but only limited or no direct financial benefits to the 

railroad. 

A number of proposals have been put forth regarding how public funding can be 

made available for passenger rail-related projects. For example, funding for the Congestion Mitigation and Air Quality Improvement Program (CMAQ) could be increased, as could the amount of loans and loan guarantees available through the 

Railroad Rehabilitation and Improvement Financing (RRIF) program. Freight railroads support both of these approaches. The AAR also supports a thorough evaluation of the Transportation Finance Corporation concept recently presented by the 

American Association of State Highway and Transportation Officials (AASHTO), 

and similar proposals, some of which will be discussed today. Railroads do not yet 

have a position on these proposals, which are new and the details of which are still 

being ironed out. 

To repeat a critical point I made earlier, freight railroads should not be considered 

obligated to fund passenger rail service or suffer negative effects on their own operations because of passenger rail. That is a primary reason why freight railroads 

strongly oppose the creation of a ‘‘rail trust fund’’ to finance passenger rail if money 

for the trust fund is to be derived from freight railroads and/or their customers and 

suppliers. 

Future Public Policy Directions 

Freight railroads cannot afford, and should not be expected, to subsidize others 

at the expense of their own needs. To this end, freight railroads respectfully suggest 

that you adhere to a series of principles regarding the future of passenger rail service. These principles call for future rail passenger public policy to acknowledge the 

extreme capital intensity of railroading and to ensure that railroads’ investment 

needs can be met. 

Policies which add to freight railroads’ already enormous investment burden, such 

as further saddling them with support of passenger rail infrastructure needs, or 

which reduce their ability to provide the quality service needed by their freight customers, must be avoided. To do otherwise would undercut our nation’s freight rail 

capabilities and be counterproductive in addressing our country’s congestion, environmental, safety, and economic concerns. After all, the goal of reducing pollution 

and highway congestion by expanding rail passenger service will not be realized if 

passenger trains interfere with freight service and force freight onto the highways. 

The freight railroad principles are outlined below. 

1. Passenger rail cannot exist without significant government subsidization 

Our nation’s railroads learned the hard way how difficult it is to recover the full 

costs of passenger railroading. No comprehensive passenger system in the world opVerDate Nov 24 2008 07:27 Nov 25, 2013 Jkt 075679 PO 00000 Frm 00025 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\85625.TXT JACKIE
22 

erates today without significant government assistance. Once policymakers in the 

Administration, Congress, and the various states agree on the nature and scope of 

passenger railroading in this country, they must be willing to commit public funds 

on a long-term basis commensurate with that determination. 

2. Freight railroads should receive full compensation for the use of their assets by 

passenger operators 

The special statutory privileges regarding its relationship with freight railroads 

that Amtrak has enjoyed over the past 30 years—i.e., Amtrak’s statutory right of 

priority access to freight railroads’ tracks at incremental cost—have amounted to a 

significant, mandatory, and inequitable subsidization of intercity passenger operations by freight railroads. An incremental cost basis does not come close to reflecting the full market value of Amtrak’s access to the owning railroad’s tracks because 

it does not cover the full operating, capital, opportunity, and other costs freight railroads incur in hosting Amtrak trains. 

3. Freight railroads should not be expected to further subsidize intercity passenger 

rail service, either through new taxes or the diversion of existing taxes (including 

the 4.3 cents per gallon deficit reduction fuel tax) 

If policymakers determine that passenger service provides essential public benefits, then the costs of the passenger service (including the costs of maintaining and, 

where necessary, building new rights-of-way to passenger-rail standards) should be 

borne by the public, not by freight railroads. For 30 years, freight railroads have 

subsidized Amtrak. Forcing them to continue to do so, or forcing freight railroads 

to subsidize other types of passenger rail, would seriously hinder freight railroads’ 

ongoing efforts to provide safe, efficient, and cost-effective freight transportation 

service. 

Indeed, to force freight railroads to subsidize passenger operations would be supremely inequitable. Freight railroads are suppliers to passenger rail. As such, they 

should be treated the same as those who supply locomotives, passenger cars, diesel 

fuel, electricity, and provisions for dining cars. Nor should freight railroads be held 

to a loftier ‘‘public interest’’ standard. Highway contractors are not required or expected to bid below cost because highways are in the public interest. The same rules 

should apply to railroads. 

The 4.3 cents per gallon deficit reduction fuel tax paid by railroads deserves special mention. This tax should be repealed—not diverted to any other purpose—so 

that freight railroads can channel these funds into needed infrastructure and equipment. Diverting this tax to fund passenger rail would perpetuate the inequities 

faced by freight railroads, because they would continue to derive no benefit from a 

tax they pay but their primary competitors do not. 

Forcing freight railroads to shoulder an inappropriate liability burden is another 

form of subsidization that should be avoided. It is almost inevitable that some accidents will occur on railroads, despite railroads’ best efforts to prevent them. An accident involving passenger trains—which are generally far lighter than freight trains, 

often travel at much higher speeds, and, most importantly, have passengers on 

board—is far more likely to involve significant casualties than a similar accident involving only freight trains. Passenger operations also bring more people onto railroad property, resulting in a corresponding increase in risk. These risks make 

freight railroads extremely reluctant to allow passenger trains on their tracks without adequate protection from liability. 

4. Safety requirements and the integrated nature of railroading necessitate that intercity passenger rail be provided by one entity—Amtrak. Further, Amtrak’s right 

of access, preferential access rates, and operating priority should not be transferred or franchised. 

One of Amtrak’s fundamental purposes was to amalgamate several hundred disjointed passenger trains operated by more than 20 individual carriers into a coherent intercity passenger rail system. It was envisioned that a single carrier would 

yield greater efficiency and innovation. This approach remains just as sensible 

today. 

Moreover, the terms and conditions by which Amtrak uses freight-owned tracks 

were set by Congress more than 30 years ago under circumstances vastly different 

from today. As noted above, at that time freight railroads were given the proverbial 

offer they could not refuse: in order to be able to stop losing hundreds of millions 

of dollars per year on passenger trains they were forced by the government to operate, freight railroads accepted special, non-compensatory terms covering Amtrak’s 

use of their tracks that under other circumstances would have been unacceptable. 

No such quid pro quo exists for non-Amtrak passenger service, so other passenger 

operators are not entitled to the treatment legislated for Amtrak. Moreover, freight 

23 

railroads did not agree to an ‘‘open door’’ policy and balkanized structure that would 

allow any number of state, regional, or local entities to claim access to their assets. 

Further, freight railroads knew that Amtrak’s obligations were, in essence, the obligations of the United States and that Amtrak would be operated safely and professionally. Should Amtrak intercity services be transferred to other passenger operators, it is unclear under what circumstances the transfer would be made and what 

characteristics would apply to the operators. For example, private entities might 

have different degrees of financial backing; public authorities might or might not 

enjoy the full faith and credit of their sponsoring states; and some prospective passenger rail operators might be less committed to safety and sound operating standards than Amtrak. 

If others are asked to provide Amtrak-like services, freight railroads must retain 

the right to negotiate terms (at arms length, free of governmental intervention) 

under which those providers will gain access to the freight railroad’s right of way. 

Proposals to summarily grant passenger carriers other than Amtrak access to 

freight facilities ignore the fundamental fact that freight railroads’ rights-of-way are 

private, not public. In the absence of agreement through voluntary negotiations, 

freight railroads should not be forced to allow passenger operators to use their assets any more than any other private business should be forced to allow another 

company to use its assets without its consent or at non-compensatory rates. 

In fact, freight railroads view the granting of statutory access to other passenger 

operators to be a ‘‘taking’’ of private property, which requires just and reasonable 

compensation under the Constitution. 

5. The obligations of passenger railroads, notably those under the Railroad Retirement Act and the Railroad Unemployment Insurance Act, must not be shifted 

to the freight rail industry and its employees 

Railroad employees and retirees are not covered by Social Security. Instead, they 

are covered by Railroad Retirement, a government sponsored and managed pension 

plan funded by payroll taxes on railroad employers and employees. Railroad Retirement covers the full rail industry, including freight, Amtrak, and commuter railroads; rail labor and trade organizations; rail lessor companies; and miscellaneous 

railroad affiliates. 

Like Social Security, Railroad Retirement is a pay-as-you-go system: payroll taxes 

from current employees are used to provide current retiree benefits. Railroad Retirement is also a pooled system in which all rail participants contribute at the same 

statutory rates, all rail industry employees receive standardized retirement and survivor benefits based upon their years of service and earnings, and participating employees are assured of benefits regardless of the fate of their particular employers. 

The integrity of such a system depends upon all participating entities contributing 

based on the current number of active workers employed. It would be inequitable 

for passenger railroads (Amtrak alone accounts for approximately 10 percent of the 

total rail industry work force) to suddenly be granted special relief from a pooled, 

pay-as-you-go system. Simply removing Amtrak or other passenger railroads from 

the Railroad Retirement system, in whole or in part, would force the remaining participants—primarily freight railroads and their employees—to shoulder the burden 

of maintaining the viability of the system. 

6. Future high-speed passenger rail corridors should be separate, dedicated, and 

‘‘sealed’’ 

Amtrak’s existing high-speed Northeast Corridor operations have proven popular 

over the years, and many envision high-speed rail service to be a primary component of future intercity passenger rail operation elsewhere in the nation. High-speed 

rail passenger service is an integral part of passenger rail operations in countries 

around the world, including France, Germany, and Japan. Where high-speed rail exists, however, governments have supplied the massive amounts of funding it requires. 

Given the huge expense involved, the expansion of high-speed passenger rail service throughout the United States presents formidable challenges. To operate safely, 

high-speed passenger rail operations require the construction of separate, dedicated 

tracks. Further, grade crossings must be eliminated (either through closure or 

through the construction of highway underpasses or overpasses). These are exceedingly expensive undertakings and will require firm, long-term commitments by the 

appropriate authorities, since they are necessary for successful implementation of 

high-speed projects. 

Summary 

This Committee and others in Congress have before them a difficult mission: to 

fashion a realistic, fair, and workable solution to the serious financing problems facVerDate Nov 24 2008 07:27 Nov 25, 2013 Jkt 075679 PO 00000 Frm 00027 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\85625.TXT JACKIE
24 

ing passenger rail in the United States. In reaching that solution, we strongly urge 

you to incorporate the principles detailed above. Doing so will help ensure that 

freight railroads continue to play a vital role in our nation’s economic prosperity and 

global competitiveness. Freight railroads look forward to working cooperatively with 

this Committee, with Amtrak, and with others to achieve this worthy goal. 

Senator HUTCHISON. Thank you very much. Let me just say, on 

the revenue stream, we certainly would like to look for all options. 

This would not be a new tax, and I would not support a new tax 

on freight, but I do think that if we can offer something in return 

to the railroads for the use of this tax that would increase the efficiency of the railroads, I think we need to try to work together, 

rather than just throwing down everything that is so far being proposed. We need some positive input, rather than just being against 

everything, or we’ll be right where we have been. 

Mr. HAMBERGER. I agree, and as I said, we do want to work with 

you and the Committee, and we think the idea of public-private 

partnerships, and we hope to be able to announce a major one in 

Chicago later this month, where the freight railroads, the passenger railroads, the community come together and we pay for the 

benefits that the freight railroads receive, and the public pays for 

the benefits the public receives in the form of congestion mitigation 

and increased passenger service, so we think that might be a better 

model than the 4.3 cent revenue stream, but we certainly want to 

work with you and the staff to see if that works. 

Senator HUTCHISON. Thank you. Mr. Jeff Morales. 

Senator LAUTENBERG. Madam Chairman, may I introduce Jeff 

Morales for a minute? 

I look at Jeff Morales with a considerable amount of pride. He 

got much of his training at the Lautenberg office. You can tell by 

the whip marks on his back. 

[Laughter.] 

Senator LAUTENBERG. But we’re very proud of Jeff Morales, who 

started at a fairly low level doing transportation work for me in my 

office with the Appropriations Committee and authorizing committees as well, and we’re very pleased to see Jeff Morales here in this 

very important post that he has in California, and my hope is that 

he hasn’t forgotten his old friends. 

[Laughter.] 

Senator HUTCHISON. Well, thank you very much for adding that 

introduction, and with that, Mr. Morales is the Director of the California Department of Transportation. 

STATEMENT OF JEFF MORALES, DIRECTOR, CALIFORNIA 

DEPARTMENT OF TRANSPORTATION (CALTRANS) 

Mr. MORALES. Thank you, Madam Chairman. Senator Lautenberg, thank you for both the training and for the good words, and 

I assure you, anything I say is not meant to come at the expense 

of the Northeast Corridor. I will not bite the hand that once fed 

me. 

California has the largest and the most successful State-supported intercity passenger rail program in the country. Over the 

last few years, rail ridership in California has continued to grow, 

and is leading the Nation. Three of the five busiest Amtrak corridors in the country are in California, and this is happening in 

25 

spite of a sluggish economy and in spite of the sense that Californians would never get out of their cars. This year, one of every five 

Amtrak riders nationally will be on a California train. State-supported intercity rail service saved 265 million vehicle miles of travel and 41⁄2 million gallons of gasoline in 2002 in California. 

The state has made major operating and capital commitments to rail. In 2002, the state paid Amtrak $67.8 million in operating 

costs. This was 53 percent of payments from all states. The state 

has provided $1.7 billion in capital funds since 1976. This has been 

enabled by several things, including the passage of two general obligation bond measures and the commitment of State public transit 

account funds. Last year, Governor Davis signed a bill that puts on 

the ballot in November 2004 another bond measure that would provide $10 billion if approved by the voters, $9 billion of that going 

for the development of a high-speed rail system and $1 billion to 

continue to support commuter and intercity rail service, and 

Madam Chair, I would tell you that that bond measure absolutely 

anticipates and assumes both Federal support and a private investment in order to make those projects go forward. 

Governor Davis has been particularly supportive of intercity rail, dedicating close to $600 million in the last 4 years. Our investments are targeted at making rail more competitive with other 

modes as a way of helping relieve congestion. For example, we have 

over $300 million of improvements in the Los Angeles-San Diego 

Corridor, and our goals there are to increase frequencies and ridership by over 50 percent and reducing travel time to under 2 hours. 

I would like to raise several issues that I hope the Subcommittee 

will consider as it moves forward. A key issue is the relationship 

between private freight railroads and passenger rail service. That 

relationship is unique in many ways in transportation, and does 

need to be recognized as we move forward. As you know, Federal 

law gives Amtrak unique rights to access freight railroads at incremental cost. Thus, Amtrak has a significant competitive advantage. 

As long as this remains the case, true competition in passenger rail 

will not be possible, as other providers have to negotiate with the 

railroads for access, with no guarantee of getting it at all, and almost certainly at a higher price. 

We’re conducting a study on competitively bidding intercity rail 

service to see if California could benefit under current law. The 

study will also look at how to best position us to continue our rail 

service in the event Amtrak is significantly restructured, or even 

liquidated. The study will also identify any potential changes to 

Federal law that we might want to propose. 

The Chair raised several issues about the relationship with 

freight railroads, and again I think it’s critical that we recognize, 

as we make investments in their systems, we do need to get the 

cooperation to ensure that passenger service gets its fair share. 

While California has stepped up to the plate and delivered, I do 

not suggest or support the idea that the Federal Government 

should not have a role in California’s passenger rail system. If the 

Federal Government invests in any corridors, it should be willing 

to invest in our productive corridors. Improved mobility in California has national benefits, and relieving congestion in California 

is just as worthy a goal as it is elsewhere. An ongoing, stable, FedVerDate Nov 24 2008 07:27 Nov 25, 2013 Jkt 075679 PO 00000 Frm 00029 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\85625.TXT JACKIE
26 

eral source of funding, capital funding, is necessary to allow California to keep pace with demand and growth. Stable Federal funding is also essential for the incremental development of high-speed 

service on key routes throughout the Nation. 

Additionally, we recommend that the Subcommittee consider the 

issue of equity in states’ payments to Amtrak. Amtrak has a new 

policy that all states will make operating payments on the same 

basis. We hope the Subcommittee monitors Amtrak’s timeliness in 

equalizing state payments. 

Finally, we believe the Congress should continue to increase the 

flexibility of Federal transportation funding. In California, intercity 

rail service augments commuter rail and provides congestion relief 

to parallel interstate routes such as I–80 in the Sacramento to San 

Francisco Corridor, and I–5 in San Diego. In those multimodal corridors, intercity rail projects should be given the same Federal 

funding opportunities now offered to commuter and urban rail capital projects, and total funding should be increased to accommodate 

intercity passenger rail needs. 

In closing, Madam Chair, let me just say much of what California is doing, and we’re proud of what we’re doing and we’ll continue to do it, but it underscores, frankly, the lack of a national cohesive financing policy for rail, and we greatly appreciate the Committee’s approach on this and its efforts to develop such a national 

policy, and look forward to working with you on it. 

Thank you. 

[The prepared statement of Mr. Morales follows:] 

PREPARED STATEMENT OF JEFF MORALES, DIRECTOR, 

CALIFORNIA DEPARTMENT OF TRANSPORTATION (CALTRANS) 

Good morning, Madame Chairwoman and members of the Subcommittee, my 

name is Jeff Morales. I am the Director of the State of California’s Department of 

Transportation. Thank you for giving me the opportunity to testify today. 

Introduction 

Today, I would like to give you some thoughts on intercity passenger rail finance 

as it relates to state-supported Amtrak service in California. But first, let me introduce you to the exciting intercity rail program we are running in California in partnership with Amtrak. California has, by far, the largest state-supported intercity 

passenger rail program today, both in terms of dollars and riders, and is considered 

by many to be the model in State-supported intercity passenger rail service. The 

bottom line is our performance. Particularly over the last few years, rail ridership 

in California has continued to grow, and is leading the Nation. This is happening 

in spite of a sluggish economy, and the sense of many that Californians will never 

get out of their cars. This year, close to one of every five Amtrak riders nationally 

will be on one of California’s trains. 

As a side note, I would also like to point out that we are seeing tremendous 

growth on our commuter rail lines in California. Although this is not the subject 

of today’s hearing, these lines work in conjunction with our Amtrak-operated service, and are an increasingly important part of our overall transportation system. 

Amtrak operates three routes for the state: the Pacific Surfliner, San Joaquin, and 

Capitol Corridor Routes. In FFY 2002, the Pacific Surfliners and Capitol Corridor 

had the highest and second highest ridership, and the San Joaquins had the fourth 

highest ridership of all Amtrak routes outside of the Northeast Corridor. California’s 

three state-supported routes had almost 3.6 million combined riders in FFY 2002. 

This was 47 percent of the ridership on all corridor trains outside of the Northeast 

Corridor, and 16 percent of total Amtrak ridership in FFY 2002. In FFY 2003, we 

expect to carry over 4.0 million passengers or nearly 20 percent of total Amtrak ridership. 

In order to make our program successful, the state has committed major operating 

and capital funds to the program. On the operating side, California contributed 

27 

$67.8 million in operating payments to Amtrak in FFY 2002. This was 53 percent 

of the total payments that all states made to Amtrak in FFY 2002. 

On the capital side, California has provided an unprecedented amount of funds 

to intercity passenger rail service. The state has provided $1.7 billion in capital 

funds since 1976. California is the only state that has designed and bought its own 

equipment that is now used on most of the state-supported trains. Governor Davis 

has shown particularly strong support for intercity rail, as he believes it is one of 

the keys to congestion relief. Under Governor Davis, close to $600 million has been 

dedicated to intercity rail capital. 

Description of California’s Three Routes 

Now, I would like to give you a little history and description of our Routes. In 

1971, the year Amtrak was formed, Amtrak started by running three trains on the 

Pacific Surfliner Route (then called the San Diegans) in southern California, from 

San Diego to Los Angeles. California got involved when the state began supporting 

the route in 1976 with a State-supported addition of a fourth train. Over the years 

service has increased significantly. Service was added in 1988 on the north end of 

the route from Los Angeles to Santa Barbara. Currently, the state covers about 67 

percent of the net cost of operations for this Route, while Amtrak covers the remaining 33 percent. This is the only corridor route in California where Amtrak entirely 

supports a portion of the service. 

Today, the route is the fastest growing corridor in the country with 11 round-trips 

between San Diego and Los Angeles, and a 12th round-trip operating on weekends. 

Four trains extend north to Santa Barbara weekdays and five on the weekends, 

with one daily train extending further north to San Luis Obispo. Ridership in FFY 

2002 was 1.7 million. Ridership has been particularly strong in FFY 2003. From October 2002 through April 2003 ridership was almost 24 percent higher than the 

same prior year period. This impressive ridership increase is mostly due to ‘‘Rail 2 

Rail,’’ an innovative joint ticketing and marketing program with Metrolink—the 

commuter rail service on the same corridor. 

California also has a north-south route called the San Joaquins. Amtrak service 

on this route started in 1974 with one round-trip between Oakland and Bakersfield. 

The state started supporting the route in 1979, and a second round-trip was added 

in 1980. In 1999, the first round-trip to terminate in Sacramento was added. There 

are currently four round-trips from Bakersfield to Oakland, and two round-trips 

from Bakersfield to Sacramento, for a total of six daily round-trips. The route has 

an impressive dedicated feeder bus network that connects riders to Los Angeles and 

further south, as well as to more rural communities throughout the State. In SFY 

2001–02, almost 65 percent of all San Joaquin passengers used at least one connecting bus. Ridership in FFY 2002 was over 730,000. Ridership in FFY 2003 from 

October 2002 through April 2003 was almost 9 percent above the same prior year 

period. 

Our newest route is the Capitol Corridor, serving the northern metropolitan area 

of the State. The state started service on this Route in December 1991 with three 

round-trips between Sacramento and San Jose, and one trip extending to Roseville. 

