Intercity Passenger Rail: National Policy and Strategies Needed to Maximize Public Benefits from Federal Expenditures
Published: 2006-11-13T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Intercity passenger rail service is at a critical juncture in the United States. Amtrak, the current service provider, requires $1 billion a year in federal subsidies to stay financially viable but cannot keep pace with its deteriorating infrastructure. At the same time, the federal government faces growing fiscal challenges. To assist the Congress, GAO reviewed (1) the existing U.S. system and its potential benefits, (2) how foreign countries have handled passenger rail reform and how well the United States is positioned to consider reform, (3) challenges inherent in attempting reform efforts, and (4) potential options for the federal role in intercity passenger rail. GAO analyzed data on intercity passenger rail performance and studied reform efforts in Canada, France, Germany, Japan, and the United Kingdom.
section_title: What GAO Found
paragraphs: The existing intercity passenger rail system is in poor financial condition and the current structure does not effectively target federal funds to where they provide the greatest public benefits, such as transportation congestion relief. Routes of 750 miles or more, while providing service for some rural areas and connections between regions, show limited public benefits for dollars expended. These routes account for 15 percent of riders but 80 percent of financial losses. "Corridor" routes (generally less than 500 miles in length) have higher ridership, perform better financially, and appear to offer greater potential for public benefits. The countries GAO studied varied in their reform approach, but their experience shows the United States needs to consider three key elements in attempting any reform: (1) define national policy goals, (2) define the roles of government and other participants, and (3) establish stable funding. Countries found these elements important in setting the role of passenger rail in the national transportation system and increasing the benefit from investing in passenger rail. Currently, however, the United States is not well positioned to address these key elements. The goals or expected outcomes of intercity passenger rail policies are ambiguous, participants' roles are unclear, and there is widespread disagreement about the level of funding to devote to this effort. Amtrak is taking actions within its authority to reduce costs and increase efficiency, but Amtrak is not in a position to address all key elements. To undertake reform, federal leadership is needed. Addressing key elements of reform poses many challenges, because those who have a stake in the process have divergent goals or points of view. Amtrak workers, freight railroads that own much of the rail system over which passenger trains operate, and federal and state governments would be among those affected. The diversity of viewpoints poses challenges for determining both the overall goal for passenger rail in the United States and the federal role in achieving this goal. Funding-related challenges include identifying how to pay for achieving these goals and how to overcome disadvantages intercity passenger rail faces relative to leveraging of federal funds. Although federal-state cost sharing is common in highway and transit programs, states face difficulty leveraging their expenditures on rail service. There are four main options for the federal role in intercity passenger rail service: (1) keep the existing structure and funding, (2) make incremental changes to improve financial or operational performance, (3) discontinue federal involvement, or (4) fundamentally restructure the system. Each option has advantages and disadvantages, and each faces its own challenges. Each requires some level of federal funding, a clear articulation of expected goals, and, except for the status quo option, substantial time to implement. Of these options, the fourth--fundamental restructuring--would allow for effectively integrating rail into the national transportation system and substantially improving overall performance and accountability.

section_title: Letter
paragraphs: The future of intercity passenger rail service in the United States has come  to a critical juncture. The National Railroad Passenger Corporation  (Amtrak) continues to rely heavily on federal subsidies—over $1 billion  annually in recent years—and operating losses have remained high. In  addition, Amtrak will require billions of dollars to address deferred  maintenance and achieve a “state of good repair.” These needs for Amtrak  come at a time when the nation faces long-term fiscal challenges. As we  reported in February 2005, the federal government’s financial condition and  long-term fiscal outlook present enormous challenges to the nation’s ability  to respond to emerging forces reshaping American society, the United  States’ place in the world, and the future role of the federal government.  Addressing the projected fiscal gaps will require policy makers to examine  the affordability and sustainability of all existing programs, policies,  functions, and activities throughout the federal budget.
Our February 2005 report outlines some of the criteria that should be  considered in reexamining the future federal role toward intercity  passenger rail in this country. These criteria include: (1) the relevance of  and purpose for the federal role, (2) measures of success, (3) targeted  benefits, and (4) the affordability and cost effectiveness of federal  expenditures. A reexamination will include asking questions such as: Does  intercity passenger rail have a clear federal role and mission? Does  intercity passenger rail have outcome-based performance measures? Do  intercity passenger rail expenditures target areas with the greatest needs  and least capacity? Do federal expenditures and investments encourage  state and local governments, and the private sector, to invest resources? Do  these expenditures appear affordable and sustainable in the long term?  Considering the performance of the current system relative to all these  factors will be critical in deciding the future of intercity passenger rail, the  federal role in intercity passenger rail, and how intercity passenger rail is  structured, operated, and funded in the United States.
Reexamining the federal role and expenditures on intercity passenger rail  service will be particularly difficult because of the divergent opinions about  what this service should be. Some advocate a greatly expanded federal role  and the expansion of intercity passenger rail to relieve growing congestion  on highways and airways and (as energy prices increase) to provide more  fuel-efficient transport; others believe the federal role should be scaled  back, and that at least some federal operating subsidies should be  eliminated. Specific proposals vary—while one proposal would keep  Amtrak largely intact and provide more funding for capital and other  improvements, another proposal would significantly restructure the  management and accountability for intercity passenger rail with regional,  state, and local entities making fundamental decisions about what intercity  passenger rail services are justified and will receive public financial  support. Amtrak itself has proposed a new vision for intercity passenger  rail service that would include a greater role for states in planning and  developing passenger rail corridors. The acting president of Amtrak told us  that, in his view, Amtrak itself is not a substitute for a national intercity  passenger rail policy and that Congress needs to develop such a policy. One  of the primary difficulties in developing a clear national intercity passenger  rail policy will be reconciling the wide diversity of views about what  intercity passenger rail service should be and what it should achieve.
To assist Congress as it assesses the future of intercity passenger rail  service in the U. S., and the federal role in such service, you asked us to  identify critical issues and options that Congress should consider in  deciding the future federal role. In response to your request, this report  addresses the following:  the characteristics of the current U.S. intercity passenger rail system  and the potential benefits obtained from this system;  foreign experiences with passenger rail reform and observations for the   how well the United States is positioned for reforming its intercity   challenges the United States faces in overcoming obstacles to reform;   potential options for the future of intercity passenger rail service.
To address these issues, we collected information on the characteristics of  Amtrak’s routes, including ridership, costs, and the extent of public  subsidies provided on routes. We conducted extensive analyses of both  long-distance routes and short-distance corridor routes. We analyzed data  on passenger demographics, financial performance, on-time performance,  and connectivity between routes, and synthesized the results to determine  the actual and potential benefits provided by both types of routes. We also  collected and analyzed data on passenger rail operations and restructuring  efforts in Canada, France, Germany, Japan, and the United Kingdom (U.K.).
This included interviews with government and private sector officials in  these countries, and reviews of passenger-rail-related policies and funding.  We interviewed officials from Amtrak as well as the Federal Railroad  Administration (FRA), states, various travel and tour associations, rail  labor unions, freight railroads, and the operator of a luxury passenger rail  service in the United States. We also compared Amtrak’s current  accountability and financial reporting mechanisms to the basic  requirements and practices for federal entities and public companies in the  United States. Finally, we reviewed studies on passenger rail reform efforts  around the world and consulted with international rail experts  knowledgeable about passenger rail reform efforts. Our work was  conducted from January 2006 to October 2006 in accordance with generally  accepted government auditing standards.
subsections: section_title: Background
paragraphs: The Rail Passenger Service Act of 1970 created Amtrak to provide U.S.  intercity passenger rail service because existing railroads found such  service unprofitable. Today, Amtrak continues to be the main provider of  intercity passenger rail service in the United States, operating a 22,000-mile  network that provides service to 46 states and Washington, D.C., primarily  over tracks owned by freight railroads. Federal law requires that freight  railroads typically give Amtrak trains priority access and, in general, charge  Amtrak the incremental cost—rather than the full cost—associated with  the use of their tracks. Amtrak also owns about 650 miles of track,  primarily on the Northeast Corridor (NEC), which runs between Boston,  Massachusetts, and Washington, D.C. Access to this corridor is also critical  for the operations of nine commuter railroads run by state and local  governments serving 1.2 million passengers each work day. According to  Amtrak, four freight railroads also use the corridor each day. Amtrak  employs about 19,000 people.
The Amtrak Reform and Accountability Act of 1997 gave Amtrak significant  flexibility with respect to its route system, but directed it to continue to  operate “a national passenger rail transportation system which ties  together existing and emergent regional rail passenger service and other  intermodal passenger service.” To meet this mandate, Amtrak currently  operates 41 intercity passenger rail routes that fall into two distinct types,  long-distance routes and short-distance corridors (see fig. 1). There are 14  long-distance routes, which generally travel over 750 miles and include an  overnight component. Twenty-seven routes are short distance, or  “corridor” services, and are further classified into two distinct categories.  The first is the NEC. According to Amtrak, about two-thirds of its ridership  is either wholly or partially on this corridor. The second category of  corridor service is primarily comprised of routes partly funded by states,  but also includes several other routes that Amtrak continues to operate as  part of the original or “legacy” system. These corridor services have  several similarities, such as a relatively high frequency of service and route  distances generally under 500 miles.
The 1997 act also established a Reform Board (to assume the  responsibilities of Amtrak’s Board of Directors) and a Reform Council (to  review and recommend changes in Amtrak's route structure). The act  provided for the Reform Board to serve for 5 years and then be replaced by  a new Amtrak Board of Directors; meanwhile, the Reform Council’s  mandate was to look at “Amtrak’s operation as a national passenger rail  system which provides access to all regions of the country and ties together  existing and emerging rail passenger corridors.” In November 2001, the  Reform Council reported that Amtrak would not achieve operational self- sufficiency by December 2, 2002, as envisioned by the act and, in 2002, the  Reform Council recommended restructuring and rationalizing the national  intercity passenger rail system—a move that envisioned, among other  things, breaking up Amtrak and introducing competition to provide rail  service. As of October 2006, Congress was still considering Amtrak issues,  such as its funding level, the size of its network, the introduction of  competition for routes, and Amtrak restructuring.
Since Amtrak’s inception, it has struggled to become financially solvent.  Amtrak has run a deficit each year and required federal assistance to cover  operating losses and capital investment. Amtrak has received  approximately $1.2 billion in annual appropriations since fiscal year 2003  for operational support, capital improvements, and debt obligations.  Amtrak, like other intercity transportation systems, is capital-intensive.  From fiscal years 1971 through 2006, Amtrak has received just over $30  billion in federal support, of which about $11 billion has been for  infrastructure improvements and equipment overhauls. Additional capital  funding has also been obtained from state and local governments, generally  for specific capital investments required to support corridor routes  operating within their jurisdiction.
The Amtrak Reform and Accountability Act of 1997 removed Amtrak from  the list of government corporations under 31 U.S.C. § 9101. While listed,  Amtrak was required to submit annual management reports to Congress  under the Government Corporation Control Act of 1945. Relieved from this  requirement, Amtrak remains a government-established private  corporation which is neither an agency nor instrumentality of the U.S.  government, nor an issuer of securities to the public. Therefore, since 1997,  Amtrak has not been subject to the basic accountability requirements of  either federal entities or public companies. Such requirements cover  financial reporting, internal control, and governance. Through its loan  agreement and grant agreements for operating and capital expenses,  Amtrak is subject to a variety of reporting requirements—including  providing a monthly performance report to its board, the Department of  Transportation (DOT), and Congress; providing FRA with a daily cash  balance report; and providing FRA with a monthly progress report on  actions addressing our previous recommendations. Due to Amtrak’s long- term challenges, several reform proposals and legislation have recently  been introduced to address Amtrak’s financial problems. The suggested  reforms vary in the level of federal subsidies proposed and the extent to  which the current U.S. intercity passenger rail system would be  restructured. Among these proposals is the administration’s 2005 proposal,  which would phase out federal operating subsides for long-distance trains  and split Amtrak into three entities: an oversight company to manage the  restructuring process, a private infrastructure management company, and a  train operating company. This proposal would ultimately give states  greater decision-making authority with respect to rail service and capital  improvements. Conversely, the Senate Committee on Commerce, Science,  and Transportation proposed a reauthorization bill in 2005 that would  authorize just under $2 billion per year over a 6-year period to fund  Amtrak’s capital and operating expenses to maintain current operations,  upgrade equipment, and return the NEC to a state of good repair. Although  operating subsidies over the life of this bill would be reduced 40 percent  through cost cutting and other actions, capital funding to Amtrak and  states would increase. See table 1 for key aspects of recent intercity  passenger rail reform proposals and legislation.
The U.S. system is not the only intercity passenger rail system that has  experienced financial deficits and economic inefficiencies. Many countries  have undertaken efforts to reform their systems in order to alleviate  financial and structural problems. While the intercity passenger rail  experiences of other countries are often cited in the debate over the U.S.  system, there are some key differences between the U.S. system and other  foreign systems, including:  Infrastructure ownership. In the United States, nearly all of the  infrastructure that intercity passenger rail operates on is owned by  private freight rail companies and is located on private land. Although  Amtrak, by law, has a statutory right of access to infrastructure at  incremental cost, it enters into operating agreements with freight and  other railroads to use their lines. In contrast, in most of the countries in  Europe, infrastructure is publicly owned.
Freight and passenger railroad industry. In addition to owning the  infrastructure, freight rail dominates the rail industry in the United  States. This is a stark contrast to most other countries, where passenger  rail is the primary component of the rail industry and freight plays a  more secondary role.
Geography and demographics. Geographic and demographic factors  also make the United States significantly different from other countries,  in particular those in Europe and Japan. The United States is relatively  larger geographically than most of these other countries. Europe and  Japan are more compact than the United States, making more intercity  travel by rail between major cities as fast as by air. Additionally, experts  and prior research highlight the greater population density of European  cities—making rail a more attractive option for transportation.
section_title: Existing U.S. Intercity Passenger Rail System Is in Poor Financial Condition and Appears to Provide Limited Benefits for Federal Expenditures
paragraphs: The existing U.S. intercity passenger rail system remains in poor financial  condition, characterized by continued high operating losses and substantial  levels of deferred capital and maintenance projects. Moreover, the current  structure does not appear to effectively target federal funds where they  may achieve the greatest level of public benefits. That is, many services  are not focused on the markets where rail may have a comparative  advantage over other modes and is most likely to be a viable and cost- effective option to meet public transportation demands.
Amtrak operates two types of intercity routes—long distance and  corridors—that provide service to a wide range of passengers across the  country; however, each of these route types exhibit markedly different  financial and operating characteristics. Long-distance routes account for  about 80 percent of Amtrak’s financial losses although they serve about 15  percent of Amtrak’s total ridership, and are characterized by poor on-time  performance. These routes are often associated with a number of public  benefits, including offering service to a number of rural residents and  providing national connectivity; however, these benefits may be limited by  infrequent or inconvenient service and are provided at high cost to the  federal government. In contrast, corridor routes account for most of  Amtrak’s ridership and appear to offer greater potential to provide  passenger transportation benefits and public benefits. For example, these  services tend to be more time- and cost-competitive with other modes of  transportation—potentially mitigating highway and air congestion—and  they offer greater flexibility over long-distance rail services to adapt  schedules and services to the demands of the traveling public. While  several challenges related to funding and capacity constraints exist,  corridors appear to be where the comparative strength for intercity  passenger rail services lies and where the greatest potential exists for rail  to provide increased public benefits for federal expenditures. Corridors  could also facilitate integrating intercity passenger rail into the national  transportation system.
subsections: section_title: Existing U.S. Intercity Passenger Rail System Appears Unsustainable at Current Levels of Federal Funding
paragraphs: Although the Amtrak Reform and Accountability Act of 1997 proposed that  Amtrak reach operational self-sufficiency by December 2002, Amtrak did  not achieve this goal and its financial condition since this legislation was  enacted remains precarious. In addition, to stabilize and sustain the  existing system, Amtrak is likely to need increased levels of funding.  Amtrak continues to incur substantial operating deficits and is faced with  billions of dollars in deferred capital maintenance and debt obligations. No  combination of service cuts or productivity improvements can fully  eliminate the need for public operating and capital subsidies, particularly if  Congress continues to mandate that Amtrak operate a national system.  However, at a time when the federal government faces a long-term  structural fiscal imbalance, these poor financial characteristics lead to  questions about how the system should be structured and funded in the  future.
subsections: section_title: Operating Losses
paragraphs: The U.S. intercity passenger rail system ends each fiscal year with  substantial operating losses. Although Amtrak has made some progress in  containing operating expenses in recent years, it continues to run an  annual operating deficit (total operating revenues minus operating  expenses) of over $1 billion dollars and relies heavily on federal subsidies  to cover this deficit. In fiscal year 2005, Amtrak reported a net operating  loss of $1.2 billion, including an annual cash loss of $450 million (see fig.  2). Although exhibiting a slight decrease from the record deficit in fiscal  year 2004, operating losses have shown few signs of substantial long-term  improvement. In fact, Amtrak projected in its 2005–2009 Strategic Plan  that, under the existing structure, annual operating losses will increase to  over $1.5 billion by 2009.
While Amtrak has experienced a steady increase in ridership over the last  decade, there has not been a corresponding increase in total annual  revenues. Between fiscal years 2002 and 2005, passenger revenues  remained relatively stable—declining from $1.34 billion to $1.29 billion (3.3  percent)—despite growth in annual ridership of nearly 2 million passengers  during this period, an increase of 8.2 percent (see fig. 3). These results  suggest that it is unlikely that Amtrak can grow its way out of financial  difficulty through additional increases in ridership. Further, these trends of  continued high operating losses and stagnating passenger revenues,  despite a number of cost-cutting efforts, have led the DOT Inspector  General and others to conclude that Amtrak also cannot “save its way to  financial health” and—in the absence of increased federal funding—may  require long-term structural operating reforms.
In addition to the burden of its annual operating deficit, the intercity  passenger rail system is faced with substantial financial obligations related  to capital repairs and infrastructure maintenance, as well as accumulated  debt. Both of these obligations have received substantial federal subsidies  each year and are likely to continue affecting the financial outlook of  Amtrak into the foreseeable future.
Capital needs and deferred maintenance. Lacking the funds to  complete all of its identified capital repair and maintenance projects,  Amtrak has deferred an estimated $6 billion in capital and infrastructure  maintenance spending. In addition to increasing the risk of a major  failure on the system, the deteriorated condition of Amtrak’s rolling  stock and infrastructure may contribute to higher operating costs and  reduced reliability of service. Further, over 60 percent of this deferred  maintenance is attributable to Amtrak’s mainstay NEC service.  Disruptions of service on this corridor, due to needed repairs or safety  concerns, would have significant financial impacts. While Amtrak has  identified the restoration of rail infrastructure to a state of good repair  as one of its primary goals, the cost and extent of the needed  improvements remain a significant burden to the financial viability of  the existing intercity passenger rail system. Although the level of federal  capital funding has increased in recent years, there remains a  fundamental mismatch between the level of investment Amtrak and the  DOT Office of Inspector General (DOT OIG) have estimated is needed to  maintain the existing network and the amount of funding provided. For  example, in fiscal years 2005 and 2006, Amtrak identified capital funding  needs of nearly $800 million dollars annually; however, actual funds  appropriated for capital projects in those years totaled $369 million and  $495 million, respectively.
Debt obligations. Significant federal funds are also spent each year to  service Amtrak’s substantial debt burden. At the end of fiscal year 2005,  Amtrak carried a total of $3.6 billion in debt and capital lease  obligations. Principal and interest payments on these accumulated  debts is estimated at $295 million for fiscal year 2007 and will likely  remain at about this level for the foreseeable future. These payments  accounted for over 20 percent of Amtrak’s total federal appropriation  for fiscal year 2006 and, in light of Amtrak’s other financial obligations,  are likely to continue to require funding from other sources.
section_title: Federal Funding
paragraphs: Given high annual deficits, deferred capital spending, and debt obligations,  the current levels of federal subsidies are likely insufficient to maintain the  existing level of passenger rail service being provided by Amtrak. Since  Amtrak’s authorizing legislation expired in 2002, federal funding for  intercity passenger rail has been far below what Amtrak and others have  estimated is needed to sustain and stabilize the current system. For  example, Amtrak submitted budget requests of approximately $1.8 billion  for fiscal years 2004 through 2006. However, the average amount of federal  funding received over this period totaled about $1.24 billion per year— enough to keep the system operating but not enough to meet the level  Amtrak estimated is needed to prevent the continued deferral of significant  maintenance projects (see fig. 4). The President’s budget in fiscal year 2006  proposed no funding for Amtrak in the absence of significant operating and  structural reforms; however, Amtrak eventually received federal funding in  the amount of $1.29 billion.
For fiscal year 2007, Amtrak’s budget request totaled $1.6 billion. This  figure included $498 million to support cash operating losses, $730 million  for capital spending, $295 million for debt service, and $75 million for  working capital. The DOT OIG issued estimates similar to those proposed  by Amtrak, reporting that $1.4 billion would be required in fiscal year 2007  just to maintain the currently configured system in a steady state, without  addressing the backlog of infrastructure projects or investing in new  corridor development. This report also identified that up to $125 million  in additional working capital may be needed to protect Amtrak from  insolvency risks posed by any significant unforeseeable events, such as the  Acela brake problem experienced in 2005.
section_title: Current Intercity Passenger Rail Network Appears to Provide Limited Public Benefits at a High Cost to the Federal Government
paragraphs: The nation’s intercity passenger rail system serves a variety of purposes,  but many routes appear to provide limited public benefits for the level of  federal expenditures required to operate them. While none of the 41 routes  comprising the current U.S. intercity passenger rail network earn sufficient  revenue to fully cover the operating and capital costs of providing the  service, the two types of routes that Amtrak operates—long distance and  corridors—have markedly different operating and financial characteristics.  Some of these differences include annual ridership and passenger  demographics, financial performance, and the scope of potential  transportation benefits and public benefits that the service is likely to  provide.
subsections: section_title: Long-Distance Routes are Characterized by Relatively High Costs and Potentially Limited Benefits
paragraphs: While Amtrak’s 14 long-distance routes serve a number of different  geographical and traveler markets, they often do so inefficiently and at a  high cost to the federal government. That is, long-distance routes account  for nearly 80 percent of Amtrak’s financial losses although they serve 15  percent of Amtrak’s annual ridership. In addition, long-distance rail  services also tend to be infrequent and exhibit poor dependability—as  measured by on-time performance—due to increased trip distances and  potential issues associated with operating on freight-owned infrastructure.  As a result, actual transportation and public benefits potentially deriving  from these routes, such as rural transportation and national connectivity,  may be limited.
section_title: Ridership and Financial Characteristics
paragraphs: Long-distance routes comprise a relatively small percentage of total  Amtrak ridership, yet they consume a disproportionate amount of federal  subsidies. Ridership on Amtrak’s long-distance routes has remained  relatively stable, averaging approximately 3.8 million passengers per year  between fiscal years 2002 and 2005. This figure represents approximately  15 percent of Amtrak’s total reported ridership of 25.4 million passengers in  fiscal year 2005. Since many of these passengers travel longer distances  than passengers on corridor routes, long-distance routes accounted for 47  percent (2.5 billion) of Amtrak’s total of 5.4 billion passenger miles in fiscal  year 2005. However, many of the trips taken on these routes are for  relatively shorter distances as opposed to end-to-end trips, with riders  often traveling between city pairs on existing Amtrak corridors or planned  corridor routes. For example, the DOT OIG issued a statement in 2003  which estimated that the share of trips taken on long-distance routes that  were corridor in nature was 34 percent. In fiscal year 2005, nearly 30  percent of all trips on long-distance routes were for fewer than 300 miles  and 46 percent were for fewer than 500 miles (see fig. 5). In this regard,  many passenger trips on long-distance routes may be similar to those on  Amtrak’s corridor services, where rail service is more likely to be time- and  cost-competitive with other modes of intercity transportation. For  example, on the Empire Builder—one of Amtrak’s best-performing long- distance routes—over 24 percent of all passenger trips on the 2,200-mile  route take place on the 417-mile stretch between Chicago, Illinois, and  Minneapolis/St.Paul, Minnesota; this stretch represents 1 of 10 potential  high-speed rail corridors designated by FRA.