In July 1998, responsibility for administering the Capitols was transferred to the 

Capitol Corridor Joint Powers Authority (CCJPA). The state now provides funding 

and oversight to the CCJPA. Today, the Capitol Corridor has twelve weekday roundtrips and nine weekend round-trips between Sacramento and Oakland. One daily 

train extends east to Auburn, and four weekday trains extend south to San Jose 

with six on the weekends. Ridership in FFY 2002 was almost 1.1 million. The Capitol Corridor added three weekday round-trips in SFY 2002–03. Ridership in FFY 

2003 from October 2002 through April 2003 was almost 7 percent above the same 

prior year period. 

Ninety-eight percent of the state’s population lives in counties served by the three 

routes and their connecting bus networks. The state Department of Transportation 

estimates that as a result of state-supported intercity rail service, 265 million vehicle miles and 4.4 million gallons of gasoline were saved in 2002. These statistics illustrate that intercity rail travel in California provides a true alternative to auto 

travel, not just a token option. 

California’s Capital Support for its Intercity Passenger Rail System 

As I mentioned earlier, since 1976, California has provided $1.7 billion in capital 

funds for track, signal and station improvements. $749 million of these funds went 

to the Pacific Surfliners, $403 million to the San Joaquins, $196 million to the Capitol Corridor, $107 million for maintenance and layover facilities and other projects, 

and $274 million for rolling stock. Starting in the early 1990s, with the passage of 

two general obligation bond measures, capital funding increased dramatically. WithVerDate Nov 24 2008 07:27 Nov 25, 2013 Jkt 075679 PO 00000 Frm 00031 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\85625.TXT JACKIE
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out these capital projects, the expansion of California’s intercity passenger rail ridership from 1.3 million in SFY 1979–1980 to 3.6 million in FFY 2002 would not 

have been possible. Capital projects are necessary to expand track capacity for additional frequencies, improve service reliability, and reduce train running time so that 

rail service is competitive with the auto. 

Governor Davis has strengthened the state’s commitment to intercity rail by pro- posing close to $600 million for intercity rail capital. $146 million was designated 

to construct 14 miles of triple track between Los Angeles and Fullerton on the Pacific Surfliners. An initial $28 million has been reserved for the design and environmental work on ‘‘run-through’’ tracks at Los Angeles Union Station. This project will 

also benefit the Metrolink commuter trains that use Union Station. Also, $92 million is proposed to construct double tracks on the San Joaquins over three significant portions of the route. 

Equipment Program 

The state also has an unusual and impressive equipment program. California is 

the only state that has designed and bought new intercity rail equipment. In the 

mid-1990s, the state pioneered the California Car design that allows faster loading 

and unloading, shorter dwell times at stations, and greater accessibility for disabled 

passengers. This design was used as the basis for Amtrak’s new Pacific Surfliner 

fleet. California currently owns a fleet of 88 cars and 17 locomotives. The state supplies all of the 78 cars and 17 locomotives in the northern California fleet used on 

the Capitols and San Joaquins. Also, the state supplies 10 of the 50 cars used on 

the Pacific Surfliners. As I mentioned earlier, the state has spent $266 million to 

date for rolling stock. As the initial California Cars are aging, California has started 

a heavy equipment overhaul program, with $10.8 million budgeted in SFY 2001– 

02 and 2002–03. 

California’s System is a Significant Part of the National System 

Now that I have been able to describe to you California’s intercity passenger rail 

system, I am sure that you realize how key it is to Amtrak’s larger system. As I 

mentioned earlier, California’s 3.6 million riders made up 16 percent of Amtrak’s 

total FFY 2002 ridership. California helps the national system by contributing riders to the long-haul trains. Almost 100,000 passengers transferred between California’s three routes and long-haul trains in FFY 2001, and contributed $12.1 million 

in passenger revenue to the long-haul trains. These trains are the Coast Starlight, 

California Zephyr, Southwest Chief, and Sunset Limited. California’s financial contribution to Amtrak is also significant. California’s operating payments of $63.1 million reduced Amtrak’s total full cost operating loss of $772.2 million by 8 percent 

in FFY 2001. 

Issues California Would Like the Subcommittee to Consider in its 

Discussions on Intercity Passenger Rail Finance 

I now have a few thoughts on issues California would like the Subcommittee to 

consider in its discussion on intercity passenger rail finance. 

Freight Railroads. A number of issues relate to the interrelationship between private freight railroads and intercity passenger rail service. As you know, under Federal law only Amtrak has the right to access freight railroads for intercity passenger 

rail service at incremental cost. Thus, Amtrak still has a significant competitive advantage over other potential service providers. The importance of this fact cannot 

be overemphasized. Until all service providers have the same access rights to railroads as Amtrak, true competition will not be possible, as other providers have to 

negotiate with the railroads for access—with no guarantee of getting it at all, and 

almost certainly at a higher price. 

Because California has spent significant funds to improve private railroad infrastructure for use in passenger rail service, the state would not employ a service provider that does not have long-terms rights to operate on a railroad. We believe to 

address these significant issues of equal access to freight railroads and stability of 

service, changes to current Federal law are necessary. 

As mentioned above, California has spent significant funds making capital improvements to freight railroads to provide additional intercity passenger rail capacity for new trains and to increase passenger speeds. Unfortunately, while passenger 

service has increased according to the State’s agreements with the freight railroads, 

freight service often has used much of the additional capacity, leading to dispatching delays and poor on-time performance for the intercity rail passenger service. This is an issue that needs to be addressed cooperatively by state and Federal 

Government, Amtrak and the railroads. 

We would like to point out that the state has a good partnership with the Burlington Northern Santa Fe (BNSF), although we are still resolving issues with onVerDate Nov 24 2008 07:27 Nov 25, 2013 Jkt 075679 PO 00000 Frm 00032 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\85625.TXT JACKIE
29 

time performance. The State’s relationship with the Union Pacific has improved in 

the recent past. 

In order to address some of the issues just mentioned, California has contracted 

with R.L. Banks and Associates to conduct a benefit/cost feasibility study on competitively bidding intercity rail, in order to determine if there are methods whereby 

competitive bidding could benefit California under current law. The study will also 

look at how to best position California to continue intercity passenger rail service 

in the event Amtrak is restructured or liquidated. The study will additionally identify any changes in Federal law that would be needed. The study is planned to be 

completed by the end of 2003. 

Federal Role in Intercity Passenger Rail Service. Another set of issues California 

is concerned with relates to the Federal role in intercity passenger rail. As I mentioned earlier, California’s extraordinary intercity passenger rail capital program 

has made California Amtrak service possible. However, while California has stepped 

up to the plate and delivered, I do not suggest or support the idea that the Federal 

Government should not have a role. If the Federal Government invests in any corridors, it should be willing to invest in our productive corridors. Improved mobility 

in California has national benefits, and relieving congestion in California corridors 

is just as worthy a goal as helping address problems in the Northeast and elsewhere. Consequently, an ongoing stable Federal source of capital funding is necessary to allow California Amtrak service to just keep pace with population growth. 

Stable Federal capital funding is also absolutely essential in order to allow the incremental development of high-speed rail service on key corridor routes throughout 

the Nation. 

In a similar vein, California cannot continue to be required to increase its responsibilities to Amtrak for operating costs. It is essential that long haul trains continue 

to be exclusively the responsibility of the Federal Government. The states will not 

be able to pick up funding of the long haul services. 

Additionally, we recommend that the Subcommittee consider the issue of equity 

in states’ payments to Amtrak for intercity rail operating services. Amtrak has 

begun to address this issue with its new policy that all States will make operating 

payments on the same basis. We hope the Subcommittee monitors Amtrak’s timeliness in equalizing states’ payments. 

In this era of scarce funding at all levels—Federal, state and local—we believe 

the Federal Government needs to continue to increase opportunities for flexible 

transportation funding. While ISTEA and subsequent legislation opened the transportation funding playing field considerably, intercity passenger rail funding was 

notably left out of this game. Unfortunately, intercity passenger rail is still not 

being given access to flexible transportation funding in the latest draft of SAFETEA. 

In California, intercity rail service augments commuter rail and provides congestion 

relief to parallel Interstate routes such as 1–80 in the Sacramento to San Francisco 

Corridor and 1–5 in San Diego. In essence, intercity service has become a corridor 

management tool. We believe that in multimodal corridors, intercity passenger rail 

capital projects should be given the same Federal funding flexibility and opportunities as is now offered commuter and urban rail capital projects and that total funding should be increased to accommodate intercity passenger rail needs. 

Here is an example to point out the effect of the lack of funding flexibility. As 

Director of Transportation, I cannot use Federal highway funds on the Capital Corridor that serves the 1–80 corridor or the Pacific Surfliner route that serves the 1– 

5 corridor to relieve congestion on those interstate routes. The state should have 

that option. 

Conclusion 

We appreciate the Subcommittee’s initiative in convening this hearing. I would 

like to leave you with three key points from California’s point of view. First, California has made a significant capital and operating investment in its intercity passenger rail system. We urge the Senate to ensure that this investment is protected 

as changes are considered to the relationship between passenger and freight rail 

and as Amtrak’s future is considered. Second, we believe that a continuing and stable source of Federal funding for both capital and operating needs is necessary to 

successfully operate the national intercity rail passenger system. The sooner the 

issue of funding can be resolved, the better for the system. Finally, there has been 

much discussion about introducing competition to Amtrak. If Congress takes this 

route, we recommend that current law be changed to allow states, and by extension 

their franchisees, to access freight railroads at incremental cost. 

I want to thank you again for the opportunity to testify today before this Subcommittee, and would be happy to answer any questions. 

30 

Senator HUTCHISON. Thank you. I will say California has led the 

way in state support, because they haven’t had the luxury of the 

Northeast Corridor support of Amtrak, and you’re not dealing with 

as bad a situation as the rest of the country with the freights, but 

you certainly have had to overcome obstacles, so we will look forward to working with you to strengthen the whole system. 

Mr. Robert Serlin, the President of the Rail Infrastructure Management. 

STATEMENT OF ROBERT SERLIN, PRESIDENT, 

RAIL INFRASTRUCTURE MANAGEMENT, LLC 

Mr. SERLIN. Good morning, Madam Chairman, distinguished 

Members of this Committee. My name is Robert Serlin. I am President of Rail Infrastructure Management, an entity organized to 

analyze opportunities for investment in the rail industry and to 

provide the public sector a partner with whom to develop innovative passenger rail solutions. As we look into the future of intercity 

passenger rail services, I believe that there are three major, immediate challenges facing Amtrak. 

The first challenge is to end the recent experience of almost regular financial crises. In this regard, I think that Mr. David Gunn, 

working with the Department of Transportation and Congress, deserves much credit. 

The second challenge is to restore the infrastructure to a state 

of good repair, and the third, perhaps most ambitious challenge, is 

to find a way to revitalize rail passenger service in the Northeast. 

The basic station pattern in the Northeast was laid out in the 

1920s and the 1930s, and ridership has basically been flat throughout Amtrak’s history. The Northeast Corridor is the most densely 

populated passenger corridor in the world. It has the potential for 

dramatically increased ridership, which will have a strong positive 

effect on Amtrak’s financial results. 

Though most passenger railroads are owned by the public sector, 

the magnitude of capital required has unfortunately grown to a 

level well beyond that achievable through annual Federal or State 

appropriations. Future investment in passenger rail will require 

blending of public and private sectors, and as Secretary Jackson 

has said, a new business model. Secretary Mineta, Deputy Secretary Jackson, and Administrator Rutter have developed a set of 

principles that are a solid basis for a legislative proposal, and are 

consistent with my views. 

Amtrak currently manages two very different and in some ways 

conflicting businesses, the first providing passenger rail service, the 

second managing the 600 miles of owned infrastructure primarily 

located in the Northeast. The second business, the infrastructure, 

consumes significant Amtrak resources. It has been estimated that 

approximately 65 percent of Amtrak’s cash losses are infrastructure-related. Therefore, the blue ribbon panel put together by Bud 

Schuster, the Amtrak Reform Council, and others have proposed 

separating Amtrak into two separate federally owned corporations. 

The separation of passenger transportation from infrastructure 

would free Amtrak to focus on its core competency and would liberate resources, both Federal and State, to be spent in a targeted 

31 

manner to enhance the passenger rail system throughout the country. 

I believe that an infrastructure financing plan can be created and 

funded using nonappropriated funds generated from a combination 

of existing financial instruments. It’s clear that financing is the key 

to creating a successful rail infrastructure company. Financial markets have developed to a point where almost any financing requirements can be addressed through a variety of products. Many, if not 

most of these products do not require Federal appropriations. 

The market for risk continues to grow. In this particular case, 

factors that will be critical for a successful public-private partnership will include clear public policy, a realistic timeframe, credible 

operational plans, and accountability. By using available financial 

instruments, I believe the Federal Government will succeed in attracting the private sector to address this challenge. 

Now, we’ve heard much about the pitfalls of the British experience. Our experience in the United States, however, indicates that 

bifurcation works and is successful. Amtrak only owns a little more 

than 2 percent of the total route miles over which it operates. The 

other 98 percent is owned and is dispatched by others. To the best 

of my knowledge, nobody claims that Amtrak’s operations over its 

nonowned tracks is either unsafe or unsuccessful. Nonetheless, the 

U.K. does provide instructive lessons, some good, some bad. 

In 1995, the U.K. Government privatized British Rail, creating 

Railtrack to manage the infrastructure. It also created a number 

of train service franchises, franchise holders that were licensed to 

run trains. These franchise holders brought focused private sector 

market experience to regional and long distance franchises, and by 

and large thrived. Ridership grew approximately 70 percent in 5 

years, while over $4.3 billion was invested in new passenger rolling 

stock. 

Ultimately, Railtrack failed, mostly because it had failed to invest in its core business, the rail infrastructure. Instead, it focused 

on developing center-city London real estate. It’s in everybody’s interest for the national rail passenger system to succeed. The approach I’ve outlined here will mean better service and greater passenger usage. The precedents exist for utilizing the best of private 

and public resources. We have seen this approach work in freight 

programs, we have seen it work for toll roads. By funding and reinvesting in the Northeast Corridor, we could create a living and 

working business model that will serve as an example for the 11 

other designated high-speed rail corridors. 

Thank you for providing the opportunity to testify, and I welcome 

your questions. 

[The prepared statement of Mr. Serlin follows:] 

PREPARED STATEMENT OF ROBERT SERLIN, PRESIDENT, 

RAIL INFRASTRUCTURE MANAGEMENT, LLC 

Good morning Madame Chairman and distinguished members of this committee. 

My name is Robert Serlin. My background has been developing business solutions 

for revitalizing capital-intensive transportation and basic commodities businesses. I 

appreciate the opportunity to testify before the Subcommittee today. 

I am a President of Rail Infrastructure Management, LLC, an entity initially organized in 1997 to analyze opportunities for investment in the rail industry and to 

provide the public sector a partner to develop innovative rail passenger solutions. 

32 

The need for such an effort was identified in a report produced by the so-called Blue 

Ribbon Panel—the ‘‘Working Group on Intercity Rail Passenger Service’’—which 

was convened in 1997 by House Transportation and Infrastructure Chairman Bud 

Shuster to address Amtrak’s organization and financial structure. 

There has rarely been a time when the topic of passenger rail deserved as much 

focus from a public policy perspective as the one in which we live. Our highway capacity fails to meet demand and further highway build-out in urban areas is unlikely, population growth continues, and the airline industry struggles to identify an 

economically viable business model. Yet, the one truly scalable means of transportation—the passenger railroad—a transportation mode that can be fast, safe, environmentally desirable, and consumer friendly, has been ignored or minimized. 

As we look at the future of inter-city passenger rail service, I believe that there 

are three major, immediate challenges facing Amtrak. 

The first challenge is to end the recent experience of almost regular financial crises. In this regard, I think that Mr. David Gunn, working with the Department of 

Transportation and Congress, deserves much credit. 

The second challenge is to restore the infrastructure to a state of good repair. 

The third and most ambitious challenge is to find ways to revitalize rail passenger 

service in the Northeast. The basic station pattern in the Northeast was laid out 

in the 1920s and 1930s and ridership has been basically flat for much of Amtrak’s 

history. The Northeast Corridor is the most densely populated corridor in the world. 

It has the potential for dramtically increased ridership, which will have a strong 

positive effect on Amtrak’s financial results. 

Though most passenger railroads are owned by the public sector, the magnitude 

of capital required has, unfortunately, grown to a level well beyond that achievable 

through annual Federal or state appropriations. Future investment in passenger 

rail will require a blending of the public and private sectors and, as Secretary Jackson has said, ‘‘a new business model.’’ 

We have recently seen innovatively financed infrastructure projects such as the 

Alameda Corridor in Southern California. Several states are seeking ways to work 

in partnership with the Nation’s freight railroads to develop other new corridors. 

These publicly owned rail infrastructure corridors will need to be maintained and 

operated in accordance with Federal laws and regulations. Amtrak has strived to 

be a catalyst for change, but being chronically short of funds, it can only offer moral 

support and limited equity. 

Stakeholder Needs Guide Solutions 

I am going to focus my comments here on Amtrak, though they are equally applicable to the other eleven DOT-designated high speed rail corridors. 

A solution cannot be created without first identifying the stakeholders and understanding their needs. The interests of critical stakeholders such as labor and the 

states, as represented here today by Mr. Sonny Hall and Mr. Joseph Boardman, 

Chairman of the Transport Workers Union and Commissioner of NY State’s Department of Transportation respectively, must each fully be taken into account and incorporated into any such public-private partnership. The vested commuter carriers 

and the freight railroads with operating rights are also key stakeholder. Amtrak, 

another critical stakeholder, must be able to run its high speed trainsets at up to 

150 mph, and connect New York and Washington in as few as two hours. 

The Federal Government is, perhaps, the most important stakeholder. Secretary 

Mineta, Deputy Secretary Jackson and Administrator Rutter have developed a set 

of principals that are a solid basis for a legislative proposal and are consistent with 

my views. 

Solution is Contained in the Blue Ribbon Panel’s Report 

Amtrak currently manages two very different and, in some ways, conflicting businesses: 

• The first, providing passenger rail service, operating trains for many constituencies and markets over 23,000 route-miles in 46 states. 

• The second, managing the 600 route-miles of owned infrastructure, primarily located in the Northeast, which represents an integral part of the Northeast 

states regional transportation system. 

This second business, the infrastructure, consumes significant Amtrak resources. 

It has been estimated that approximately sixty-five percent of Amtrak’s cash losses 

are infrastructure-related. Therefore, the Blue Ribbon Panel, the Amtrak Reform 

Council and others have proposed separating Amtrak’s operations into two separate, 

Federally owned corporations. 

33 

Under such a proposal, each corporation would control its respective assets. Amtrak would retain the rolling stock, shops, reservation system, and operating rights 

over the Nation’s freight network. Amtrak would continue to run its trains throughout the Nation and the Northeast Corridor. Freed of the owned infrastructure, the 

cost of operating specific rail services could more easily be quantified since each 

service would be largely a variable cost enterprise and unburdened by infrastructure 

allocations. Amtrak could more easily attract new capital since it would be easier 

to match revenues to costs. 

The separation of passenger transportation from the infrastructure would free 

Amtrak to focus on its core competency and would liberate resources (both Federal 

and state) to be spent in a targeted manner to enhance the passenger rail system 

all across the country. 

Financial Approach 

Based upon figures published in oversight reviews and independently conducted 

surveys of potential private sector investors, I believe that an infrastructure financing plan can be created and funded using non-appropriated funds generated from 

a combination of existing financial instruments. 

It is clear that financing is the key to creating a successful rail infrastructure 

company. The financial markets have developed to a point where almost any financing requirement can be addressed through a variety of products. Many, if not most 

of these, do not require a Federal appropriation. 

The market for risk continues to grow rapidly. In this particular case, factors that 

will be critical for successful public-private partnership will include: (i) clear public 

policy; (ii) realistic timeframe; (iii) credible operational plans; and (iv) accountability. Let me talk about each of these briefly. 

• Public policy needs to address the parameters and requirements of what must 

be done. In this case, it would include separating passenger transportation services from infrastructure management. 

• A reasonable time-frame must be stipulated, such as between thirty and fifty 

years, given the investment required to reverse the deferred maintenance and 

turn an operating profit. Profitability can only be achieved by removing chokepoints in the infrastructure that constrain train through-put, limit maximum 

speed and make journey times non-competitive. Our projections indicate that it 

will take between thirteen and fifteen years to reach cash breakeven. 

• A framework for supervising the infrastructure manager and the relationships 

between the multiple infrastructure-users must be found. The solution should 

use existing entities, such as the Federal Railroad Administration and the Surface Transportation Board. Guidelines for accountability should be explicitly 

laid out under current FRA safety regulations and applicable portions of the 

Railway Labor Act. 

• Accountability can be provided both through the mandates of the enabling legislation and the private financial markets. The enabling legislation can create a 

framework that, for example, establishes operational and safety requirements, 

preserves existing passenger rail relationships, recognizes labor’s role, and perhaps even provides additional funding for Amtrak and other regional organizations contemplating new rail passenger corridors. Private financial markets impose financial discipline and performance requirements. 

By using available financial instruments, I believe that the Federal Government 

will succeed in attracting the private sector to address this challenge. It will succeed 

in making available appropriateable funds that can be spent on the national passenger rail system where need and public purpose demand. 

Not the British Experience 

We have heard much about the separation pitfalls experienced in the United 

Kingdom. Our experiences in the United States, however, indicate that bifurcation 

works and is successful. Amtrak only owns a little more than two percent of the 

total route miles over which it operates. The other ninety-eight percent is owned 

and dispatched by others. To the best of my knowledge, nobody claims that Amtrak’s operations over its non-owned tracks is either unsafe or unsuccessful. 

Nonetheless, the U.K. does provide instructive lessons: some good and some bad. 

In 1995, the U.K. government privatized British Rail creating a publicly traded company called Railtrack to manage the infrastructure. A number of train service franchise holders were licensed to run trains. They brought focused, private sector marketing experience to the regional and long distance franchises and, by in large, 

thrived. Ridership grew approximately seventy percent in five years while over $4.3 

billion was invested in new passenger rolling stock. 

34 

Railtrack ultimately failed because it did not invest adequately in its core business—the rail infrastructure. Instead, it focused on developing center city London 

real estate. Factors attributable to Railtrack’s demise include: 

• initial planning that did not match reality: for example, the company encouraged increased track usage before completing the infrastructure improvements 

and maintenance necessary to support such an increase; 

• no government regulatory framework: Railtrack did not operate under any operating regulatory agencies such as our Federal Railroad Administration. This resulted in adversarial relationships between the track users and the track manager; and 

• a legal system unsuited to making infrastructure management decisions: under 

British law, Railtrack’s leadership was personally liable for the actions it took 

and, therefore, outsourced all essential operating functions. This resulted in a 

chaotic response to a string of major derailments in 2001. 

In the United States there currently exists a regulatory system with over one 

hundred years of history to prevent these pitfalls. In addition, it is understood that 

infrastructure improvements, including third tracks, new bridges, tunnels and stations, need to be made before ridership can be allowed to increase. 

Conclusion 

I am not here to judge whether Amtrak could or could not have done a better job. 

I am impressed with Mr. Gunn’s efforts to impose financial discipline on Amtrak 

and to focus Amtrak on its primary operating mission. But nonetheless, Amtrak’s 

structural problems remain. 

It is in everyone’s interest for the national rail passenger system to succeed. The 

approach I have outlined here will mean better service and greater passenger usage. 

The precedents exist for a solution utilizing the best of private and public resources. We have seen this approach in new freight projects. We have seen it in private toll roads. And in essence, we see it in the construction and landside operations 

of airport facilities. The challenge is to optimize that mix by letting the private sector address issues, such as infrastructure, that need in excess of ten years to be implemented. 

This will necessitate that the private and public sectors each acknowledge the importance of the other and that each permit the other to do their work. I agree with 

DOT’s Inspector General, Mr. Ken Mead, who said before you a little over a month 

ago: ‘‘Allowing an infrastructure company to operate ‘‘like a business’’ may mean relinquishing control over . . . which capital investments are made.’’ 

I would be the first to acknowledge that this is but a small part of fixing the larger puzzle of creating the best national passenger rail service possible. By funding 

and reinvesting in the Northeast Corridor, we can produce a living and working 

business model that will serve as an example for the other eleven designated high 

speed corridors. 

Thank you for providing me the opportunity to testify and I welcome questions 

you might have. 

Senator HUTCHISON. Thank you, Mr. Serlin. 

Mr. Sonny Hall, President of the Transport Workers Union of 

America of the AFL–CIO. 

STATEMENT OF SONNY HALL, PRESIDENT, TRANSPORT 

WORKERS UNION OF AMERICA, AFL–CIO; PRESIDENT, 

TRANSPORTATION TRADES DEPARTMENT, AFL–CIO 

Mr. HALL. We as well, Madam Chairman, will be summarizing 

our report, which we’ve already submitted. 

Chairman Hutchison, Ranking Member Inouye, and Members of 

the Subcommittee, my name is Sonny Hall, and I’m the International President of the Transit Workers Union, TWU, and as 

well President of the Transportation Trades Department, AFL– 

CIO, TTD, and appear today in both capacities. 

TWU represents workers at Amtrak and in the freight rail industry, and TTD consists of 35 AFL–CIO unions across the entire 

transportation industry. Thank you for inviting me to testify today 

35 

and for seeking new and innovative ways to fund passenger rail 

service. 

Transportation labor has long argued that our nation must make 

a serious and long-term financial commitment to Amtrak. We must 

recognize that Amtrak is a public service, just like highways, just 

like transit and other infrastructure that should serve the public’s 

transportation needs and not be driven by profit motives. 

Understandably, there’s a desire to look for new ways to increase 

the pot of money available, but in this current debate we must not 

forget how we got here. Amtrak was created in response to the financial bleeding of the Nation’s freight rail carriers in trying to operate passenger rail. In plain English, Amtrak was nothing less 

than a bail-out of failing private passenger rail operations, an acknowledgement that there was no profit to be made here. 

The 30 years that have followed have been filled with one financial crisis after another. Amtrak has struggled to secure enough 

funding to simply remain in operation. Through these many dark 

days, Amtrak workers have repeatedly made the sacrifices needed 

to keep the trains running, but regrettably some have chosen to 

scapegoat Amtrak workers, saying they are part of the problem. 

This is not only untrue, but deeply offensive to those who have 

made years of sacrifice. 

As part of my testimony, I am submitting a report by noted economist Thomas Roth which decisively concludes that labor costs at 

Amtrak have remained constant over the past 21 years and have 

actually declined in real dollars. In fact, Amtrak wages have lagged 

far behind cost-of-living increases and trail the raises of freight and 

commuter rail workers. Just as the myth that Amtrak can exist 

without subsidies must end, so, too, must the myth and the scorn 

it breeds that Amtrak workers have made too much and too little 

sacrifice. 

Transportation labor will insist that jobs and livelihoods of Amtrak employees are not ignored or cast aside. As well, it’s imperative that new collective bargaining agreements are completed without further delay, contract agreements that are already 3–1/2 years 

delayed, and of course any new financing mechanisms must protect 

the rights of the men and women who have built this railroad and 

have done everything they can and more to keep it running. The 

entire labor movement would strongly mobilize against any legislation that turns its back on Amtrak workers. 

I want to call the Committee’s attention to a study released yesterday by the highly regarded Economic Policy Institute. The report, ‘‘Amtrak Privatization: The Route to Failure’’ challenges the 

myth that the solution to Amtrak’s problems is to privatize the system. I understand that EPI has submitted a copy of this report for 

the record, and I urge members of the panel to use it as a guide 

as you consider various passenger rail legislative proposals. 

As chronicled in the EPI study, privatization of Amtrak is hardly 

the answer. In the mid-1990s, the British Government privatized 

passenger rail, and what happened? Rampant delays in service, 

higher accident rates, shoddy maintenance, and increased fares. 

Things got so bad that England has been spending the last few 

years trying to re-nationalize the system and the political party 

that came up with the idea to privatize in the first place has promVerDate Nov 24 2008 07:27 Nov 25, 2013 Jkt 075679 PO 00000 Frm 00039 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\85625.TXT JACKIE
36 

1The following TTD affiliates are members of our Rail Labor Division: American Train Dispatchers Department/BLE; Brotherhood of Locomotive Engineers; Brotherhood of Maintenance 

of Way Employes; Brotherhood of Railroad Signalmen; Hotel Employees and Restaurant Employees Union; International Association of Machinists and Aerospace Workers; International 

Brotherhood of Boilermakers, Blacksmiths, Forgers and Helpers; International Brotherhood of 

Electrical Workers; National Conference of Firemen & Oilers/SEIU; Sheet Metal Workers International Association; Transportation · Communications International Union; and Transport Workers Union. 

ised that if they get back into power they will surely not do it 

again. 

The EPI report questions how breaking up into a number of 

pieces would make things any better. Amtrak is drowning under a 

deficit, struggling to turn around a significant deferred maintenance crisis, already paying substandard wages, and is subject to 

an unprejudicial and highly volatile funding source. What EPI recommends, and the transportation labor endorses, is instead of 

privatizing Amtrak or reshuffling the deck chairs in a bureaucratic 

shell game, we should tackle the problems head-on by making a 

strong, long-term financial commitment to Amtrak. TTD has specifically endorsed the $1.8 billion that Amtrak is 

seeking for Fiscal Year 2004, and we would hope that all Senators 

who are looking at a new funding plan would support this request 

as a baseline level. We must be crystal clear in rejecting the fable 

that Amtrak can and should make a profit. Every other mode of 

transportation receives Government support to survive. Why do we 

insist on holding Amtrak to a higher standard? 

As the EPI study points out, highways receive 43 times the funding level that rail receives, and I think these are significant numbers, and all certifiable. Aviation receives 20 times as much, and 

transit, which EPI candidly refers to as the other stepchild in the 

Federal budget, received eight times as much Federal support. 

Overall, passenger rail received just over 1 percent of all Federal 

transportation dollars and about one-third of 1 percent of combined 

Federal, State, and local spending. Amtrak must be given the same 

chance to succeed that our nation’s highways, air and water transportation systems have appropriately been given over the years. 

This concludes my testimony. I hope we can work together to 

fund and support Amtrak’s system that serves the interests of the 

passengers, communities, and workers, and I’ll add, I know we can 

work together. 

[The prepared statement of Mr. Hall follows:] 

PREPARED STATEMENT OF SONNY HALL, PRESIDENT, TRANSPORT WORKERS UNION

AND TRANSPORTATION TRADES DEPARTMENT, AFL–CIO 

Chairman Hutchison, Ranking Member Inouye and members of the Subcommittee, my name is Sonny Hall and I am International President of the Transport Workers Union (TWU) as well as President of the Transportation Trades Department, AFL–CIO (TTD) and appear today in both capacities. TWU represents 

workers at Amtrak and in the freight rail industry and TTD consists of 35 affiliated 

unions across the entire transportation industry, including the 12 rail unions that 

make up our Rail Labor Division.1

Let me first thank you Chairman Hutchison for inviting me to testify today on 

this extremely important and timely subject. This Committee has a history of seeking the views of transportation workers and their unions and I applaud you for including us in your deliberations over the future of Amtrak. We might not always 

agree, but I think including us in this critically important debate will only enhance 

this Committee’s consideration of how to improve and support passenger rail service 

across America. 

37 

The Committee has called this hearing to discuss ways to finance intercity passenger rail service. We applaud your leadership in tackling this difficult issue. 

Transportation labor has long argued that this country needs to make a real, longterm financial commitment to Amtrak and to recognize once and for all that passenger rail service is a public service—not a ‘‘for-profit’’ endeavor. Unfortunately, 

Congress and this Administration have failed to provide Amtrak the level of support 

it needs to succeed as a viable national rail passenger service. In short, Amtrak suffers from too many years of chronic under-funding and any solution considered by 

Congress must reverse what has been throughout Amtrak’s existence wildly unrealistic transportation policy. 

As I will discuss in more detail, yesterday the Economic Policy Institute (EPI), 

a highly respected Washington, DC-based think tank, released a study that debunks 

the myth that the solution to Amtrak’s problems is to privatize the system. It is 

our understanding that EPI has submitted a copy of this report for the record and 

I urge members of the panel to review it and to use it as a guide as you consider 

various passenger rail legislative proposals. 

We have long understood that calls to privative Amtrak, or to insist that the carrier somehow turn a profit, are simply a way to expect the impossible from a national rail system and in the end use the operation’s financial distress to call for 

its elimination. From a transportation policy perceptive, as well as from a labor perspective, we find this result unacceptable and we are heartened by the fact that so 

many Members of this Committee agree with us. We sincerely hope that EPI’s in 

depth analysis of the perils of privatization will allow this Committee and other policy makers to close the book on this dangerous experiment and instead properly direct attention to more sensible solutions. 

I know there is a great deal of interest on this Committee, and from many members of this panel, in finding new and innovative ways to fund national passenger 

rail service. As we have in other sectors of transportation, we support finding new 

ways to attract badly needed capital for passenger rail infrastructure, and I will discuss this issue in more detail later in my testimony. But let me say now that we 

need to first and foremost support the national passenger rail system we have 

today. And as we look to the future, we must remember the history behind Amtrak’s 

creation and the financial hardship inspired by many years of neglect and inadequate Federal investment. Moreover, we must learn from that experience as we 

venture to make Amtrak a successful national railroad operation. 

Amtrak was created three decades ago with a simple goal in mind: to establish 

a modern, efficient intercity passenger railroad that can provide a truly national 

network of passenger transportation. Amtrak was charged with operating and revitalizing intercity passenger rail service and integrating such service into our national transportation system because it was clear in the late 1960s that freight carriers were unable and unwilling to sustain the severe financial losses associated 

with operating passenger rail service. Simply stated, Amtrak was created in response to the financial bleeding associated with the rail passenger operations of the 

Nation’s freight rail carriers. In plain English, Amtrak was nothing less than a bailout of failing private passenger rail operations. 

Unfortunately, the history of Amtrak is filled with one financial crisis after another as the carrier has struggled to secure adequate funding simply to remain in 

operation. Amtrak workers have made repeated sacrifices to help the railroad survive through some of its darkest days, including efforts in the past to eliminate or 

slash Amtrak’s Federal funding. Amtrak workers have taken the brunt of the railroad’s financial hardships year after year. But, regrettably, some have chosen to 

scapegoat Amtrak workers, saying they are part of the problem. This is not only untrue, but deeply offensive to those who have made years of sacrifice. 

Several weeks ago, rail labor released a study on Amtrak wage data prepared by 

noted economist Thomas Roth. The report, which I am submitting as part of my testimony, definitively demonstrates that labor costs at Amtrak, including wages and 

benefits, have remained constant over the past 21 years and have actually declined 

in real dollars. In fact, Amtrak wages have lagged far behind cost-of-living increases. Amtrak employees earn well below the prevailing rates of their counterparts in the freight and commuter rail industry. 

A typical Amtrak worker today earns on average 22 percent less than a worker 

performing the same job on a freight railroad. It is also significant that as a percentage of total operating expenses, Amtrak’s employment costs have not increased in 

almost 20 years. Just as the myth that Amtrak can exist without subsidy must end, 

so too must the myth—and the scorn it breeds—that Amtrak workers make too 

much and sacrifice too little. 

We were happy to hear Mr. Gunn testify recently that Amtrak’s workers’ wages 

are not the problem. Amtrak employees have been without a new contract for three 

38 

and one-half years, and are grossly underpaid. In fact, Amtrak employees have not 

had a wage increase in this century, and since their contracts became amendable 

1999, have received a COLA built in to the old contract of a total of 59 cents per 

hour. Over that four year period, that works out to a little over a penny per month. 

Ms. Chairwoman and members of this Committee, rail labor wants Amtrak to succeed. We want Amtrak to prosper. However, we also must respect and properly acknowledge the frontline men and women who do their best every day to move people 

safely and efficiently from one end of this country to the other over tens of thousands of miles of railroad track. As TTD’s 35-member Executive Committee resolved 

earlier this year, ‘‘As Congress and the President secure Amtrak’s future, transportation labor will insist that the jobs and livelihoods of Amtrak employees are not 

ignored or cast aside and that new collective bargaining agreements are completed 

without further delay.’’ 

As chronicled in the EPI study, privatization of Amtrak is hardly the answer. We 

need only look at Great Britain’s failed experiment to see what can happen when 

we allow a public service to be hijacked by private interests. Beginning in 1994 and 

ending in 1996, British Rail, motivated by the zeal for broad privatization of various 

public services, was transformed from a publically run service into a ‘‘competitive’’ 

railroad market. The story of British Rail underscores the threats of ideologically 

driven policy experiments such as rail privatization. British passengers were saddled with increased fares, shoddy maintenance practices, and dangerous cost cutting 

including excessive job reductions. This resulted in higher accident rates, deteriorated service and coordination problems within a maze of poorly managed providers. 

And the British people were left with an operational meltdown of unprecedented 

proportions. 

By 1999, with problems mounting, the government began to undo the privatization experiment and sought to disengage the so-called market model. In the end, as 

pointed out by EPI, Britain will have a system that looks a lot like Amtrak—but 

better funded. I should note, and this fact is cited in the EPI report, that the Conservative shadow Secretary of Transportation recently pledged to voters that if the 

Torries are returned to power, they will never attempt to re-privative the rail system. 

Let me also comment on proposals put fourth by the Amtrak Reform Council, the 

Administration and others that would solve Amtrak’s problems by breaking up the 

system and dividing various responsibilities. ARC’s proposal, for example, would 

slice Amtrak into component operations and then turn to some very complicated 

contracts to ensure basically the same service that Amtrak provides today. Besides 

raising transaction costs (a major problem with British Rail) and creating additional 

layers of bureaucracy, I am not sure what will be accomplished by this or other 

models following a similar course. Is Amtrak run perfectly today? No. There are of 

course areas for improvement and we want to work with the carrier and this Committee on that effort. But how is dividing the franchise into various parts inherently 

any better then the current framework? Amtrak is drowning under a deficit, struggling to turn around a significant deferred maintenance crisis, already paying substandard wages to employees and subject to unpredictable and highly volatile funding sources. These are the issues that deserve the immediate attention of this Committee. 

We understand that some members of this Committee and other interests are pursuing new ways to fund transportation projects, including inter-city passenger rail. 

In particular, focus has turned to bonding initiatives that are designed to raise billions of dollars for capitol and related improvements. Obviously, we welcome any attempt to increase the pot of money available and to create the operational, maintenance and construction jobs so badly needed in America. But these initiatives must 

be carried out responsibly and the interests of employees must be protected. First 

and foremost, any funding plan must adhere to existing and longstanding employee 

protections. Any of the funding initiatives would be Federal in nature and the inclusion of labor standards is consistent with longstanding and successful transportation 

policy previously enacted on a bipartisan basis. We would be forced to oppose such 

legislation if the interests of employees are not protected. 

In addition, we urge against speculative funding proposals as a substitute for supporting our existing national rail system—Amtrak. TTD has specifically endorsed 

the $1.8 billion that Amtrak is seeking for FY 2004 and we would hope that all Senators who are looking at new funding plans would support this request as a baseline 

level. Let us mobilize to reject the principle that Amtrak must make a profit because it is that basic notion that has doomed Amtrak to failure for three decades. 

As EPI points out in explicit detail, highways receive 43 times the Federal funding 

that rail receives; aviation receives 20 times as much; and transit—which EPI candidly refers to as ‘‘the other stepchild in the Federal budget’’—receives 8 times as 

39 

much Federal support. Since 1971, Amtrak has received about $21 billion in Federal 

dollars—less than the $23.6 billion that highways received in 1999 alone. And overall, passenger rail receives just over 1 percent of all Federal transportation dollars 

and about one-third of one percent of combined federal, state and local funding. 

What is clear is from these figures is that Amtrak must be given the same chance 

to succeed as our Nation’s highway, air and water transportation systems have been 

given over many decades. 

Again Madam Chairman, thank you for allowing transportation labor the opportunity to present our views on the future of Amtrak and inter-city passenger rail 

service. This issue is critically important to us, not only for the jobs that such a 

service creates and supports, but because we agree with you and many of your colleagues that national passenger rail service is an integral part of our overall transportation system. I hope we can work together to fund and support an Amtrak system that serves the interests of passengers, communities and workers. 

Senator HUTCHISON. Thank you, Mr. Hall. Mr. James Query, the 

Senior Vice President of Lehman Brothers in Philadelphia. 

STATEMENT OF JAMES (ROCKY) QUERY, 

SENIOR VICE PRESIDENT, LEHMAN BROTHERS 

Mr. QUERY. Thank you, Chairman Hutchison, Senator Lautenberg, for the invitation to participate in this discussion this morning. Again, my name is James ‘‘Rocky’’ Query. I’m a Senior Vice 

President, as you said, in the Public Finance Department of Lehman Brothers, an international investment banking firm. The firm 

has been very active through the years as one of the largest providers of investment banking services both to governmental as well 

as corporate clients in the transportation industry. 

Over the last 20 years or so, I’ve had the opportunity to develop 

financing programs on behalf of a number of the largest transportation agencies in the country across all sectors, including highways, transit, airports, marine ports, as well as intercity passenger 

rail, and of perhaps particular relevance to this Subcommittee I’ve 

previously executed transactions and provided financial advisory 

services for Amtrak. 

Presently, my colleagues and I at Lehman Brothers are also 

members of a private consortium led by Fluor Daniel and Bombardier, which is one of two finalists selected by the Florida High 

Speed Rail Authority to develop new high-speed passenger rail 

service between Orlando and Tampa as the first phase of the development of a statewide high-speed intercity rail system in Florida. 

I appreciate the opportunity to comment on funding requirements and financing alternatives that you’re considering. The efforts and the discussion this morning recognize the growing demand rather than stagnant demand or declining demand, but increasingly rapidly growing demand for reliable intercity passenger 

rail service across the country. It’s not only travelers, clearly, in 

the Northeast Corridor who continue to be highly dependent on 

such service. 

As service levels grow on the West Coast, as has been described, 

the essentiality of intercity rail in that corridor continues to grow 

as rapidly, if not more rapidly, than it has in the Northeast Corridor, as you’ve said so clearly this morning as well. Across the 

country, both in Texas as well as Florida, throughout the Midwest, 

throughout the Southeast, transportation planners and policymakers are all looking to passenger rail service as a way to address 

growing congestion concerns faced by their transportation network, 

40 

and clearly, as has already been stated this morning as well, September 11 demonstrated that just a series of corridors is not sufficient, either. The importance of maintaining a national passenger 

rail transportation system is very definitely an essential part of a 

diversified and well-balanced transportation system. 

I would emphasize several elements that would be most beneficial from my perspective in establishing a funding framework and 

particular financing tools that could be most helpful in addressing 

these needs. First, I would emphasize the importance of establishing a reliable source of long-term funding and funding formulas 

for intercity passenger rail projects. This is in my opinion the single most important measure the Subcommittee could take to support capital funding for such projects. 

In 1997, when Congress passed the Taxpayer Relief Act, it provided a multiyear funding package for Amtrak, and that was the 

first time in Amtrak’s history, I believe, that that had actually 

taken place. Ideally, capital-intensive infrastructure programs such 

as rail are best supported, obviously, by a dedicated source of ongoing revenues, but if you can’t have a dedicated source of revenues, 

a multiyear package of funding is the next best thing, and Amtrak 

was able to take that multiyear commitment in the 1997 legislation, and it became an essential ingredient in Amtrak’s ability to 

establish an investment credit rating that enabled it to use the 

markets effectively to achieve cost-effective financing for the improvements in the high-speed rail service in the Northeast Corridor 

that allowed for the electrification of the system up to Boston and 

expanding service in the corridor. 