Ridership demographic data also indicate that Amtrak’s long-distance  routes serve a large percentage of vacation and leisure travelers. According  to Amtrak passenger profile surveys, most passengers (over 80 percent)  report utilizing long-distance routes for recreational and “leisure” trips,  including visits with family and friends and for personal business,  compared with other types of travel, such as business or commuting. In  addition, Amtrak passenger data indicate that, overall, many long-distance  customers tend to be retirees—33 percent versus 16 percent for the total  travel market.
Long-distance routes operate with substantial financial losses and consume  a disproportionate amount of federal operating subsidies. Financial losses  allocated to long-distance routes amounted to $539 million in fiscal year  2005, accounting for approximately 80 percent of Amtrak’s total reported  loss of $659 million. This figure also accounts for nearly 95 percent of the  total federal appropriated operating grant of $570 million provided to  Amtrak for that year. Based on data provided by Amtrak, operating losses  on long-distance routes averaged $154 per passenger with considerable  variation illustrated between the individual routes. Financial performance  over the past several years also indicates that Amtrak is unlikely to  substantially reduce these losses through increased revenue or cost  reductions. Between fiscal years 2002 and 2005, Amtrak reported a nearly  30 percent decline in annual long distance revenue. However, during this  time period, operating costs decreased only about 9 percent. As a result,  the budget gap between revenues and costs shows no sign of improvement  (see fig. 6).
Contributing to the high operating losses on many of Amtrak’s long- distance trains are the costs of extra services and amenities, such as  sleeper services and dining cars. While these auxiliary services generate  additional revenue over coach-class seats, the additional revenues do not  cover incremental costs. In fact, passengers traveling in first-class sleeper  cabins on Amtrak long-distance trains are actually more heavily subsidized  than coach passengers. The DOT OIG estimated that sleeper services  increase the operational loss over coach class seats by an average of $109  per passenger. When capital costs for providing such services are also  included, these additional losses average $206, with losses on some routes  as high as $358 per passenger (see app. II). Amtrak is currently evaluating  several alternatives to their existing sleeper services in an aim to eliminate  incremental financial losses. Some of these alternatives include making  equipment and service enhancements on the Empire Builder to reposition  it as a luxury service and potentially outsourcing premium sleeper services  on select routes for passengers seeking a luxury “land cruise” experience.
section_title: Transportation Benefits and Public Benefits
paragraphs: Amtrak’s long-distance routes are generally associated with a number of  transportation benefits and public benefits; however, these benefits are  obtained at high cost to the federal government and may be limited by  infrequent or undependable service. In addition to offering a relatively safe  mode of transportation, long-distance routes are commonly associated  with their role in providing (1) an intercity transportation option for a  number of rural passengers, and (2) national connectivity to link regional  corridors and other long-distance routes. While there are public benefits  associated with filling these roles, it appears that other transport modes  may be better positioned to provide these benefits at reduced cost to the  federal government. Moreover, the infrequent service and poor on-time  performance of many of Amtrak’s long-distance trains may further limit the  benefits provided by intercity passenger rail along these routes.
Intercity passenger rail provides access to many of the nation’s rural  residents but air and bus services continue to be the principal modes of  public or common carrier transportation for these residents. In 2005, the  Bureau of Transportation Statistics estimated that scheduled intercity  public transportation (e.g., by air, bus, rail, or ferry) provides coverage to  93 percent of the 82.4 million residents classified as rural. Intercity bus  and air services have the deepest penetration within rural America—at 89  and 71 percent of the population, respectively—and rail services were  reported to cover approximately 42 percent of the rural population. While  many of these residents have access to more than one transportation  option, the Bureau of Transportation Statistics estimated that intercity  passenger rail (i.e., Amtrak) is the sole public transportation option for  approximately 350,000 people nationwide. Georgia and South Carolina  were reported as the two states with the largest number of rural residents  (with a combined total of 94,000) that were solely dependent on scheduled  intercity passenger rail. In contrast, scheduled intercity air and bus services  provide the sole transportation option for 2.4 million and 14.4 million rural  residents nationwide, respectively. In addition, it appears that if rural  transportation were a targeted public policy objective, other modes of  transport could be better positioned to provide this benefit to a greater  number of residents at lower cost. For example, in fiscal year 2004, federal  grants available to the intercity bus industry to support rural service  amounted to just $22 million, with rural coverage for that mode exceeding  twice the level provided by rail. However, as the DOT reported in 2005, the  goal of rural mobility should be to offer flexible and sustainable travel  options to those with the greatest mobility needs—and not necessarily to  preserve or promote use of any specific transportation mode. Achieving  this goal may require the establishment of objective criteria by which to  evaluate the needs of these communities. It may also require the awarding  of competitive franchise agreements to whatever mode that could provide  service with the least amount of subsidy.
Intercity passenger rail also provides connectivity between different  regions of the country and other rail routes; however, alternatives may  exist to meet passenger demands at reduced cost. Federal law currently  directs Amtrak to tie together existing and emerging regional rail passenger  service. On a system wide basis, relatively few passenger trips (8 percent)  include a train-to-train connection—that is, a passenger changing from one  train to another. However, on long-distance routes the percentage of train- to-train connections is somewhat higher (an estimated 22.6 percent in  fiscal year 2004). Consequently, national interconnectivity provided by  long-distance routes appears to be a potential benefit to approximately 3.5  percent of Amtrak’s total annual passengers. While this population is a very  small proportion of the overall intercity passenger market, some rail  proponents believe national connectivity may also provide public benefits  by providing transportation redundancy to the country. Such redundancy  may be important, particularly if air services were grounded as they were in  the immediate aftermath of the September 11, 2001, terrorist attacks.  However, to the extent that transportation redundancy is a meaningful  policy option, intercity passenger rail may not be positioned to provide  cost-effective service to the greatest number of people. As previously cited,  intercity buses currently provide much greater coverage across the United  States without federal operating assistance. Therefore, determining  whether these public benefits warrant federal subsidies involves  consideration of the substantial costs required to achieve them, as well as  evaluation of alternative options, such as intercity buses, that may be better  positioned to provide these benefits.
Amtrak’s long-distance services are often infrequent and hindered by poor  on-time performance, which may further diminish the benefits provided by  these services and offer reduced potential to meet the public’s  transportation demands. For example, nearly all of the long-distance trains  have limited frequencies—typically one daily departure in each direction— and, due to increased travel times, they are often scheduled to arrive  outside of convenient traveling hours. For example, many of Amtrak’s  long-distance trains operating within Georgia and South Carolina—the  states with the most rural residents dependent solely on rail—are  scheduled to arrive at the station between 3:20 a.m. and 6:50 a.m. The  infrequent and inconvenient nature of many long-distance schedules is  likely to severely limit rail as a viable transportation option for many  passengers. While increased frequency of service may potentially address  these limitations, this option could be costly due to the increased level of  federal subsidies that more frequent service would entail if the population  and other characteristics of long-distance corridors did not warrant  increased frequency of service.
On-time performance also continues to be a major limitation affecting the  potential benefits provided by Amtrak’s long-distance services. In fiscal  year 2005, Amtrak reported an average on-time performance of 41.4  percent for long-distance routes, ranging from a low of 7.1 percent on the  Sunset Limited to a high of 83 percent on the City of New Orleans (see  app. II). While several factors contribute to the wide variation in  performance, Amtrak attributes operating delays on the six host  railroads—on which Amtrak trains operate—as the largest single factor  affecting Amtrak on-time performance, contributing as much as 75 to 80  percent of the delay minutes. Since fiscal year 2000, average on-time  performance for all long-distance trains has been in decline (see fig. 7).
On average, in fiscal year 2005, trains on long-distance routes arrived at  their final destinations approximately 98 minutes late. Trains on the  poorest performing route, the Sunset Limited, averaged nearly 5 hours  late. Such poor on-time performance is likely to significantly affect the  extent that passengers choose rail services to meet their transportation  needs.
section_title: Corridor Services Appear to Provide More Public Benefits at Reduced Cost, but Opportunities for Improvement Remain
paragraphs: Corridor rail services—which include NEC operations, as well as state  supported and legacy corridor routes—appear to offer increased potential  to provide transportation benefits and public benefits to a greater number  of people at reduced cost to the federal government. Corridor routes  comprise most of Amtrak’s annual ridership—providing service to a wide  variety of business and leisure travelers—and they account for much of the  growth in passenger rail in recent years, particularly on the state-supported  routes (see app. II for a list of states and associated corridor services).  Relative to the long-distance routes, corridor services also operate with  lower costs and better on-time performance. They also appear to be better  aligned to provide more cost-effective transportation benefits and public  benefits. For example, they are generally more time- and cost-competitive  with other transport modes and offer increased flexibility over long- distance rail services, adapting schedules and services to changing  demographics and passenger travel demands. However, despite their  relative financial and operating performance, many of the corridor routes  face challenges such as capacity constraints and funding issues, which may  limit opportunities for rail to increase market share and play a more  significant role in the nation’s transportation system.
section_title: Ridership and Financial Characteristics
paragraphs: Corridor routes account for most of the intercity passenger rail travel in the  United States and they illustrate substantially reduced financial losses  relative to the long-distance routes. Most intercity passenger rail travel in  the United States is comprised of relatively short trips on a small number of  corridor routes. In fiscal year 2005, the average trip length for all routes— both long distance and corridor—was 213 miles, with corridor routes  servicing approximately 85 percent of the total Amtrak ridership. Among  these corridor routes, over half of the ridership in fiscal year 2005—nearly  11 million passengers—occurred on the NEC alone. The Washington–New  York City–Boston main line of the NEC remains the most heavily utilized  rail route in the country, forming an essential link for intercity passenger  and freight transportation, as well as nine different commuter rail  operations in the Northeast. On an average weekday, over 1,800 commuter  and Amtrak trains operate over the NEC.
On the 26 non-NEC corridors, ridership in fiscal year 2005 was 10.6 million,  with 52 percent of this total generated on the four most heavily traveled  routes. These corridor services, namely the state supported routes, also  represent the market that is exhibiting the strongest ridership growth.  Since fiscal year 2002, there has been an 18-percent increase in ridership on  state-supported routes as states continue to increase spending for  operations and capital improvements of corridor rail services (see fig. 8).
Given the high number of passengers and the relative importance of the  NEC, passenger profiles for Amtrak-operated trains on this corridor  illustrate some clear distinctions from those on long-distance routes. For  example, a much higher percentage of ridership is comprised of  commuters and business travelers in comparison to the long-distance  routes, particularly on the higher-end NEC trains, the Acela Express and  Metroliner. Amtrak survey data indicates that in fiscal year 2004, 82 percent  of travel on these services was business-related. Passengers on Amtrak’s  Regional Service—the other primary NEC trains—reported that 49 percent  were traveling or commuting for business or school; 50 percent reported  traveling for personal or family business, or traveling primarily for leisure  purposes.
For non-NEC corridors, the designated trip purpose varied widely between  the routes because they operate in a number of different states and  passenger markets. For example, the Empire service in New York caters to  a number of business travelers and commuters, while the California  corridor routes are characterized by a larger share of leisure and personal  travel.
As for financial performance, the Acela Express and Metroliner trains  operating on the NEC are Amtrak’s only services in which passenger  revenues cover the cost of operation (excluding depreciation and interest).  In fiscal year 2005, Amtrak reported a positive total annual contribution of  $65.3 million for this service. However, Amtrak’s other scheduled trains on  the NEC ended the year with operating losses, resulting in a net  contribution of approximately $45 million for intercity passenger rail  service on this corridor. While these results indicate relative financial  success, they do not take into account the substantial amount of capital  spending invested to fund infrastructure improvements and maintain  operations on the NEC. For example, in fiscal year 2005, Amtrak reported a  capital allocation to the NEC of $190.4 million—over four times the  reported operating contribution. In addition, Amtrak has an estimated  system backlog of up to $6 billion in deferred maintenance and  infrastructure improvements, with the NEC comprising more than 60  percent of this total.
All of the non-NEC corridor routes also incur financial losses to Amtrak;  however, considerable variation exists among them. In fiscal year 2005,  Amtrak reported a total annual loss from all non-NEC corridor services of  approximately $164 million, with losses on individual services ranging from  a low of $200,000 (Illinois Zephyr) to a high of $23.3 million (Empire  Service). In the aggregate, these losses represent an average operating  subsidy of about $20 per passenger for non-NEC operations. One reason for  the wide variance in Amtrak’s financial performance among these corridor  routes is the level of state support provided. Overall, state payments to  Amtrak for operating and capital costs have increased considerably in  recent years—rising from $148 million to $272 million between fiscal years  2000 and 2005 (see fig. 9). However, states have generally not been required  to pay the full subsidies for these routes. Moreover, many states that have  corridor services have not paid anything at all, thus producing issues of  equity among states. For example, Amtrak operates a number of weekly  departures of the Hoosier State service—between Indianapolis and  Chicago—although it has the lowest cost recovery of any short-distance  route and neither state contributes any level of operating support.
Both types of Amtrak’s corridor routes illustrate significant potential to  provide transportation benefits and public benefits, but they each illustrate  a number of unique attributes and opportunities for improvement.  Transportation experts generally agree that intercity passenger rail services  that serve large, relatively close population centers—and that are time- and  cost-competitive with other transportation modes—represent the greatest  potential markets for rail worldwide. Moreover, these markets are the ones  most likely to offer the greatest opportunity to mitigate pollution and  reduce the growth of highway congestion through increased rail use.  However, the ability of intercity passenger rail to generate these benefits  depends on the likelihood that travelers will choose rail service over other  modes of transportation. As we have reported previously, congestion is  most likely to be alleviated when rail routes run parallel to congested  roadways and where travelers view rail as a more attractive “door-to-door”  travel option (in terms of price, time, comfort, and safety) than driving.  Similarly, rail becomes less competitive with other modes of  transportation, particularly air services, as travel time and prices increase  over longer distances (see app. II). For these reasons, corridor services  appear to be most competitive with automobile and air travel in markets  between 100 and 300 miles. In this regard, many existing and developing  corridor rail services appear to be well positioned to provide a viable  alternative to other modes of transport and potentially offer a number of  public benefits:  NEC. With over 30 million metropolitan residents, the NEC has a  population density of over 65,000 residents per route mile. According to  the American Association of State Highway and Transportation  Officials, such a large population density helps to explain why the NEC  accounts for such a large proportion of Amtrak’s total corridor  ridership. Many of the rail services on the NEC are very competitive  with air and auto travel in several markets. For example, Amtrak serves  50 percent of the combined air/rail market between Washington, D.C.,  and New York, and 40 percent between New York and Boston.  Moreover, in fiscal year 2005, Amtrak reported air/rail market shares  greater than 90 percent for other shorter distance city pairs such as  Philadelphia–New York and Philadelphia–Washington, D.C. The  Northeast region also illustrates characteristics of the type of urban  congestion and capacity constraints that may benefit the most from  travelers being diverted away from the highways and onto rail.
State-Supported Corridors. State-supported routes are the fastest  growing routes and illustrate significant potential to provide a viable  transportation option; however, further development of new and  existing rail corridors may require funding beyond what has been  previously provided. A growing number of individual states and groups  of states have made the public policy decision to utilize state funds to  subsidize additional corridor rail service and invest in related capital  projects. Some of the potential benefits cited for such expenditures  include the potential for rail to accommodate regional growth and  enhance economic competitiveness. Over 80 percent of the nation’s  population now lives in a metropolitan area. Officials in many states are  interested in identifying and developing regional rail corridors that link  these economies and provide a viable transportation option to large  numbers of residents. Officials in several states with whom we spoke  also indicated that corridor rail services are an important component of  state and local transportation plans. For example, in Washington State,  corridor rail service between Seattle, Washington, and Portland, Oregon,  comprised over 60 percent of the air/rail market share in fiscal year 2005  and was identified for its potential role in reducing the growth rate of  highway congestion within the region. The nine member states of the  Midwest Regional Rail Initiative also identified where potential public  benefits may be provided through additional funding for increased train  frequencies and extensions of existing corridor routes. In addition, this  group has set out a “grand vision” to link all of the major industrial  centers in the region with high-speed rail service (operating at speeds up  to 110 miles per hour). If completed, this network would reach over 35  million residents—a number that exceeds the entire metropolitan  population of the NEC. An additional benefit attributed to increased  development of corridor services is that the state (or other public  authority) has the ability to contract for the specific services that it  chooses to subsidize, including scheduling, frequency, and the stations  served. In this manner, services can be adjusted over time according to  regional growth patterns and changing population demographics.
section_title: Potential Opportunities for Improvement
paragraphs: While Amtrak’s corridor routes serve millions of passengers each year and  appear to provide a number of public benefits, there may be additional  opportunities to further develop rail corridors to improve existing services  and reach new markets. For example, a number of issues associated with  infrastructure improvements and capacity constraints may need to be  addressed to ensure that rail services continue to provide an effective  alternative to other transport modes. To be successful, corridor trains must  operate with adequate on-time performance to provide competitive travel  times and reasonably predictable schedules. In addition, overcoming  funding issues will likely be required in order to realize the opportunities  identified by states for the further development of regional rail corridors.
Infrastructure improvements and capacity constraints are critical issues on  the NEC. Although it is Amtrak’s most viable route, the NEC faces a high  level of unmet infrastructure spending, maintenance spending, and growing  capacity constraints, which may affect its ability to effectively compete  with other transportation modes in the future. Amtrak’s most recent  legislative grant request asks for $730 million in fiscal year 2007 to  complete major projects such as replacing bridges, ties, power supply  systems, and overhauling the existing fleet of rolling stock, with the NEC  being targeted as a critical priority for such investments. In addition, the  many users operating on the NEC present a constraint on capacity that may  impact the ability of Amtrak trains to reach their destinations on time.  Backups are becoming more common among freight, commuter, and  Amtrak trains, causing delays that result in dissatisfaction among riders.  Delays affecting on-time performance may be particularly important on the  NEC, where a high number of business and commuter travelers rely on  these services.
In fiscal year 2005, Amtrak reported that train services on the NEC reached  their destinations on time an average of 78 percent of the time. While this  represents a slight improvement over fiscal year 2004 levels, this indicator  has decreased from fiscal year 2000 levels (see fig. 10). Recognizing that  the deteriorated condition of the infrastructure contributes to increased  operating costs and reduced reliability of services, Amtrak has committed  to developing a NEC master plan in conjunction with the states and  commuter agencies that utilize it. This effort aims to identify long-term  needs and service improvements, and work together to fund such  projects. An example of such a project designed to address capacity  constraints and improve service is illustrated by Amtrak’s current efforts  working with the state of Virginia to develop an additional track dedicated  to passenger trains between Washington, D.C., and Richmond, Virginia.  The benefits identified by Amtrak for projects such as this one include  increased capacity, potentially higher speeds, reduced trip times, and  overall improvement in reliability and on-time performance.
Non-NEC corridor routes also face a number of the same infrastructure and  capacity challenges affecting train speeds and the predictability of travel  times as the NEC services. In fiscal year 2005, on-time performance for  these services was reported at 70.4 percent, reflecting a 6-percent decline  since fiscal year 2000. A state official in New York cited the Empire Service  as an example of one such corridor facing significant congestion and  capacity constraints associated with heavy use by freight trains, commuter  services, and Amtrak trains. A recent study estimated that $700 million  would be needed just to complete infrastructure improvement projects on  one segment of this corridor, the 141-mile line between Albany and New  York City. Similar projects to reduce congestion and increase speeds have  been identified on a number of other state supported and “legacy” corridors  in Pennsylvania, California, and the Midwest.
Overcoming funding challenges is another issue that needs to be addressed  if Amtrak and state partners are going to work together to continue  developing and expanding intercity passenger rail services. Although some  states have identified where additional corridor services may provide  significant transportation benefits and public benefits, these projects often  require substantial levels of public funding. For example, the total cost  required to develop the 3,000-mile high-speed rail network as envisioned by  the Midwest Regional Rail Initiative is estimated at $4.8 billion. All the state  officials with whom we spoke indicated that any additional state funding  for rail will require some type of federal match program similar to other  transportation modes. Moreover, Amtrak’s plans to recover additional  overhead and other shared costs expended on state-supported corridor  routes beginning in 2008 will place further demands on limited state  funding for rail. Undertaking the significant infrastructure improvement  projects needed to expand capacity and improve operational performance  on existing corridors would also be expensive. For example, a report  issued by a coalition of rail stakeholders in the Mid-Atlantic region  estimated that funding to address major congestion bottlenecks in that  region would cost approximately $6.2 billion over 20 years. In addition, a  report issued by state transportation officials in 2002 estimated that capital  investment projects outlined for 21 corridors across the country could cost  as much as $60 billion over a 20-year period. Regardless of which projects  are ultimately funded, it appears that, if rail is to play a more significant  role in the nation’s transportation system, overcoming issues of funding  and capacity will be an important component.
section_title: Current Intercity Passenger Rail System Is Not Adequately Focused Where It Can Be the Most Financially Viable and Provide the Most Public Benefits
paragraphs: The current intercity passenger rail system is not adequately focused on its  comparative strengths; it exists much as it did when Amtrak began over 35  years ago. While Amtrak has made notable upgrades along the NEC and  implemented a number of contractions and expansions of its route  structure over the years, the system remains similar in its size and  endpoints as the original “basic system” that the DOT designated in 1971  (see app. II for a map of Amtrak’s routes in 1971). As the DOT General  Counsel recently testified, this system has not effectively adapted to  shifting demographics and market demands over time, as other  transportation modes have done. While the current model may provide  limited service offerings across the country’s broad geography, it does so at  a very high cost to the federal government. Amidst a number of fiscal  constraints and increased pressure to reduce or better target federal rail  subsidies in the future, this model may no longer be viable. However,  intercity passenger rail continues to illustrate the potential to become an  important element with greater integration into the nation’s overall  transportation system if it is focused on the markets where rail exhibits  comparative strength. As reported by the Congressional Budget Office  (CBO) in September 2003, these opportunities are most likely to be found  on routes of about 100 to 300 miles that connect cities with large  populations. In these markets, rail is most likely to be both time- and cost- competitive with highway and air travel, and may be best positioned to  meet both the demands of the traveling public and the demands of  sponsoring public authorities.
As our work illustrates, the current intercity passenger rail system targets  substantial resources toward the operation of long-distance services,  which the CBO and others have reported is an area of comparative  weakness for rail services. In addition to accounting for about 80 percent of  Amtrak’s operating losses, these services do not appear to be meeting  Amtrak’s goal of providing “basic transportation” very effectively. Services  are often unreliable—averaging 41 percent on-time performance—and  serve communities infrequently or at inconvenient times (often one train  daily in each direction).
While these characteristics do not serve Amtrak’s long-distance passengers  well, the several distinct “client” markets on these routes are also not  efficiently targeted. For example, many passengers on long-distance trains  travel relatively short distances—400 miles or less—suggesting that a  substantial share of long-distance service may actually be corridor service.  However, these services are not managed like corridors, which are  characterized by higher speeds and more frequent train service. Passengers  in rural communities along these routes also do not appear to be effectively  targeted by rail services. These services are inherently limited to those  communities fortunate enough to be located next to historical rail lines.  Further, there is reason to believe that alternative modes of transportation  may be better positioned to provide much greater rural coverage at  potentially lower cost to the government. Finally, for those passengers  traveling longer distances, Amtrak often operates costly amenities (e.g.,  sleeper and dining cars) which account for even higher levels of federal  subsidies than coach-class seats. Amtrak survey data also suggests that, on  average, the 16 percent of riders on long distance trains who utilize sleeper  services are typically the most affluent passengers. For example,  passengers in Sleeper/First Class reported an average household income  over one-third higher than coach-class passengers. Consequently,  substantial federal dollars are currently being spent to subsidize costly  services to individuals with higher-than-average incomes. All of these  characteristics raise questions about the appropriate federal role in long- distance service, such as whether federal expenditures should be used to  subsidize leisure services to affluent travelers, and whether there may be  more cost-effective alternatives to provide corridor services and efficient  rural transportation.