The second important point would be eliminating the disparity in 

available funding for intercity rail projects compared to other surface transportation modes such as highway and transit. I fundamentally agree with the comments made this morning with regard to how beneficial it would be to states like California. I think 

from sitting in the seat of the director of transportation in any 

state to be faced with a situation where if you fund highways or 

fund transit you know there will be 80 percent matching funds 

coming, but if you fund something that is called intercity rail 

there’s no funding coming. It makes it very difficult, I think, from 

both a transportation planning perspective as well as budget planning purposes. 

The challenge in simply adding intercity rail to the existing programs, though, clearly is that trust fund resources are viewed by 

many as inadequate already to meet just the needs of highway and 

transit alone. Simply adding a new category of eligible spending 

will only increase the level of competition between modes for available funds. 

Third, the framework provided by current State transportation 

improvement plans from my perspective provides perhaps the most 

effective mechanism for establishing priorities among competing 

highway and transit projects, so by allowing states to take the lead 

through their transportation improvement plans, and identifying 

and developing specific projects, can be an effective way to establish intercity rail priorities as well. 

Fourth, a recognition that intercity rail projects are different 

than transit projects—they often cross state lines, just by way of 

41 

example, and so funding programs should encourage State efforts 

to act collectively by allowing them to combine resources to meet 

matching fund requirements. 

Fifth, intercity rail projects should enjoy the same access to taxexempt financing as is currently enjoyed by other transportation 

modes such as airports and seaports. Most capital spending for 

intercity rail is done by Amtrak or the freight railroads, none of 

whom have the ability to issue tax-exempt debt. Congress could 

provide for the issuance of exempt facility, tax-exempt debt, free 

from volume cap restrictions for qualifying passenger rail projects, 

as is presently allowed for airport and seaport projects. 

Sixth, tax credit bonds can be a highly effective way for the Federal Government to provide long-term capital funding support for 

intercity rail needs. The experience with tax credit bonds to date 

in the context of the QZAB program for school construction projects 

from my perspective should be viewed as encouraging, rather than 

discouraging. Clearly, the dollar volumes that are being discussed 

are quite different, but the use of QZAB bonds continues to grow, 

as does the private investor support for such projects. Recent proposals for using the tax credit bond mechanism for transportation 

projects all share a number of key provisions that will increase the 

level of investor interest and market receptivity for such programs. 

Some of those key features are the ability to separate the tax benefits themselves from the repayment of principal, so-called stripability. 

Other key factors for effectiveness will be including an appropriate interest rate formula to establish the level of tax benefit, 

and provisions regarding the potential risk of recapture of tax benefits from investors should project sponsors fail to comply with program requirements. 

Seventh, outside of the Northeast Corridor, passenger rail service 

is dependent on the conditions of rail and right-of-way owned and 

maintained by private freight rail companies. Finding adequate 

capital to meet the service levels required for passenger traffic is 

difficult for these companies as well. Access to tax-exempt financing for projects on private right-of-way which have been included 

in a State transportation improvement plan, as well as measures 

to address liability concerns, could be very helpful incentives to encourage greater freight rail investment and necessary upgrades for 

passenger rail service. 

And then last I would say, in terms of public-private partnerships, these can very much be an effective mechanism for development of new passenger rail projects. As I mentioned, Lehman 

Brothers is currently a member of a consortium that is one of two 

finalists who have proposed a plan for the Florida High Speed Rail 

Authority. Our proposal utilizes a unique combination of public and 

private sector funding for the system, rolling stock as well as infrastructure. Very importantly, our proposal depends upon the availability of tax credit bond support totaling nearly $2 billion over the 

next 6 years. In conjunction with the issuance of tax credit bonds, 

Fluor Daniel and Bombardier will be placing private capital at risk 

to help fund system capital as well as operating costs. 

So as you evaluate other public-private initiatives that may be 

proposed such as the one described by either the AAR or rail infraVerDate Nov 24 2008 07:27 Nov 25, 2013 Jkt 075679 PO 00000 Frm 00045 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\85625.TXT JACKIE
42 

structure management, for example, we would encourage you to 

recognize that intercity rail projects, like all other public transportation modes, will require some level of ongoing public support, and 

this operating and capital subsidy is not evidence of management 

failure in any way. Long-term, reliable Government support is a 

necessary ingredient for dependent and efficient public transportation system. The task clearly is one of providing the necessary 

support in the most cost-effective fashion. 

I’ve not tried to comment on all of the financing proposals that 

have been made, but I welcome any specific questions, and thank 

you again for your efforts to address this issue. 

[The prepared statement of Mr. Query follows:] 

PREPARED STATEMENT OF JAMES (ROCKY) QUERY, SENIOR VICE PRESIDENT, 

PUBLIC FINANCE DEPARTMENT, LEHMAN BROTHERS

Chairman Hutchinson and Distinguished Members of the Subcommittee: 

My name is James (Rocky) Query. I am a Senior Vice President in the Public Finance Department of Lehman Brothers, an international investment banking firm. 

The Firm is one of the largest providers of investment banking services to governmental and corporate clients in the transportation industry. Over the last twenty 

years I have had the opportunity to develop financing programs on behalf of a number of the country’s largest transportation agencies serving all transportation sectors 

including highways, transit, airports, marine ports and intercity passenger rail. Of 

particular relevance to the Subcommittee, I have previously executed transactions 

and provided financial advisory services for Amtrak. Presently, my colleagues and 

I at Lehman Brothers are also members of a private consortium led by Fluor Daniel 

and Bombardier which is one of two finalists that have been selected by the Florida 

High Speed Rail Authority to develop new high speed passenger rail service between 

Orlando and Tampa, Florida as the first phase of the development of a state-wide 

high speed intercity rail system. 

I appreciate the opportunity to comment on funding requirements and financing 

alternatives that you are considering to address the capital needs for conventional 

and higher speed passenger rail service. The Subcommittee’s efforts recognize the 

growing demand for reliable intercity passenger rail service across the country. 

Travelers in the Northeast Corridor continue to be highly dependent on such service. As service levels grow on the West Coast, the essentiality of intercity rail service 

in that corridor has grown as well. The high priority placed on funding for passenger rail service by groups such as the National Governor’s Association, the States 

for Passenger Rail Coalition, the National League of Cities and other municipal organizations is the best evidence that a broad-based group of transportation planners 

and policymakers in the Midwest, the Southeast, Florida and Texas are all looking 

as well to new passenger rail service to address growing congestion concerns faced 

by their transportation networks. Beyond the demonstrated demand for improved 

rail service in select corridors, the events of September 11th also emphasized for 

many, the importance of maintaining a national passenger rail transportation system as part of a diversified and well-balanced transportation system. 

As this Subcommittee considers the funding framework and financing tools that 

can best address these needs, I would emphasize several elements that would be 

most beneficial: 

First, establishing a reliable source of long-term Federal funding and funding 

formulas for intercity passenger rail projects is the single most important measure this Subcommittee could take to support capital funding for such projects. 

In 1997, Congressional passage of the Taxpayer Relief Act provided a multi-year 

funding package for Amtrak. Ideally, capital intensive infrastructure programs 

such as rail are best supported by a dedicated source of ongoing revenues. 

Multi-year funding is the next best thing. The multi-year funding provided to 

Amtrak in the 1997 legislation was an essential ingredient in Amtrak’s ability 

to establish an investment grade credit rating that enabled it to achieve highly 

cost-effective financing for the improvements in high speed rail service in the 

Northeast Corridor that were launched over the past few years. 

Second, eliminating the disparity in available funding for intercity rail projects 

compared to other surface transportation modes such as highway and transit 

43 

is essential. Highway and transit projects established as priorities in a state’s 

transportation improvement program receive similar levels of Federal matching 

support under existing trust fund formula programs. The same should be true 

for intercity passenger rail priorities as well. The challenge, of course, is that 

trust fund resources are viewed by many as inadequate already to meet the 

needs of highways and transit alone. Simply adding a new category of eligible 

spending will only increase the level of competition between modes for available 

funds. 

Third, the framework provided by current state transportation improvement 

plans provides an effective mechanism for establishing priorities among highway and transit projects. Allowing states to take the lead through their transportation improvement plans in identifying and developing specific projects can 

be an effective way to establish intercity rail priorities as well. 

Fourth, intercity rail projects often cross state lines. Funding programs should 

encourage state efforts to act collectively by allowing them to combine resources 

to meet matching fund requirements. 

Fifth, intercity rail projects should enjoy the same access to tax-exempt financing as is currently enjoyed by other transportation modes such as airports and 

seaports. Most capital spending for intercity rail is done by Amtrak or the 

freight railroads, none of whom have the ability to issue tax exempt debt. Congress could provide for the issuance of exempt facility tax exempt debt free from 

volume cap restrictions for qualifying passenger rail projects as is presently allowed for airport and certain seaport projects. 

Sixth, tax credit bonds can be a highly effective way for the Federal Government to provide long-term capital funding support for intercity rail needs. The 

experience with tax credit bonds to date in the context of the QZAB program 

for school construction projects should be encouraging. Use of QZAB Bonds continues to grow as does the private investor support for such projects. Recent 

proposals for using the tax credit bond mechanism for transportation projects 

have shared a number of key provisions that will increase the level of investor 

interest and market receptivity for such a program such as the ability to separate the tax benefits from the repayment of principal (strippability). Other key 

factors that will determine effectiveness include the interest rate formula that 

will be adopted to establish the level of tax benefit and provisions regarding the 

potential risk of recapture of tax benefits from investors should project sponsors 

fail to comply with program requirements. 

Seventh, outside of the Northeast Corridor, passenger rail service is dependent 

on the conditions of rail and right-of-way owned and maintained by private 

freight rail companies. Finding adequate capital to meet the service levels required for passenger traffic is difficult for these companies as well. Access to 

tax-exempt financing for projects on private rail right-of-way which have been 

included in a state transportation improvement plan and measures to address 

liability concerns could be helpful incentives to encourage greater freight rail investment in necessary upgrades for passenger rail service. 

Eighth, public private partnerships can be an effective mechanism for development of new passenger rail projects. As I mentioned, Lehman Brothers is currently a member of a consortium led by Fluor Daniel and Bombardier that is 

one of two finalists who have proposed a plan to the Florida High Speed Rail 

Authority to provide high speed passenger rail service between Orlando and 

Tampa, Florida as the first phase of a state-wide system. Our proposal utilizes 

a unique combination of public and private sector funding for the system rolling 

stock and rail infrastructure. Importantly, our proposal depends upon the availability of tax credit bond support totaling nearly $2 billion dollars over the next 

six years. In conjunction with the issuance of tax credit bonds, Fluor Daniel and 

Bombardier will be placing private capital at risk to help fund system capital 

and operating costs. 

As you evaluate other public private initiatives that may be proposed, such as the 

one described by Rail Infrastructure Management, we would encourage you to recognize that intercity rail projects, like all other public transportation modes, will require some level of ongoing public support. Operating and capital subsidies are not 

evidence of management failure. Long-term reliable governmental support is a necessary ingredient for any dependable and efficient public transportation system. The 

task is one of providing the necessary support in the most cost-effective fashion. 

A number of specific measures have been proposed for the Subcommittee’s consideration. I have not tried to comment on all of the financing measures that have been 

44 

proposed, but I welcome any specific questions you may have . Thank you again for 

your efforts to address this important issue. 

James (Rocky) Query is a Senior Vice President with Lehman Brothers, an investment banking firm. He is a member of the Firm’s Public Finance Department responsible for its work with many public transportation agencies in several sectors 

including highways, transit, intercity rail and airports. He has more than twenty 

years of industry experience and has worked with many of the country’s largest rail 

programs. He has previously served as financial advisor and underwriter for transactions on behalf of Amtrak. Lehman Brothers is currently a member of a consortium led by Fluor Daniel and Bombardier which has proposed to develop high speed 

rail service between Orlando and Tampa Florida as the first phase of the development of a state-wide high speed rail system. 

Senator HUTCHISON. Thank you very much, Mr. Query. 

Senator Lott needs to leave, and Senator Lautenberg has agreed 

to let him take his time, and I will certainly defer until after you’ve 

left. 

STATEMENT OF HON. TRENT LOTT, 

U.S. SENATOR FROM MISSISSIPPI 

Senator LOTT. I thank you very much, Madam Chairman. Mainly 

I wanted to thank you for having this hearing. I want to thank the 

witnesses for being here. It’s been very interesting, and we’re looking for some answers and some solutions. Unfortunately, a lot of 

people come to us and say, don’t do this, don’t do that, don’t do 

something else, we can’t do this, we can’t do that. We’re looking for 

answers here on what we can do. 

I think Mr. Query, maybe you did begin to touch on specifics that 

we should consider, but we thank all of you for being here. I continue to be a supporter of Amtrak. I think we should have a national rail passenger system, not one that is just on the Eastern 

Seaboard, although obviously that is very important. I think we 

just are going to have to make up our minds what are we going 

to do to fund it, and if we’re not prepared to fund it, then probably 

we should go ahead and cut our losses now. 

I don’t advocate that. I think we should try to find a way to get 

this done without it interfering with a viable freight service or 

other things that are being discussed here, and I think the Administration is going to have to help us come up with some solutions 

and make tough decisions on how we’re going to do that, and I 

know that Chairman Hutchison is going to be looking for some 

ideas that we can put together in legislation and act on this year, 

and I just wanted to thank you for having this hearing. 

Senator HUTCHISON. Well, thank you, Senator Lott. I certainly— 

I have a bill that is another way to finance infrastructure. I think 

we must do something bold or we are going to be continuing to try 

to catch up, and run and catch up, and run and catch up, and 

never catch up, so that is my goal, and I look forward to working 

with you on that. 

Senator LOTT. Thank you. 

Senator HUTCHISON. Thank you. I’m going to defer my questions 

until Senator Lautenberg and Senator Smith have had a chance to 

talk, because I appreciate their interest in the hearing, and then 

I will have a few questions at the end. 

Senator Lautenberg. 

45 

Senator LAUTENBERG. Thank you, Madam Chairman. That’s very 

generous of you in view of the threat that the Nets bring to San 

Antonio, and it is gallant. 

The testimony that we heard is all good, not good good, if you 

know what I mean, but all interesting, let’s say, and there are 

enough differences of view to muddy up the issue, not intentionally, 

but, because these are points made with a degree of validity. However, it comes down to just a couple of things, and I think, Madam 

Chairman, we have got to kind of resolve this. We have to drop the 

notion that passenger rail service can support itself. I think you’ve 

said it, and it has to be understood it’s a service. 

Neither can aviation support itself, and we certainly don’t expect 

the highway system to be carried entirely by taxes that are derived 

within a particular state. That’s the investment in our democratic 

society, to try to provide as much pollution-free travel as we can 

and reduce as much congestion time as we can. If we start there 

and say, look, we are hopelessly entangled with passenger rail 

service, and all you have to do is look at the statistics, don’t look 

at Amtrak’s balance sheet or operating statement as directly as one 

might when looking at a company. We know that lots of companies 

fail, and government, when they try government-type services. 

Where else has passenger rail gone private and done well? I can’t 

think of it, unless it’s a tourist attraction into the Land of the Jungle, or something like that, but otherwise it just doesn’t happen. 

Second, revenues. The source of revenues for airlines is considerably diminished in these tough years and months, so what’s the answer there? Have the Government bail out the airlines. You don’t 

hear me protesting it. I must tell you, there are questions about 

it, but the fact of the matter is, we need aviation. We need those 

airplanes flying overhead very day, and if we didn’t have them simply on the Northeast Corridor I would think we would need some 

10,000 flights additionally passing overhead to carry people from 

Boston and New York to Washington. So we pony up to the bar, 

as they say, when these crises arise. 

I do think there are other ways, and I commend the Chairman. 

The Chairperson tries to help by thinking through ways of new financing, but remember, when you borrow you’ve got to pay back, 

and you pay not only principal, but you pay interest, so if you take 

$50 billion worth of bonding and you extended that over 25 years, 

which is a reasonable period of time, you’re looking at $2 billion a 

year minimum of principal payments, and what’s the interest? If 

the interest is 4 percent, you’ve got another couple of billion dollars 

worth of interest that come due on a regular basis. 

So with that lecture, forgive me, I want to just ask a couple of 

questions here. Mr. Hamberger, I know the DOT projects annual 

domestic freight volumes substantially higher, basically double, to 

increase to 221⁄2 billion tons by 2020. How is the railroad industry 

going to keep up with the infrastructure improvements that it 

needs to sustain that amount of traffic? 

Mr. HAMBERGER. Well, thank you for that question, Senator, because it does go right to the heart of this issue that we’re discussing today, and that is the freight railroads need to continue to 

expand their capacity to upgrade their lines so they can get more 

efficient use out of the capacity that is there, and what we have 

46 

been doing over the past 5 years, we’ve reinvested 18.3 percent on 

average for the past 5 years, 18.3 percent of all revenues have been 

reinvested back into the infrastructure of this industry, and I’m 

pleased to say that with the announcements that were made for 

Fiscal Year 2003, the industry has continued that, and in fact a 

number of companies have even increased beyond that, so we recognize that the business is there, and we’re investing to try to get 

more of it onto the freight railroads. 

Senator LAUTENBERG. Mr. Hamberger, this sharing of facilities 

with passenger rail is obviously one that perplexes or at least 

alienates the freight carriers, and we’re using the same highway in 

lots of places, and there are no other rights-of-way. How do we do 

it beside cooperation? We can’t say that, OK, they’ve got to pay 

more and more and more. The freight railroads are doing pretty 

well these days. 

Mr. HAMBERGER. Well, let me just go to the point of whether or 

not we’re alienated, and in fact I think it is a little known fact that 

in 2002, 400 million riders rode commuter rail passenger service. 

A great majority of that was on freight rail property. In fact, our 

members every day are trying to work with local communities. 

I know one of our members just signed a Memorandum of Understanding with the two Senators from the State of Washington and 

the Governor of Washington for the Sounder Transit out in SeattleTacoma, and so in fact I believe that we are good corporate citizens. We recognize the right-of-way is in existence, and what we 

try to do is sit down with the local leaders and accommodate both 

the need for passenger and the need for freight, and I guess the 

idea is that that needs to be done on an arm’s-length negotiating 

basis, as opposed to having it just imposed from on high, and so 

we do try to recognize that that is—to your point, that that is a 

valuable asset for the community and for the public, and that we 

try to work with the local communities to accommodate both. 

Senator LAUTENBERG. AASHTO estimates that total freight rail capital investment cash needs will be somewhere $175 billion to 

$195 billion over the next 20 years. The private rail industry will 

only be able to provide up to $142 billion based on the AASHTO 

statement. The remainder of somewhere, $50 billion, would require 

public investment. Where might that come from? 

Mr. HAMBERGER. Well, there are two, I think, answers to that. 

One is, those are projections as to what our industry will invest 

and given the rate of return and what can be accomplished, there’s 

always the possibility that there will be more private investment, 

but I think as you take a look at that bottom line report, and it 

was a great report written by AASHTO, what it says is that the 

private sector will invest at a certain level, $142 billion, because 

that is the economically defensible rate of return to invest to get 

that much more business, that much more capacity, but the report 

goes on to say that freight rail itself has public benefits, that 

freight rail has public benefits in congestion mitigation, clean air, 

fuel use improvement, and that what it calls for is a public-private 

partnership, a new partnership where, if the public wants to 

achieve those public benefits, then that delta would be a public investment, and we certainly are willing and ready to work with, as 

that report calls for, a new partnership. 

47 

Senator LAUTENBERG. Who is the public that is investing, as you 

describe it? 

Mr. HAMBERGER. Well, AASHTO calls for a new partnership between the States, the local governments, and the Federal Government and the private sector. 

Senator LAUTENBERG. So Government contributions? 

Mr. HAMBERGER. For the public benefits, exactly. We can be expected to invest up to the level and then we would—— 

Senator LAUTENBERG. You helped enormously to straighten out 

the definition. If we give it a different name, it is still a public investment. It is still subsidy and it still is required by what is a 

profitable industry. And by the way, I’m not saying give up your 

profits. I’m saying, go for it, and see whether you can get that 

source, but don’t deny that Amtrak and the other passenger rail 

carriers don’t need the same kind of funding source. They don’t 

have the same advantage of revenue that the freight carriers do. 

Listen, nobody’s the bad guy in this thing. That is not the suggestion at all, but we have to recognize that we are going to defend 

the ability of rail passenger service to operate in this country, and 

it’s going to be a fight to the end that we’re going to conduct. People are entitled to have that kind of service, and every time we 

open a new line, whether it’s a commuter line, rail service, or 

other, people come. They say: ‘‘build it, and they will come.’’ Well, 

they do come, and we’ve got to find a way, Mr. Rutter, to include 

this in surface transportation reauthorization legislation. 

We don’t see anything in SAFETEA about it, and I don’t know 

whether The Administration feels that passenger rail service is an 

integral part of our national transportation network, but I think it 

is. 

Thank you for your indulgence. 

Senator HUTCHISON. We can go around for a second time if you 

would like to, but I would like to give Senator Smith a chance to 

speak as well. 

STATEMENT OF HON. GORDON H. SMITH, 

U.S. SENATOR FROM OREGON 

Senator SMITH. Thank you, Madam Chairman. I have an opening 

statement. I would like to include it in the record. 

Senator HUTCHISON. Without objection. 

Senator SMITH. It focuses on the problems railroads are having 

with capital investments, and how critical it is that we do what we 

can to help our rails to continue to operate and to make those investments. 