In contrast, the current intercity passenger rail system also includes  corridor services, which have been identified as the comparative strength  of passenger rail and where passenger rail services hold the most promise  to be financially viable and provide a number of potential public benefits.  There has been a relative growth of passenger rail ridership on corridor  routes, especially state-supported corridors, and 85 percent of Amtrak’s  riders live and work along corridors. Aside from the heavily populated NEC  where Amtrak has achieved its best results, a number of other corridors— such as those in California, New York, the Midwest, and the Pacific  Northwest—exhibit many of the key characteristics that indicate there may  be potential public benefits that could justify public subsidies for passenger  rail services, namely clusters of densely populated areas within 300 miles  of each other. Moreover, many officials with whom we spoke agreed that  the promise of intercity passenger rail is likely along corridors, not over  long distances. States have further supported this view by providing  substantial funds to support corridor operations and/or capital investments  on these routes.
section_title: Foreign Experiences Illustrate Various Approaches to Restructuring and Key Reform Elements
paragraphs: Over the past 20 years, several countries have employed a variety of  approaches in reforming their intercity passenger rail systems in order to  meet national intercity passenger rail objectives. These approaches—alone  or in combination with each other—have been used to support national  objectives such as increasing the cost effectiveness of public subsidies,  increasing transparency in the use of public funds, and providing  transportation benefits and public benefits. Despite the variation or  combination of approaches used, during the restructuring process these  countries addressed several key elements of reform, such as establishing  clear goals for intercity passenger rail, clearly defining stakeholder roles  that are necessary in implementing any approach, and establishing stable  sustainable funding.
Prior to implementing these new approaches, many countries’ passenger  rail systems consisted of “monolithic” state-owned and state run  organizations in which customer service and financial performance were  not the main concerns of the railroad. Rather, other concerns, such as  socioeconomic issues (e.g., providing employment) were more important.  Similar to the current situation in the United States, passenger rail in many  countries was losing market share to other modes of transportation and  this loss of market share, along with mounting dependence on public  subsidies and decreasing transparency with respect to where public funds  were being spent, prompted change in the passenger rail industry. Table 2  discusses the different passenger rail structures that existed in the five  countries in which we conducted site visits for this report. These countries  were chosen because they have transitioned from state-owned fully  integrated organizations to more consumer driven market-dependent  entities. While it is important to be aware of the key differences between  these countries and the United States (e.g., infrastructure ownership,  geography, and political culture) the general catalyst for reform—the need  to deliver a better value for the expense of public funds—is the same as the  current passenger rail environment in the United States.
subsections: section_title: Various Approaches Have Been Used Abroad to Support a Broad Range of National Intercity Passenger Rail Objectives Aimed at Improving Value for Funds Spent
paragraphs: The foreign countries we visited have met a broad range of national  objectives by implementing various approaches to improve the cost  effectiveness of their intercity passenger rail systems. All the countries we  visited reformed their systems in large part to improve the value of service  they were receiving for the amount of public money being spent on the  service. For example, the desire for increased transparency in the use of  public funds, mounting public subsidies and rail-related debt, and a desire  for economic efficiency were all key factors in the European Union’s 2001  directive requiring all member states to improve the efficiency of their rail  systems. Three of the five countries we visited—France, Germany, and the  U.K.—are members of the European Union and have all begun  implementing changes to meet these goals. Similarly, Canada and Japan  both reformed their systems to increase the value in service they were  receiving for the funds being spent. While the countries we studied  reformed their systems in order to meet financial objectives, the national  governments of these countries still provided heavy financial support to the  system after the reforms. Table 3 shows the current levels of financial  support provided by these governments.
Passenger rail reform in the countries we visited was also undertaken to  achieve a number of other objectives. For example, reform was used as an  opportunity to provide viable transportation benefits and public benefits  that might not otherwise be achieved. The Canadian, Japanese, and French  governments all financially support passenger rail service to areas of the  country that have small or isolated populations and that may not be well  served by other means of transport. For the most part, this service is  unprofitable and would not otherwise be provided. Another objective was  to address growing urban congestion through enhanced passenger rail  service. In the European Union member countries we visited passenger rail  reform was used to address environment and urban congestion issues.  Finally, the countries we visited used reform to improve the operational  performance of existing intercity passenger rail systems. For example, in  Germany, a large part of its reform was to consolidate the two highly  inefficient rail systems that existed after the country was reunified into one  cost-efficient rail system. Similarly, in Canada a major reexamination of  long-distance intercity passenger rail service took place in order to better  market these routes and, therefore improving the routes’ financial  performance. Additionally, Germany and France have established  performance metrics such as on-time performance and train cleanliness,  which result in bonuses or penalties for the rail operators based on their  ability to meet the standards established in the metrics.
These reform objectives have been addressed through various approaches.  Each approach reorganized a different aspect of the existing intercity  passenger rail system. See figure 11 for a summary of the approaches each  country took. These approaches are not mutually exclusive of each other,  and have included, but are not limited to: 1) changing the roles and  responsibilities of the various stakeholders involved in the intercity  passenger rail system, 2) changing the funding structures of the existing  system, 3) changing the organizational structure of the existing passenger  rail entity, and 4) the introduction of competition or privatization in rail  operations.
section_title: Shifts in the Roles and Responsibilities of Intercity Passenger Rail Stakeholders
paragraphs: One approach taken by the five countries we visited was a shift in the roles  and responsibilities of the stakeholders involved in intercity passenger  rail—primarily the national and regional governments. This was generally  undertaken to remove political and state interests from the operation of the  rail system in order to increase efficiency.
Shift from service operator to service regulator/oversight. In both the  U.K. and Germany, the national government shifted from being the  operator of intercity passenger rail service to taking on more of a  regulatory role, overseeing the competitive bidding process used by  private operators. By taking on an oversight role, these governments  are facilitating competition and, in turn, supporting their objective of  creating a more cost effective and transparent use of public funds. A  more cost effective and transparent use of public funds helps facilitate  improved operational performance of intercity passenger rail operators.
Shift away from infrastructure manager, yet remaining owner. In the  countries we visited, some of the national governments no longer  provide day-to-day management of the infrastructure; however, they  remain the owner of the infrastructure companies in order to ensure  that the state’s best interests with respect to decision making can be  maintained. For example, in France and Germany, government-owned  private companies were established to manage and maintain the entire  rail infrastructure, including granting access to operators and collecting  access fees. In the U.K., a member-owned private company handles  infrastructure matters. By moving away from the day-to-day  management of the infrastructure, governments are able to put those  tasks in the hands of individuals best suited to manage the  infrastructure, while still being able to set the strategic direction.  Shifting away from day-to-day management allows the government to be  more of a customer of the infrastructure manager, thereby enhancing  transparency in costs as well as accountability in the financial  performance of the infrastructure companies.
Devolving decision-making authority to local and regional  governments. One of the most prevalent changes made in two of the  three European Union countries we visited was the devolution of  specific roles and responsibilities from the national government to local  or regional governments. These roles included decision making (e.g.,  selecting the operator through a bidding process), as well as  determining the quantity and frequency of intercity passenger rail  service. By letting governments that were geographically closest to the  service make decisions about it, the national governments have been  able to be more cost effective by targeting public and transportation  benefits to the specific preferences of the localities. In cases where the  localities are able to select their operator through competitive bidding,  service can be purchased for the lowest bid—as opposed to having no  choice if there were only one operator to choose from. For example, in  Germany, all of the national operation subsidies are given directly to the  Länder (analogous to U.S. states); the Länder are then able to issue a  request for proposal outlining specific service needs, and receive  competing bids for the level of service they request.
Shift from service operator to customer. The U.K. and Germany, as well  as France and Canada, have transitioned their relationships with rail  operators from that of operator to that of customer—the governments  determine what type of service they want to make available to their  citizens, and then purchase that service from the rail operators.  Frequently, the governments establish performance metrics to hold the  operators accountable. In the U.K. and Germany there are multiple  operators that can bid to provide this service, but in France and Canada  the service is provided by a single national operator. By taking on a  customer role—even if the national provider is still fully owned by the  government—these nations have been better able to define the type of  service they want, and then pay for those services. This can lead to more  cost-effective service, and better provision of public benefits and  transportation benefits. For example, officials in the Ile de-France  region (greater Paris area) told us that they have received better service  from the national operator since they were able to deal with them  directly, and in 2004 the operator received 1.8€ million in bonus  payments from the region for meeting metrics such as the handling of  passenger claims and station cleanliness.
section_title: Changing the Public Funding Structure Used to Support Intercity Passenger Rail
paragraphs: Another approach taken by some of the countries we visited involved  changing the public funding structure used to support intercity passenger  rail.
Changes to government commitment to funding. In all the countries we  visited, the national governments made commitments to fund intercity  passenger rail. Four of these countries dedicated annual funding  towards investing in the intercity passenger rail system in order to  provide the resources needed to achieve a desired level of rail service.  Japan established a one-time fund for its railroads that needed financial  assistance, allowing the railroads to invest these funds in order to  operate off the interest earned on these investments. Changing the  commitment to funding allows these countries to get the best value for  their money by requiring rail operators to provide specified levels of  service for the amount of funds required to conduct these services. Also,  as shown by Canada, cuts to the level of annual funding can push an  operator to improve its operations, reduce costs, and grow revenues in  order to operate within its funding limits.
Changes to funding mechanisms for infrastructure. Another major  funding change made in the three European Union countries we visited  was the establishment of new funding mechanisms (i.e., grants and  loans) for intercity passenger rail operations and infrastructure. By  splitting the funding sources for these two distinct functions, the  governments are better able to determine what the subsidy is being used  for and increase the transparency in the use of public funds; in addition,  constant and expensive infrastructure projects now have a specific  source of funding, allowing infrastructure managers to better plan for  future projects.
Changes to funding dissemination. Another funding change made by  both France and Germany occurred in conjunction with the devolution  of decision making to local and regional governments. These two  countries now provide national funds directly to local and regional  governments in order to support the purchase of intercity passenger rail  service. By doing this, these countries have enabled local and regional  governments to be more flexible and purchase service that best fits the  preferences of the users; funds can therefore be targeted at the  transportation benefits and public benefits preferred by local areas.
In addition to these changes in the structure of the public funds, another  factor played an important role in changing the funding structure—a  national commitment to provide stable sustainable funding. For example,  in Germany, part of the motor fuel excise tax was dedicated to rail;  meanwhile, Japan created Business Stabilization Funds in order to support  operations and capital improvements of the three island railway companies  with smaller passenger rail markets. In Canada, officials told us the  national government has informally made an ongoing commitment to  support intercity passenger rail operations by consistently providing the  same level of funding each year. By committing to provide the funds each  year, all the national governments above allowed rail operators to better  manage their resources and planning capabilities.
As part of this commitment, four of the five countries we visited  transferred or reduced the debt that the railways were carrying. In  Germany, reform took place in 1994 and the debt was transferred to the  government; a new public agency was then created to take over and pay off  the 35€ billion in debt (about $39 billion) incurred by the preexisting  railways, as well as by the employees of the former railways. In Japan,  during the 1987 reform, the national government relieved the railway of its  ¥37.1 trillion debt (about $257 billion) by transferring most of it—along  with part of the railway’s employee pensions—to the national government,  and splitting the remainder of the debt among the operators. In France,  the 1997 reform resulted in 20€ billion in debt (about $24 billion) being  transferred to the new infrastructure manager. In exchange, the new  manager received the country’s entire rail infrastructure at no cost; the  remaining 10€ billion in debt (about $12 billion) was transferred to the  national operator. While the British government wrote off the initial debt  of the railway in 1994, the U.K. is currently carrying an infrastructure debt  of about £18 billion (currently about $34 billion). According to U.K. officials  we interviewed, this amount is expected to increase to £21 billion  (currently about $39 billion) by 2009. Officials with U.K.’s infrastructure  manager noted, though, that borrowing is limited to 85 percent of the value  of its regulatory asset base. Canada did not have debt at the time of their  restructurings. Relieving the debt of the rail operators created a viable  capital structure for the new railways to operate in, and has been an  important factor in their ability to move forward more cost effectively.
section_title: Changing the Organization of Existing Passenger Rail Systems
paragraphs: Restructuring the organization of existing passenger rail systems is another  approach often taken by governments when reforming their rail systems.  Historically, most national rail systems have been comprised of monolithic  government-owned and government-managed entities, where the two  major functions—managing infrastructure (e.g., tracks and stations) and  managing daily operations—were integrated. The three European  countries we visited began their reform by separating the operational and  infrastructure functions of their passenger rail systems. Separating these  two functions from each other can result in more transparency and a better  estimate of what the costs for each function are.
This separation can take place in a variety of ways. For example, the U.K.  went from a government monopoly with full control over both functions to  a private company owned by “members” that own and manage all of the rail  infrastructure; operations were turned over to private operators in 1993. In  France, the government monopoly was separated into two separate  government-owned companies. One company is responsible for managing  all rail operations and the other is responsible for managing the  infrastructure. In Germany the government rail monopoly was turned over  to a private state-owned holding company, with separate independent  subsidiary business units in charge of infrastructure and operations.  Additionally, in Germany, although the same holding company that owns  the infrastructure also includes the primary passenger rail operator, other  private operators are permitted to provide intercity passenger rail service  on their tracks. Conversely, in Japan, the infrastructure and operational  function of the passenger rail system have remained integrated—instead,  the country divided its rail system into six distinct geographic regions  allowing each area of the country to address issues specific to its passenger  markets. Restructuring the rail system is generally implemented to create  more transparency in the costs incurred by the rail companies; once  accurate costs are known, companies can better gauge how much to  charge for their services, as well as identify opportunities for cost savings.
subsections: section_title: Introducing Competition and Privatization in Intercity Passenger Rail Operations
paragraphs: The introduction of competition and/or privatization in rail operations is  another approach to reform intercity passenger rail. This approach was  used by some of the countries we visited. Over the past two decades,  countries have been reforming their railway systems through various forms  of privatization in order to improve the quality of service and efficiency  offered to customers, and to reduce costs. Competition and privatization  are two market mechanisms that are often used to improve service  efficiency while meeting financial objectives. The use of competition and  privatization can lead to a market that is more responsive to customers as  well as investors. However, regardless of the degree of success, deep and  continuing government involvement will likely continue to be necessary in  order to balance the financial needs of the railways with the transportation  coverage desired by the state.
Competition and privatization have been particularly prevalent in Europe,  where a European Union directive requires the existence of competition in  the freight rail industry; an additional directive has been proposed  requiring the allowance of competition in the international passenger rail  industry as well, although some countries have already opened their  markets to multiple operators. Germany makes extensive use of private  operators, with over 300 operators providing rail service on many regional  routes. In the U.K., all passenger rail services are franchised and open to  competitive bidding by operators. The introduction of competition and  privatization is largely dependent on the government changing its role to  that of a customer, with the primary focus on purchasing the best service  for the best price. In Germany, the dissemination of national funding to  regional governments has facilitated the extensive presence of multiple  operators. Japan, meanwhile, aims to have its passenger rail system  completely privatized; currently three of Japan’s six passenger rail systems  are managed by individual private companies. By turning its passenger rails  over to the private sector, Japan has improved its quality of service and  substantially reduced the number of its employees; the demand for railway  service continues to increase.
section_title: Foreign Countries Addressed Key Reform Elements in Implementing New Approaches to Intercity Passenger Rail
paragraphs: Several key reform elements were addressed by the five countries we  visited as part of their planning and implementation of new approaches to  intercity passenger rail. Based on our review, implementing these  approaches appears to improve the cost effectiveness of intercity  passenger rail service. For example, officials with the primary operator in  Germany told us that their company has seen a 187-percent increase in staff  productivity between 1993 and 2004; at the same time, the company was  able to reduce its workforce by 40 percent. These officials stated that the  German rail reform resulted in taxpayers paying 44€ billion less during this  time period than what they would have been expected to pay if there had  been no reform. The key reform elements addressed throughout  implementation of these approaches include:   Establishing clearly defined national policy goals. In making major  changes to an intercity passenger rail system, it is essential that the  national government establish a clear vision for what the goals of the  system should include while making decisions to implement new  approaches to meet these goals. During our review of the five countries  we visited, we observed that each country established goals that their  reforms were intended to achieve. As we reported in February 2005, a  key component in reforming a national program includes determining if  there is a clear federal role and mission. All of the approaches taken by  the five countries we visited were tailored to meet the specific national  policy goals established by those countries. For example, in the U.K.,  there was a national goal to reduce the role government played in  managing the passenger rail system. To meet this national goal, the U.K.  used approaches such as introducing competition in its system, and  changing the role of the national government from service operator to  that of a customer of private rail operating companies.
Clearly defining government and stakeholder roles. The second key  reform element we learned about during our site visits is that  government and stakeholder roles should be clearly defined prior to (or  during) implementation of any reform approach. Deciding what these  roles should be was the first step in several of the approaches. For  example, in order to shift the national government’s role, the  responsibilities of the government first needed to be defined; it then had  to be decided which of these responsibilities would continue to be  government functions, and which would be those of other stakeholders.
Establishing consistent, committed funding. Consistent, committed  funding is the final reform element key to successful implementation of  a new approach to intercity passenger rail. In the five countries we  visited, the national governments made a commitment to provide  intercity passenger rail service. The governments also committed to  provide the system, on an annual basis, with the funds necessary to  maintain this service. Whether the approach taken was to increase the  annual subsidy, provide subsidies to regional levels of government, or  establish a consistent subsidy for each year, all of these governments  made financial commitments to provide intercity passenger rail service.
See app. III for more detailed information about each of the countries we  reviewed.
section_title: The United States is Not Well Positioned for Reform
paragraphs: The United States is not well positioned to reform or restructure intercity  passenger rail service. Based on our review of foreign intercity passenger  rail reforms, a more fundamental reexamination of the system by  policymakers than has taken place to date will be needed if the United  States wants to better position itself to improve the performance and  benefits of the intercity passenger rail system in this country. The national  governments of the countries we visited addressed three main elements  through the process of reforming or restructuring their intercity passenger  rail systems: (1) clearly defining national policy goals, (2) clearly defining  the various roles and responsibilities of public and private sector entities  involved, and (3) establishing consistent committed funding for intercity  passenger rail. Currently, the goals and expected outcomes of U.S.  passenger rail policy are ambiguous, stakeholder roles are unclear, and  funding is limited because of other priorities and a lack of consensus on the  level of funding to devote to goals. As the primary provider of U.S. intercity  passenger rail, Amtrak has the authority to take a number of actions, but  has a history of poor financial and operating performance. Amtrak has  recently proposed a reform strategy and is undertaking efforts to reduce  costs and increase corporate efficiency. However, constraints, such as  expensive labor protection payments that may be triggered by possible  route and service changes, limit the benefits Amtrak can achieve on its  own. Even if Amtrak were to fully exercise its authority, Amtrak is not in a  position to address the key elements of reform we observed in other  countries. Federal leadership will be needed to fundamentally improve the  performance of intercity passenger rail.
subsections: section_title: United States Will Need to Address Three Key Elements to Improve the Benefits of Intercity Passenger Rail
paragraphs: We found that other countries we visited addressed key reform elements in  the process of reforming or restructuring their intercity passenger rail  systems. U.S. policymakers will need to reexamine national policy goals  and objectives, stakeholder roles and responsibilities, and funding  mechanisms for intercity passenger rail if the United States wants to better  position itself to improve the performance and benefits of federal  expenditures on intercity passenger rail.
subsections: section_title: Policy Goals
paragraphs: Based on our review of intercity passenger rail systems in five countries,  we found that, in the process of reforming or restructuring their systems all  five national governments clearly defined national policy goals and  objectives for the system. For example, a specific goal of the reform  process in France, Germany and the U.K. was to increase transparency in  the use of public funds and restructuring included separating the  management of their rail infrastructure and passenger operations. In  Germany, the government’s objectives in consolidating two state railways  into one private holding company, Deutsche Bahn AG (DB), was to improve  efficiency, and to allow DB to function independently of the government  and manage its railway like a private business. During the restructuring  process in Japan, by defining specific goals and outcomes for the system,  the national government was able to determine an overall structure for the  system. Some of the goals Japan defined for the railway before  restructuring it were reducing the accumulated debt, minimizing the  national government’s role in maintaining the railway, increasing efficiency,  and strengthening competitiveness. Additionally, a desired outcome of  restructuring the state-owned provider into six private regional passenger  rail operating companies was to better position rail service to compete for  passengers.
Goals provided by Congress focus narrowly on Amtrak management,  rather than providing guidance and direction for the entire U.S intercity  passenger rail system. The current legislation governing Amtrak directs it  to operate a national passenger rail transportation system that ties together  existing and emerging regional corridors and other intermodal service.  However, it does not provide specific objectives for the system Amtrak is  required to operate, such as defining transportation benefits and public  benefits or increasing the transparency of public funds, nor does it specify  how the system should be structured to achieve certain outcomes. This  broad mandate, as previously discussed, has resulted in the current  intercity passenger rail system—a system that does not target markets  where rail may have a comparative advantage over other transportation  modes nor makes the most cost-effective choices to meet public  transportation needs. In April 2005, Amtrak released a set of proposed  strategic reform initiatives, which included a vision for the future of  intercity passenger rail service and Amtrak’s role. Recently, Amtrak  developed a mission statement, which aims to improve financial and  operational performance by tying specific goals to the mission statement.  Although the vision and mission statement provide a direction for the  company, senior Amtrak officials told us that this mission for the company  should not be a substitute for Congress setting a national intercity  passenger rail policy. Furthermore, they said that a national rail policy  should be explicit and clearly indicate the transportation services that the  federal government wants operators to offer; Congress should then provide  funding for the desired level of service.
Determining the system’s structure, as well as determining how to position  passenger rail within the entire U.S. transportation system, will remain  uncertain without specific goals and outcomes for intercity passenger rail.  To change the current structure of intercity passenger rail, policy decisions  need to be made. As the Congressional Research Service (CRS) reported in  December 2004, maintaining the status quo of passenger rail policy allows  policymakers to avoid making decisions, such as shutting down Amtrak  and eliminating its long distance routes or alternatively, committing to a  major financial program. Without a more explicit national policy, the  future role of intercity passenger rail in the national transportation system  is uncertain.
section_title: Stakeholder Roles and Responsibilities
paragraphs: Similarly, establishing clear stakeholder roles and responsibilities was  important to helping improve the efficiency of intercity passenger rail  systems in several of the countries we reviewed. For example, the U.K.  reorganized its structure by creating separate organizations (e.g.,  organizations to provide train service, manage the rail infrastructure, and  regulate infrastructure access fees and costs). Each of these organizations  has defined responsibilities and is transparent with respect to the  responsibility of achieving specific goals. According to a U.K. official, in  privatizing some of these organizations, the U.K. sought greater efficiency,  tighter cost control, a reduction in government interference in the railway  industry, and more consistent and reliable funding. Our study also showed  that clarifying stakeholder roles and responsibilities may require the  creation of new entities. For instance, when Japan National Railways  restructured its railways in 1987, the government created the Japan  National Railways Settlement Corporation to settle the accumulated debt  of Japan National Railways. In addition, an official from Japan’s Ministry of  Land, Infrastructure, and Transport told us that the railway split into six  passenger railroads in order to have more efficient regional service.
In the United States, stakeholder roles and responsibilities for managing,  operating, and funding intercity passenger rail services are unclear. For  example:   It is unclear what Amtrak’s main responsibility should be as the primary  intercity passenger rail operator in the United States, given that the  purposes of Amtrak are in conflict. Although Amtrak is incorporated as  a for-profit corporation, any expectation of being a profitable company  has not been realized—partly because it is responsible for maintaining  an intercity passenger rail system with many unprofitable routes.
The federal role in intercity passenger rail service has primarily been to  subsidize Amtrak’s operations and, in the past, manage capital  improvements to the infrastructure along the NEC. Only recently has  the Secretary of Transportation been tasked with overseeing these  funds, but such funding has been tied to Amtrak’s business plan and not  a national policy or vision that articulates goals, objectives, and  outcomes for intercity passenger rail services.