[The prepared statement of Senator Smith follows:] 

PREPARED STATEMENT OF HON. GORDON H. SMITH, U.S. SENATOR FROM OREGON

Thank you Chairman Hutchinson. I appreciate you for holding this hearing on a 

very important issue to my state of Oregon and our country. 

Oregon is fortunate to be served by two Class I freight railroads, 19 shortlines, 

and Amtrak. One of my concerns about the rail industry is that the carriers—particularly shortline and regional railroads—are not earning enough to properly maintain their track and equipment. As we all know, railroads are extremely capital intensive. 

To assist smaller railroads, I sponsored legislation last year to establish a capital 

grant program to rehabilitate and improve the track infrastructure of Class II and 

III railroads, including projects to handle 286,000-pound railcars. Although the bill 

48 

was reported out of this Committee last year, it did not have the opportunity to be 

considered on the Senate floor. I would like to announce my plans to introduce similar legislation this month. 

As this hearing considers intercity passenger rail finance, one area of improvement I would like to see is more equitable participation by all the states in supporting Amtrak. In the Pacific Northwest, the states of Oregon and Washington provided $16.5 million in operating support in 2002. 

In addition, according to Amtrak, since 1992, Amtrak, the states of Washington 

and Oregon, and their freight partners have committed more than $600 million in 

track and signal upgrades, train equipment and station improvements on the Pacific 

Northwest Rail Corridor. Many other states with Amtrak service, however, contribute nothing. As we debate the future of Amtrak, I hope we can devise a system 

whereby all states make a fair contribution to supporting intercity passenger rail 

service. 

Senator SMITH. A question I have for Mr. Rutter relates to the 13 states that are contributing annually over $125 million in operating support for Amtrak in their corridors, but it’s my understanding that many states that have Amtrak going through it do 

not contribute, and I’m wondering if the Administration’s proposal 

gives any kind of requirement to them that they do contribute to 

Amtrak. For example, Oregon and Washington together have invested over $600 million in the Cascade Corridor over the past 10 

years, and I’m wondering what Oregon’s required capital contribution would be under the Administration’s proposal, whether it will 

increase or decrease. 

Mr. RUTTER. Well, there are two questions there. One is about 

operating support and putting a level playing field in place for all 

States, and our proposal, in focusing Federal funding on capital assistance, presumes that at the end of a gradual transition after 6 

years that the difference between the revenues generated by passenger service and those expenses would be covered by states, 

whether it’s state-supported now or not state-supported now. 

We think all of those services should have that difference between revenues and expenses covered by the states, and to the capital need is that while I can’t give an exact number of how much 

Oregon would benefit, we would like to see those states like Oregon, California, Washington, North Carolina, others that are investing in capital improvements, have a Federal partner to match 

those dollars so that those state dollars could be leveraged and go 

that much farther. 

Senator SMITH. Thank you, Madam Chair. 

Senator HUTCHISON. Mr. Rutter, I just heard that exchange, and 

it just seems to me that the emphasis in the Administration is 

more toward the Federal Government phasing out rather than becoming a partner with states, and my question to you is, is that 

not the case, and if so, are you looking at a long-term commitment 

from the Federal Government that would stay in place, because so 

far I haven’t seen very much concrete that would have a lasting impact. It looks to me like everything is meant to be phased out toward the end. 

Mr. RUTTER. Well, I appreciate the question. We do have as a 

part of the bill we are in the process of drafting a commitment to 

long-term Federal-State partnership on the capital front. We think 

one of the ways we can help address helping states address those 

operating subsidies is part and parcel of our idea of separating the 

Northeast Corridor from Amtrak operations elsewhere. 

49 

One of the things we’ve noticed in trying to allocate costs by 

route is that about half of Amtrak’s expenses can’t be assigned to 

an individual route. Some of that may be shared services that a 

number of different routes bear, but we think that an awful lot of 

those overhead expenses are expenses that have to do with keeping 

up the Northeast Corridor, and if we were to put accurate accounting on what it takes to manage the corridor, then what’s left is operating expenses that are not as huge a lift to make. 

The other thing to consider is that not every long-distance train 

of those 17 is equivalent. There’s an awful lot of both Western and 

Eastern trains that are close to covering their avoidable costs, 

which is what I think we focus on that subsidy difference being, so 

that when we talk about migrating to a system where those subsidies are made up by states and groups of states, the actual perpassenger subsidies won’t be as huge as they are right now, and 

some illustrations of that are that the Silver Star service between 

the Northeast and Florida has an avoidable cost, or avoidable loss 

per passenger of only $1.64. The Crescent, Senator Lott’s line, is 

about $10.66 per passenger avoidable loss, those losses that can be 

allocated to the route itself. 

So we think that if the overhead costs are properly assigned to 

where they’re being generated—— 

Senator HUTCHISON. Would you go back for me and define avoidable loss again? 

Mr. RUTTER. The best way that we know how, given the amount 

of accounting information we can extract from Amtrak, and that’s 

getting better, since we now have a grant relationship with them, 

is those costs associated with the operation of that particular route 

that, absent that route, those costs wouldn’t be there. We think 

that’s a more accurate assessment of what that route actually incurs in terms of cost, and we would like to see the need for having 

an equivalency across states so that all of them are being asked to 

bear that same proportion, that if California and Washington and 

Oklahoma are paying for that avoidable cost difference, then other 

states should do so, but on the same calculated basis. 

Senator HUTCHISON. Where do you factor in the abysmal on-time 

problems in that, where people cannot gauge within 10 hours that 

they’re going to be able to go 300 miles? How do you factor that 

in? Is that an avoidable—— 

Mr. RUTTER. It certainly has to do with the amount of revenues 

that are generated by that particular route against the expenses 

that route incurs, and one of the benefits to looking at route-byroute comparisons on that basis is that you be able to consider 

what kinds of capital investments might be necessary to maybe improve the on-time service of a particular route, and is that amount 

of investment going to generate the kinds of revenue that close the 

gap between those expenses and revenues? It might, in certain instances. In some other instances, where you’ve got expenses that 

are twice as much as the revenues that are being generated now, 

it might be more difficult to make that happen. 

Senator HUTCHISON. I just hope that when you’re trying to make 

these comparisons, that you will have a factor that can be quantified with this issue of time. How do you know how many people 

are not riding because they cannot possibly assume that they’re 

50 

going to be at a destination within a 2- to 5- to 10-hour timeframe, 

and to compare a California system where there is relatively good 

on-time delivery versus one of these long-haul routes that has UP/ 

SP, which is not cooperating, and have abysmal on-time records, so 

how are you going to factor that in? 

Mr. RUTTER. Well, part of the factoring in is, the circumstances 

that California has achieved that on-time performance is by making capital investments. Because there’s no Federal partner, they 

made all those investments themselves. 

If you look at trying to increase the on-time performance on 

other routes owned by freight railroads, you’re going to have to consider what kinds of investments would be necessary to get better 

throughput for both passenger trains and for freight, and is that 

amount of investment going to be borne by the amount of additional revenue you’d achieve through additional riders. 

It’s important to note that Amtrak operates on about 16 percent 

of the Class I system, but that percentage of the Class I system 

carries about 30 percent of the total freight, so Amtrak currently 

operates on freight lines that are very busy freight lines, and so 

whatever we do to increase the amount of capacity for those routes 

would have to be done in a way that acknowledges the fact that 

you can’t impair the existing capacity of the freight moving on 

there. 

Senator HUTCHISON. Let me just ask, going to the next step, 

which is to try to get the capital infrastructure, and I think states 

certainly should step up to the plate and have some reasonable requirement to share in those costs, but I think we are going to have 

to have funding for capital at the Federal level, and I think my approach is to try to get some leverage of Federal and State dollars 

through private investments, of bonds, so my question to you and 

to Mr. Query is, you mentioned in your statement the tax credit 

bond financing, and that was also mentioned by Mr. Query, and I 

would just like for you to expand on whether you think that would 

be a feasible approach, and how do we assure that we have enough 

of a basis that these would be attractive bonds to be sold? I mean, 

I love Senator Wyden’s idea, but you do have to sell these bonds, 

and someone has to be willing to buy them. 

Mr. RUTTER. I will defer to Mr. Query. The extent of my expertise on tax credit bonds is about exhausted in the testimony I submitted. What I would say, though, is that as this Committee is considering those kinds of instruments I would certainly be willing to 

go talk to Treasury Secretary Snow, who’s got some railroad background of his own, about putting some people in contact with you 

to better understand Treasury’s overall outlook about tax credit financing, the ways that they’re encouraged by it and the ways that 

they want to build some controls in. 

Senator HUTCHISON. Mr. Query. 

Mr. QUERY. Chairman Hutchison, one thing that I tried to emphasize in the testimony occasionally, the QZAB program, which 

really is the best example so far of how tax credit bonds would operate, is pointed to many as being discouraging, because in fact the 

transactions have been quite small, and the total amount of bonds 

that have been issued under that program very slowly grew to any 

significant level and was far below what was originally estimated. 

51 

Rather than take that as discouraging, I actually take it as encouraging. It’s an example simply of the fact that a program takes time 

to grow, and markets take time to grow as well. 

With regard to the tax credit bond mechanism itself, the investor 

base for that particular structure I think is both large and will develop quite well. There are clearly issues in any new offering like 

this, but we’re actually very confident, and I think our confidence 

is shared by other major market participants as well that there 

should be a very ready market of institutional investors, large institutional investors for securities like this. 

Senator HUTCHISON. Any other comments from anyone else on 

that subject? 

[No response.] 

Senator HUTCHISON. If not, did you have another round of questions, Senator? 

Senator LAUTENBERG. If I might. Thanks again for your indulgence, Madam Chairman. 

The question that I wanted to ask is to see whether or not we 

can turn some reality onto the proposals. Mr. Query, you still see 

tax credit bonds as a viable instrument for financing, and I know 

you’ve had a lot of experience and I know Lehman has a lot of experience in that regard. What about the question I raised before? 

Now you’re saying that the tax credit would therefore be a contribution from the Federal Government to the operation, and the 

ability to repay the principal on these would have to derive from 

the railroad’s capacity to earn something significant above their expenses in order to do that. Is that not the case? 

Mr. QUERY. Senator, in various tax credit proposals there have 

been different mechanisms established for repayment of principal, 

and I think those mechanisms clearly need just as much focus as 

the interest component, how the tax credit is actually delivered as 

well. Some of those, the old high-speed rail proposals of a couple 

of years ago focused on the state matching contribution as being 

the source of repayment of that principal amount when it came 

due. Others have used a portion of the amount that’s being raised 

upfront as a set-aside to essentially repay that principal amount 

when it comes due 25 years in the future. 

Senator LAUTENBERG. They can be serially issued so that there 

is another issue, and the repayment of principal comes in smaller 

issues as time goes on, because we know very well that issuing 

bonds as a routine rarely includes, I shouldn’t say rarely, but occasionally doesn’t include full repayment of the principal, but rather 

it begets another issue. 

We do it in the Federal Government all the time, so it does make 

sense, but one thing, and I think Senator Hutchison said it, and 

that is that there has to be some outright grants as well. I’m reminded here that in aviation there was a terrible event that occasioned much of this. Some of it was overexpansion, $18.2 billion in 

bail-outs provided to aviation since 2002, and it was done in a flash 

because we wanted to keep those folks operating. 

Mr. Serlin, it’s suggested that maybe we could find a private 

company to divide the two companies into capital and operating 

companies. Wouldn’t that present a particular situation that has 

Amtrak capital and Amtrak operations competing for the same dolVerDate Nov 24 2008 07:27 Nov 25, 2013 Jkt 075679 PO 00000 Frm 00055 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\85625.TXT JACKIE
52 

lars? I mean, when someone hears Amtrak here, they’re going to 

say, oh, Amtrak, capital separated from operations, what does it all 

mean, and included in the same question is, why aren’t there firms 

that know how to run railroads? The freight, the Class I freight 

railroads, why don’t they jump at the chance to operate the Northeast Corridor? Do you think they would be interested in taking 

over that part of it? 

Mr. SERLIN. Senator, they might be. 

Senator LAUTENBERG. You proposed that. 

Mr. SERLIN. Correct. They might be, but the growth opportunity 

here is very different from the targeted growth opportunity of the 

freight railroads. What you have here is the opportunity to expand 

the rail passenger system. The Northeast Corridor is the highest 

density corridor of any in the world, bar none, yet the station pattern, the layout, the operational techniques have remained exactly 

the same for almost the last three-quarters of a century. 

The techniques which the freight railroads have are freight-oriented. What we have here is the opportunity to build new passenger stations, integrate them with the highway system, attract 

people from the suburbs and bring them to the rail and increase 

the use of the rail infrastructure, which is a very different business 

from the freight business. 

Senator LAUTENBERG. But the fact of the matter is that there 

are, and I’m for upgrading that infrastructure, heaven knows, and 

I’ve seen it done where we’ve done it now at Newark. There’s a 

stop on the main line that enables passengers to go to Newark Airport, the same thing with Baltimore, the same thing with Route 

128, just south of Boston. 

Those things are happening, but you can’t send out a rinky-dink 

railroad and ask people to be joyful about getting there when either 

it’s late or missed its target because the signal system isn’t working properly, or the equipment is just too old and too tired to continue functioning. I used to run a fairly good size corporation, and 

I like joint ventures, as long as we own the joint. 

[Laughter.] 

Senator LAUTENBERG. And so it is with other, I think, private 

people connected with Government, a Government partner, you pay 

and we’ll spend, and it is a nice theory, but I’m not sure how it 

all works. 

Mr. Hamberger, why do you think that the Class I freights aren’t 

happy, or aren’t just standing at the gate waiting to jump on passenger rail service and get it going? 

Mr. HAMBERGER. Obviously, there is a history here that goes 

back to the creation of Amtrak in the seventies, but I will point out 

that many of our members do operate, under contract, commuter 

rail operations, where they are the contractor but not the owner, 

if you will, of the service, so they do operate under contract with 

local service providers. 

But if I might, Madam Chair, I would like to make sure I did 

not leave a misimpression when Senator Lautenberg and I were 

discussing earlier the AASHTO bottom line report. The additional 

public investment that the AASHTO report calls for is to achieve 

public benefits and we are not requesting that. We do not consider 

it a subsidy. It is not something we seek, because we believe that 

53 

we will be creating an investment pool of our own that will address 

the growth of traffic as economically feasible for us to attract, so 

you characterized it as a subsidy there at the end. That is not the 

way we see it. We see it as a public investment overlay on top of 

the economic investment that the private sector would be making. 

Senator LAUTENBERG. I like your language. We get to the same 

thing. Thanks very much, Madam Chairman. 

Senator HUTCHISON. Well, I know that we have spent a lot of 

time here. I just have a couple of other points. One, I want to just 

talk for a minute, Mr. Hamberger, about, I do think we are all 

looking for the same end. We want better infrastructure, and the 

freight rails would like to have the ability to use their own tracks 

and not have all of the hassles of passenger rail on their tracks, 

and it just seems to me that we ought to be able to come up with 

a formula in which there is a Federal role, there is a state role, and 

with some backing of the bonds from the tax that is already in 

place we might be able to leverage more than the railroads could 

do on their own. 

By putting out cash you get maybe a foot, but by leveraging that 

with the tax-exempt bond market, which you would not have access 

to without the Federal Government role, you could go 2 feet, and 

it just seems to me that together we could work on something, and 

frankly I took the 4.3 cents because it is a tax in place. I only wanted to take half that, but then my bill would have to go to the Finance Committee, so I’m certainly willing to talk about some way 

to work with you where we could do more with the railroads than 

they can do on their own, and the railroads would also get a partial 

repeal of the tax. I just couldn’t do it in my bill because of the bureaucracy in the U.S. Senate. 

So I would hope that there would be an open mind that would 

allow some creativity, allow some strength for the infrastructure, 

because we can talk about little dollars and we’re going to go a little way. We are never going to solve the problem that we have with 

trying to make an infrastructure with capital improvements that 

will be substantial enough to really provide bypasses, which David 

Gunn mentioned in the last hearing we had, that would allow 

freight in its congested areas to have bypasses, and not have to 

worry about the deference to the passenger rail. 

So I would hope we could open this dialogue and work together 

in a way that is beneficial for the freight rail and also combines 

all of the potential resources to make a solid system that is national and not just a Northeast Corridor, or even a Western Corridor. I know many mass transit systems have done more at the 

local level than the older systems, which are more federally supported, and I think in the case of California you’ve done that with 

rail as well. But I do think there should be a Federal role here that 

does give some commitment, just as we have had in highways and 

for airports, and we have not ever had that for passenger rail, and 

we’re just trying to find a way to have a strong system, so I will 

just end it there, and if there is any further comment please take 

this opportunity. 

Mr. HAMBERGER. I guess just for the record, Madam Chair, I 

need to get on the record that it is our belief that the freight system needs as much revenue as it can possibly get to invest to meet 

54 

the demands that Senator Lautenberg was talking about, and we 

believe that that money should be returned to the freight railroads 

for investment to meet our customers’ needs, but having said that, 

obviously we want to sit and work with you to see if there are other 

options that are out there. 

But with respect to the 4.3, it is our hope that the Senate will 

follow the House and pass the repeal later this year. 

Mr. MORALES. Senator, if I could, just to follow on your last 

point, I really want to reinforce that, and I think part of this whole 

process really needs to include a recognition on a policy level that 

passenger rail is a viable and an important part of a balanced 

transportation system and needs to be looked at the same way we 

look at highways, at aviation, at transit. We are absolutely using 

investments in intercity rail as a way of managing our entire system. The difference is, we know we can make plans, we can make 

investments on the highway side, on the transit side with reasonable assurances that money will be there. We can’t make those 

same assumptions on the rail side, and we ought to be able to. 

Senator HUTCHISON. That’s a very good point. I thank all of you 

for your time. I think this has added one more layer of information 

to the record, and I hope we can produce an Amtrak reauthorization that is not just another Band-Aid, but rather a vision and a 

commitment to the future. 

Thank you. 

[Whereupon, at 11:50 a.m., the hearing was adjourned.] 

(55) 

A P P E N D I X 

PREPARED STATEMENT OF ROSS B. CAPON, EXECUTIVE DIRECTOR, NATIONAL

ASSOCIATION OF RAILROAD PASSENGERS

The National Association of Railroad Passengers is a non-partisan organization 

funded by dues and contributions from approximately 16,000 individual members. 

We have worked since 1967 to support improvement and expansion of passenger 

rail, particularly intercity passenger rail. 

The Association’s central point about a new source of funding begins at page 5 

of the statement I filed in the record of the full committee’s April 29, 2003, hearing—a Railroad Finance and Development Corporation that issues tax credit bonds. 

I will not repeat that here. 

I. Operating Grant Requirements for National Network (Long-Distance) 

Trains 

We believe that this should remain a 100 percent Federal responsibility. Some 

have suggested that Amtrak should be treated the same as transit commuter systems, requiring states or localities to pick up all the operating costs. Transit systems 

are local and started by local initiative. Amtrak began because of a Federal initiative. It provides interstate service, and the Federal Government should have the responsibility for any operating costs not covered by revenues. 

Our view does not change in light of new analysis showing remarkably low, shortterm costs for some of these trains. As previously indicated, it is a challenging task 

to maintain existing state funding programs for intercity passenger rail—programs 

focused on short-distance trains which were initially added solely because a state 

or states agreed to offer partial financial support for them. States now are being 

pressed to provide full funding for those trains. 

It is not realistic to superimpose on that pressure the requirement that states also 

fund long-distance trains. The likelihood of getting every state along any given route 

to provide funding is small, as is the likelihood of getting states to agree on a proper 

cost allocation method or, in some cases, the right schedule. The most economic 

schedule for such trains must be set around providing attractive times at the 

endpoints. That includes the need to take into consideration proper connections with 

other long-and short-distance trains at those endpoints. Yet, by definition, some 

points must be served in the middle of the night. 

When Secretary Mineta many months ago was asked, ‘‘what if a state refused to 

pay,’’ he answered that the train could run closed-door through that state. That is 

not practical. Suppose every state but Colorado agrees to fund the Chicago-Bay Area 

‘‘California Zephyr.’’ Having the train skip Denver (as well as Glenwood Springs and 

Grand Junction) simultaneously would make the train vastly less useful to the other 

states along the route, and—as a consequence—drive up the amount of operating 

losses they would be required to pay. Or imagine Illinois not agreeing to pay for 

any long-distance trains. The system could not function even if Illinois stood alone. 

It makes much more sense to press Amtrak to operate the most efficient national 

system possible, and to allow states to proceed with what many of them have wanted to do for a long time—improve short-distance corridors. Those improvements, incidentally, will benefit the long-distance trains as well. The most dramatic, recent 

example of this is the rail/rail grade separation in Los Angeles used by Metrolink 

commuter trains, Amtrak’s San Diego line, and Amtrak’s Southwest Chief But almost every long-distance train stands to benefit from one or more corridor projects— 

and these projects often address the most congested segments of the long routes. 

It is, however, reasonable to expect states and localities to pay for stations. 

II. On-Time Performance of Amtrak Trains 

It will be difficult for new legislation to produce better on-time performance if the 

track owner acts like it doesn’t care. In any event, any legislation should take into 

account the subject’s complexities. 

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First, it should be noted that On Time Performance (OTP) on the California corridors is far from ideal. To be sure, lateness normally is not calculated in terms of 

hours. On the other hand, riders who think they are taking a trip whose total duration is a few hours have much higher OTP expectations. On June 9, 10 and 11, I 

rode three Capitol Corridor trains and two San Joaquins with the following results: 

• June 9: The 3:45 pm SJ from Bakersfield on June 10 originated only two minutes late but departed Stockton (where I got off) 34 minutes late. 

• June 10: The 12:30 pm Capitol Corridor train from San Jose left on time but 

departed from Emeryville (50 miles later, where I got off) 33 minutes late. 