Current law offers states a narrow role in decision making, but permits  states to subsidize additional intercity passenger rail service. Some  states see benefits to subsidizing intercity passenger rail and choose to  spend their own funds for additional service not provided as part of  Amtrak’s national route system—a system that has not had substantial  changes since 1971. Those states have had a role in making decisions,  such as what stations will be served and whether food service will be  provided on the subsidized route, unlike states that do not provide  funding. Forty-two states receive basic long distance service with no  state support, while 13 of these states have decided to subsidize  additional corridor services based, partly, on demand. For example,  Amtrak’s legacy route system has provided service on some corridors  without state support, (e.g., from Pittsburgh, Pennsylvania, to New York  City), but on other corridors, states have subsidized additional service,  such as Washington state paying for additional frequencies for the  Cascades Service between Seattle, Washington, and Portland, Oregon.  Additionally, in December 2004, CRS reported that there are those who  view that state governments may be better positioned to make regional  service decisions. The administration’s proposal also favors giving  states a greater role in decision making with respect to rail service and  capital improvements.
The role that freight railroads should play in shaping the future of  intercity passenger rail service is not defined. Management of and  access to infrastructure is dominated by the freight railroads. Since  passenger railroads and freight railroads must often share access to  privately owned tracks, the freight railroads’ control over infrastructure  has an influence on both national passenger rail policy and day-to-day  passenger rail operations. Specifically, freight railroads may be  concerned with intercity passenger rail policy decisions that affect  access to their rights-of-way and capacity on existing tracks; these  decisions could potentially affect the freight business. While their  decisions may influence passenger rail service, freight railroads do not  have a defined role in decision making or the funding of intercity  passenger rail.
section_title: Funding
paragraphs: Finally, as part of their overall restructuring process, all of the countries we  reviewed committed to funding intercity passenger rail service. For  example, in the U.K., the Secretary of State for Transport is tasked with  determining what services the railway should deliver. This determination is  made through a document called the High Level Output Specification:  available funds for these services over a 5-year planning period are set  down in a statement of funds available. An official in the U.K. Department  for Transport told us that this funding cannot be reallocated for other  purposes without great political and financial risk. In addition, a 2002 CRS  report observed that reorganization of the railways in several countries  required substantial political and financial commitment over an extended  period.  Besides establishing funding tied to goals, countries we visited  also devoted funds to capital improvements separate from operating  subsidies. In France, about 2€ billion per year (currently this is  approximately $2.5 billion) is provided for new rail lines: additionally, the  government also offers interest-free loans to support new infrastructure  projects. In addition to providing funding specifically for capital  improvements, three of the five countries disseminate the national subsidy  to regional governments, allowing passenger rail subsidy options to be  decided by regional governments instead of the national governments. For  instance, about 7€ billion per year (about $8.9 billion) in operating  subsidies is divided among the 15 German Länder to be used at their  discretion, and in France a 2€ billion per year (currently this is about $2.5  billion) subsidy is divided among the 21 regions to support operations.
The U.S. federal government has annually subsidized Amtrak since its  inception. The funding for intercity passenger rail has been constrained  due to competing priorities; possibly, funding has also been constrained  due to the inability to reach consensus over the federal role in intercity  passenger rail, which is demonstrated in the status of Amtrak’s  reauthorization. Grants to Amtrak have not been expressly reauthorized  since its previous 5-year authorization expired in 2002, despite the number  of proposals presented to the Congress. Nonetheless, Amtrak developed a  5-year strategic plan (covering the period of fiscal years 2005 to 2009) that  was designed to address its immediate needs. (The plan identified  inadequate and uncertain levels of funding as a risk.) In recent years,  Amtrak has received over $1 billion in annual operating grants and capital  grants through the annual appropriations process. Some other  transportation programs have established funding mechanisms that share  costs between the federal government and other parties. For example, the  Federal-aid Highway Program—a portion of which is subject to the annual  appropriations process for budget authority—has a dedicated trust fund,  the Highway Account, which is mainly funded by highway user fees, such  as taxes on motor fuels, tires, and trucks. Transit projects have access to  the Federal Transit Administration’s full-funding grant agreement—a  mechanism that requires identifying and committing federal and nonfederal  funds to support the multiyear capital needs of construction projects.  According to the Federal Transit Administration, dependable levels of  funding for the full-funding grant agreements have improved the ability of  transit agencies to finance, plan, and execute projects. Without consensus  over the federal role in funding intercity passenger rail and competing  priorities for federal funds, Amtrak will continue to operate in an uncertain  environment—impairing its ability to make strategic and operational  decisions, and often deferring capital and infrastructure maintenance.
section_title: Amtrak Can Take Actions to Reduce Costs and Increase Efficiency but It Is Not Positioned to Address Key Reform Elements
paragraphs: In general, Amtrak’s Board of Directors and management have the  flexibility to make numerous changes in its corporate direction and  organizational structure to improve financial performance. However,  Amtrak has a history of poor financial and operating performance. As we  have previously reported, many of its efforts at internal restructuring over  the last decade have largely failed and the company lacks many basic  management and reporting practices. More recently, in April 2005, Amtrak  proposed a more strategic approach for the company with a broad set of  reform initiatives. Amtrak is taking actions within its existing authority to  implement these initiatives, although most of the actions currently being  taken are operating in nature. While the Amtrak Reform and Accountability  Act of 1997 provided Amtrak with greater flexibility to make more  significant improvements, constraints limit the benefits that can be  achieved from this increased freedom. For example, although Amtrak no  longer requires approval by the Secretary of Transportation to make  changes to its route structure, route changes that result in elimination of  service could trigger expensive labor protection requirements. Regardless  of the internal changes Amtrak could make to manage its operations more  efficiently, Amtrak, as an operator, is not in a position to address the key  elements of reform. Federal leadership is needed to establish national  policy goals and stakeholder roles related to these goals, and to identify  funding levels needed to support these goals.
subsections: section_title: Amtrak Has the Authority to Take a Number of Actions to Reduce Costs and Increase Corporate Efficiency
paragraphs: Amtrak’s Board of Directors and management have the authority to make  numerous changes and have made changes in its corporate direction and  organizational structure. Amtrak is incorporated as a for-profit corporation,  but has been the recipient of substantial federal financial assistance since  its inception and has historically struggled to earn sufficient revenues and  operate efficiently. Without annual federal subsidies for Amtrak’s operating  costs, the corporation would not survive as presently configured and  operated. Amtrak’s financial condition has never been strong and it has  been on the edge of bankruptcy several times. In 2001, Amtrak lost about  $1.2 billion and mortgaged a portion of Pennsylvania Station in New York  City to generate enough cash to meet its expenses. In July 2002, Amtrak  also received a federal loan of $100 million to meet expenses.
Management of Amtrak has also generally been ineffective and the  company lacks basic tools for comprehensive planning. For example, some  of Amtrak’s internal changes over the last decade, such as establishing  strategic business units and modifying Amtrak’s routes, have not met  expectations. Instead, Amtrak’s financial condition deteriorated.  Additionally, as we reported in February 2004, Amtrak’s ineffective  management of a large-scale infrastructure project resulted in the  incompletion of many critical elements of the project, increased project  costs, and the project goal—a 3 hour trip time between Boston and New  York City—was not achieved. Finally, in October 2005, we reported that  the corporation lacked many basic management and financial reporting  practices. Among other things, we found that much of the financial  information Amtrak used for day-to-day management purposes lacked  certain relevant information or was of questionable reliability.
Amtrak’s Board of Directors and management have recently taken actions  to address these concerns. These actions include appointing a new  president and creating a planning and analysis department to develop and  manage a company-wide strategic plan. However, impacts on the  corporation’s performance remain to be seen. Additionally, in April 2005,  Amtrak’s Board of Directors and management proposed a set of broad  strategic reform initiatives designed to improve the operational efficiency  of the company, transition Amtrak into one of a number of competitors to  provide intercity passenger rail service, and change how federal subsidies  are distributed for intercity passenger rail. Specifically, changes outlined  include reinforcing management controls, organizing planning and  reporting by lines of business, and cultivating competition and private  commercial activity in passenger rail functions and services.
Amtrak’s proposed initiatives are a step toward a more strategic approach  for the corporation and include both reforms Amtrak could pursue  internally, such as changes to its maintenance services and facilities, and  those that require legislative action, such as the enactment of a federal- state capital matching program for corridor development in partnership  with states. However, according to senior Amtrak officials, Amtrak is  initially focused on internal reforms that Amtrak believes it has greater  control over. Currently, Amtrak is implementing operational changes in 15  areas based on the broader proposed set of strategic reform initiatives.  (See app. IV for a list of Amtrak’s operational initiatives and their status.)  These efforts are primarily associated with improving business efficiency  and reducing costs. For example, Amtrak’s management proposed to  redesign some aspects of the sleeper car service offered on long-distance  trains, such as reducing the number of sleeper cars and offering new  sleeper service products targeted at different markets. This effort is  projected to reduce Amtrak’s losses from offering sleeper service by about  46 percent.
Although Amtrak’s recent efforts are expected to result in some savings,  these changes alone will not be sufficient to address broader structural  issues. According to a July 2006 DOT OIG report, Amtrak’s 15 operational  changes have resulted in a $46 million reduction in annual operating losses  through May 2006. But the projected incremental operating savings from  full implementation of Amtrak’s operational changes over the next 5 or 6  years will not be sufficient to fund needed improvements to the intercity  passenger rail system such as addressing capital and maintenance needs,  returning the system to a state-of-good repair, and promoting corridor  development. In April 2005, Amtrak estimated that the strategic reform  initiatives could achieve total operating savings of nearly $550 million by  fiscal year 2011. Amtrak said achieving these savings would require a  number of legislative actions, such as the enactment of an 80 percent  federal capital match for state intercity passenger rail funds, as well as  realizing increased revenues from passengers, obtaining additional state  operating contributions for corridor trains, and having the federal  government cover Amtrak’s legacy debt obligations. Some or all of these  could increase federal costs.
section_title: Benefits of the Legislative Freedoms Are Limited by Constraints
paragraphs: The Amtrak Reform and Accountability Act of 1997 provided Amtrak with  greater flexibility to alter its route network and undertake other cost saving  changes to meet the goal of operating self-sufficiency by the end of  December 2002, which Amtrak did not achieve. However, the benefits that  Amtrak can achieve from these provisions are limited by practical  constraints. For example, while the act eliminated the statutory ban on  Amtrak contracting out or outsourcing work, except for food and beverage  service that could already be contracted out, it made outsourcing a part  of the collective bargaining process. Amtrak officials also told us that this  provides less flexibility rather than more since it is more difficult to change  collective bargaining agreements with unions than for Congress to change  a statutory requirement. This could limit the extent to which Amtrak  could contract out services, depending on the outcome of negotiations with  unions. Amtrak officials told us that little progress has been made on labor  negotiations since only three contracts (of the 24 collective bargaining  agreements Amtrak maintains with its agreement employees) have been  signed and these all technically expired on December 31, 2004. As a result,  Amtrak is currently in negotiations with all of its unions and employee  councils over collective bargaining agreements.
The benefits of making route changes to better meet the demands of the  public may also be limited as a result of labor protection requirements,  which are also part of the collective bargaining process. The Amtrak  Reform and Accountability Act of 1997 relieved Amtrak from getting  approval from the Secretary of Transportation to make changes to its route  structure and allowed Amtrak to discontinue routes without having to  preserve the “basic system” formerly mandated by Congress, as long as the  remaining route structure tied existing and emergent regional rail  passenger service and other intermodal passenger service. One Amtrak  official told us that while Amtrak is legally allowed to change the route  network, decisions are often met with a variety of reactions including  resistance by Congress. In addition, if route changes result in the  elimination of jobs, Amtrak employees may be entitled to labor protection  benefits. As we reported in September 2002, if Amtrak had been liquidated  on December 31, 2001, potential Amtrak employee claims for immediate  labor protection payments could have been as much as $3.2 billion.
Further, if an employee loses his or her job as a result of a reduction in  service on a route or closing of a maintenance shop, then he or she could  receive labor protection benefits for up to 5 years.
Finally, several potential constraints exist in gaining benefits from Amtrak  adopting a “user pays” principle for the provision of its services. Under the  user pay concept, costs to build and maintain rail infrastructure, including  along the NEC, would be paid for by the full range of users of the system,  including states, commuter rail agencies, freight railroads, and the public. If  adopted, a better matching of fees paid to costs incurred by the diverse  users of the NEC could provide incentives for both public and private users  to make modal choices and transportation options based on true costs.  One issue in implementing this approach is Amtrak’s ability to accurately  define the true costs of intercity passenger rail services. We discussed  examples of this issue in two recent reports. In October 2005, we reported  concerns with how Amtrak captured and reported financial information,  such as Amtrak’s overreliance on indirect cost allocation methods. In  April 2006, we reported that it is difficult to determine Amtrak’s revenues  and costs associated with providing services and access to infrastructure to  commuter rail agencies, in part due to the limitations of Amtrak’s  accounting practices. Since then, Amtrak has made some changes to its  reporting and financial systems, but according to Amtrak officials and  progress reports, more work is needed. A senior Amtrak official told us that  identifying direct route costs may be difficult since Amtrak uses many  different systems to capture costs.
Another constraint may be the ability and willingness of users to pay  additional fees. For example, we recently reported that the ability and  willingness of private rail companies to invest in infrastructure capacity to  meet projected future demand for freight rail transportation is uncertain.  While some states see a benefit to intercity passenger rail and pay for  additional service, two state officials we spoke with opined that a proposal  which required states to further subsidize existing intercity passenger rail  service would face political opposition at the state level unless a federal  capital matching program comparable to other transportation modes is  enacted. In addition, commuter rail agencies that use the NEC raised  several concerns about FRA’s efforts to establish a fee on them as  mandated in Amtrak’s fiscal year 2006 appropriations. Among other  concerns, these agencies stated that their usage of the NEC is different  from Amtrak’s, which should dictate different levels of payment for use of  the same infrastructure.
section_title: Amtrak Is Not Positioned to Address the Three Key Reform Elements
paragraphs: Amtrak, as an operator, is not in a position to adopt and ultimately  implement key elements to begin reforming intercity passenger rail in the  United States. Amtrak’s efforts will not likely change the structure of  intercity passenger rail without legislative action. Most of all, Amtrak  cannot address the three key elements of reform we observed in other  countries: 1) clearly defining national policy goals, 2) clearly defining the  various roles and responsibilities of public and private sector entities  involved, and 3) establishing a level of funding to devote to these goals.
Amtrak’s role is to provide intercity passenger rail service to the public.  Congress sets the national policy and goals for intercity passenger rail,  especially in the context of the entire national transportation system. Since  2002, federal policymakers have been struggling with what to do about U.S.  intercity passenger rail in general. Policymakers have not adopted the  legislative actions in Amtrak’s strategic reform proposal. Additionally, in  June 2006, CRS reported that policymakers have not endorsed Amtrak’s  strategy of maintaining its current route network while restoring its  infrastructure to a state of good repair, nor did they provide Amtrak with  the requested funds to meet these goals. CBO also said there has been a  lack of consensus about the role intercity passenger rail service should play  in the national transportation system and Amtrak’s role in providing such  services. While Amtrak’s efforts are a step to improving the corporation’s  financial and operating performance, these changes do not address the  reform elements necessary to maximize transportation and public benefits  of, and the effectiveness of federal expenditures for, intercity passenger rail  service. Any fundamental change of intercity passenger rail will involve a  number of difficult operational challenges and policy decisions and all of  them will require federal leadership.
section_title: Addressing Reform Elements for Intercity Passenger Rail Will Require Overcoming Stakeholder and Funding Challenges
paragraphs: There are a number of challenges associated with addressing the key  elements of reform for intercity passenger rail. The variety of stakeholders,  all with different interests and issues, makes it difficult to reach consensus  on any change. Central among federal challenges is determining what the  vision and role for intercity passenger rail in the United States should be,  the federal role, if any, within this vision, and the reconciliation of the wide  diversity of views on how the intercity passenger rail service fits into the  national transportation system. Challenges in promoting a more equitable  federal–state partnership include the varying ability and willingness of  states to participate in funding intercity passenger rail and identifying  appropriate policy changes to overcome the disadvantages intercity  passenger rail faces relative to the leveraging of federal funds. Currently,  states are challenged to leverage their expenditures on such service.  However, federal-state cost sharing is common in highway and transit  programs where investment is encouraged through matching grants. Other  challenges include freight railroad concerns about infrastructure access  and capacity, workforce issues, and the role of the private sector.  Addressing funding issues will also present challenges. This includes  identifying funding sources to achieve national policy goals and developing  incentives for state participation. Each of these challenges presents  opportunities to increase the benefits of federal and nonfederal  expenditures on intercity passenger rail; not addressing them will likely  continue the stalemate in moving toward a well-defined role for federal  subsidies for intercity passenger rail in the United States.
subsections: section_title: Variety of Stakeholder Interests and Challenges Makes Reaching Consensus on Change Difficult
paragraphs: One of the most difficult aspects of addressing reform elements for  intercity passenger rail will be reaching consensus among stakeholders on  the topic of change. Stakeholders include federal and state governments,  freight and commuter railroads, the passenger rail workforce, and potential  private sector operators. There are a variety of stakeholder interests in  intercity passenger rail and, at virtually every level, there are challenges  that will need to be overcome before consensus can be reached to change  any policies, goals, or stakeholder roles involved with intercity passenger  rail.
subsections: section_title: Federal Issues and Challenges
paragraphs: The federal government’s interest, as laid out in statute, is in seeing that  intercity passenger rail service is provided on a national basis. However,  the Amtrak Reform and Accountability Act of 1997 removed direct federal  involvement in making route decisions, and DOT and FRA have, until  recently, largely taken a “hands-off” approach to Amtrak and intercity  passenger rail. As we reported in October 2005, FRA officials have told us  that, even though FRA has a seat on Amtrak’s Board of Directors, the  agency has historically refrained from advocating a particular approach to  running Amtrak; neither has it specifically held Amtrak management  accountable for meeting particular goals. In addition, an FRA official told  us that the agency must be careful about its involvement with management  decisions since, legally, Amtrak is a private for-profit corporation. Since  fiscal year 2003, Congress has imposed measures to increase the Secretary  of Transportation’s responsibility for providing oversight of, and  accountability for, the federal funds used for intercity passenger rail  service. Among other things, these measures require Amtrak to transmit a  business plan to the Secretary of Transportation and Congress and provide  monthly reports about this plan. In response to these measures, FRA has  entered into grant agreements with Amtrak. Although measures are in  place to increase FRA’s oversight of Amtrak’s operations through grant  agreements, FRA attributed the lack of resources for its limited and  focused approach to Amtrak oversight. These measures address oversight  and accountability but do not necessarily address establishing a vision for  intercity passenger rail service, and the role of such service, in the national  transportation system. DOT commented that FRA’s role has never been to  “establish a vision for intercity passenger rail” regardless of resources  available.
The challenges of establishing a national policy vision for intercity  passenger rail and the federal role, if any, within this vision are illustrated  by the wide diversity of intercity passenger rail service proposals  introduced in recent years. For example, one recent congressional  proposal would largely keep Amtrak intact and instead focus on various  reforms related to improving financial management, corporate governance,  and the development of metrics and standards for measuring performance  and the quality of service. This proposal would, among other things, require  Amtrak to develop a capital spending plan for restoring the NEC to a state  of good repair, and would allow freight railroads to bid for operating long- distance trains. In contrast, a proposal by the administration would  significantly restructure Amtrak. This proposal includes splitting Amtrak  into three functionally independent entities: a corporate entity to oversee  the restructuring and manage residual responsibilities; a passenger  operating company; and an infrastructure management company. It would  also, among other things, encourage the creation of an interstate compact  made up of northeastern states and the District of Columbia, to operate the  NEC. Amtrak itself has recognized the need for change. In April 2005,  Amtrak’s management released a proposed set of strategic reform  initiatives that, if fully implemented, could substantially change how it is  operated. Under this proposal, states would play a larger role in deciding  what services to offer, and there would be increased opportunities for  competition in providing intercity passenger rail service.
section_title: Federal–State Partnership Issues and Challenges
paragraphs: There are also a variety of interests and challenges in promoting a more  equitable federal–state partnership that make reaching consensus difficult.  One is the number of states that have the interest or willingness to  participate in intercity passenger rail. On the one hand, there are a number  of states that are willing to participate in subsidizing intercity passenger  rail and have made commitments to do so. In fiscal year 2005, 13 states paid  about $140 million to subsidize additional service from Amtrak. Amtrak  also received about $130 million from 8 states and 3 state agencies for  capital improvements on passenger rail corridors and at stations. In  addition, a coalition of 27 states—called the States for Passenger Rail— have come together to promote the development, implementation, and  expansion of intercity passenger rail services with the involvement and  support from state governments. This organization’s policy statement  indicates that states have taken, and will continue to take, a lead role in the  planning and development of new, expanded and enhanced regional  passenger rail corridor services. The states in the organization maintain  that these systems cannot be fully programmed and implemented without a  federal–state funding partnership similar to existing highway, transit, and  aviation programs. On the other hand, there are a number of states that  receive the benefits of intercity passenger rail service but do not subsidize  such service, and may or may not be willing to do so. This situation reflects  the legacy service that existed when Amtrak was created in the early 1970s.  For example, as of April 2006, there were 12 Amtrak trains scheduled to  operate daily Monday through Friday between New York City and Albany,  New York. The state subsidizes only 1 of these trains—the Adirondack.  Even on this train the state only subsidizes service north of Albany to  Montreal, Canada. New York City to Albany is part of the legacy service  that dates to when Amtrak began service in 1971. The extent to which  states would be willing to pay for the intercity passenger rail service  currently received for free is an open question.
Another federal–state challenge is the leveraging of financial assistance to  intercity passenger rail. Recent surface transportation acts have authorized  some federal financial assistance for the development of high-speed rail  and other passenger rail corridors. In addition, states can finance  passenger rail projects through the Federal Highway Administration’s  Congestion Mitigation and Air Quality Improvement program when the  project will result in demonstrable air quality improvements. However,  states are challenged to leverage their expenditures on intercity passenger  rail. In general, states work directly with Amtrak to obtain service above  the basic service provided. Some states also work directly with Amtrak to  finance intercity passenger rail capital improvement projects that benefit  their state. An FRA official told us that states could start their own intercity  passenger rail service, but doing so would be difficult given the potential  cost and lack of statutory access to infrastructure at the incremental cost  that Amtrak currently enjoys. Some other transportation programs—such  as the interstate highway program and the Federal Transit Administration’s  New Starts program for transit systems—share responsibility for planning,  design, and funding between the federal government and state and local  governments. Federal agencies generally set the design and quality  standards for projects and encourage investment through matching grants.  State and local governments prepare transportation plans which identify  the need for investment, develop a business case for the investment, and  contribute a portion of the funding.
Finally, reform initiatives designed to increase state roles in intercity  passenger rail will likely face the challenge of finding mechanisms for  states to work cooperatively together in the development of routes and  corridors that cross state lines. One mechanism is an interstate compact.  Interstate compacts for intercity passenger rail were proposed in the  Amtrak Reform and Accountability Act of 1997. Interstate compacts are  agreements between states that are constitutionally permitted when  approved by Congress. Several interstate compacts are currently being  used to study the feasibility of, or advocate for, intercity passenger rail  service. These include the Midwest Interstate Rail Passenger Compact and  the Interstate High Speed Intercity Passenger Rail Compact. Currently,  however, there are few passenger rail systems being operated under an  interstate compact. State officials have told us that interstate compacts are  a very difficult mechanism to use when more than two states are involved.  They said that not only do compacts take a substantial amount of time and  burden to create, but, in the context of passenger rail, there are practical  issues involved—such as deciding what service is provided, how the costs  of such service are allocated to participants, and what happens when one  or more states do not fulfill their financial obligations to the compact.
There may be other mechanisms available for states to work cooperatively  with each other. For example, the Appalachian Regional Commission  (ARC) is a federal–state partnership that, in general, was created to  promote economic development in Appalachia. Although the current  definition of Appalachia includes 13 states, the governance structure is  made up of only two co-chairs—one representing the federal government  and one representing the collective interests of 13 member states. Each co- chair has one vote on ARC matters. ARC officials told us that because of  the governance structure of ARC, virtually all decisions are reached by  consensus. In fact, they said that one of the advantages of ARC is that more  can be accomplished together than separately. They also cited as a  disadvantage the difficulties in reaching decisions.
section_title: Freight Railroad Issues and Challenges
paragraphs: Freight railroads play an integral role in intercity passenger rail. Over 95  percent of Amtrak’s route system operates over lines owned by freight  railroads. As such, the freight railroads have a keen interest in the volume  of passenger rail service provided and the potential impacts of such service  on their business. One of the main challenges associated with passenger  and freight railroads is infrastructure access and the cost of such access.  Since Amtrak’s creation, federal law has generally required freight railroads  to give Amtrak trains priority access and charge Amtrak an incremental  cost—rather than the full cost—associated with the use of their tracks.  These legal rights currently apply only to Amtrak. However, efforts to  reform intercity passenger rail service raise questions about the status of  Amtrak’s priority access and incremental charge rights—that is, can, or  should, these rights be transferred to non-Amtrak operators or will some  other arrangement need to be made? Other arrangements could  significantly increase both the difficulty and cost of introducing non- Amtrak operators, possibly through competitive bidding for subsidies, to  provide intercity passenger rail service.
Commuter rail service offers an example of access negotiations on  commercial, rather than incremental, cost terms. As we reported in  January 2004, unlike Amtrak, commuter rail agencies do not possess  statutory rights of access to freight railroad track. As a result, commuter  rail agencies must negotiate with freight railroads to purchase, lease, or pay  to access the railroads’ right-of-way. Negotiations for these agreements can  last from a few months to several years. Our report noted that when  negotiating a lease or access agreement, freight railroads typically want to  be compensated for all operating, capital, and other costs associated with  hosting commuter and other trains. These costs would include direct costs,  such as dispatching trains and maintaining the rights-of-way, and indirect  costs, such as the cost of foregone opportunities (e.g., the incremental  value of “lost” train slots). Infrastructure access is also difficult from the  perspective of a freight railroad company. Since freight service is the  companies’ core business, the ability to move freight through the system  must be protected. Freight railroad officials with whom we spoke for our  earlier report insisted that they must protect their systems’ capacity to  handle both today’s freight traffic as well as future traffic projections.  Protecting capacity becomes difficult when passenger trains, either  intercity or commuter, consume available capacity without some sort of  infrastructure enhancement, expansion, or market-based compensation for  line capacity used.
In addition to infrastructure access, capacity and capacity-availability  issues—that is, the ability of rail lines and infrastructure to handle current  and future traffic volumes—are also of concern to freight railroad  companies. After years of reducing infrastructure and rationalizing their  property, plant, and equipment, freight railroads have recently experienced  a substantial growth in traffic—a growth that some project will continue  into the future. In January 2006, the CBO reported that total freight carried  by all modes of transportation in the United States has been growing.  CBO indicated that railroads, in particular, experienced a sharp increase in  traffic in the 1990s, with traffic increasing more than 50 percent between  1990 and 2003 (from about 1 trillion ton-miles to about 1.6 trillion ton- miles). This growth is expected to continue. For example, the  Department of Energy’s Energy Information Administration has projected  that railroad ton-miles will increase 1.7 percent annually between 2004 and  2030, reaching about 2.4 trillion ton-miles in 2030. Other organizations  have similarly predicted increases. This growth has acted to limit available  capacity on the rail network, at least in some locations. In April 2006  testimony before the U.S. House Committee on Transportation and  Infrastructure, Subcommittee on Railroads, the president and chief  executive officer of the Association of American Railroads said that the  traffic density (i.e., ton-miles per route-mile owned) for Class I railroads  had more than doubled from 1990 to 2005 (see fig. 12). He went on to say  that the traffic increases had resulted in capacity constraints and service  issues at certain junctions and corridors within the rail network. These  constraints and service issues will all affect the ability of both passenger  and freight rail carriers to provide the quality and frequency of service the  carriers may be asked to provide.
Any reform that changes the type and frequency of intercity passenger rail  service will need to address system infrastructure access and capacity  issues. In doing so, any federal policy responses regarding freight  infrastructure should consider several things in this regard: (1) subsidies  can distort the performance of markets; (2) the federal fiscal environment  is constrained; (3) policy responses should occur within the context of a  National Freight Policy that reflects system-performance-based goals and a  framework for intergovernmental and public-private cooperation; and (4)  federal involvement should occur where demonstrable wide-ranging public  benefits—and mechanisms to appropriately allocate the cost of financing  these benefits—exist between the public and private sectors. In addition,  federal involvement should focus on benefits that are more national than  local in scope.
Freight railroads have other concerns as well. These include concerns  about liability issues—that is, adequate protection against the risks of  accidents involving passenger trains using their lines. In general, freight  railroads seek full indemnification against any risks that might exist  because of passenger rail service. See appendix V for a more complete  discussion of infrastructure access, capacity, and liability issues.
Workforce Issues and Challenges Finally, efforts to reform intercity passenger rail require consideration of  workforce issues. That is, having enough people with the requisite  knowledge and skills to provide the amount and type of service called for in  a reformed system. There are several issues that need to be considered in  this regard, including the following:  Availability of a qualified labor pool. The reform of intercity passenger  rail resulting in new services or operators will require that there be  sufficient staff to provide service, conduct maintenance, and perform  other duties related to running passenger railroads. In the short term,  obtaining sufficient staff could be a challenge. As we reported in April  2006 (in the context of commuter railroad services), if Amtrak were to  abruptly cease to provide service, some commuter railroad agencies  would be able to replace Amtrak employees dedicated to their particular  commuter rail service with employees from another railroad.  However, there were a number of agencies that said they would not be  able to quickly replace current Amtrak employees because of workforce  limitations, such as the availability of a qualified labor pool.
Workforce flexibility and productivity. Reform of intercity passenger  rail resulting in new services or operators will also require consideration  of workforce flexibility and the extent that labor productivity can be  increased. One key to providing cost effective intercity passenger rail  service is to have high levels of labor productivity. Collective bargaining  agreements and their related work rules specify the work that  employees are expected to do and the amount of compensation they will  receive for performing this work. Although such agreements can and do  include changes designed to increase employee productivity by  increasing or broadening the types of tasks that employees can perform,  such agreements can also affect productivity by limiting the amount or  type of work that employees can perform.
Potential labor protection payments. If, as the result of a reform of  intercity passenger rail, Amtrak employees lose their jobs, there could  be liability for labor protection payments. In general, labor protection  payments are made to employees who lose their jobs as a result of a  discontinuation of service. The Amtrak Reform and Accountability Act  of 1997 made a number of changes to labor protection, including  eliminating the statutory right to such protection; this made labor  protection subject to collective bargaining, and required Amtrak to  negotiate new labor protection arrangements with its employees.  Amtrak labor-relations officials observed that bringing labor protection  under collective bargaining (and therefore subject to the constraints of  the Railway Labor Act), as opposed to being statutorily mandated, has  actually limited Amtrak’s flexibility to respond to marketplace changes.  They observed that their flexibility was reduced because it is generally  easier to change a statutory requirement than it is to change a collective  bargaining agreement. With regard to the potential magnitude of labor  protection payments, in September 2002 we reported that Amtrak would  have had potential unsecured labor protection claims of about $3.2  billion had it been liquidated on December 31, 2001.   Although any  restructuring might not involve a bankruptcy, potential labor protection  payments could still be substantial if employees lose their jobs.
Workforce challenges also include determining how a potentially reformed  intercity passenger rail system fits into the current scheme of railroad- specific labor–management relations, retirement, and injury-compensation  systems. Amtrak is currently subject to, among other laws, the Railway  Labor Act, the Railroad Retirement Act of 1974, and the Federal Employers’  Liability Act, which govern labor–management relations, retirement, and  injury compensation, respectively, in the railroad industry. Amtrak’s  collective bargaining agreements generally do not expire and are subject to  requirements designed to reduce labor strikes; Amtrak participates in, and  provides financial contributions to, the railroad retirement-system  (approximately $400 million annually); and Amtrak and its employees are  subject to a tort-based injury compensation system under the Federal  Employers’ Liability Act. We have reported that these legal requirements  raise railroad costs compared to nonrailroad industries. Amtrak’s April  2005 Strategic Reform Initiatives also suggested that meaningful reform of  intercity passenger rail will require changing how some of these  requirements apply to passenger rail. On the other hand, rail labor has  argued for the importance of these laws in protecting employee rights,  providing critical retirement benefits, and adequately compensating  employees injured on the job.
State officials with whom we spoke expressed general concerns about the  potential impact of Amtrak’s labor agreements and obligations on the  future of passenger rail. Some state officials viewed Amtrak’s labor  agreements as a significant barrier to restructuring. One official stated that  serious labor reform is needed for intercity passenger rail reform to  succeed. State officials also questioned whether alternative operators  would be bound by Amtrak’s labor agreements and thought that it was  unlikely another operator could provide significant improvements in cost  savings if they were. Another official stated that Amtrak’s labor agreements  would put Amtrak at a considerable disadvantage over alternative  operators in a competitive market if the alternative operators were not  bound by the same agreements.
Rail labor union officials with whom we spoke expressed several concerns  about the effects any potential reform of intercity passenger rail might have  on their members. First and foremost, union officials told us of their  concern about the history of Amtrak’s successive reforms and said these  reforms had a detrimental effect on union employees. In their view, past  Amtrak reforms have brought fewer union jobs and the loss of health and  safety programs with no real improvement in Amtrak’s financial  performance or service to the public. Union officials also told us that any  reform should attempt to make Amtrak, among other things, find new  leadership dedicated to working with employees and growing the business,  fix basic business practices, and improve customer service. Finally, union  officials emphasized that rail labor is the monopoly workforce for  passenger rail. Any reforms of intercity passenger rail would still require  any operator—Amtrak, alternative operators, or a successor to Amtrak—to  work through the unions to maintain a labor force. Rail union officials  noted the success of the Massachusetts Bay Commuter Railroad, which  provides commuter rail service in and around Boston, Massachusetts. In  this instance, a private operator took over operations from Amtrak and was  able to maintain existing work rules (collective bargaining agreement  provisions that specify tasks employees can perform) while offering a 24- percent increase in wages.
See appendix VI for more information about workforce issues.
section_title: Private Sector Issues and Challenges
paragraphs: Private sector issues and challenges primarily focus on what role, if any,  the private sector will play in any reformed intercity passenger rail system.  Currently, there is little private sector involvement beyond the  infrastructure provided by freight railroads to operate intercity passenger  rail service. Amtrak is the sole operator of intercity passenger rail service,  and, although organized as a private, for-profit corporation, is heavily  dependent on federal subsidies to remain solvent. In general, there are no  other private sector operators outside of leisure travel providers such as  GrandLuxe Rail Journeys (previously American Orient Express). This  contrasts with the pre-1971 situation when, before Amtrak began service,  freight railroads provided all intercity passenger rail service.
There are suggestions that the private sector could play a larger role,  including being contract operators under a system in which competition  and bidding is used to select service providers. For example, Amtrak’s April  2005 Strategic Reform Initiatives suggests that there are opportunities for  increased competition, and part of Amtrak’s vision for itself under these  initiatives is to evolve into one of a number of competitors for contracts to  provide passenger rail service. However, there are a number of issues  associated with increasing the private sector role in intercity passenger  rail. These issues include the following:  Availability of potential private sector operators. Since Amtrak is the  sole provider of intercity passenger rail service, there has been little  opportunity to test the market for potential new operators. However,  there are indications that potential operators may exist and may be  willing to participate in any opportunities that might arise, especially  corridor service. For example, an official of one firm with worldwide  rail and transportation operations said he believes there is a U.S. market  for rail service in corridors—especially corridors with city-pairs 100 to  300 miles apart. An official from another firm with extensive passenger  rail operations in the U.K. said his firm is very much interested in  entering the U.S. passenger rail market, especially in operating the NEC.  In his opinion, the NEC is a very viable corridor and could be wholly or  partially privatized.
Costs of private sector operators and the need for public subsidies. One  of the key questions associated with competition and the use of private  sector operators is how costs will change, and whether public subsidies  can be reduced or eliminated. Again, since the U.S. market has not been  tested, it is difficult to know what the specific cost or subsidy impacts  from competition might be. On the one hand, European experience has  shown that franchising and competitive bidding has not necessarily  reduced the need for government subsidies. In fact, in 2 of the European  countries we visited (Germany and the U.K.) there is substantial  government financial involvement in competitively bid systems. On the  other hand, in the U.K., some franchise operators have recently been  financially successful enough to allow them to pay the  government a premium for excess profits they have made. Aside from  government financial assistance, foreign officials also pointed to other  things—such as increases in ridership and quality of service—as the  benefits of a more competitive system. For example, data from the  Association of Train Operating Companies indicate that passenger rail  ridership in the U.K. increased about 38 percent over roughly the last  decade (from about 745 million trips to just over 1 billion trips  annually). The largest growth was in the long-distance market.  Similarly, government data show that the number of complaints per  100,000 passenger trips in the U.K. generally decreased from about 120  in April 1999 to 70 in April 2005.
Potential requirements to encourage private sector participation.
There may be certain requirements for encouraging private sector  participation in providing intercity passenger rail service. These  requirements may include maintaining Amtrak’s current statutory rights  of infrastructure access. An official from one firm with worldwide  transportation operations with whom we spoke emphasized that access  to tracks, stations, rights-of-way, and maintenance facilities would be  key for his firm and other operators to be successful participants in the  intercity passenger rail market. This firm would look to states or Amtrak  to provide these access arrangements prior to their taking over  operations. Officials from all 5 states we talked to agreed there would be  a number of barriers to competition and that access issues would be a  critical issue. Flexibility in allowing firms to branch into nonrail  operations may also be important. In Japan, passenger rail officials told  us that their firms not only provide passenger rail service but are also  involved in other activities such as real estate development, retail  stores, and light manufacturing.
section_title: Funding Issues also Present Challenges
paragraphs: There are also a number of challenges associated with funding for intercity  passenger rail service. One is identifying funding sources to meet long-term  funding needs. Being in a capital intensive business, intercity passenger rail  has substantial ongoing and long-term funding needs. For example, Amtrak  is currently receiving over $1 billion annually in federal subsidies and it has  an estimated $6 billion in deferred capital backlog of infrastructure  improvements, including about $4 billion on the NEC. In March 2006, the  DOT OIG reported that, for fiscal year 2007, Amtrak would need about $1.4  billion just to maintain Amtrak and keep its system from falling into further  disrepair. This would not include amounts to address the backlog of  capital maintenance, invest in short-distance corridors, or renew  equipment. This official went on to say that none of the corridors around  the country, including the NEC, can provide the type of mobility needed  without significant capital investment. This limitation applies to the  development of new corridors as well, including high-speed rail corridors.  As we testified in April 2003, the total cost to develop high-speed rail  corridors is unknown because these types of corridors are in various stages  of planning. However, the costs could be substantial. The American  Association of State Highway and Transportation Officials—a trade  association of state and local transportation officials—has reported that  about $60 billion would be required to develop these corridors, including  Amtrak’s NEC, over a 20-year period.
Funding challenges also include finding funding sources to meet whatever  national intercity passenger rail policy goals are established. Currently,  virtually all federal funding for intercity passenger rail comes from general  appropriations; therefore, intercity passenger rail must compete with a  myriad of other needs to obtain funding. This practice allows Congress to  set spending priorities. As discussed earlier, the existence of funding  sources to meet national policy goals was a component in many foreign  passenger rail reform efforts. Even in Canada, where there was no major  restructuring, the government was willing to commit, albeit not on a formal  basis, to identifying funding amounts so as to provide a stable level of  annual operating funding for its intercity passenger rail provider, VIA Rail.  This commitment has continued for about 8 years and through several  changes in government. According to Transport Canada officials, this  commitment allowed VIA Rail management some stability in planning.  They also said that, while there was no explicit rationale for the amounts  provided, the objective was clearly to “set VIA’s feet to the fire” by not  increasing the subsidy. However, reducing the level of support would make  it difficult to preserve services. Finding funding sources to meet national  policy goals for intercity passenger rail will not be easy, especially as the  nation faces increasing fiscal constraints at the federal level. As discussed  earlier in this report, the federal government faces significant fiscal  challenges in future years and will need to reexamine its role and financial  support for virtually all federal programs, including intercity passenger rail.  The challenge will be in finding a funding source(s) that can meet long-term  needs while retaining the accountability of an annual appropriations  process.
Funding challenges include aligning the decision making for, and the  benefits of, intercity passenger rail service with the responsibility for  paying for such service. Currently, there is a basic misalignment in these  elements. Historically, states have not been required to subsidize basic  intercity passenger rail service. States may subsidize additional service that  would benefit residents. As discussed earlier, in fiscal year 2005, 13 states  paid about $140 million to subsidize additional service from Amtrak.  However, there were over 30 states that did not subsidize intercity  passenger rail service even though such service was provided in their state.  In general, Amtrak is the focal point for decision making about what  intercity passenger rail service is provided and where. Under this  structure, some states benefit from having intercity passenger rail service  but play little role in deciding what service is provided or in subsidizing the  services received. Some states are aware of the benefits of this structure— for example, an official from one state we contacted told us that Amtrak is  “a great deal” for the state because the state pays nothing for service, even  though there are numerous Amtrak trains that operate daily within the  state. This official said his state would like to see additional service, but the  state has little voice in the matter because the state does not pay. On the  other hand, an official with another state said his state believes it is paying  an inequitable amount for service compared to other states. As we reported  in April 2003, the willingness and ability of states to provide and maintain  financial support for intercity passenger rail is unknown. This willingness  and ability is a challenge that will need to be considered in aligning the  decision making and benefits of intercity passenger rail with payment for  such benefits.
Finally, funding challenges will involve developing incentives to ensure  participation and cost sharing by states and other stakeholders. Currently,  there are few means for cost sharing of federal and nonfederal  expenditures on intercity passenger rail. The current funding structure  provides appropriations for both federal operating and capital  improvement funds directly to Amtrak by way of grant agreements. These  grant agreements specify what federal funds are to be used for but do not  require Amtrak or others to contribute matching funds, either for operating  or capital purposes. Some other federal surface transportation programs  require matching contributions to create incentives and leverage federal  funds. For example, the Federal-aid Highway program generally limits the  federal financial share of the cost of highway projects (generally 80 percent  of costs) and requires states or others to contribute matching funds for the  remaining cost of such projects. Similarly, federal statute limits the  maximum federal share for some mass transit projects and requires project  sponsors to contribute matching funds. In fact, one of the criteria the  Federal Transit Administration considers in selecting new transit projects  to finance under its New Starts program is the amount of local financial  commitment. The absence of similar cost sharing mechanisms makes it  difficult for intercity passenger rail projects to compete for federal or state  dollars.
The equitable and sustainable response to funding challenges is more  complex than providing some “comparable” funding for intercity passenger  rail to that provided for other transport modes. First, while advocates for  increased federal support for passenger rail often cite the billions of dollars  provided to highways and airports, in fact these funds are derived from  explicit taxes or user fees. Second, in spite of the historical user-based  funding of these modes, we have recently reported that commitments made  are no longer sustainable; there is an urgent need for identifying new, more  sustainable, and adequate funding to support the defined federal role.  Finally, the modal comparisons of the magnitude of federal funding are  most appropriately grounded in the magnitude of current and potential  public benefits. As such, the order of magnitude of public funds to support  intercity passenger rail would appropriately be grounded in the role  intercity passenger rail does (or could) play in national mobility, relative to  the dominance of highway and air travel for medium- and long-distance  travel and the public benefits that would result. Any consideration of  dedicated funding for intercity passenger rail also needs to account for the  potential downsides of such funding. In May 2006, we reported that, despite  the advantages of dedicated funding, there are risks of revenue volatility  and loss of budgetary flexibility. That is, there is a risk that revenues may  fluctuate and not meet funding expectations; and, that setting government  funds aside for a specific use may affect the funding available for other  spending priorities.
section_title: Not Addressing Challenges Will Hinder Opportunities to Increase the Benefits of Federal and Nonfederal Intercity Passenger Rail Expenditures
paragraphs: Not addressing the challenges discussed earlier may very well hinder  opportunities to increase the benefits of both federal and nonfederal  expenditures on intercity passenger rail. Amtrak has efforts under way to  analyze and implement various changes to its operations to reduce costs,  increase efficiency, and move states closer to paying for the services they  receive. Although these efforts are a step in the right direction, they are  expected to have only marginal impacts on the financial performance of  intercity passenger rail service. These efforts will not, and should not be  expected to, address some of the more fundamental reform elements (e.g.,  clearly defining both a national policy and stakeholder roles for intercity  passenger rail service, and finding funding to support national policy goals)  associated with increasing public benefits provided by intercity passenger  rail service. Amtrak itself has said that its existence is not a substitute for a  national policy. The incremental changes being taken by Amtrak do not  necessarily go to the root of the challenges that policymakers need to  address to bring about increased public benefits of any federal expenditure  on intercity passenger rail service.
Not addressing the challenges makes it likely that a well-defined role for  federal subsidies for intercity passenger rail in the United States will also  remain elusive. As CRS reported in June 2006, Congress has essentially  reached a stalemate with respect to Amtrak and intercity passenger rail.  This stalemate was illustrated by the fact that both the 107th and 108th  Congresses were unable to reauthorize funding for Amtrak or reach  consensus on what kind of passenger rail system it would be willing to  fund. This stalemate has largely continued in the 109th Congress. As  discussed earlier, part of this stalemate has resulted from the wide diversity  of views and opinions on how the intercity passenger rail system should be  structured, what role the federal government, states, and others should  play in the system, and required funding levels. All of these speak to the  fundamental challenges described above.
Finally, addressing challenges has been integral to reform efforts elsewhere  in the world. Although passenger rail reform efforts worldwide are still  largely evolving and continue to face challenges, addressing such  challenges has been part of moving forward. For example, in the early  2000s, the U.K. realized it faced problems with insufficient infrastructure  investment and rising costs of train operators. In response, a new structure  was developed that changed the infrastructure manager and the  governance structure of this manager, and significantly increased  government involvement in specifying the services to be provided by train  operating franchises. The U.K. has also established a process that will  develop expected national outputs for its passenger rail system in 2007,  develop a cost estimate for these outputs, and ensure that adequate funds  are available to support these outputs. Accompanying this output  document will be a broader and longer-term strategy document looking  ahead to about 2035. Similarly, to address the costs of intercity passenger  rail service and growing federal budget pressures, Canada initially  considerably reduced VIA Rail’s annual subsidy from 1992 to 1998 from  $344 million (Canadian) to $171 million (Canadian), then imposed informal  caps on VIA Rail’s operating subsidy. Along with the caps came informal  funding commitments designed to facilitate management stability in  planning. The funding also came with incentives by allowing VIA Rail to  finance capital improvements or meet operating shortfalls by retaining any  annual operating subsidy amounts not used. Further, Japan addressed  funding challenges associated with financially weak passenger rail systems  by establishing a business stabilization fund that is expected to provide  sufficient income to continue operations without using an annual federal  subsidy. Japanese rail officials told us that the business stabilization fund  has allowed smaller railroads to operate more independently of  government interference.
section_title: Options for the Future of Intercity Passenger Rail Will Determine the Level of Federal Involvement
paragraphs: As the federal government is the primary provider of funds, oversight, and  direction for intercity passenger rail service, federal policy makers should  take the lead in deciding what the federal government’s role in intercity  passenger rail service should be and what changes, if any, need to be made  to its goals, structure, and funding. Using our previous work, the work of  other government agencies, and our review of other selected countries, we  defined four basic options that represent the potential range of options for  reforming intercity passenger rail service in the United States. They are  maintaining the status quo, introducing incremental changes within the  existing structure, discontinuing federal support, and restructuring the  entire intercity passenger rail system. This section discusses each option  separately, although some combination of these options could also be  implemented. All four options for the future of intercity passenger rail  present challenges that could impede both their selection and their  effectiveness once chosen. Of the four options, however, restructuring  presents the opportunity to substantially improve the intercity passenger  rail system. This option would allow Congress and policymakers to  establish intercity passenger rail’s goals, define the roles of stakeholders,  and develop funding mechanisms that provide performance and  accountability for intercity passenger rail expenditures. Any substantial  reorganization of intercity passenger rail will be difficult and can be  expected to occur over a long period of time.