• Train 538 (3:30 Oakland-to-Sacramento) left Emeryville 3 minutes late, Martinez 7 minutes late—the only satisfactory trip out of the five. 

• The 4:05 pm from San Jose departed Martinez 47 minutes late and arrived Sacramento 39 minutes late. 

• June 11: The 6:35 am San Joaquin departed Sacramento two minutes late and 

arrived Bakersfield one hour 48 minutes late. The bulk of the delay was due 

to vandalism—the train struck some debris on the tracks. However, the train 

was 31 minutes late leaving Wasco—the last station before hitting the debris 

(and the last station before Bakersfield). 

My understanding is that the two Capitol Corridor trains from San Jose were delayed by Union Pacific freight problems, including two trains with ‘‘outlawed crews,’’ 

that is, trains which needed relief crews under the Hours of Service Act before they 

could proceed. On the San Joaquin Corridor, a tremendous growth in BNSF freight 

traffic followed—and partly consumed–state-funded capacity investments. 

When Amtrak OTP percentage figures are reported, they generally indicate simply the percentage of runs that reached final destinations within x minutes of the 

scheduled time, where x = 30 minutes for long-distance trains, and lesser amounts 

(sliding scale based on miles traveled) for short-distance trains. 

However, this percentage figure does not tell much about service quality. Consider 

these two situations, based on operating 14 trains per week (seven in each direction) 

on a long distance route. 

Example A 

All trains operate between 31 and 45 minutes late—0 percent on-time performance. Average minutes late per trip is roughly 38 minutes. 

Example B 

12 trains operate either on-time to the minute or less than 30 minutes late two 

trains are six hours late. The route has an 86 percent on-time performance. Average 

minutes late per trip is roughly 60 minutes. 

The two calculations produce opposite results. Notice that the average minutes 

late method more closely reflects passenger satisfaction levels, while the Amtrak 

calculation is at odds with those levels. 

For Example A, the Amtrak calculation has the worst possible result (zero percent 

on time) even though, if that long distance route actually achieved that type of performance consistently, the on-time issue would barely be on anyone’s radar screen. 

Related issues: 

1. Incentives for railroad performance. With a simple yes-or-no on-time calculation, as soon as the train is so late as to make it fall outside the 30 minute 

window, the railroad loses any incentive to handle the train decently, and the 

train could get later still. When total minutes of delay are counted, the railroad 

has an incentive to continue to deliver the best possible performance no matter 

how late the train gets. 

2. At how many points is on-time performance counted? Amtrak schedules (not 

unlike those for intercity buses and airlines) typically are strung with recovery 

time before major cities, to allow for a limited amount of delay while keeping 

actual performance closer to expectations for the majority of customers. Depending on the size of the recovery time, however, this can mean substantial 

lateness at intermediate points even when the train is on-time at major points. 

3. Does the railroad respond to incentives? So far, some like BNSF do respond, 

UP does not. That BNSF cares is evident from their big operations center in 

Fort Worth. All the dispatchers face about six huge screens of data—one of 

which is devoted to various measures of Amtrak trains’ on-time performance 

on BNSF. That is one of many ways BNSF top management tells its people 

that it cares about earning the incentives for good on-time performance that 

are built into Amtrak’s contracts with most railroads. 

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4. The significance must be considered for different causes of delay. For example, 

in Amtrak’s contracts freight railroads generally are not liable for minutes of 

delay associated with causes like malfunctioning Amtrak passenger cars and 

locomotives. Other causes are treated differently, including the vandalism 

problem cited above, where arguably neither Amtrak nor the railroad is to 

Name. 

5. The suggestion that a route be ‘‘open for competitive bid’’ if a certain level of 

OTP is not achieved implies that most causes are Amtrak’s fault and that 

things will get better if another operator is assigned. A top priority of the 

freight railroads is to insure that Amtrak’s track access rights are not transferred to anyone else. Certainly, in the unlikely case that the railroads are defeated on this issue, it’s not clear why Union Pacific would provide better service to a different operator. In fact, it may be worse. 

6. Evaluating true causes of dispatching delays. The following issues impact the 

quality of handling Amtrak trains get from dispatchers: 

(a) Relationship of track capacity to total traffic on the line 

(b) Attitude of host railroad’s top management towards passenger trains 

(c) Attitude of dispatchers towards passenger trains 

(d) Skills of dispatchers 

7. The analysis of capital investment needs for chokepoints should be independent and should consider the factors in #6. It would be unfortunate if a 

publicly funded investment program rewarded railroads that did a poor job of 

handling Amtrak trains and penalized railroads who did a good job. 

PREPARED STATEMENT OF THOMAS SIMPSON, EXECUTIVE DIRECTOR, 

RAILWAY SUPPLY INSTITUTE, INC. 

The Railway Supply Institute appreciates the opportunity to provide this committee with our suggestions on financing intercity passenger rail and addressing 

other railroad infrastructure needs. 

Earlier this year, RSI endorsed the creation of a private, non-profit, federally 

chartered corporation authorized to issue tax-credit bonds for capital investment in 

rail-related infrastructure not generally eligible for transportation trust fund expenditures under TEA 21. 

Under our proposal this corporation would provide financial support for capital 

projects that: 

• Develop higher speed intercity rail corridor passenger services, including infrastructure and equipment; 

• Meet the backlog of capital needs on the Northeast Corridor Infrastructure; 

• Provide efficient rail access to ports; 

• Support development of intermodal terminals, transloading facilities and rail 

access thereto; 

• Facilitate high frequency rail access to airport terminals; 

• Enhance capacity on the Nation’s rail freight network designed to enhance security, reduce congestion, improve air quality and improve efficiency; 

• Support the capital needs of short line and regional railroads for infrastructure 

improvements to serve rural and smaller communities and accommodate 

286,000-pound freight cars; 

• Support relocation and/or consolidation of rail lines and facilities in urban 

areas. 

Financing 

Modeled on existing federally chartered entities such as Fannie Mae, RFDC would 

be authorized to issue up to $50 billion in Federal tax credit bonds to states and 

public/private partnerships to finance eligible rail-related capital projects. Specific 

criteria to be included in the RFDC’s authorizing legislation would govern project 

eligibility, selection, financing and repayment obligations. 

RFDC would establish a principal sinking fund to secure payment of the principal 

at maturity. A 20/30 percent non-federal match (depending on what the current interest rates may be), contributed by state, localities or other project participants, 

would form the primary basis of the sinking fund for each bond issuance, supplemented by additional Federal contributions as may be required. 

58 

Governance 

This corporation would be governed by a Board of Directors appointed by the 

President of the United States. The function and authority of this corporate entity 

would be subject to the oversight of the Congressional committees of jurisdiction. 

Transportation Finance Corporation 

This is a variation of the AASHTO approach that proposed to create a Transportation Finance Corporation (TFC). This concept is designed to help create more balance in both transportation policy and funding by creating a Railroad Finance and 

Development Corporation (RFDC) to help finance those capital projects that are not 

currently covered by the guaranteed spending programs created by TEA 21 and AIR 

21. The non-covered programs include passenger and freight railroads, short line 

railroads, ports, high-speed rail and MagLev projects. The creation of the RFDC 

would enhance the prospects of projects that do not have the benefit of guaranteed 

funding. 

This proposal would place the RFDC within the jurisdiction of the Congressional 

authorizing committees that currently have oversight responsibility of these nonguaranteed programs (even though the legislation is in part a tax bill and would 

need to be enacted by the tax committees), providing the authorizing committees 

with the legislative authority to create the structure of the organization, establish 

guidelines for the allocation of the resources generated by the proceeds from the sale 

of the bonds and establish standards for projects eligible for funding with these proceeds. The authorizing committees already have a long list of rail needs that they 

have been unable to fund through the authorization process because no matter how 

much is authorized there is no room in transportation appropriations to fund these 

needs out of the 30 percent of funds left over after guaranteed spending programs 

are addressed. 

Paying the Principal 

The idea of a RFDC removes some of the concerns expressed by states over accumulating more debt financing that arose when bonding authority was proposed to 

deal with Amtrak’s needs. In this case there will be a separate, federally chartered 

corporate entity designed much like Fannie Mae, the successful Federal National 

Mortgage Association, which would sell the bonds and administer this program. The 

RFDC would be set up as a federally chartered corporation governed by a Board of 

Directors appointed by the President of the United States. The RFDC could have 

the authority to sell up to $50 billion in bonds. The Board would select a Chief Executive Officer and appropriate staff. There are a number of ways that can be devised 

to repay tax credit bond principal. As mentioned, AASHTO uses a sinking fund with 

a portion of the bond proceeds. The original Amtrak proposal assumed states would 

contribute matching funds (30 percent) deposited into escrow accounts/sinking funds 

to secure principal repayment. 

The point here is that the sponsor/borrower would be responsible for principal repayment only—effectively providing zero percent borrowing. From the government’s 

prospective, this is cheaper than a grant over the short-term and from the borrowers 

perspective, much more cost-effective than conventional borrowing or credit instruments like RRIF. The present value of $100 borrowed is about $70 while the budgetary cost to the government (tax revenue lost) is about $30. 

Much of the costs associated with a proposal of this nature could be offset. The 

Center on Budget and Policy Priorities has indicated that the Senate passed tax 

provisions that were dropped from the recently enacted tax bill included measures 

to close abusive corporate tax shelters that could produce significant revenue 

enhancers that could help cover losses associated with other tax measures. As The 

Washington Post has reported, the Senate Bill ‘‘included provision to crack down on 

abusive corporate tax shelters, combat some accounting scams such as those pursued by Enron Corp., prevent U.S. companies from moving their headquarters to 

post office boxes in offshore tax havens such as Bermuda and limit grossly inflated 

deferred compensation plans for corporate executives.’’ The Senate provisions would 

have saved more than $25 billion. All of these provisions were dropped in conference 

and are available to help address the much needed rail infrastructure improvements 

we are concerned about. 

Why We Need This Proposal 

Despite significant investments in highways and aviation, the American economy 

continues to lose billions of dollars each year as a result of traffic congestion. It has 

been estimated that aviation delays alone costs the U.S. economy about $10 billion 

per year today and by 2015 it will be over $30 billion per year. That is a total of 

more than $150 billion over the next decade. The cost of congestion on highways 

59 

is even more staggering. Creating a funding mechanism like the TFC for non-guaranteed transportation programs that are designed to help reduce congestion on 

highways and at airports could substantially reduce the cost in delays to the U.S. 

economy, help stimulate job growth and help balance our transportation system. 

Most states are facing the prospect of large budget deficits. Nationally, it is now estimated that state deficits for the coming Fiscal Year will be $80 billion. There 

is little prospect that states will have the resources to undertake transportation infrastructure projects like high-speed rail in this environment without a Federal 

partner. In fact, Florida’s governor is seeking a special election to overturn the state 

approved initiative to build a high-speed train across the state. States are now looking to the Federal Government for assistance for critical infrastructure needs that 

provide a public good. The concept of a RFDC provides a reasonable and cost effective alternative to traditional grants or revenue sharing for states. It also encourages the type of public/private partnerships that are essential if we are to meet the 

needs of those surface transportation projects that are not covered by the guarantees provided in TEA 21 and AIR 21. 

Knowledgeable railroad experts continue to express concern over the future of 

freight railroads because of their inability to cover their cost of capital. Most of the 

big freight railroads will admit that this is a problem. Maintaining the status quo 

for the freight railroads according to some officials will result in one of two things: 

the industry will be forced to shrink OR the Federal Government will be forced to 

take over the railroad infrastructure at a very high cost. There is a real fear that 

railroads may be up against the same kind of crisis they went through in the 1970s 

when many of them faced bankruptcy. In an environment where a significant 

amount of government support pays for the transportation infrastructure of their 

competition, railroads cannot afford to continue to only use private funds to finance 

their infrastructure needs, especially for projects that provide a public good. Financial markets require railroads to only make infrastructure investments where there 

is a reasonable rate of return and discourage investments where the primary benefit 

is for the public good (fuel conservation, air quality, congestion relief, safety and security). Some policy makers are proposing the creation of a Rail Trust Fund that 

would use the revenues from the railroad fuel tax to fund it. A concept like the 

RFDC proposal would result in a source of capital assistance for rail projects that 

have a public benefit and would not depend on the fuel tax revenues as a source 

of funding. In addition, it has the potential of helping the Federal Government avoid 

a huge bailout in the future if the Class I railroads continue to have constraints 

on how much they can devote to infrastructure spending. Also, infrastructure investments in rail projects that result in a public good and help attain public policy goals 

like cleaner air, less congestion on highways, creation of jobs and a stimulus to the 

economy, is good public policy. 

Ports have been clamoring for more efficient on dock railroad freight access to 

their facilities that would assist them in avoiding the high cost and congestion of 

shipping goods by truck in and out of ports. In testimony before Congress recently, 

the American Association of Port Authorities indicated that some forecasts show 

that imports and exports will increase eightfold by 2040. This kind of growth would 

mean about 10,000 more trucks a day just along the I–95 corridor. That is a truck 

about every 270 yards between Miami and Boston! This funding mechanism would 

set in place a way for ports to shift more of their connecting traffic to rail and help 

avoid that kind of highway congestion. In addition, it could help address much needed security measures at our ports by using the RFDC to fund demonstration projects 

on new security technology in connection with the rail infrastructure improvements. 

The short line railroads have a significant infrastructure problem. They cannot afford the cost of capital to upgrade their tracks to handle heavy freight cars to serve 

shippers along their lines. There is no Federal program in place to assist them primarily because there are no funds in the transportation appropriations process 

available. If these low density lines, that play such an important part in connecting 

rural areas to the national rail freight network, cannot get some assistance for their 

infrastructure needs they may eventually face abandonment. 

There are many deserving high-speed rail projects that are on the shelf due to 

lack of funding. States will not be able to carry this burden alone. They need a Federal partner. Every industrialized nation in the world has made significant investments in high-speed rail, leaving the United States far behind in the development 

and implementation of this technology. And, it is this technology that can do the 

most to alleviate congestion on highways and at airports. 

Finally, Amtrak has significant infrastructure costs in the NEC that will require 

much more support from the Federal Government than they have been able to provide in the past. Now Amtrak is asking for $1.8 billion in Federal funding, much 

of which is for infrastructure costs in the NEC. This level of funding will be very 

60 

difficult to obtain through the appropriations process. Creating a RFDC would relieve Amtrak of the burden of finding all its infrastructure needs for the NEC in 

the appropriations process and allow the NEC states to play a larger role by seeking 

funds from the RFDC for capital projects in the Northeast Corridor. The RFDC 

could provide resources for the NEC infrastructure leaving Amtrak to depend on the 

appropriations process for its operating subsidy. 

Conclusion 

• The appropriations process has become a less dependable source of funding for 

rail infrastructure since the enactment of guaranteed spending laws; 

• There is an enormous need for rail passenger and freight infrastructure capital 

that may not have a high rate of return on the investment but would address 

such public policy issues as security, congestion relief, safety and security; 

• Amtrak may not be able to obtain the $1.8 billion it needs to operate the national system and invest in its infrastructure out of the annual appropriations 

process; 

• Increasing the fuel tax or using the revenues from fuel taxes paid by railroads 

to cover rail infrastructure costs does not appear to be a realistic alternative; 

• There is a growing interest among policy makers to use the tax code, especially 

tax credit bonds, as a funding source for transportation infrastructure when 

funding is not available through the appropriations process; 

• There is a strong public policy argument to provide a more equitable policy 

among all transportation modes by creating a funding mechanism for those 

modes of surface transportation (railroads) that are not protected by guaranteed 

spending programs; 

• States are facing large deficits and will be unable to address critical infrastructure needs and are unable to assume any additional debt; 

• The United States has fallen behind the rest of the industrialized world in preserving and improving its rail infrastructure; and 

• The idea of a Railroad Finance and Development Corporation financed by taxcredit bonds for non-covered transportation programs has the potential of creating a coalition of all those who benefit from the proceeds to get this done in 

a way that is good for them and good for the country. Unlike proposals that 

would use the proceeds from Federal diesel fuel taxes, taxes on rail equipment, 

commuter ticket taxes, etc., this concept would not divide the transportation 

community—it would unite it. 

Thank you for the opportunity to provide this committee with the views of the 

Railway Supply Institute. 

WRITTEN QUESTIONS SUBMITTED BY HON. ERNEST F. HOLLINGS TO

ALLAN RUTTER

There is no record of Mr. Rutter’s response to Senator Hollings’ questions. 

Question 1. Your testimony indicates that states with passenger rail service going 

through them will have to fund the Federal subsidy at a 50/50 match. This is unprecedented and wrong; no other transportation system within the United States 

has a match of 50/50. Most transportation programs have a match of 80/20 for 

states included. Moreover, your testimony indicates that the Administration will expect states to bear all rail operational costs by the end of the authorization cycle. 

Are states required to bear all of the costs of operating airports? Transit systems? 

How will the Administration’s vision for financing passenger rail work with states’ 

current and future deficits? Will this plan not cause states to raise taxes to fund 

passenger rail? 

Question 2. The Administration seems to envision transitioning our passenger rail 

system into piecemeal corridor operations funded largely by states or consortiums 

of states. What happens when one state along a needed corridor cannot, or will not, 

contribute the necessary funding to maintain and operate its portion of the corridor? 

For example, one obvious corridor would extend south of Washington, D.C. to Florida. But this corridor would necessarily have to cross South Carolina. What if South 

Carolina simply cannot afford to support this kind of investment? What would happen to that corridor? Would the folks in Virginia and in Florida have to suffer because the folks in South Carolina cannot afford to tax themselves for railroad service? 

61 

Question 3. In your testimony, you seem to criticize Amtrak for changing so little 

and becoming so ‘‘ossified’’ that it no longer serves the most needed rail markets. 

You compare Amtrak to other modes of transportation which you imply have been 

more agile and flexible. This criticism seems unfair considering that other modes 

of transportation have received massive infusions of Federal money on a dependable 

basis, allowing them to make changes as they became necessary. More importantly, 

other modes of the transportation are not so dependent on infrastructure owned by 

other companies. Because any passenger rail operation in this country, whether run 

by Amtrak or by a state, will most likely have to operate in cooperation with freight 

railroads over freight railroad tracks, what would you suggest is changed so that 

future passenger rail operations do not become ossified? If states raise taxes to develop a passenger rail corridor, how agile do you think they will be in changing 

those corridors? 

Question 4. You state that unlike other transportation debt financing, intercity 

passenger rail does not generate enough cash flow, nor does it have a Federal longterm dedicated funding stream, to service significant debt. I couldn’t agree with you 

more. Highways don’t generate cash flow, but they have a wonderful Federal longterm dedicated funding stream. If we can establish a funding stream for passenger 

rail, just as we have done for highways, aviation, and transit, wouldn’t passenger 

rail then have greater access to debt financing that would allow it to become more 

competitive in the transportation market? 

Question 5. Regarding tax credit bonding for passenger rail, if bonds were sold by 

a centralized non-Federal entity, wouldn’t Treasury’s only exposure be to the cost 

of the tax credits? And if the tax credit rate is fixed for the life of the bonds, and 

a non-Federal entity issues them, wouldn’t Treasury’s cost be rather predictable? 

Question 6. If the Administration believes passenger rail is a priority, does it have 

any meaningful proposals for funding along the traditional lines? What other mechanism do you see within the Federal Government to raise the adequate funds needed to cover the capital backlog on the Northeast Corridor, the infrastructure improvements for high speed rail in new corridors and improvements to services currently operated by Amtrak? And how much would all of that cost? Certainly, you 

can’t expect the annual appropriation process to cover this amount? 

Question 7. You mention that the lack of funding dependability for Amtrak has 

soured the DOT’s experiences with Amtrak and debt. Isn’t the answer then to develop a dependable funding source? 

Question 8. Can you discuss the cautions from states and freight railroads that 

you have received regarding separating the NEC infrastructure for private operation 

and control? 

Question 9. In your testimony, you raise California as an excellent example of a 

state that is taking a proactive role in supporting passenger rail. Are the services 

that California is subsidizing the type of services that you consider to be based on 

‘‘sound economics’’? If not, what service in the U.S. is? 

Question 10. You mention that operating support for passenger rail should not be 

a Federal responsibility, yet through the FTA, essential air service, and FAA air 

traffic control, the Federal Government is providing direct operating support for our 

other modes. Why should passenger rail be different? 

Question 11. You mention the importance of proper planning to the success of passenger rail service. Under your new plan for Amtrak, would the FRA offer direct 

assistance or grants to states for passenger rail planning? Or would you support 

making this activity specifically eligible under current TEA–21 planning programs? 

Question 12. You say that since states already make the key decisions about their 

airports and highway facilities, they should have similar power over passenger rail 

decisions, in effect leveling the playing field. However, isn’t it unreasonable to expect choices to be made on the basis of transportation utility alone when there is 

inequity between Federal support for the different modes, with highways receiving 

an 80/20 match, while rail would receive only 50/50? 

RESPONSE TO QUESTIONS SUBMITTED BY HON. ERNEST F. HOLLINGS TO

EDWARD R. HAMBERGER

Question 1. There have been a number of proposals that could result in numerous 

passenger rail system operations using freight rail lines. Currently, the freight railroads deal with one passenger carrier for long-distance routes. If we follow a course 

of action where long-distance routes are franchised to various operators, how do you 

think the freight railroads will react? 

62 

Answer. The AAR believes that safety requirements and the integrated nature of 

railroading necessitate that intercity passenger rail be provided by one entity. 

Therefore, freight railroads do not support ‘‘franchising’’ to various operators. 

Our opposition to ‘‘franchising’’ is based on a number of factors. First, one of Amtrak’s fundamental purposes was to amalgamate several hundred disjointed passenger trains operated by more than 20 individual carriers into a coherent intercity 

system. It was envisioned that a single carrier would yield greater efficiency and 

innovation. This approach remains just as sensible today. 