In the sections that follow, we (1) lay out the framework for examining the  options, (2) describe each option in more detail, and (3) offer observations  on the advantages, disadvantages, and challenges associated with each  option.
subsections: section_title: Fundamental Reexamination Criteria and Key Components of Decision-Making Framework Could Help Guide Consideration of Options for Future Federal Role in Intercity Passenger Rail
paragraphs: It is important for federal policy makers to determine whether or not the  federal government should be involved in intercity passenger rail and, if so,  how federal participation can be both cost-effective and sustainable,  particularly in light of the federal government’s long-term structural fiscal  imbalance. In our report on 21st century challenges facing the federal  government, we defined a set of fundamental reexamination criteria that  are useful for evaluating the federal role in any government program,  policy, function or activity. The criteria are designed to address the  legislative basis for the program, its purpose and continued relevance, its  effectiveness in achieving goals and outcomes, its efficiency and targeting,  its affordability, its sustainability, and its management. These fundamental  criteria can be used to inform and evaluate the continued federal  involvement in intercity passenger rail service (see table 4 below for an  example of how these criteria may be applied).
If policy makers determine that there is a clear federal role in subsidization  of intercity passenger rail service, the implementation of that role should  have several essential elements. From our past work on federal  investments in transportation, and our analysis of foreign efforts on  intercity passenger rail reform, we have defined a framework that can  guide the implementation of any of the basic options for the future of  intercity passenger rail. This framework includes three components:  creation of solid goals, establishment of clear stakeholders’ roles, and the  provision of sustainable funding. This framework has three components  (see table 5).
All four basic options we identified would also benefit from a process for  evaluating performance periodically to determine if the anticipated  benefits are being realized. Evaluations also provide a means to  periodically reexamine established goals, stakeholder roles and funding  approaches, and provide a basis to modify them, as necessary. Leading  private and public organizations we have studied in the past, such as  General Electric and the state of Washington, have stressed the importance  of developing performance measures and then linking investment decisions  and their expected outcomes to overall strategic goals and objectives.While federal funding is currently a major source of financial support for  intercity passenger rail service in the United States, currently there are no  requirements for a periodic, regular evaluation of the use of federal funds  (outside of annual appropriations legislation and yearly FRA grant  reviews).
Each of the four options we identified has different implications for the  three elements of our framework—goals, roles, and funding. (See fig. 13 for  an overview.) For example, the federal role changes from managing the  different aspects of a federal exit from intercity passenger rail service in  the discontinuance option to one where it provides strategic direction and  targeted funding to increase the benefits of intercity passenger rail service  in the restructuring option.
section_title: First Option: Keep Existing Structure and Funding of Intercity Passenger Rail
paragraphs: This option would continue the existing structure and about the same level  of federal funding for intercity passenger rail service. Under this option, the  federal government would continue to ensure that a national intercity  passenger rail system exists. However, the existing inefficiencies, uneven  service levels, and limited capital investment would also continue.
subsections: section_title: Establish Goals to Maintain Current Structure
paragraphs: The goal of this option would be to preserve and maintain the current  intercity passenger rail structure and federal funding levels. This option  would also maintain the current route structure and levels of capital  investment. The federal mandate to have a national route structure  connecting intercity corridors would continue to influence the route  structure of the intercity passenger rail system. With no increased federal  direction to change Amtrak, intercity passenger rail operations would  continue without any major structural changes or increased federal  expenditure.
section_title: Define the Federal Role within the Current Structure
paragraphs: The federal role under this option would be to continue to support the  current structure of intercity passenger rail. The federal requirement to run  a national system would remain and Amtrak’s route structure and  management of the NEC would continue. The current stakeholder roles of  the federal government, state and local governments, freight railroads, and  commuter rail agencies would also remain the same. This option would  also retain the current relationships between Amtrak and the states and  commuter rail agencies, which in some cases are uneven. For example,  extensive service provided by Amtrak for some city pairs allows some  states to benefit from basic or “free” intercity corridor services from  Amtrak, while other states pay Amtrak to run corridor services that were  not part of Amtrak’s original service structure. Likewise, some commuter  rail agencies would continue to pay lower access fees than other commuter  rail agencies for using Amtrak-owned infrastructure. These access fee  differences, the result of a 1982 Interstate Commerce Commission ruling,  are depicted in figure 14.
Federal funding to support Amtrak’s operations and capital expenditures  would continue at current levels (between $1.25 billion and $1.5 billion per  year) under this option. Although a small portion of the overall federal  transportation budget, this level of expenditure could maintain Amtrak’s  current operations and level of capital investment in the short term.  However, the longer this level of expenditure continues without any other  changes in Amtrak’s route structure or expenditures, the less likely that  Amtrak will be able to cover any losses from extended operational  difficulties (such as the Acela brake issue in April 2005 or the loss of  electrical power on the NEC in June 2006), or be able to start improving the  condition of its core asset, the NEC.
section_title: Second Option: Incremental Change within Existing Intercity Passenger Rail Structure
paragraphs: Federal policy makers could determine that the current level of federal  involvement in, and funding of, intercity passenger rail is generally  adequate and appropriate, as in the first option. Under this second option,  however, federal policy makers could introduce incentives for incremental  improved operational and financial performance and accountability within  the current intercity passenger rail structure, such as financial, accounting,  or operational improvements. These incremental improvements could  come from federal policymakers or Amtrak’s management. The aim of this  option would be to make some positive financial and operational  improvements without substantially changing Amtrak’s financial situation  or the current structure of intercity passenger rail in the national  transportation system.
subsections: section_title: Establish Goals to Improve Performance within Existing Structure
paragraphs: Under this option, the goal of federal involvement could be defined as  continuing to support the current intercity passenger rail structure while  incrementally improving its performance. This goal would be achievable  within the current system and funding structure and would focus on  incremental operational and financial improvements. For example,  provisions in Amtrak’s fiscal year 2006 appropriations legislation specify  that Amtrak must show savings from operational reforms or federal funds  could not be used to cover losses from sleeper or food and beverage  services.
Another improvement federal policy makers could consider is making  Amtrak subject to basic requirements that are consistent with either  federal-entity or public-company financial reporting and accountability  requirements. Many of the basic accountability practices and requirements  of federal entities or public companies would improve Amtrak’s  accountability and transparency to Congress, the public, and key  stakeholders; and could be implemented while streamlining current  practices. An integral step in this process would be to first evaluate  Amtrak’s current practices and requirements in comparison with those of  federal entities and public companies and use the evaluation as the basis  for a plan to move forward.
Currently, Amtrak is not subject to many of the basic accountability  requirements of either federal entities or public companies due to its status  as a government-established private corporation. However, the current  financial reporting and accountability requirements specific to Amtrak  require it to submit annual audited financial statements and an operations  report to Congress. Amtrak is also subject to additional reporting  requirements as a result of its current funding structure, where annual  grant agreements for operating and capital expenses are established and a  prior loan agreement remains in effect. The monthly performance report— an extensive report containing financial results, route performance,  workforce statistics, and performance indicators—is one of the various  daily, monthly, and annual reports that Amtrak is required to provide under  these agreements. In our October 2005 report on Amtrak’s management  and performance, we noted that certain relevant information was not  included in monthly performance reports and the information in the  monthly performance reports was of questionable reliability.   We also  noted in our October 2005 report that Amtrak had made improvements in  its financial information, and we recommended including relevant  information and increasing the reliability of the information in the monthly  performance report, as well as preparing an action plan to put certain  financial management and reporting mechanisms in place.
Although financial reporting requirements of federal entities vary  somewhat, most federal entities are required to issue annual performance  and accountability reports (PAR). These PARs contain audited financial  statements; management’s discussion and analysis of the current year in  comparison to the prior year; an analysis of the agency’s overall financial  position, the results of its operations, and a discussion of key financial  related measures; and management's assurance statement on the  effectiveness of internal control, including a report on identified material  weaknesses and corrective actions. OMB, which oversees the financial  reporting of federal entities, reviews the PARs submitted by agencies. In  addition, agency Inspectors General report semi-annually on their  assessments of the agencies’ most serious management and performance  challenges.
Public companies, in addition to annual reports, are required to (1) provide,  with their annual financial statements (management’s discussion and  analysis), information relevant to an assessment of financial condition and  the results of operations; (2) issue quarterly financial statements that are  reviewed by external auditors; (3) have the chief executive officer and  chief financial officer certify that the financial statements do not contain  any untrue statements; and (4) have management assess and report on the  effectiveness of internal controls over financial reporting. Independent  audit committees provide oversight of public companies' financial  reporting, internal control, and the audit process. The Securities and  Exchange Commission oversees accountability at public companies  through reviewing the financial reports and other filings of public  companies. (See app. VII for a more detailed discussion of financial  accountability standards and oversight that could be applied to Amtrak.)
section_title: Define the Federal Role within the Current Structure
paragraphs: As this option would not represent a dramatic shift in the current intercity  passenger rail structure, a clear definition of roles may not occur. The  current roles for states, local governments, Amtrak, freight railroads, and  commuter railroads, would stay the same. As in the first option, this option  would perpetuate Amtrak’s current service structure that provides more  basic intercity service between some city pairs than others. It would also  perpetuate its current relationship with commuter rail agencies on the  NEC.
section_title: Determine the Appropriate Federal Funding Mechanisms to Improve Performance
paragraphs: One approach would be to reach an agreement among key legislative and  executive branch decision makers on a multiyear funding level for federal  operating of subsidies for intercity passenger rail service. Such a multiyear  agreement was successful in Canada when VIA Rail used the imposition of  a cap on its operating subsidies from the Canadian government to reduce  its operating costs. Although the spending cap was originally intended to  save the Canadian government money during a time of high fiscal deficits,  VIA Rail used its imposition to increase its emphasis on internal cost  control by reducing its labor costs for managers by 50 percent and its  equipment maintenance costs by 65 percent. The operating funds are  planned for over 10 years, giving VIA Rail the stability to plan its  operational expenditures over that time. While the funds are not adjusted  for inflation, VIA Rail is allowed to retain any amount of its operating  subsidy it does not use from year to year to save for capital improvement  projects or other needs.
While the funding approach could take several forms, federal support  under this option would likely not rise substantially, as the goal of the  option is to make incremental improvements without substantially  changing the federal commitment. While some savings could result from  incremental reforms, it is likely that, as with the first option, Amtrak would  remain unable to cover any losses from extended operational difficulties or  to start improving the condition of the NEC.
section_title: Third Option: Discontinue Federal Role in Intercity Passenger Rail
paragraphs: Under this option, the federal government would end its financial support  of the intercity passenger rail system. This would shift responsibility for all  intercity passenger rail service and federally owned rail infrastructure in  the Northeast to state and local governments and other stakeholders. While  this option could ultimately reduce federal expenditures by eliminating  operating and capital funds for Amtrak, according to CBO, discontinuing  federal support for intercity passenger rail could also force a liquidation of  Amtrak. Consequently, federal funds could be needed in the immediate  and long terms to cover implementation costs of Amtrak liquidation,  including labor protection payments and the disposition of Amtrak’s  assets. Also, although this option could create opportunities for states to  contract for intercity passenger rail service from other operators, many  states may not be able or willing to fund existing intercity passenger rail  service with state transportation funds without access to federal capital  matching funds. Any federal exit strategy and transition plan would also  need to be comprehensive and detailed.
subsections: section_title: Establish Goals that Discontinue the Federal Role
paragraphs: Under this option, federal policy makers would determine that there is no  federal role in the support of intercity passenger rail service. A goal of  successfully implementing this option could be an orderly withdrawal of  federal support and involvement from long distance and corridor intercity  passenger rail service. The federal government would create an exit  strategy that would enact this goal, in part by creating a detailed and  comprehensive transition plan that would address several important issues  resulting from federal withdrawal of support. One of these issues is the  disposal of the federal interest in Amtrak and in Amtrak owned portions of  the NEC. The NEC is the busiest rail corridor in the United States, with  over 1,800 intercity passenger, commuter, and freight trains using its tracks  per day. Amtrak owns a substantial portion of the NEC, including portions  over which several commuter rail agencies and freight railroads operate.  Amtrak operates trains, controls the movement of train traffic over the  NEC, and maintains most of the NEC.
One example of how to handle the NEC under this option could be similar  to how the Mexican government sold franchise agreements for different  segments of its freight rail network. Following privatization efforts in  Argentina and Brazil, the Mexican government, between 1996 and 2000,  sold nine different 50-year franchises (each with a 50-year renewal option)  to private bidders to operate freight rail service. According to the World  Bank, considerable care was taken by the Mexican government when  creating the franchises to preserve competition and avoid cross-holding  and cross-subsidization between the bidders and eventual franchise  operators. Since privatization, freight traffic has grown and substantial  investments in the rail infrastructure have been made by the private  operators.
As we pointed out in our April 2006 report on Amtrak and commuter rail  issues, access to Amtrak’s skilled labor and its infrastructure are two  critical issues to commuter railroads—especially to those railroads that  operate over the NEC. Some commuter rail agencies could not continue to  fully operate service—or would cease service altogether—without access  to Amtrak’s skilled labor and infrastructure. Any transition plan would also  need to include, among other things, strategies for addressing the  challenges identified earlier in this report (e.g., federal–state partnerships,  and infrastructure access and capacity), the financial viability of Amtrak,  and concerns of freight railroads and others about the viability of the  railroad retirement system.
section_title: Define the Appropriate Stakeholder Roles
paragraphs: The heart of any federal exit strategy and transition plan would be to define  the appropriate role for freight and commuter railroads, Amtrak, and any  new owner or manager of the NEC in relation to any continued intercity  passenger rail service. Since following this option would involve a major  shift in national transportation policy, the federal exit strategy and  transition plan would need to clearly define the roles of stakeholders in the  new intercity passenger rail structure in the United States. The federal role  would be discontinued and responsibility for any continued intercity  passenger rail service could be transferred to states (either to individual  states or to groups), local governments, or the private sector. Amtrak, as a  private corporation, could potentially continue as a provider of service;  other private transportation companies could also compete for subsidies to  provide service on current or new routes sponsored by the states. However,  many states may choose not to invest their scarce transportation funds in a  transportation mode for which there are no federal capital matching  funds—especially considering passenger rail’s capital costs. For example,  two state transportation officials said their states would be willing to  consider taking over operational responsibility for corridor Amtrak service  in their states, but only if the federal government would match state capital  funds at an 80-percent to 20-percent rate, similar to highway and airport  expenditures.
The financial incentive for private transportation companies to continue or  start any intercity passenger rail service would be reduced, or may not  exist at all, without federal subsidies for either operations or capital  projects. For example, officials from one private transportation company  with whom we spoke stated that virtually every intercity passenger route  would require public subsidies. However, according to the official, if  competition for intercity passenger rail service were introduced, it could  motivate private transportation companies to reduce their costs. While  probably not enough to eliminate the public subsidy, competition could  lead to lower overall costs.
If states did want to continue intercity passenger rail service (especially  across state borders) without direct federal involvement, different  intergovernmental structures could be adopted. One structure could be  interstate compacts, under which a group of states can work together to  achieve a common regional goal or provide a regional service without  direct federal involvement. An example is the Washington, D.C.,  Metropolitan Area Transit Authority (WMATA). WMATA is an agency  created by an interstate compact (although the federal government is also a  signatory to the compact) that provides bus and rail transit service in  Virginia, Maryland, and Washington, D.C. WMATA operations are funded by  fare and non-fare revenue and contributions from local governments, the  two states and Washington, D.C. Capital projects are funded by these states  and Washington, D.C., and are matched by the federal government.
section_title: Determine Funding Level for Federal Exit Strategy
paragraphs: While the federal government could eventually save the amount of  Amtrak’s annual capital and operating subsidy if it decided not to support  intercity passenger rail service, this option could have substantial  immediate and long-term costs to the federal government, especially if  Amtrak were liquidated as a result of withdrawal of federal support. In  our 2002 report on potential issues associated with an Amtrak  liquidation, we identified $44 billion in total claims against Amtrak’s  estate—including $3.2 billion for potential payments Amtrak would owe its  terminated employees (if Amtrak had been liquidated on December 31,  2001). Payments to the railroad retirement system could be as high as $400  million annually if former Amtrak employees were not reemployed in the  railroad industry. In addition, currently, Amtrak has about $3.5 billion in  long-term debt and capital lease obligations that could be unfunded in an  Amtrak liquidation. The federal government may also decide to fund  Amtrak’s other liabilities as a last resort if the sale of Amtrak assets does  not cover them. In addition, as we found in 2002, the market value of  Amtrak’s most valuable asset, its portion of the NEC, has not been tested.  The corridor clearly has substantial value and some consideration could be  given to a long-term lease to a private operator. However, the railroad is  subject to numerous easements and has, as of our October 2005 report,  over $3.8 billion of deferred capital maintenance that any future owner or  operator would need to address for continued safe, reliable operations.
section_title: Fourth Option: Restructure Intercity Passenger Rail Service
paragraphs: Substantial restructuring of intercity passenger rail service could take  many different forms. However, the core challenge of this approach is that  critical decisions would have to be made with all stakeholders about what  goals the restructured intercity passenger rail system should try to meet,  what roles the various stakeholders should play, and what federal funding  sources and mechanisms would be available to operate and maintain the  restructured system while maximizing cost sharing by all who benefit from  intercity passenger rail. Some examples of ways that substantial  restructuring could be implemented could include the following:   continuing corridor intercity routes where the benefits of intercity  passenger rail are higher while discontinuing long distance routes where  the benefits are lower;  restructuring Amtrak into separate companies;  transferring Amtrak-owned infrastructure to a compact or commission  of states to oversee its operations and improvements;  creating competition for federal- and state-subsidized routes between  private operators and Amtrak;   providing a one-time endowment to Amtrak as an incentive for it to run  as a more market-oriented business without continued federal  involvement and support; or   providing states flexible capital matching grants to create their own  solutions to transportation needs, including intercity passenger rail  service.
subsections: section_title: Establish Goals for Restructured Intercity Passenger Rail Service
paragraphs: Under this option, policy makers would determine that there are sufficient  public benefits at a national level to justify subsidies for an intercity  passenger rail service that is different from the current structure. The  primary goal for the federal government, under this option, would focus on  increasing the national transportation benefits and public benefits of  intercity passenger rail service relative to the federal expenditure. For  example, furthering this goal could include using federal subsidies for  intercity passenger rail to: reduce highway congestion, increase intermodal  connectivity, provide environmental benefits, or increase redundancy in  regional or urban transportation. Specifically, one of the goals under this  option could be to increase the use of intercity passenger rail service  between major cities with trip times under 3 hours. Two examples of how  this goal could be achieved include the U.K. model of intercity passenger  rail service or the German model for regional rail service. In both  models, passenger rail operating companies openly bid for the lowest  amount of government subsidy to operate a specific route. These franchise  agreements are multiyear contracts backed by either national or regional  government subsidies. The operator would collect ticket revenues and the  agreed-upon government subsidy to operate a specific level of service over  the route. This approach makes the government an explicit buyer of  intercity passenger rail services from a private operator and increases the  transparency of costs for a given level of service. Contracts for service  could include operational and capital expenditures and specify such things  as service frequency, trip length, stops, a payment schedule, and  performance metrics.
Importantly, spending federal funds for intercity passenger rail service to  increase public benefits will not necessarily lower the cost of providing  intercity passenger rail service. As discussed earlier in this report, in many  of the countries we visited the level of federal expenditures on passenger  rail after reform remained high or increased.
section_title: Define the Federal and Other Stakeholder Roles in a New Intercity Passenger Rail Structure
paragraphs: There are many different ways that the federal government and other  stakeholders could define their respective roles within a new intercity  passenger rail structure. The federal government could narrow or expand  its role in the new structure. However, the key opportunity of a  restructuring effort is in defining the roles of all stakeholders to create  incentives and promote equity across all beneficiaries, both public and  private, in the new structure. For example, the federal government could  determine—in partnership with states, local governments, Amtrak, and  various transportation providers (including freight and commuter  railroads)—the route structure, service frequency, and infrastructure  access arrangements for all intercity passenger rail routes. In order to  ensure that intercity passenger rail service does not significantly interfere  with freight rail service, any restructuring approach should also take into  consideration the national freight transportation policy currently being  developed by DOT.
One of the more challenging areas to define roles is the NEC, where  Amtrak is the owner of most of the infrastructure while many other  railroads are the main users. As discussed above, participation is uneven  and the vital infrastructure is not being maintained effectively. One  structure that could facilitate a federal–state partnership to manage the  NEC could resemble the Delta Regional Commission or the Appalachian  Regional Commission. These commissions consist of a group of states and  a federal representative to foster partnerships between state and federal  government entities and distribute economic development funds  throughout a specified economically distressed region. For example, the  federal government and thirteen states make up the Appalachian Regional  Commission to distribute economic development and highway  construction funds throughout the 410-county Appalachian region. Federal  economic development grant funds are distributed to member states  according to criteria based on such factors as population, land area, and  economic need.
Recognizing its fiscal constraints, the federal government could provide  matching funds (either for operating or capital expenditures, or both) for  routes that meet certain goal-related criteria (such as reducing highway  congestion or increasing intermodal connectivity) and that are partially  funded and proposed by states or groups of states under a process similar  to the New Starts program for federal transit funding. However, regardless  of the eventual structure or tools used to implement the structure, federal  leadership would be needed to reach a consensus on goals, structure, and  funding with all stakeholders.
section_title: Determine the Appropriate Federal Funding Sources
paragraphs: Given the long term federal fiscal imbalance, finding federal funds  necessary to fund a substantial restructuring of intercity passenger rail  could be a significant challenge. In four out of the five countries we visited,  the national government currently provides a substantial amount of  funding for intercity passenger rail service. Finding sufficient funding  could be crucial in order to restructure current service, attract increased  capital investment from nonfederal sources and give other transportation  providers the incentive to provide intercity passenger rail service by  significantly increasing the incentives for non-federal partners. However,  the scarcity of federal funds puts a premium on sharing costs of equipment,  infrastructure, and service. State and local governments may be willing to  invest to support continued, expanded or new intercity passenger rail  service. Moreover, increased state participation would more effectively  integrate decision making on intercity passenger rail priorities with  investments in competing and complementary modes including highways,  airports and mass transit.
An example of how costs could be shared across stakeholders could be  seen in the Federal Highway Administration’s Innovative Financing  Program. This program includes several different forms of highway  financing, which are designed to stimulate additional investment and  private participation. Different financing approaches in the program  include the use of state infrastructure banks and credit assistance under  the Transportation Infrastructure Finance and Innovation Act. These  financing approaches could be adapted to allow states to leverage federal  funds for investment in intercity passenger rail projects.
Funding for intercity passenger rail could come from a number of sources.  For example, some funding to subsidize federal and state intercity  passenger rail service could be provided through taxes paid by, or franchise  payments received from, private operators on those routes that may be  profitable and not require a subsidy (as is the case for some railroads in  Japan). Capital funds used to increase capacity, reduce bottlenecks, and  increase train speeds (especially on freight railroad owned track) could  come from existing federal taxes, including taxes on railroads or fuel taxes.  For example, regional governments in Germany are allocated funds from a  federal automobile fuel tax to support regional (i.e., short-distance,  intraregion) passenger rail service. This is not necessarily a new tax— rather, it is a change in how these funds are allocated by the German  federal government. Another funding option would be for the federal  government to create an endowment or “business stabilization fund,” such  as was used in Japan, to stabilize its smaller privatized railroads. This  endowment would help Amtrak transition from being dependent on federal  support to being a more market-based company. Any funding for a  stabilization fund would need to recognize the fiscal constraints on the  federal government and competing priorities. During the privatization of its  national railroad system, the Japanese national government identified the  railroads that were least likely to be profitable and provided them with a  one-time set-aside of government funds to provide continuous interest  income for those railroads. While the companies were prohibited from  using the invested capital to cover expenses, the earned interest could be  used to stabilize the business and provide long-term funds not subject to  annual government appropriations.
section_title: Each Option Carries Advantages, Disadvantages, and Challenges, However Restructuring Presents Substantial Opportunity for Improving the Intercity Passenger Rail System
paragraphs: All four options for the future of intercity passenger rail present challenges  that could impede both their selection and their effectiveness once chosen.  Of the four options, however, restructuring presents the opportunity to  substantially improve the intercity passenger rail system. This option  allows all stakeholders to establish intercity passenger rail’s goals, the roles  of stakeholders and the funding mechanisms that provide performance and  accountability for intercity passenger rail expenditures. Consensus on any  change to the current intercity passenger rail structure has been difficult to  achieve in the past. As a result, if a decision is made to proceed with  restructuring, a commission may be a useful mechanism for reaching  consensus on a method of restructuring among stakeholders and for  recommending a restructuring approach.
subsections: section_title: Keeping the Status Quo Forgoes Benefits that May Accrue from Improving the System
paragraphs: While keeping intercity passenger rail’s current structure and federal  funding levels would preserve a federal role in intercity passenger rail, it  would also preserve all of the current problems and limitations. States and  commuter rail agencies would continue to have unequal relationships with  Amtrak. The current route structure would continue to dilute the public  benefits of federal intercity passenger rail expenditures. Investment in and  the quality of commuter and intercity service on the NEC would likely  continue to decline and in states where intercity passenger rail could  provide the most public benefits states’ transportation funds would  continue to be spent on other modes without considering public benefits  from spending on intercity passenger rail. Any extended operational  difficulties may leave Amtrak without significant cash reserves to cover  lost revenues and may result in more financial difficulty.
With the current general level of federal funding, Amtrak will continue to  be faced with a deteriorating infrastructure and aging equipment that will  increase its operating costs and limit its ability to provide its current levels  of service. Without a significant capital infusion, the capital maintenance  backlog on the Amtrak-owned portion of the NEC will continue to increase,  negatively affecting Amtrak’s performance on its key route and diminishing  the benefits of intercity passenger rail in the most densely populated area  of the country. In addition, any new equipment (or a refurbishment of old  equipment) would have to be financed either with Amtrak’s limited capital  funds or with commercial debt, which would increase Amtrak’s operating  expenses. With current levels of funding and the lack of a clear definition of  roles for intercity passenger rail service, significant opportunities—for  instance, cost sharing for service in corridors where the public benefits of  such service may be high—could go unrealized. Amtrak will also face the  continued annual uncertainty about its financial situation, which will  damage its relationship with its creditors, suppliers, freight railroads and  its riders. Freight railroads will receive the same compensation from  Amtrak for the use of increasingly scarce capacity on their major rail lines  in addition to not benefiting from increased public investment to increase  capacity for passenger and freight traffic where they co-exist on their rail  lines.
Intercity passenger rail riders could also face disadvantages under this  option. A deterioration in service and equipment could force Amtrak to  raise ticket prices for a lower quality service (which may also be affected  by increased freight rail traffic). In addition to the uncertainty surrounding  federal and state investment in intercity passenger rail service, this  deterioration of service may drive away current and future riders and  increase highway and airway congestion in areas where intercity passenger  rail has made progress in increasing ridership, such as on the NEC and in  California. Finally, the federal government would receive no increased  benefits, and may receive less benefit due to declining capital investment,  for its expenditures and would have no accountability or performance  measures in place to gauge the effectiveness of those expenditures. In  addition, no performance or outcome based goals would be established for  intercity passenger rail service, clear stakeholder roles would not be  defined, and there would be no opportunity to restructure funding  mechanisms to include share costs across all stakeholders.
section_title: Incremental Change Does Not Address Fundamental Flaws in the Current System
paragraphs: Though there may be some increase in public benefits, incremental change  within the existing intercity passenger rail structure retains many of the  same problems that would be retained under the first option. States and  commuter rail agencies may still have unequal roles and face declining  investment in Amtrak’s infrastructure. While some savings could result  from incremental reforms, the need for federal subsidies would remain,  continuing the uncertainty of Amtrak’s financial future. Freight railroads  would continue to receive the same level of compensation for increasingly  constrained rail capacity and may not see more investment where public  demand for intercity passenger rail service on their railroads increases.  Riders could also face reductions in amenities due to cost cutting measures  in addition to the same or decreased service levels due to, among other  things, increased freight traffic and deteriorating equipment that could  reduce ridership on some routes.
With current levels of funding and the lack of a clear definition of roles for  intercity passenger rail service, significant opportunities—for instance, to  share the costs of intercity passenger rail service in corridors where the  public benefits of such service may be high—could go unrealized. While the  federal government or Amtrak may impose new accountability and  performance measures, the route structure may stay generally the same,  still diluting the impact of federal expenditures. Also, no overall goals will  be established for federal expenditures, roles will not be clarified and costs  of intercity passenger rail service will not be equally shared across all  beneficiaries.
section_title: Discontinuing Federal Involvement May Reduce Services and Would Require Detailed Planning and Substantial Federal Expenditures
paragraphs: Discontinuing the federal role presents strong challenges to all intercity  passenger rail stakeholders. The federal government will need to create a  comprehensive transition plan and exit strategy, especially in disposing of  the NEC. The federal government could also face pressure from states,  commuter rail agencies, and Amtrak’s creditors and workforce to continue  infrastructure investment in the NEC, and to cover Amtrak’s outstanding  debts and labor protection payments, respectively. Amtrak would face  bankruptcy and a possible shutdown of all services without federal  financial support. States will likely need to take on the responsibility to  continue intercity passenger rail service, which may result in some routes  being discontinued if they are not financially viable and states or others are  not willing or able to subsidize service. In addition, an Amtrak bankruptcy  may take away its equipment and its right of access to freight rail  infrastructure. Without a comprehensive federal transition plan, commuter  rail agencies that rely on Amtrak for services or infrastructure would face  service disruptions and financial difficulties. This would be especially  acute in the NEC, where most commuter railroads rely on Amtrak  infrastructure or services. Freight railroads may gain increased capacity on  some of their network, but would have to separately negotiate with  individual or groups of states that wished to continue intercity passenger  rail service on their railroads and deal with any new intercity passenger rail  operators as well. Finally, riders could be forced to other modes of intercity  and commuter transportation as a result of the federal exit from intercity  passenger rail, either temporarily or permanently, increasing congestion on  those modes. Under the discontinuation option there could be gaps in the  national transportation system to the extent there are areas where the  public relies solely on intercity passenger rail for mobility or travel  between regions if states or groups of states choose not to retain the  service.
section_title: Restructuring Provides Path to Increased Transportation and Public Benefits from National Intercity Passenger Rail Network
paragraphs: The restructuring option provides the opportunity to address the key  reform elements necessary for a sustainable, equitable, intercity passenger  rail system that delivers increased public benefits for federal and  nonfederal expenditure where the other options do not. The status quo and  incremental change options do not allow for a reexamination by all  stakeholders of the goals, roles and funding mechanisms of the system and  would not significantly increase the potential benefits of the system  relative to the expenditures required. Discontinuing federal support would  transfer responsibility for the system to other stakeholders, possibly  creating disruption and loss of benefits for a possible decrease in federal  expenditures. Although specific approaches may vary as to the goals, roles,  funding and challenges faced by different stakeholders, restructuring the  intercity passenger rail system potentially allows each stakeholder to more  fully participate and build consensus toward addressing these key reform  elements and to move toward a more equitable sharing of costs between  the federal government and other beneficiaries of intercity passenger rail  service.
Several challenges would need to be addressed before a restructured  intercity passenger rail system could provide increased public benefits and  accountability for federal expenditures. Federal policymakers will need to  determine the goals of the restructured system, the roles of all the  stakeholders, how federal expenditures will support the new system and  mechanisms for its implementation. Increased funding for private  operators may be needed to create a competitive marketplace for intercity  passenger rail, as well as increased funding or financial backing for capital  improvements in the NEC to ensure higher quality service. Federal  policymakers could also face pressure to compensate those who might lose  intercity passenger rail service or jobs due to the restructuring. States and  commuter rail agencies may have to shoulder more of the financial,  maintenance, and management burden in a restructured intercity  passenger rail system, especially in the NEC, but may receive other benefits  (such as improved service) in return. Amtrak would need to adjust to the  new intercity passenger rail structure or face bankruptcy. Freight railroads  may face increased public pressure for the use of their infrastructure for  intercity passenger rail service and may need to accommodate non-Amtrak  intercity passenger rail operators on their railroads. Riders may experience  some disruption as routes are re-routed or discontinued.
Due to the complex nature of intercity passenger rail issues and the wide  diversity of views about the future of intercity passenger rail service, an  independent and properly designed commission may be an effective  mechanism for building a consensus that helps determine a restructuring  approach. For example, a commission might be able to facilitate public  dialogue around a variety of options. While it may be difficult for citizens to  discuss the federal role in the abstract, preferences about that role can be  inferred from their reactions to and comments on the various restructuring  approaches. By facilitating public dialogue focused on feasible alternatives,  the commission could help the President and the Congress as they define  the role for the federal government in providing or subsidizing such service  and specifying how the service could fit into our national transportation  system. As discussed above, reaching consensus about federal policy  toward intercity passenger rail has been difficult. While the stalemate in  part reflects widely divergent views of the appropriate federal role, the  debate has been stymied by the lack of objective, rigorous exploration of  the operating challenges, costs, and distributional impacts of alternative  strategies.
Prior commissions and initiatives have recommended options for  restructuring intercity passenger rail service; however, their  recommendations have not been implemented. This inaction is due, in part,  to the challenges facing Amtrak as stated earlier in this report and, in part,  to a failure to reach public consensus on the recommended restructuring  approaches, which more fundamentally, requires a consensus on the future  role of intercity rail in the nation’s transportation system. Although  motivated to define the federal role in intercity passenger rail, these prior  commissions and current strategic initiatives have assumed a federal role  in intercity passenger rail service without explicitly stating what that role  is, what other stakeholders’ roles are, and how that federal role will be  funded.
section_title: Conclusions
paragraphs: If the role of intercity passenger rail is to be effectively integrated into the  national transportation system and federal support is to be targeted to  assure its performance, results and accountability, we believe that there is  a clear need to change the current structure of and the federal role in  intercity passenger rail in the United States. This change would be  consistent with GAO’s position that all federal activities should be  reexamined with an eye to whether they fit in the changing world of the 21st  century. The current and future fiscal imbalance underscores the  importance of assuring that all federal programs and policies, including  those for intercity passenger rail service, are subject to reexamination,  review and possible change. The extended stalemate in developing a clear  vision for how intercity passenger rail can be a part of the national  transportation system has reflected the significant challenge in achieving  consensus. As recently reported by the CBO, in the absence of any  consensus on intercity passenger rail issues, Amtrak is likely to continue  “limping along” as it has since its inception. We agree that without any  changes to its current structure, roles, and funding, the current intercity  passenger rail structure will continue to underserve, underinvest, and  underachieve.
Consensus will be needed, in addition to legislative action—both in the  short and long term—to improve the focus, performance, and sustainability  of federal support for intercity passenger rail. Development of a national  passenger rail policy to guide investments of federal funds should have: a  clearly defined federal role, outcome-based policy goals, an approach to  financing that stimulates investment by others commensurate with their  benefits, and appropriate accountability mechanisms. The current U.S.  intercity passenger rail structure meets none of these criteria—it does not  have clear transportation related goals, the roles of stakeholders have  grown haphazardly over time, federal funding is not based on cost sharing  and not focused on maximizing public benefits, and its results are not  outcome-based. With regard to its accountability and financial reporting,  Amtrak is not subject to the same basic requirements for financial  reporting, internal control and governance that are typically required of  federal entities or public companies.
section_title: Recommendations for Executive Action
paragraphs: To improve Amtrak’s financial and internal control reporting and overall  accountability, we recommend that the president of Amtrak:  Immediately take steps to evaluate Amtrak's accountability—particularly  its financial reporting, internal control, and governance practices—and  formulate a plan to bring the financial reporting, internal control, and  governance practices in-line with the basic requirements that federal  entities or public companies practice, while also identifying opportunities  to improve and streamline current reporting practices. The evaluation  should include a comparison of Amtrak’s current accountability  requirements and practices to those of federal entities as well as public  companies. This evaluation should serve as the basis for the formulation of  Amtrak’s plan to bring Amtrak’s financial reporting, internal control, and  governance practices in-line with the basic requirements that federal  entities and public companies practice, based on a determination of which  practices are most appropriate given Amtrak’s overall mission, funding  sources, and current situation. The plan should include developing  management discussion and analysis as part of its annual financial  reporting and developing management's assessment of internal control  over financial reporting, while identifying opportunities to streamline other  reporting practices. The plan should be submitted to Amtrak’s  Congressional oversight committees.
section_title: Matter for Congressional Consideration
paragraphs: In order to address longer term needs to maximize the transportation  benefits and public benefits of intercity passenger rail service and any  federal funds expended on this service, we recommend that Congress  consider restructuring the approach for the provision of intercity passenger  rail service in the United States. Only Congress can provide the national  vision and has the authority to put in place a wide-ranging restructuring  effort. This restructuring should include establishing clear goals for the  system, defining the roles for states and the federal government, if any,  commuter rail agencies, freight railroads and other stakeholders, focusing  expenditures where they will achieve the most public benefits, and  developing funding mechanisms that include cost sharing between the  government and beneficiaries.
In undertaking this restructuring, it will be important to solicit input from  all stakeholders, particularly DOT and FRA given their responsibility for  transportation and rail matters. Evaluation of restructuring approaches  should also consider the relationship between passenger and freight  railroads and give due consideration to the national freight transportation  policy being developed by DOT. Due to the complex nature of intercity  passenger rail issues and the wide diversity of views about the future of  intercity passenger rail service, an independent and properly designed  commission may be an effective mechanism for developing a consensus  over the future of intercity passenger rail service and helping determine a  restructuring approach.
By addressing the key reform elements, Congress can create a structure  that not only efficiently and effectively serves travelers but also promotes  performance and accountability and the chance for increased  transportation and public benefits from federal expenditures for intercity  passenger rail.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided copies of the draft report to Amtrak and DOT for comment  prior to finalizing the report. Amtrak provided its comments in a letter from  its president and chief executive officer (see app. VIII). In general, Amtrak  did not take an overall position on the report or the Matter for  Congressional Consideration. However, Amtrak agreed that intercity  passenger rail in the United States has come to a critical juncture and that a  national dialogue about the future direction of rail service is needed.  Amtrak also said that the three key elements to comprehensive reform of  intercity passenger rail are establishing clearly defined national policy  goals, clearly defining government and stakeholder roles, and establishing  committed funding. Finally, Amtrak commented that a more efficient,  improved, and expanded intercity passenger rail service can play an  important role in relieving congestion, both in the air and on the highways,  and that rail has unique advantages compared to other transport modes. We  agree and our report discusses the importance of the three key elements of  reform and the role they have played in reform efforts in foreign countries.  We also agree that intercity passenger rail can play an important role in the  nation’s transportation system. For this reason, as well as the fact that  intercity passenger rail service does not currently provide the most  transportation benefits and public benefits that it can and the growing  federal fiscal challenges, it is more important than ever for serious efforts  to begin on identifying how intercity passenger rail service can be  restructured to focus on its comparative advantages. We believe that  success of this restructuring effort can best be achieved in the context of  national policies and goals for intercity passenger rail—goals that are  performance and outcome based. In addition, all relevant stakeholders  need to participate and realistic assessments need to be made of potentially  available funds for sustaining the restructured system. It will be very  difficult to maximize the transportation benefits and public benefits of  intercity passenger rail service without these foundations.
In response to our recommendation that Amtrak evaluate its  accountability—particularly its financial reporting, internal control, and  governance practices—Amtrak offered comments about specific steps that  could be taken in that regard. For instance, Amtrak agreed that creating a  Management Discussion & Analysis with its annual audited financials is  reasonable and could help the uninformed readers understand the results  and trends. Amtrak took exception with other examples of oversight such  as the CEO and CFO certifying Amtrak’s financial statements similar to  those done under Section 302 of Sarbanes-Oxley Act. However, our  recommendation notes some general steps that Amtrak needs to take in  order to evaluate Amtrak’s current accountability practices in order to  formulate a plan to bring Amtrak’s practices in-line with the basic practices  of federal entities or public companies, while identifying opportunities to  streamline Amtrak’s current reporting practices. In its response, Amtrak  did not specifically address our recommendation to conduct such an  evaluation for purposes of formulating a plan. Therefore, we have included  additional information to our recommendation further elaborating on the  objectives of the evaluation and the formulation of a plan to bring Amtrak’s  practices in-line with the basic practices of federal entities and public  companies.
In its comments, Amtrak also pointed out that among the Federal Railroad  Administration, the Department of Transportation Inspector General’s  office and the independent Amtrak Inspector General’s office they have  three existing oversight agencies that oversee Amtrak on a monthly,  quarterly and annual basis and increasing oversight by adding the  Securities and Exchange Commission seems an unnecessary use of federal  funds with little real benefit for stakeholders. While we recognize that  Amtrak is subject to oversight already, we believe there are opportunities  to improve reporting practices, while identifying opportunities for potential  streamlining of Amtrak’s current reporting and related oversight. These  opportunities should be considered as part of the evaluation of Amtrak’s  current accountability requirements and practices.
Amtrak also commented on a number of other issues. These included (1)  the Amtrak deficit, (2) passenger revenues, (3) public benefits of Amtrak  services, (4) state corridors, and (5) freight railroad impacts. These  comments and our evaluation can be found in appendix VIII. Finally,  Amtrak offered technical comments that we incorporated where  appropriate.
DOT provided its comments in an e-mail message on October 12, 2006. The  department did not indicate agreement or disagreement with the report or  its recommendations but primarily provided technical comments that we  incorporated where appropriate. However, the department did observe that  effectively targeting federal funds where they may achieve the greatest  level of public benefits is not one of the existing goals for Amtrak. The  department also commented that it has never been FRA’s role to “establish  a vision for intercity passenger rail” regardless of resources that might be  available to the agency. While we recognize that FRA’s involvement with  and oversight of Amtrak has increased in recent years, our report makes it  clear that, as currently structured, intercity passenger rail does not  maximize either transportation benefits or public benefits for federal funds  expended. Although Congress will play the key role in establishing a  national vision for intercity passenger rail service and putting in place a  structure for maximizing the benefits from this service, we believe  executive branch leadership, particularly from DOT as being responsible  for transportation issues and FRA for rail matters, would be helpful in  establishing this vision. DOT and FRA leadership will also be essential for  identifying the optimum structure for meeting this vision and the role  stakeholders will be expected to play within this structure, as well as in  identifying potential funding sources to ensure sustainability of the system.  Such leadership and participation by these agencies will be even more  important in light of the growing fiscal challenges faced by the federal  government and the resulting constraints these challenges will place on  resources provided to all modes of transportation.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 14 days from the  report date. We will then send copies to other appropriate congressional  committees, the President of Amtrak, the Secretary of Transportation, the  Administrator of the Federal Railroad Administration, and the Director,  Office of Management and Budget. We will also make copies available to  others upon request. In addition, the report will be available at no charge  on the GAO Web site at www.gao.gov.
If you or your staff have any questions concerning this report, please  contact me at (202) 512-2834 or heckerj@gao.gov. Contact points for our  Office of Congressional Relations and Public Affairs Office may be found  on the last page of this report. GAO staff that made major contributions to  this report are listed in appendix IX.
section_title: Scope and Methodology
paragraphs: Our work was focused on identifying the critical issues and options that  Congress could consider in providing more cost-effective intercity  passenger rail. In particular, we focused on: (1) the characteristics of the  U.S. intercity passenger rail system and the value and benefits provided by  this system, (2) foreign experiences with passenger rail reform and lessons  learned for the United States, (3) how well the United States is positioned  to reform intercity passenger rail, (4) challenges that must be addressed in  any reform efforts, and (5) potential options for the federal role in intercity  passenger rail. Our scope was primarily limited to identifying the financial  characteristics and other characteristics of the U.S. intercity passenger rail  system from fiscal years 2001 to 2005. In reviewing route-related  information, it was not the intent of our work to suggest that any particular  routes or services be retained or eliminated. Similarly, in reviewing  potential options for the federal role in intercity passenger rail it was not  our intent to suggest that any particular option should be selected over any  other option. Rather, the scope of our work was intended to identify a  series of options that might exist for addressing the future federal role in  intercity passenger rail service.
To determine the characteristics of the current U.S. intercity passenger rail  system we collected information on all of the National Railroad Passenger  Corporation’s (Amtrak) routes, including ridership, revenues and costs,  federal grants and state payments to Amtrak, and on-time performance for  fiscal years 2000 through 2005. We also gathered and analyzed data  provided by Amtrak to determine passenger demographics, connectivity  between routes, and the potential transportation benefits and public  benefits provided by Amtrak’s different route types. We utilized route  ridership data provided by Amtrak from their “data warehouse” database.  To assess the reliability of this data and address discrepancies from figures  reported in Amtrak’s Route Profitability System (RPS), we conducted  interviews with Amtrak officials and assessed the methodology used to  develop this database. Based on this assessment, we determined that the  data were sufficiently reliable for our purposes. To evaluate the financial  performance of Amtrak’s routes, we utilized information from the RPS  database. Due to previously identified concerns regarding the reliability of  this database, we conducted an interview with Amtrak’s Chief Financial  Officer, reviewed documentation of RPS’s sources and methodology, and  compared route-related financial information to Amtrak’s “data  warehouse” database to determine any major discrepancies. While these  databases exhibit some variation due to the reporting format and source  information, we determined that the financial information provided by the  RPS database was sufficiently reliable to illustrate aggregate route-related  costs, and general trends between Amtrak’s different route types, for the  purposes of this report. For the purposes of reporting on-time performance  we utilized data provided by Amtrak. We compared these figures to other  reports issued by Amtrak and the Department of Transportation (DOT) and  determined that the data were sufficiently reliable for our purposes. To  determine passenger demographic information, we utilized survey data for  all long-distance routes and select corridor routes in the Northeast and  California in 2004 and 2005; these data were provided by Amtrak and  collected by a third party contractor to Amtrak. We did not independently  determine the accuracy or precision of Amtrak's survey estimates,  however, based on our understanding of the overall survey methodology,  we determined that the estimates were sufficiently reliable for our  purposes in illustrating general demographic differences in riders across  route types. Finally, to identify potential transportation benefits and public  benefits provided by intercity passenger rail, we spoke with officials in five  states; private transportation companies; and transportation officials in  several foreign countries. We also reviewed our previous work and reports  issued by the Congressional Budget Office (CBO), Congressional Research  Service, the Bureau of Transportation Statistics, the American Association  of State Highway and Transportation Officials, and statements by officials  at DOT.
To learn about foreign experiences with passenger rail restructuring and  lessons learned for the United States, we collected data on several foreign  countries that have reformed their intercity passenger rail system. This  data included reports from the World Bank, the European Commission, the  Congressional Research Service, as well as reports drafted by several  private consulting firms at the request of the European Union. We  conducted interviews with World Bank and European Commission  officials, and using these reports and interviews, we developed criteria for  selecting countries for site visits. These criteria included: the extent of rail  privatization or competition introduced, geographic characteristics, market  characteristics, national funding levels and sources, and the legislative  regulatory environment. We reviewed data for Australia, Canada, France,  Germany, Japan, Sweden, and the United Kingdom (U.K.). Five countries— Canada, France, Germany, Japan, and the U.K.—were all selected because  they represented a wide range of reform experiences, and implemented a  variety of approaches in reforming their systems. We conducted site visits  to these countries, which included interviews with the Ministries of  Transport for each of these countries. We also interviewed the primary rail  operators in Canada, France, Germany, and Japan. In the U.K. we  conducted interviews with one train operator, as well as the Association of  Train Operating Companies. In France, Germany, the U.K., and Japan we  also met with the infrastructure managers. Additionally, we met with other  rail industry groups, such as Angel Trains and HSBC (rolling stock leasing  companies) in the U.K., and the Paris Ile de France Public Transport  Authority.