Second, railroads are an interconnected, interdependent network. This means that 

events or problems at one particular point—say, a derailment near Tulsa, or a delayed freight train caused by a conflict with a passenger train near Los Angeles— 

can have serious ramifications hundreds of miles away. To operate a rail network 

of the scope we have in this country is enormously difficult and complicated. That 

task is made even more difficult with the addition of passenger trains, which generally travel at different speeds and have substantially different scheduling, operational, and infrastructure needs than freight trains. In order to operate the entire 

rail network as efficiently as possible, it is crucial that all parties are, to borrow 

a phrase, ‘‘singing from the same hymnbook’’—in terms of consistent operating practices, reliable communications channels, the development of healthy working relationships with appropriate personnel, and so on. In our view, it is far more likely 

for this to happen with a single operator than with a variety of franchisees. 

Third, when Amtrak was created, freight railroads knew that Amtrak’s obligations were, in essence, the obligations of the United States and that Amtrak would 

be operated safely and professionally. Should Amtrak services be picked up by others, it is unclear what the circumstances would be. For example, private entities 

may have different degrees of financial backing. Public authorities may or may not 

enjoy the full faith and credit of their sponsoring states. Some prospective passenger 

rail operators may be less committed to safety and sound operating standards than 

Amtrak. Serious labor issues could arise. Clearly, the status quo would be altered 

in respects that are impossible to know beforehand. 

Finally, freight railroads view the granting of statutory access to other passenger 

operators to be an unconstitutional ‘‘taking’’ of private property. 

Question 2. If Congress were to charter a non-profit company to issue tax credit 

bonds to provide grants to states for rail infrastructure capital projects on a matching basis, do you think the freight railroads would be supportive of such an idea? 

Would railroads be willing to partner with states in providing matching funds for 

projects on a voluntary basis? 

Answer. This type of financing mechanism for public-private partnerships appears 

to hold promise and is clearly worthy of further investigation. 

Question 3. Amtrak has the statutory right to operate over the freight lines with 

a statutory grant of movement preference over freight traffic. If successors to Amtrak do not have similar advantages, how efficient will the integration of passenger 

traffic with freight traffic be? 

Answer. There is a potential tradeoff to be made. As important as passenger rail 

may be, in this country it is minor in comparison to the importance of freight railroading. To arbitrarily superimpose passenger operations on the freight rail network 

without regard for the needs of freight service would compromise safety and hamstring the efficiency of the Nation’s freight railroads, thereby jeopardizing their ability to provide the efficient, cost-effective freight transportation service that our Nation desperately needs. 

That said, the absence of a statutory grant of movement preference over freight 

traffic does not mean that the efficiency of the integration of passenger traffic with 

freight traffic needs to suffer. Just as freight railroads work diligently with commuter railroads (who do not have statutory Amtrak-like preferences) to provide efficient, problem-free commuter rail service, so too would they work diligently to ensure that intercity passenger operations are integrated with freight operations as 

smoothly and efficiently as possible. 

Question 4. Currently, Amtrak is charged with incremental costs for operating 

over freight lines. How likely is it that this practice would continue if Amtrak operations are distributed to other passenger carriers? 

Answer. I cannot say how likely it would be for any successors to Amtrak to be 

charged only the incremental costs for operating over freight lines, since that is ultimately a public policy decision to be made by Congress. I can say, though, that 

freight railroads strongly oppose such an arrangement and would work strenuously 

to see that it is not adopted. As noted in my testimony, the fees Amtrak pays to 

freight railroads do not come close to covering the full costs borne by host freight 

railroads associated with the operation of Amtrak trains. A recent very conservative 

63 

1See Code of Federal Regulations, Title 23, Chapter 1, Section 646.210. 

analysis by the AAR found that in 2001 alone, Amtrak payments to freight railroads 

were approximately $240 million less than just the variable costs to the freight railroads associated with hosting Amtrak service. The total subsidy to Amtrak from 

freight carriers, which would include delay costs, opportunity costs, and a portion 

of freight railroads’ fixed costs, is considerably higher. 

Simply put, freight railroads should receive full compensation for the use of their 

assets by passenger operators. Just as highway contractors are not required or expected to bid below cost because highways are in the public interest, nor should 

freight railroads be required or expected to accept less than full compensation for 

the services they provide. 

Question 5. In your testimony, you mentioned that freight and passenger operators (other than Amtrak) have reached operating agreements where mutually beneficial arrangements have been negotiated. You gave as an example the BNSF and 

Sound Transit in Washington State. How long is the agreement good for? What happens to the agreement if BNSF’s traffic volume changes on the line? Do Sound Transit trains have preference over BNSF’s trains on the line? 

Answer. I am not privy to all the details of the agreement between BNSF and 

Sound Transit. Agreements of this type often contain sensitive commercial information which the parties consider confidential. I respectfully suggest that this question 

is best directed to the parties involved. 

Question 6. The railroads favor the repeal of the 4.3 cents per gallon deficit reduction fuel tax so that they can channel the funds into needed infrastructure. Would 

the railroads endorse a plan to channel the tax into an endeavor that would benefit 

freight railroads, passenger rail, and enhance public safety, such as the closing of 

highway rail grade crossings on designated high speed corridors? 

Answer. The deficit reduction fuel tax currently costs freight railroads more than 

$170 million per year. This tax should be repealed—not diverted to any other use. 

Freight railroads should be expected, and are willing, to pay for what truly benefits them and what they actually want. Conversely, there is no reason to expect 

freight railroads to pay for what does not benefit them or what they do not want. 

Freight railroads respectfully disagree that the closing of highway rail grade 

crossings on high-speed corridors constitutes a significant benefit to freight railroads. It has long been recognized authoritatively that highway-rail grade crossings, 

by their very nature, are primarily motorists’ responsibilities. The Federal Highway 

Administration’s own regulations today stipulate that ‘‘projects for grade crossing 

improvements are deemed to be of no ascertainable net benefit to railroads and 

there shall be no required railroad share of the costs.’’ 1 (For more information on 

this point, please see my June 27, 2002 testimony to the House Subcommittee on 

Highways and Transit, which is attached.) 

Freight railroads believe that the safety of passengers requires high-speed passenger rail operations to operate over separate, dedicated tracks on which grade 

crossings have been eliminated, either through closure or through the construction 

of highway underpasses or overpasses. 

Freight railroads are also unequivocally opposed to a ‘‘railroad trust fund’’ to help 

cover the costs of rail infrastructure projects, highway-rail grade crossing improvements, or any other purpose. A rail trust fund would be inherently inefficient, since 

railroads would provide substantial resources to the fund, only to have the government dole the money—minus inevitable bureaucratic overhead—back out. A trust 

fund would lead to substantial government interference in, and loss of railroad control over, billions of dollars of rail spending. And while Class I freight railroads and/ 

or their customers would undoubtedly be the primary source of rail trust fund revenue, the pressure to use these funds to finance non-Class I projects—including passenger rail, highway-rail crossing traffic control devices, or short line railroad infrastructure—would be tremendous. 

If government policymakers determine that these types of projects provide public 

benefits worthy of support, then policymakers must be willing to commit public 

funds commensurate with that determination, rather than rely on major freight railroads to cross-subsidize these efforts to the detriment of their own needs. 

Question 7. Your statement says that proposals to grant passenger carriers other 

than Amtrak access to freight railroads’ assets, such as freight facilities and rightsof-way, will be viewed by railroads as a ‘‘taking’’ of private property. Would the railroads make the same argument under legislation that requires freight railroads to 

donate portions of their unused rights-of-way for passenger operations to construct 

separate track lines? 

64 

Answer. Yes. Like any other for-profit entity, freight railroads properly expect to 

be compensated for use of their assets. 

Question 8. How much does it cost to build one mile of track suitable for carrying 

a passenger train at 79 mph? Does this number include the costs of signals and 

turn-outs? How much does it cost to maintain one mile of Class 6 track? 

Answer. The cost to build and maintain a particular stretch of railroad track, like 

the cost to build and maintain a particular stretch of highway, can vary enormously 

depending on variables such as location, topography, climate, whether it is entirely 

new construction or a rehabilitation of existing lines, and many other factors. Consequently, it is difficult to answer this question with specificity. 

That said, as a rule of thumb, excluding right of way costs, a cost somewhere in 

the neighborhood of $2 million per mile is a plausible average cost to build one mile 

of track suitable for carrying a passenger train at 79 mph. This figure would support some level of signaling and turnouts, but would not include the extensive signaling or turnout installation often required. This figure would also not include extensive cutting and filling to achieve a level, straight roadbed, or the construction 

of tunnels, bridges, or flyovers. 

Estimating the cost to maintain one mile of Class 6 track, is a highly speculative 

exercise. In addition to the variables identified above, the cost to maintain track 

will, in part, be dependent upon the quality of the original materials and components installed, the age and condition of the structures and their remaining life, the 

density and frequency of service over the line, axle weights of the equipment traversing the track, the speed of the trains, track curvature and gradient, underlying 

soil conditions and drainage quality, the frequency of bridges and culverts, etc. Due 

to the many criteria which can materially impact maintenance costs, per mile annual cost requirements can be widely variant. For instance, a high quality, new section of track which has been expertly installed and which supports a very low density of traffic may theoretically require as little as $10,000 per mile per year to 

maintain—not much more than the cost of safety inspections and small levels of repair work. On the other hand, heavily used track that is not new and may be subject to certain locational or operating conditions could necessitate annual maintenance outlays of $100,000 or more. Indeed, there is no readily identifiable upper 

limitation on the annual per mile cost that may be essential for safe and efficient 

train operations. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. ERNEST F. HOLLINGS TO

JEFF MORALES

Question 1. You mention the tremendous capital and operating support that California has poured into Amtrak service in your state. Why is California the leader 

in this respect? 

Answer. In part because of Amtrak’s focus on the Northeast Corridor, California 

recognized early on that if it wanted to have intercity rail, it was going to have to 

make it happen. This focus has expanded under the Davis Administration, as we 

are viewing rail as a valuable tool to help alleviate congestion and provide an alternative to driving. To the credit of California voters, The state has had the funds 

and the public interest in investing in intercity passenger rail. A major investment 

came in June 1990 with the voter’s passage of Proposition 108—The Passenger Rail 

and Clean Air Bond Act of 1990 for $1 billion and Proposition 116—The Clean Air 

and Transportation Improvement Act of 1990 for $2 billion. $223 million in Proposition 108 funds and $506 in Proposition 116 funds have been used for intercity passenger rail capital. (The rest of the bond funds were used for commuter rail and 

mass transit projects.) 

The state has also reserved other funds for intercity rail passenger capital 

projects. Since 1988, $531 million in State Highway Account (SHA) funds have been 

expended or reserved. The SHA is funded primarily from state gas taxes and motor 

vehicle weight fees. Also, over the life of the program $239 million in Public Transportation Account (PTA) funds have been expended or reserved—almost $100 million of that since 2000. The PTA is funded from sales tax on diesel fuel and a portion of the sales tax generated from excise tax on gasoline. Since 1999 almost $50 

million in General Funds, all for rolling stock, has been reserved. Finally, the new 

Traffic Congestion Relief Program includes $200 million for intercity rail capital. 

Under Governor Davis, close to $600 million has been dedicated to intercity rail capital. 

The PTA was designated as a trust fund for transportation planning and mass 

transportation purposes under Proposition 116. Since that time, the Account has 

65 

served as a reliable source of operating, administrative and marketing funds for 

intercity rail. 

In addition to funding, California has geography and population that give rise to 

successful intercity rail passenger routes. All of California’s routes go from one 

major population center to another, with significant population centers at midpoints 

of the routes. All three routes are over 100 miles in length, which is a distance that 

is appropriate for intercity rather than commuter rail service. The routes have significant recreational, tourist and business destinations, as opposed to simply commuter destinations. The characteristics of the California routes are similar to the 

characteristics of the Northeast Corridor (NEC) routes that make those routes successful. However, NEC operations are federally funded, unlike the California routes 

that are primarily state funded. 

Question 1a. Do you believe other states can, could, or should follow your state’s 

lead? 

Answer. Most other states have either not chosen to pursue increased intercity 

rail service, or have been able to gain that largely through Federal investment, via 

Amtrak. Several other states have state-supported intercity passenger rail programs, including: Illinois, Maine, Michigan, Missouri, New York, North Carolina, 

Oklahoma, Oregon, Pennsylvania, Vermont, Washington and Wisconsin. While I recognize that increased state support for intercity rail is a difficult choice for some 

states, I also note that it is exactly the choice that Californians have stepped up 

to the plate and made. A combination of increased flexibility of Federal transportation funding and new funding along the lines of what is being discussed by the 

Committee likely would result in more states making that decision. 

Question 1b. What about other states on your border like Nevada and Arizona? 

Answer. Although much smaller in relation to California, Oregon and Washington 

are the two states that have made investments most like ours. California has studied and had discussions with the state of Nevada about service between the San 

Francisco Bay Area and Reno. A study on extending the Capitol Corridor Route to 

Reno is being conducted, and will explore the possibility of joint California/Nevada 

funding for the service. 

Amtrak has developed a proposal for Los Angeles—Las Vegas service. However, 

Amtrak budget constraints have delayed the start of service. 

Question 1c. What keeps them from making similar investments? 

Answer. I want to be careful in not speaking for my counterparts in other states. 

But, in general, I would say that two things probably factor into their decisions. 

One, they may not see the need for increased passenger rail service. Two, they may 

benefited from Amtrak investment of Federal funds that kept them from having to 

choose to dedicate state funding. 

Question 2. Can the services that California currently supports ever be profitable? 

Answer. The performance on each of our routes continues to improve, and we will 

continue to work to improve on that record. However, while certain segments of the 

routes may approach or reach full cost-recovery, it is not realistic to assume that 

intercity passenger rail service can be profitable. Further, it is important to note 

that our investments in passenger rail, both intercity and commuter, are as part of 

an integrated transportation system. A benefit of increased ridership on the Capitol 

Corridor route, for example, is reduced congestion on Interstate 80 between Sacramento and Oakland. Therefore, we are getting returns from our investments that 

do not show up in a traditional measurement. 

Question 2a. How much does the level of required operating support factor into 

your decision to subsidize trains? 

Answer. There is a balance in this equation. On one hand, increased service generates new ridership, a key goal of our program. On the other hand, cost is a major 

limiting factor in deciding to operate new service. As discussed above, operating 

funds come entirely from the PTA. In years when the economy is such that PTA 

funds are up, there is more opportunity to expand services. The operating budget 

for FY 2003 for state-supported service is $73.1 million. The operating budget has 

increased considerably over the years as the result of expansion of service, and Amtrak increasing the share of costs that states are required to pay for state-supported 

service. With the State’s current budget crisis and the high level of the existing 

intercity rail operating budget, opportunities for expansion are much more limited 

than in the recent past. 

Question 2b. What other factors determine whether your state should invest in 

passenger rail? 

Answer. In addition to funding availability, a number issues factor into a decision 

to increase intercity rail service 

66 

• 10-year Capital and Operating Plan—the state develops its operating and capital program for expansion. However, occasionally Amtrak may offer an expansion opportunity that California will consider because it is cost-effective. 

• Demand—the state monitors demand based on current ridership levels and ridership modeling. (The state and Amtrak have joint ownership of a state-of-theart ridership model for the California intercity rail routes.) 

• Capital Improvements—the necessary track, signal, and station improvements 

have to be in place for expansions to be possible. Also, adequate equipment has 

to be available. 

• Railroad Agreement—the state must have secured agreements with the operating railroad before service can be expanded. Often specific track projects to 

provide increased capacity on the private railroads are linked to agreements for 

intercity rail service levels. 

• Local Support—virtually all new or expanded service in California has come 

with a base of support from local communities along the route. 

• Legislative and Executive Branch Support—this support is necessary to start or 

expand service. 

Question 2c. How does the state define success for passenger rail service? 

Answer. As noted earlier, we are increasingly using passenger rail as a tool for 

managing congestion in key corridors throughout the State. That contribution is a 

component of our success in improving mobility. In looking specifically at the rail 

service, the state uses performance measures in three categories: usage, cost efficiency, and service quality. The main measure to assess usage is route ridership. 

Secondary measures include passenger mile per train mile (PM/TM). The main 

measure to evaluate cost efficiency is farebox ratio. Secondary measures include 

yield, and train expense per passenger mile. Service quality measures include ontime performance, customer satisfaction index scores, and percent of California car 

equipment available for revenue service. 

Question 2d. How should the Federal Government determine success and where 

and how to invest in passenger rail? 

Answer. First, and consistent with my previous answer, I would encourage the 

Federal Government to look at passenger rail as a complement to other modes, and 

evaluate its success accordingly. In addition, We would recommend that the Federal 

Government use similar measures and criteria as discussed in 2.b. and 2.c. above. 

Question 3. I believe California is also looking to make investment in the existing 

freight rail infrastructure in order to reduce congestion and the number of trucks 

on the road. Do you see a need for a greater Federal partnership with states for 

rail infrastructure investments, both passenger and freight? 

Answer. Yes, in California there is a great need for capital improvements on 

freight railroads. The state needs to have a partnership with the Federal Government in order to handle this problem. To the extent that freight rail can continue 

to carry freight and expand capacity to carry freight, this will relieve truck congestion and roadway wear on public roads and highways. Class 1 mainline railroads 

have particular need for capacity expansion through double tracking projects on 

heavily used segments. Shortline railroads have a need for infrastructure upgrades 

to accommodate the new 286,000-pound railcars. 

As far as passenger rail, if the Federal Government invests in any corridors, it 

should be willing to invest in productive corridors. Improved mobility in California 

has national benefits, and relieving congestion in California corridors is just as worthy a goal as helping address problems in the Northeast and elsewhere. Consequently, an ongoing stable Federal source of capital funding is necessary to allow 

California Amtrak service to just keep pace with population growth. Stable Federal 

capital funding is also absolutely essential in order to allow the incremental development of high-speed rail service on key corridor routes throughout the Nation. 

Question 4. If Congress were to charter a non-profit company to issue tax credit 

bonds to provide grants to states for rail infrastructure capital projects on a matching basis, do you think California would be interested in taking advantage of such 

an opportunity? 

Answer. Without having the benefit of the particulars of such a proposal, I would 

say that there is no question that new Federal investments in rail could have a tremendous benefit in California and elsewhere. Since we have been willing to dedicate 

state funding to such projects, we would welcome the opportunity to leverage our 

funds to accelerate and expand rail improvements. 

Question 5. What would California’s rail system look like today if the state had 

not invested the ample funds that it has over the past 20 years? 

67 

Answer. The service and ridership would be a fraction of what they are today. The 

only portion of the system that supported by Amtrak as ‘‘basic system service’’ is 

33 percent of the Pacific Surfliners. Without any state support, Amtrak would probably be running around six Los Angeles—San Diego trains in California. There 

would be no Capitol Corridor or San Joaquin service and probably no Pacific 

Surfliner service north of Los Angeles. 

Question 6. What percentage of California’s total transportation budget is dedicated to rail projects? 

Answer. It’s important to keep in mind that we have record levels of investment 

underway. The California Department of Transportation’s entire budget in 2002–03 

was $8.9 billion: $3.7 billion for capital outlay (41 percent); $3.0 billion for state operations (34 percent); and $2.2 billion for local assistance (25 percent). 

The Division of Rail’s 2002–03 operating budget was $95.5 million: $73.1 million 

for operations; and $22.4 million for support, including administration, marketing 

and equipment overhaul. $55.7 million in rail capital projects were programmed for 

2002–03. 

Thus, rail operations were 3.2 percent of the Department’s operations budget 

($95.5 million/$3.0 billion). Programmed rail capital projects were 1.5 percent of the 

total capital outlay budget ($55.7 million/$3.7 billion). In addition, we have other 

projects that do not show up as direct rail capital projects, but that are intended 

to benefit rail. For example, we are building park and ride facilities, and providing 

freeway access to passenger rail stations with the intent of making them more accessible and successful. 

Question 7. How would California’s state-supported service be affected by the 

shutdown of Amtrak’s long distance trains? 

Answer. Discontinuance of Amtrak long-haul routes that travel through California 

would increase costs and reduce riders and revenues on California state-supported 

routes. Also, all train service would be lost in certain parts of the state. 

• Costs to California state-supported routes would increase because, those fixed 

costs that are now shared between long-haul services and State-supported services would have to be borne entirely by the State-supported routes, to the extent 

the costs could not be eliminated. The higher fixed costs would be for maintenance facilities, stations, crew bases and Amtrak Western Regional overhead 

costs. 

• The state-supported services act to extend service on some of the long-haul 

routes in California. For example, the Coast Starlight terminates in Los Angeles. Passengers can transfer from the Coast Starlight to the Pacific Surfliner to 

travel south to San Diego. If the long-haul routes were terminated, the Statesupported services would lose the ridership that now transfers from the longhaul trains to the State-supported trains. Almost 100,000 passengers transferred between California’s three routes and long-haul trains in FFY 2001. 

These riders provided almost $1.4 million in ticket revenues to state-supported 

trains. 

• From a service perspective, California would lose its only rail service in the far 

north part of the state (from the Bay Area north through Redding, and into Oregon) and north/south service on the coast from San Jose to San Luis Obispo— 

on the daily Coast Starlight. The daily California Zephyr provides the only service in California from Sacramento to Reno. The daily Southwest Chief provides 

the only service through from Los Angeles to east to Needles. And the three 

times a week Sunset Limited provides the only through service from Los Angeles to the southeast corner of the state and into Arizona. 

RESPONSES TO WRITTEN QUESTIONS SUBMITTED BY HON. ERNEST F. HOLLINGS TO

ROBERT SERLIN

Question 1. Your proposal calls for a private organization to lease the Northeast 

Corridor (NEC) from the U.S. DOT and then be allowed to issue $15 billion in tax 

credit bonds to fund infrastructure development. Based upon these investments and 

the organization’s management of the NEC, the organization would be expected to 

generate a profit after some period of time. Why shouldn’t the government make 

this investment on its own, or through a government-chartered non-profit corporation, thereby making the same investments but without the premiums a private organization would charge for profits? 

Answer. The IMO proposal is a response to the U.S. Government’s difficulty in 

directly appropriating the funds needed to restore the Northeast Corridor to a state 

68 

of good repair. When the history of Amtrak appropriations is compared to authorizations, Amtrak rarely gets half of what it is authorized. 

The government could make the $15 billion investment required to restore and 

upgrade the NEC infrastructure through annual appropriations, but it would require a major and sustained commitment by Congress and the Executive Branch in 

a display of unity that has not been present in recent years. Furthermore, it is extremely critical that the appropriations be front-end loaded, since rail infrastructure 

projects require three to five years of intense activity before results are evident. 

Unless the entire $15 billion were appropriated in the first one or two years of 

a ten year program and available until expended, the current practice of doing 

piecemeal improvements, parsed to match the various tradeoffs of the budget resolution and demands of the other transportation modes, would continue. Under these 

conditions, it would be excessively risky to undertake the required infrastructure investments since funding would be dependent on a series of annual appropriations 

and subject to each year’s variable influences. We have structured our proposal to 

represent what amounts to a private sector funded ‘‘intercity rail trust fund’’ to 

solve one piece of the Nation’s rail needs. The IMO proposal permits Congress to 

fund the NEC infrastructure at the levels it requires while avoiding ‘‘anti-deficiency’’ 

restrictions. 

It also will allow Amtrak to maintain national rail service within annual appropriations bounds that we have been told by many in government are achievable. 

There are increasing numbers of examples of public/private partnerships that 

have successfully taken advantage of the strengths of each partner to benefit the 

undertaking as a whole. In this instance, the traveling public and the many governmental users of the NEC would benefit from a neutral, professional infrastructure 

manager committed to long-term improvement and growth, and responding quickly 

to market-driven demand, while relieving the Federal Government of on-going funding obligations and the day-to-day responsibility for managing the infrastructure. 

Question 2. A market economy is based upon competition between providers of 

goods and services to keep services up and prices low. Many groups are advocating 

at least some privatization of rail passenger service as a means to make it more 

competitive, the premise being that competition within the industry would keep 

services up and prices low so that passenger rail can effectively compete in the 

transportation market. The RIM proposal would turn over the development and 

maintenance of the NEC infrastructure to a single Infrastructure Management Organization (‘‘IMO’’). Who would be the IMO’s competitor within the industry? 

Answer. With regards to the award of the concession, under the enabling legislation, the award of the IMO role will be through an open competition managed by 

the Surface Transportation Board. 

With regards to the competition on the NEC, currently there is no rail competition. The competition is the highway. The IMO’s challenge is to create competition 

to the highway and to draw people from their passenger cars into the train cars. 

The U.S. Government would continue to be the sole owner of the infrastructure 

regardless of whether Amtrak or another government entity manages it. The IMO 

is the agent for the U.S. Government in funding and implementing the needed infrastructure investments. 

As part of the enabling legislation, the Federal Government will specify those conditions it feels are necessary to ensure appropriate economic safeguards for existing 

and future TSPs. The NEC will be a transportation infrastructure ‘‘platform’’ similar 

to the Interstate Highway system, air traffic control system, and ports and waterways, with equal and open access to all potential TSPs. This model is consistent 

with the competitive market economy model. It is more open to, and in fact is dependent on, supporting existing TSPs than the current model, while promoting additional TSPs, with the attendant market benefits from increased competition, increased service and lower prices. 

Question 3. Under the RIM proposal, the main incentive for the IMO to operate 

profitably is to make the company attractive on the investment market, because 

without investors, the company cannot exist. This system works well if investments 

needed by the company lead directly and quickly to profits for the investors. What 

happens when investments necessary to effectively operate the company run counter 

to the needs of investors to capture a good return on their investments? Might this 

not lead to cuts in services and maintenance that could endanger the safe and efficient operation of passenger rail, as happened in Great Britain? 

Answer. With regards to the British model, please see the response to Question 

5. 

Under the IMO model, investors are likely to be restricted to major institutional 

participants looking for long-term results. The enabling legislation will mandate 

69 

that investors cannot take returns until the operation reaches break-even, which is 

assumed to be around fifteen years after becoming the IMO. Given the timeframes, 

it is in the investor’s interest to maximize investment in the infrastructure to increase operating capacity and throughput. Increased safety and efficient operations 

are essential to increasing traffic volume. The enabling legislation would, in effect, 

make it impossible for the IMO to be publicly traded, thus avoiding the quarterly 

earnings pressure. 

Question 4. Under the RIM proposal, how would passenger rail in the NEC be 

able to compete profitably in the transportation industry with a one-time $15 billion 

investment while its nearest competitors (airlines and highways) continue to receive 

massive government investment year after year? 

Answer. Under the IMO proposal, for the first time, intercity rail is put on the 

same basis as the other modes. The $15 billion is being used to offset years of infrastructure underfunding. No other mode has had the same underfunding for such an 

extended period of time. 

Amtrak has done a formidable job of growing its marketshare of common carrier 

trips in the Northeast and we believe that the IMO plan is the foundation for further growth by both Amtrak and commuter carriers. 

Question 5. The RIM proposal would split a fully integrated railroad into several 

parts, separated by geography and by function. The first step would be to carve off 

the rail infrastructure owned by Amtrak (mostly in the NEC) creating a separate 

government corporation, the National Railroad Infrastructure Corporation (NRIC). 

The NRIC would turn over the maintenance of the track infrastructure to an IMO 

and actual rail operations to various Transportation Service Providers (TSPs). In 

Britain, the infrastructure was turned over to an infrastructure manager 

(Railtrack), the trains were turned over to rolling stock leasing companies 

(ROSCOs), and the operations were turned over to train operating companies 

(TOCs), all of which sought to make a profit. The result was poorer service, higher 

prices, and decreased safety. RIM claims that its proposal is not based on the British model, but the similarities in the NEC are striking. How does the RIM proposal 

differ from the British model? 

Answer. During Railtrack’s tenure, the United States and Britain differed significantly in their regulation and management of the railroad industry. The most important difference was the U.S.’s extensive body of safety regulations contained in 

Title 49 of the Code of Federal Regulations and enforced by the FRA Office of Safety. Britain had no such body of regulations and only now, in 2003, has it formed 

its first independent safety organization. 

Another major difference is that under British law, the officers of Railtrack were 

personally liable for the decisions they made. In order to minimize personal liability, 

Railtrack’s managers contracted out virtually every railroading task and function. 

This resulted in Railtrack not having the core railroading competencies necessary 

to evaluate and respond wisely to problems, such as the derailments in 2001. 

Railtrack instead became a developer of its owned rights-of-way and station properties—a real estate developer. In contrast, the NEC has little or no developable 

real estate. 

Furthermore, by the enabling legislation, the IMO will be a statutory railroad and 

will be obligated to use Amtrak’s existing, experienced infrastructure workforce. 

That workforce knows the NEC, and the rules and regulations to effectively and 

safely manage the railroad. Whereas Railtrack viewed itself as a property manager 

first and a railroad second, the IMO can only be—and will be—a railroad. 

The creation of the ROSCOs in the UK was an unnecessary complication. Under 

the IMO plan, Amtrak will continue to own and manage all of its own rolling stock 

as well as its maintenance of equipment yards and facilities. 

Currently, about 98 percent of Amtrak’s route miles are owned, managed, and dispatched by other railroads functioning as an IMO with regard to Amtrak. Far from 

‘‘splitting a fully integrated railroad into several parts’’, the RIM proposal would, in 

fact, result in all of Amtrak’s train operations being under a uniform arrangement 

for the first time since 1976, when Amtrak acquired the NEC. 

Both the IMO and Amtrak would be subject to the Federal Railroad Administration, which would continue to monitor and enforce all aspects of safety. Also, where 

applicable, the IMO would be subject to the Surface Transportation Board for ratesetting and schedule protection. 

Additionally, as indicated above, the proposal is funded by long-term investors, 

which would not be allowed to take any distributions for about fifteen years, eliminating the pressure for quick returns. These conditions will be written into the enabling legislation. 

70 

Question 6. The infrastructure that Amtrak owns in the NEC is actually its best 

asset and revenue generator. Yet the RIM proposal would remove this asset from 

Amtrak, for the benefit of private investors, and intercity rail operations in the rest 

of the country would go to the other government-owned corporation, the National 

Railroad Passenger Corporation (NPRC). How is NPRC to be funded? Would it be 

funded entirely by government subsidies? How much money would be required each 

year to continue operating the NPRC? 

Answer. Intercity rail operations in the rest of the country would continue to be 

the responsibility of Amtrak, whose formal corporate name is the National Railroad 

Passenger Corporation (NRPC). Mr. Gunn has said that the long distance trains lose 

about $300 million annually. The IMO cannot influence this. Even with Amtrak 

paying an annual access fee for use of the NEC, it is expected that Amtrak would 

continue to require Federal funding at a level not significantly different from this 

$300 million level, depending on Mr. Gunn’s success in continuing to improve Amtrak’s operations. 

The NEC infrastructure may be Amtrak’s most visible asset, but it is the NEC 

trains, which would remain with Amtrak, that are the significant revenue generator. The infrastructure is an enormous financial burden, over $1 billion annually, 

utilizing figures derived from Amtrak president, David Gunn. Since Amtrak’s annual appropriation has seldom matched it’s funding request, the NEC infrastructure 

has historically been underfunded as available monies have been diverted into nonNEC priorities, including rolling stock and facility maintenance. As part of the proposed legislation the IMO would furnish Amtrak $2 billion, assume its infrastructure-secured debt and absorb the loses associated with the infrastructure. This will give Amtrak breathing room to redesign its accounting systems 

and restore its rolling stock to ‘‘like-new’’ condition. 

In any event, the need for Amtrak appropriations would be significantly reduced from the $2 billion currently being requested, Amtrak’s interest and principal payments will be lower, and Amtrak will have the funds furnished to it by the IMO. 

Question 7. Under the RIM proposal, who would own existing NEC assets? Who 

owns the improvements? 

Answer. The Federal Government would own all the NEC assets and as well as 

all the improvements to those assets, regardless of the circumstances under which 

the management contract with the IMO might be terminated. 

Question 8. For the tax credit bonds, who is the issuer? What is the term of maturity for the bonds? How is the amount of tax credit established? How is principal 

of tax credit bonds to be repaid? 

Answer. The IMO proposed ‘‘tax credit bonds’’ are not traditional tax credit bonds 

that cost the government more each year. They are one-time tax credits to which 

taxpayers funding a loan on behalf of the Federal Government to the IMO shall be 

entitled. The tax credits are a loan from the public sector to the private sector, NOT 

a grant as is traditionally the tax credit case. 

A bond issued by or on behalf of the IMO in favor of the government secures the 

repayment at the end of the concession period—fifty years—of the tax credit loan. 

The bond is a third-party secured, strippable, negotiable, investment grade instrument transferred to the government at the time the tax credits are utilized. The 

bond guarantees repayment of the tax credit loan to the Federal Government. 

The Federal Government can either hold or monetize the guarantee instrument. 

Question 9. What level of private investment is assumed aside from the investment made by holders of the tax credit bonds? What rate of return is assumed for 

such investment? 

Answer. Over the concession lifetime, it is estimated that the private sector will 

invest between $30 billion and $50 billion. Of that amount, roughly the first $13 

billion will be derived from tax credit sources. Investments will be project specific, 

and the rate of return will depend upon market conditions at the time and the precise nature of the investment. Different investments and different investment instruments have various target rates of return, which are time and market specific. 

Question 10. Does the RIM proposal assume that access charges will be paid by 

the intercity, commuter and freight rail companies? How will access charges be set? 

Who will establish access priorities for dispatching and on what basis? What access 

charges are projected? How do projected access charges for intercity passenger rail 

service compare to existing annualized infrastructure costs paid by Amtrak? 

Answer. The legislation will mandate that all agreements, be they with commuter 

agencies, freight railroads or anyone else, must be assumed ‘‘where is, as is’’. 

All users of the infrastructure will pay access fees. Amtrak will pay an access fee 

for use of the NEC equivalent to that which it has negotiated with the commuter 

carriers for similar services. Based upon Mr. Gunn’s Congressional testimony the 

71 

owned infrastructure cost burden is over $1 billion annually. Amtrak’s access 

charges would be a small fraction of that figure. 

Under the legislation: commuter carrier rates and service patterns will be protected and, where applicable, the Surface Transportation Board will have oversight 

to assure access to the infrastructure under fair and reasonable terms and conditions. The freight carriers would continue to have the same protections they currently do. 

Currently, dispatching priorities are established by the Multi-use Timetable Committee that creates the official operating timetable. This would continue. When 

trains are late or there are extra movements, dispatching will give preference to 

trains that are on schedule according to the operating timetable. 

Question 11. Who establishes priorities for infrastructure investment? What keeps you from spending $15 billion on real estate, transmission right-of-way, and freight 

service improvements? 

Answer. The enabling legislation will mandate that the IMO develop and maintain a rolling five year capital plan of improvements requested by individual states, 

the TSPs and the United States. This plan will be required to be transmitted annually to all affected parties. 

The IMO will identify those projects and improvements that are consistent with 

optimizing use of the infrastructure and by setting the IMO’s investment in each 

such request, if any. If the IMO declines to fund a project or improvement, then it 

may be totally funded by the requestor(s) in which case the IMO shall be legislatively obligated to implement the project or improvement, provided that the requested project or improvement does not injure or diminish any other TSP’s ability 

to perform or deliver contracted rail service. 

Additionally, the IMO will be mandated to file an annual report with the President and Congress, no later than February 15 each year, summarizing its operations, activities, and accomplishments. The report will include a discussion of the 

state of infrastructure and a summary of major projects and programs accomplished. 

Furthermore, the enabling legislation will require the re-establishment of the Northeast Corridor Safety Committee as a forum for all stakeholders to voice concerns 

and share requirements. 

The enabling legislation will also prohibit the IMO from investing in equities, 

non-high quality debt and, in any form, a related party or a related party transaction. The only way the IMO can make a sufficient amount of money to survive 

the full fifty year concession period and provide its investors a return, is by investing in the passenger rail business and infrastructure. In fact, the enabling legislation will mandate that the IMO may only invest in activities consistent with the 

purposes of the enabling legislation. 

The NEC is, was and will be a passenger railroad. Under the enabling legislation, 

the concession is revocable unless the IMO invests appropriately in the passenger 

infrastructure. Additionally, the IMO will have limited borrowing ability since it will 

not be able to use the Government’s assets as collateral. Thus, if it does not earn 

a return on its investments, it will be out of business. The train throughput volume, 

and therefore the money (i.e., return on investment), is in the passenger business. 

Despite Amtrak’s aggressive marketing efforts, non-transportation income is on 

the order of $50 million per year. Today there is little, if any, developable real estate 

and, in the event that the IMO does identify and capitalize on a real estate opportunity, the long-term benefits therefrom will flow to the owner of the real estate— 

the Federal Government. 

Freight revenue from NEC usage is not significant due to post-Conrail spin-off investments by the affected carriers in their own infrastructures. 

Question 12. Why can private management be assumed to have greater success 

in developing ancillary revenues from activities such as power, real estate and 

freight service? 

Answer. The success of the IMO neither can nor should be dependent on its successful development of ancillary revenues. Furthermore, the IMO could not survive 

on the ancillary revenues. Additional revenue from ancillary sources, such as freight 

traffic, is expected to be minor. Most assets with potential ancillary revenue generating value have already been sold or leveraged by Amtrak and its predecessors, including most of the major stations and longitudinal utility occupancies. 

The IMO only makes money through increased utilization of the infrastructure. 

Through judicious investment in the infrastructure, the IMO must make the infrastructure more convenient to use and more easily accessible. Only by causing more 

trains to move more people can the IMO survive and prosper. 

Question 13. What assumptions have been made regarding the repayment of existing obligations outstanding on existing NEC assets? 

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Answer. Under the enabling legislation, the IMO will assume the obligation to 

fully repay all non-Federal Government infrastructure-secured debt. It will not be 

allowed to refinance that debt or obtain new debt using the infrastructure as collateral. 

Question 14. Why is management of infrastructure separate from operations more 

effective and less costly from either the government’s or the consumers’ perspective? 

Answer. Under the enabling legislation, separation of the infrastructure management from train operations and passenger services will permit Congress to achieve 

its infrastructure development goals, while eliminating the need for Congress annually to appropriate funding to maintain the NEC infrastructure. Almost 98 percent 

of the route-miles over which Amtrak operates are owned and maintained by third 

parties. From the perspective of Amtrak and, thus the Federal Government, Amtrak 

carries the infrastructure management fixed cost. These fixed costs, estimated at $1 

billion per year, are virtually the same, whether managing 2 percent or more of the 

total Amtrak system. Separation of functions will permit both components to focus 

on their core areas of expertise. This will make the management of each function 

more effective. 

As evidenced by other modes, consumers can expect costs to go down as traffic 

and transportation options increase. 

Question 15. Separating operations from infrastructure has been problematic elsewhere (Great Britain). By way of example, if you build new stations, different train 

sets may be required, requiring different staffing for any operating company. How 

is this type of issue managed? 

Answer. New stations will be constructed to assure compatibility with existing 

NEC equipment standards—standards that are followed by all NEC users. In addition, the APTA/FRA intercity and commuter standards will be used as the basis for 

qualifying new rolling stock using the infrastructure. 

From the IMO’s point of view, it is indifferent to the type(s) of equipment the 

TSPs operate as long as the operators and equipment are run in a safe manner complying with the industry standards. 

Station staffs will be addressed on a station specific basis under existing collective 

bargaining agreements. 

Question 16. What is the assumed total capital cost just for maintenance of existing system over the next fifty years? 

Answer. It is assumed that the IMO will spend on maintenance, deferred maintenance and improvements between $30 billion and $50 billion over the next fifty 

years. After the first year, the enabling legislation will mandate that no less than 

an average of $600 million be spent on the infrastructure per year. Should the IMO 

fail to invest $600 million per year in the infrastructure or allow utility levels to 

decline, the concession is revocable. 

Question 17. What impact will the RIM proposal have on existing contracts with 

commuter railroads, utilities, local governments and other third parties? 

Answer. The enabling legislation will mandate that all existing contracts be assumed and honored by the IMO. Consequently, there should be absolutely no effect 

on the contracts with commuter railroads, utilities, local governments and other 

third parties. As the state of good repair is restored, the commuter railroads can 

be expected to experience greater reliability. 

WRITTEN QUESTIONS SUBMITTED BY HON. ERNEST F. HOLLINGS TO

SONNY HALL

There is no record of Mr. Hall’s response to Senator Hollings’ questions. 

Question 1. In your testimony, you referenced the Roth report on worker wages. 

It seems to me that the Roth report confirms what you have been saying for years— 

that Amtrak workers make less than their counterparts and have sacrificed to keep 

Amtrak going. What effect is this having both on the workers you represent and 

Amtrak itself? 

Question 2. How do labor costs on Amtrak compare to labor costs on freight railroads and commuter railroads? 

Question 3. The Roth report consistently shows that workers on other railroads 

earn more money than do Amtrak workers in comparable jobs. Are workers on other 

railroads better trained? 

Question 4. Do the cost-of-living raises built into Amtrak workers’ contracts generally keep pace with the rate of inflation? 

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Question 5. We continue to hear a lot of talk that Amtrak would operate much 

more efficiently if we simply privatized the system. I know Britain recently experimented with this policy. Could you share your views on what we can learn from 

the British rail experience? 

Question 6. Transportation labor has come to this Committee in support of major 

infrastructure bills for other modes. Landmark reauthorization bills have come out 

of this Committee to improve our highways, transit systems, airports and other 

modes. Why is it that we can’t do the same for Amtrak that we do for highways, 

transit, airports and other modes? 

Question 7. Mr. Hall, I found your comments about Amtrak workers having to sacrifice to keep Amtrak operating very disturbing. Unfortunately, there seems to be 

a trend going on here. We have seen airline employees having to bear the brunt 

of management’s mistakes. Workers gave back million. I know as the union president representing a large sector of workers at American Airlines that you understand this problem well. I think the problem here is that we keep blaming workers 

instead of focusing on solving institutional problems. What do you think? 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. ERNEST F. HOLLINGS TO

JAMES (ROCKY) QUERY

There is no record of Mr. Query’s response to Senator Hollings’ questions. 

Question 1. From the market’s perspective, who should be the issuer of potential 

tax credit bonds be? 

Question 2. Would states rather be able to issue tax credit bonds or tax-exempt 

bonds? 

Question 3. Can states currently use tax exempt bonds for intercity rail projects? 

If they can, why don’t they do it more often? 

Question 4. Doesn’t current law allow for the issuance of exempt facility bonds for 

high speed rail projects? How do you suggest that current law be changed? 

Question 5. Given the experience with the QZAB program to date, are you concerned about the size of the investor market for billions of dollars in proposed tax 

credit bond issuance? 

Question 6. Are there particularly problematic issues facing states who might 

want to use tax credit bonds for intercity passenger rail projects? For investors? 

Question 7. If Congress were to charter a non-profit company to issue tax credit 

bonds to provide grants to states for rail infrastructure capital projects on a matching basis, do you think the financial markets would interested in taking advantage 

of such an opportunity? By having a single issuer and issuing sizable amounts of 

bonds, do you believe such bonds can be handled efficiently in the market? 

Question 8. If a sinking fund, made up of state matching funds and a small portion of bond proceeds, was managed by this nonprofit corporation to repay the bonds 

upon maturity, would the markets view this as a sufficiently sound way to ensure 

bond repayment? 

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