To determine the extent to which the United States is positioned to reform  intercity passenger rail we analyzed the information we learned from the  experiences of the five countries described above, and reviewed statutes  related to intercity passenger rail, historical information on federal grants  requested by and provided to Amtrak, government and association reports  on Amtrak, and our past reports on various issues (including reports on  Amtrak’s management, commuter rail issues, and funding for other modes  of transportation). We used the three key lessons learned from the five  countries as our criteria for assessing how well the United States is  positioned to reform intercity passenger rail; these criteria were (1) clearly  defining national policy goals; (2) clearly defining the various roles and  responsibilities of all government entities involved; and (3) establishing  consistent committed funding for intercity passenger rail. For example, we  compared the current U.S. intercity passenger rail policy to policies formed  in other countries during the process of reform. A limitation of our  assessment is that we only focused on comparing the United States to five  countries with relatively different compositions in railroad infrastructure  ownership, freight and passenger railroad markets, geography, and  demographics. To determine the extent to which Amtrak’s efforts address  the three criteria, we obtained and analyzed a list of planned and under-way  initiatives from Amtrak. We also reviewed Amtrak’s April 2005 Strategic  Reform Initiatives, congressional hearings on intercity passenger rail, and  DOT’s financial study on Amtrak’s initiatives. In addition, we interviewed  Amtrak officials about the status of reform initiatives and intercity  passenger rail reform in general.
To address the challenges associated with addressing reform elements we  reviewed pertinent legislation related to federal involvement with Amtrak  and intercity passenger rail issues. We also reviewed various legislative  proposals that have been introduced in recent years addressing intercity  passenger rail issues and reviewed Amtrak’s April 2005 Strategic Reform  Initiatives to identify the wide diversity of views on what intercity  passenger rail service can and should be. We also obtained data from  Amtrak showing state payments in fiscal year 2005 for additional passenger  rail service and state contributions for capital improvement projects. We  reviewed our previous reports addressing, among other things,  infrastructure access and workforce issues, as well as Amtrak management  and performance issues. We also reviewed reports from the CBO and the  Department of Energy, and testimony from the Association of American  Railroads on infrastructure capacity issues. As part of our work we  solicited information from both Amtrak and selected commuter railroads  about infrastructure access and liability costs.  We used the types and  amounts of costs incurred by Amtrak and the commuter railroads to  develop a comparison that highlights the differences between Amtrak’s  access agreements and access agreements negotiated under commercial  arrangements. We did not perform a quantitative analysis of the differences  in access charges between Amtrak and commuter railroads. Rather, our  focus was limited to a qualitative description of the types and ranges of  costs. Finally, we interviewed officials from Amtrak, the Federal Railroad  Administration (FRA), state departments of transportation, rail labor  unions, and freight railroads about issues they see in addressing the  potential reform of intercity passenger rail. We also interviewed officials  from the Appalachian Regional Commission about the structure of the  organization, how it is governed, and the potential application of this  federal–state governance structure to intercity passenger rail service.
To address future intercity passenger rail options, we reviewed pertinent  legislation and our past reports, along with reports from the World Bank,  the DOT Inspector General, the CBO, and the Congressional Research  Service. We also interviewed railroad and government officials in the  United States and the countries we visited. We reviewed the reports of  various commissions including: the House Committee on Transportation  and Infrastructure's Working Group on Intercity Passenger Rail, the  Amtrak Reform Council, the President's Commission on the United States  Postal Service, and the National Commission of Social Security Reform.  The criteria for a fundamental reexamination of the federal role were  developed in our report on 21st Century Challenges, and the framework to  guide the implementation of the options was reported in several of our  previous reports and testimonies.
Our work was conducted from January 2006 to October 2006 in accordance  with generally accepted government auditing standards.
section_title: Selected Performance Characteristics of Amtrak Long-Distance and Corridor Routes
paragraphs: The following are selected performance characteristics of Amtrak’s long  distance and corridor routes.
section_title: Reform Overviews in Five Site Visit Countries
paragraphs: The following is an overview of the five countries we visited as part of this  review.
subsections: section_title: Canada
subsections: section_title: Background
paragraphs: Reformation of Canada’s intercity passenger rail system initially took place  in 1978 with the creation of VIA Rail, a state-owned corporation. Prior to  this, both the passenger and freight rail systems were integrated and  service was provided by two companies, Canadian National Railway and  Canadian Pacific Railway. While there has been no major organizational  changes since its creation, VIA Rail was subject to several national policy  actions throughout the 1990s leading to significant changes in how the rail  operator conducted its business, in addition to the changes in the amount  of funding it receives.
Snapshot of the Canadian Rail System   Monopoly state owned operator, VIA Rail.
Almost all infrastructure is owned by two freight rail companies.
Operating subsidies are consistent from year to year in order to force efficiencies and  enable better planning for VIA Rail’s management.
VIA’s corporate plan is approved annually by the federal cabinet.
section_title: Operations
paragraphs: The primary provider of intercity passenger rail operations in Canada is  VIA Rail, a government-owned corporation with shares held solely by the  Canadian government. However, the government agency, Transport  Canada, is responsible for overseeing VIA Rail. VIA Rail operates almost all  of the intercity corridor and long-distance routes throughout Canada, and  has some flexibility in setting its routes and services: however, all route and  service changes must be approved by Transport Canada, the Canadian  Minister of Transport, and the Canadian government. The majority of VIA  Rail’s usage occurs on a corridor that runs between Québec City, Québec,  and Windsor, Ontario. (This corridor is in the southeast part of the country,  and shares similarities with the Amtrak’s Northeast Corridor, but with a  lower population density.)  Similar to the United States, Canada’s long- distance routes operated with higher losses than the corridor service, and  because of this in 1992 a reevaluation of the Canadian (a long-distance  train which runs across the country from Toronto, Ontario, to Vancouver,  British Columbia) was conducted. Analysis of this route revealed that it  was primarily serving a leisure/tourist market, and a decision was made to  transition service on the Canadian to a luxury train offering “premium  service at a premium price” along with its coach service. In addition,  cutbacks in all cost categories and labor renegotiations, combined with  substantial revenue growth, allowed VIA Rail to operate more efficiently  within its budget.
section_title: Infrastructure
paragraphs: VIA Rail does not own most of the tracks on which it operates, and similar  to Amtrak, operates on private tracks owned by freight rail. VIA Rail does  not have any statutory guarantee of access to tracks, and must negotiate  access agreements with the freight operators. Current access agreements  with freight railroads are 10-year agreements and are set to expire in 2008.  VIA Rail owns and maintain most of its stations.
section_title: Funding and Debt
paragraphs: VIA Rail receives an annual subsidy from the Canadian Parliament.  Currently VIA Rail receives about $170 million (CAD) annually to support  its rail operations.  In 1991, the Canadian government began informally  capping the subsidy received by VIA Rail. The subsidy at the time was $350  million (CAD) and, due to governmentwide cost cutting, was gradually  reduced to its current level. Despite the decrease in its subsidy, VIA Rail did  not make any reductions in its service offerings—it concentrated on  improving customer service while reducing costs through more efficient  management, instead. This operating subsidy does not include funds for  capital improvements. VIA Rail does not receive a capital subsidy each  year, but instead must request special capital subsidies from Parliament.
The last funding it received for capital improvements was in 2000 for $400  million (CAD) to replace locomotives and rolling stock, and to perform  work on its Montreal, Québec–Ottawa, Ontario, line. VIA Rail has no  authority to issue debt instruments, or to go into the debt market to fund  rail operations. Any attempt to do this would require permission from  Transport Canada, the Minister of Transport, and the Minister of Finance.  At the time of its creation, VIA Rail did not have any debt, and currently has  no authority to issue debt instruments or to go into the debt market to raise  funds.
section_title: France
subsections: section_title: Background
paragraphs: The French intercity passenger rail system was reformed in 1997 in order to  create an infrastructure manager distinct from the national operator and  address the financial crisis that had been created by the fully integrated  intercity passenger rail system. The monopoly intercity passenger rail  operator in France is Société Nationale des Chemins de Fer Français  (SNCF), a public company with 100 percent of its assets owned by the  state. Until the 1997 reform, SNCF was responsible for both intercity  passenger rail operations, as well as for managing the country’s rail  infrastructure. During the reform, Réseau Ferré de France (RFF) was  created to take over management of the infrastructure. RFF is also a public  company with 100 percent of its assets owned by the state.
Snapshot of the French Rail System   Monopoly operator and infrastructure manager; both are state-owned public  companies.
National subsidies for intercity passenger rail operations are provided to the regions,  and not directly to the operator.
System comprises the largest use of high-speed trains in the world (6,000 miles  operated by Train a Grande Vitesse trains).
Will be required by the European Union to begin to open its passenger rail market to  competition by 2010-2012 (freight market already open to competion).
section_title: Operations
paragraphs: SNCF is the monopoly intercity passenger rail operator in France. SNCF  primarily provides intercity rail service through contracts with 20  geographical regions of France. At the time of the 1997 reform, the French  government began experimenting with regionalization of its intercity  passenger rail system. Through this experiment six geographic regions  were provided with subsidies so that intercity passenger rail needs could  be purchased from SNCF. This was successful, and, as of 2002, 20 regions in  France are given direct subsidies to purchase intercity passenger rail  service. This allows the regions to enter into contracts with SNCF for the  appropriate quantity and frequency of service needed to meet the unique  characteristics of the region’s passengers. In addition to operating  passenger rail services, SNCF provides infrastructure management  services under contract with RFF. SNCF performs traffic management on  the national network, and operates and maintains the national safety  system.
section_title: Infrastructure
paragraphs: RFF was created through the reform in order to establish an infrastructure  manager separate from the national operator. This was intended to clarify  the responsibilities and costs for rail infrastructure in France. All rail  infrastructure is owned by RFF, and it was given the mission of ensuring  coherence of the French rail network through improving existing lines,  developing the network through building new lines, and enhancing the  network by selling land property and lines not in use. RFF’s main sources  of income are access charges for use of the rail network, income relative to  land properties included in the network, and a state subsidy. As part of the  creation of RFF, two-thirds of the former SNCF’s debt was transferred to  RFF in exchange for SNCF’s infrastructure assets (31,000 km of track).
section_title: Funding and Debt
paragraphs: Funding for both RFF and SNCF is provided by the French Ministry for  Transport. The state provides about 7.5€ billion to subsidize the rail  system each year including 2€ billion to France’s 21 geographic regions so  that intercity passenger rail service can be purchased from SNCF. The state  provides RFF about 800€ million annually to pay off the debt it inherited  during the reform, and about 900€ million each year to perform  infrastructure renewal. The cost of track maintenance is supported through  infrastructure access fees. RFF contracts with SNCF to perform some  infrastructure management, and in 2004 RFF paid SNCF 2.6€ billion  (approximately $3.2 billion (USD)) for its services. SNCF pays RFF access  fees in order to operate its trains on RFF tracks, and in 2004 it paid 2.16€  billion (approximately $2.6 billion (USD)) in access fees. Since the  reform, these access fees have continued to increase, and the public  subsidy for infrastructure is decreasing proportionally. At the time of the  reform, SNCF was carrying about 30€ billion in debt (approximately $25  billion (USD)), and was operating with a 2€ billion (approximately $2.4  billion (USD)) deficit. 20€ billion (approximately $18 billion) of this debt  was transferred to RFF in exchange for infrastructure, and the remainder  stayed with SNCF. RFF’s debt has stabilized since the 1997 reform, and a  public financial agency for funding transportation infrastructure was  recently formed to provide infrastructure subsidies and zero-percent  interest loans for new projects. RFF receives on average 2€ billion annually  for capital investments for new lines and anticipates 7.5€ billion from this  agency for 2005 through 2012 (currently this is approximately $9.6 billion).
section_title: Germany
subsections: section_title: Background
paragraphs: In 1994, Germany implemented its first rail reform initiative. Germany  began by separating its governmental and commercial rail-related tasks and  by opening its markets to competition. This was done by merging the two  preexisting national railway properties, Deutsche Bundesbahn (West  Germany) and Deutsche Reichsbahn (East Germany) into the Federal  Railway Property Agency (BEV). The commercial section of BEV was  then separated and transformed into DB, a state-owned joint-stock  company that acts independently in the transport market, and includes  separate business units for both long and short distance passenger rail  operations and infrastructure management. Although DB owns the entire  rail infrastructure network in Germany, all shares of the DB infrastructure  company are held by the state. The German intercity passenger rail system  is also open to competition. Any rail operator who wants to enter the  market is free to bid on contracts to provide service, and while this has  yielded a large number of intercity passenger rail operators in Germany, DB  remains the primary operator in most markets.
Snapshot of the German Rail System   Multiple operators, market open to competition (over 300 competing operators).
Single infrastructure manager; private company that is part of a state owned holding  company.
National subsidies for regional passenger rail operations are provided to the Länder  (the German federal states), and not directly to the operators.
section_title: Operations
paragraphs: The German passenger rail market is open to competition, and currently  there are over 300 different operators providing rail service in Germany.  Despite this, most rail service in Germany is operated by DB. National  funding for short-distance passenger rail service is provided directly to the  Länder by the national government and the Länder then receive bids for  service from operators based on the specific needs they outline in a request  for proposal. Länder are not required to tender the service to multiple  operators, and can provide payment directly to DB for it to continue  operating preexisting service. The contracts established with operators are  generally for about 10–15 years. If the Länder want to purchase service that  exceeds the amount of the subsidy available to them, they are welcome to  do so, and can spend their own funds to do this. In some cases, the Länder  have further delegated the authority to decide rail services to the local  level. In addition to winning contracts to provide regional service,  passenger operators can provide long-distance service at their own risk.
However, long-distance rail operators are required to pay infrastructure  access fees. After reform, several of the money-losing long-distance routes  that were in existence were shut down by DB, in compliance with public  law.
section_title: Infrastructure
paragraphs: Most of the infrastructure in Germany is owned by DB Netz, one of DB’s  corporate business units. Currently DB Netz is part of a state owned  holding company. All operators that use infrastructure in Germany pay  access fees to DB Netz, including other DB business units (freight,  commuter rail and intercity passenger rail). Currently there is ongoing  debate about transforming DB’s status as a state-owned private-stock  company to a publicly traded company. The largest issue at hand is  whether or not to include DB Netz as part of the initial public offering.  According to DB officials, the company sees an advantage to including the  infrastructure in an initial public offering. Based on several reports,  government representatives also expect significant public financial  benefits from an integrated initial public offering, but some fear this model  will lessen their ability to influence infrastructure decisions.
section_title: Funding and Debt
paragraphs: The national government provides about 7€ billion annually to the Länder  to operate regional passenger rail. The source of this federal subsidy is a  transportation fund, which is supported by an automobile fuel tax. DB Netz  receives about 4€ billion each year in federal subsidies in order to renew  and develop new infrastructure (including stations). About 2.5€ billion of  this goes towards maintaining the current infrastructure, and about 1.5€  billion goes towards renewal and new infrastructure.  By establishing DB,  the German government relieved it of approximately 35€ billion debt  (approximately $38 billion at the time of reform in 1994) and transferred  the responsibility for paying and managing this debt to BEV. About 10€  billion per year is paid to BEV for debt relief and other administrative  responsibilities (e.g., pensions).
section_title: Japan
subsections: section_title: Background
paragraphs: Reform of the Japanese rail system through privatization was initiated in  1987. Before reform, the Japanese railway was a fully integrated state- owned monolithic railway entity, Japan National Railways, which operated  at considerable cost to the government and carried extensive debt. After  reform, Japan kept its intercity passenger rail system vertically integrated,  that is, it did not separate out operations from infrastructure, but instead it  divided the system geographically, and created separate private intercity  passenger railways for the country based on six distinct geographic regions  (and a separate company for freight rail). The government also assumed  the majority of the debt for the preexisting state-owned system, which at  about $300 billion was a substantial sum.
Snapshot of Japanese Rail System   Vertically integrated operations and infrastructure; market split into six geographic  regions.
Each region has its own rail company.
Debt of pre-existing state owned railway divided among three largest passenger rail  companies, JR Freight, Shinkansen Holding Corporation, and JNR Settlement  Corporation.
Three largest intercity passenger rail companies are fully private, while government  supports the other three.
section_title: Operations
paragraphs: After the reform, the fully integrated state owned operator, Japan National  Rail, was broken up into six passenger rail entities based on six geographic  regions. Three of these regions are on the mainland (JR East, JR Central,  and JR West) and the other three are each on an island (JR Hokkaido, JR  Shikoku, and JR Kyushu). A freight company was also created to serve the  entire country. Each of these six passenger rail operations are vertically  integrated, that is within each rail company infrastructure and operations  are both managed by the same company. The three companies on the  mainland are fully privatized, and do not receive any financial assistance  from the government. The other three passenger companies have not yet  reached a point where they are financially independent from the state.
section_title: Infrastructure
paragraphs: The six passenger railway companies own their own tracks and JR Freight  has legal access to the JR’s tracks at marginal or incremental cost. In 1991,  JR West, East and Central purchased their tracks from the Shinkansen  Holding Company and the proceeds went toward paying down the  company’s portion of Japan National Railway’s long term debt. The Japan  National Railway developed an implementation plan for its division that  included how much land was needed for each railroad, which was  approved by the Ministry of Land, Infrastructure and Transport. The  companies were then given existing stations and offices from the old Japan  National Railway. Some of the non-railroad-oriented land was retained by  the Japan National Railway Settlement Corporation because it was not  needed by the new railroads for operations. JR Freight pays a relatively low  state-determined access fee for using the tracks of the other passenger  railroads. Japan also has Shinkansen (high-speed) lines that connect most  of the highly populated cities. The Japan Railway Construction,  Transportation, and Technology Agency builds new Shinkansen lines; it  also holds title to some existing Shinkansen lines and leases them to the  passenger railroads for high-speed train operations.
section_title: Funding and Debt
paragraphs: When reform occurred in 1987, the Japanese government provided a one- time Business Stabilization Fund, which provided funding for three  passenger railroads that were not yet privatized and needed subsidies to  survive. JR Hokkaido was given ¥682 billion, JR Shikoku was given ¥208  billion, and JR Kyushu was given about ¥388 billion.  These three  railroads were allowed to invest these funds and use any money made from  them for operations and capital improvements. However, they were not  allowed to draw down any principal—only the profits or interest from  investments. Therefore, currently the three companies have maintained the  original amounts given to them by the state in 1987. However, the  performance of the fund has been declining as Japanese interest rates have  declined since the establishment of the fund. It is not clear what will  happen to these amounts if any of these three companies are fully  privatized at a later date. However, Japanese Board of Audit officials feel  that it will be a long time, if ever, before the three companies are financially  able to achieve privatization. Of these three passenger railroads, only JR  Kyushu is given a reasonable chance of achieving the financial stability  necessary to privatize.
There are two other forms of assistance to JR Hokkaido, JR Shikoku, and  JR Kyushu. A guaranteed interest rate was offered for the stabilization fund  that was higher than the market rate available to the three mainland JR’s.  The government reduced the tax rate on fixed railroad assets as well. In  addition, at the time of reform, the Japan National Railways had  accumulated about ¥37 trillion of long-term debt. About ¥25.5 trillion  was placed with a newly created entity, called the Japan National Railways  Settlement Corporation, and the remaining debt was distributed among the  three mainland railroads, JR Freight, and the Shinkansen Holding  Company. The state government determined the debt allocation, apparently  on the basis of expected future profits of each entity. The Hokkaido,  Shikoku, and Kyushu railroads were not allocated any of this debt because  of their more precarious financial positions.
section_title: The United Kingdom
subsections: section_title: Background
paragraphs: The U.K. began its major reform in 1993 in an effort to privatize its rail  system, and then undertook another significant restructuring effort in its  2004. The 1993 reform took place over 5 years and involved radical  restructuring. The preexisting monolith, British Railways, was broken up  into many pieces, including a private infrastructure company, Railtrack,  which was replaced in 2002 with Network Rail, over 20 train operating  companies, three rolling stock ownership and leasing companies, and three  government regulators (currently there is only one entity, the Office of Rail  Regulations). In 2004, the U.K. restructured again to restore the long-term  efficiency and keep the affordability of rail within the level of public  expenditures defined by the British government, as well as to recover  performance levels, maintain high standards of safety, and enable the  industry to meet its customers’ needs.
Snapshot of the U.K. Rail System   Multiple operators; market split into franchises which are open to competition.
Single infrastructure manager; owned “members” consisting of representatives from  a range of industry interests.
British Rail’s rolling stock was divided between the three rolling stock ownership and  leasing companies and is available for lease to interested operators.
The national government was unable to completely exit the industry, and mainly  plays a role in setting the strategic direction for the railways.
section_title: Operations
paragraphs: After the initial reform effort, intercity passenger rail operations were no  longer conducted by British Railways but were instead turned over to the  private sector. The rail network was broken up into different franchises,  and private operators were permitted to bid on franchises for the provision  of services. These operators are essentially private companies that enter  into franchise agreements with the government, where the government will  subsidize unprofitable service or receive a premium for services that see  excess profits. In addition, these operators pay access fees to the  infrastructure manager in order to access the tracks, and the U.K.  government adjusts subsides paid to, or premium received from, operators  to compensate for any change to the fixed access charge made by the  independent regulator.
section_title: Infrastructure
paragraphs: Rail infrastructure in the U.K. is currently all managed by Network Rail.  Network Rail is a private corporation, run by a board of directors, and  overseen by more than 100 members of the railroad industry and some  members of the general public. The members do not have day-to-day  responsibilities for making management decisions, but they do elect and  dismiss the board of directors, approve the long-term remuneration of  board members, approve Networks Rail’s annual report, and approve  specific resolutions put forth before the membership. Network Rail was  not the first infrastructure company formed after the U.K.’s reform. At the  time of reform, a private for-profit corporation, Railtrack, was established  to own and manage all of the U.K.’s infrastructure. In 2001, Railtrack went  bankrupt, and Network Rail’s bid to take over Railtrack was accepted; it  then assumed control over the infrastructure in 2002. Currently, Network  Rail earns income from three sources—network access fees paid by the  operators (and which are set by the Office of Rail Regulation), direct  government grants, and other income such as commercial property.
section_title: Funding and Debt
paragraphs: Although privatized, the intercity passenger rail system in the U.K. receives  operating subsidies from the government. Generally about 50 percent of all  costs are covered through public subsidies, but U.K. government officials  expect this percentage to fall in the future. Total debt for Network Rail is  currently at £18 billion and is projected to peak at £21 billion between  2008–2009. This debt did not exist at the time of reform, and was incurred  through paying for enhancements to its regulatory asset base. Network Rail  also assumed £8 billion of this debt from Railtrack.
section_title: Current Amtrak Reform Efforts
paragraphs: In April 2005, Amtrak’s board of directors and management proposed a set  of broad strategic reform initiatives. Since the release of these initiatives,  Amtrak formed a new planning and analysis department to manage the  strategic reform initiative plan and implementation, among other duties  (such as developing a capital and asset plan). Thus far, 15 operational  initiatives have been developed, which are described as either corporate or  business-line initiatives (see table 9). Recently, to further develop these  initiatives, Amtrak has begun to refine the structure of these initiatives into  five issue areas: (1) business efficiencies, (2) service levels, (3) cost  recovery, (4) labor, and (5) legislative. According to Amtrak, most of the 15  initiatives will fall into the business efficiency category, which the company  views as having greater control over. The labor, long-distance, corridor, and  infrastructure initiatives will fall within more than one of the categories,  and full implementation of these initiatives would require legislative action.  In addition, initiatives associated with each of the train operations business  lines (long distance, NEC, and state corridor) will fall under all five  categories.
Amtrak’s 15 initiatives are largely designed to reduce costs, increase  revenue, and improve its financial reporting. Among the initiatives Amtrak  has planned or undertaken to reduce costs is the overhead function  initiative, which it estimates will save $5.1 million in fiscal year 2006  through reductions in outside legal fees, software, and communications  costs. The NEC operations initiative is designed to increase revenue, partly  through the implementation of revenue management on NEC’s Regional  Service, by charging variable rates.  The management information  initiative calls for reforming how Amtrak currently reports financial and  operating information. Amtrak’s Chief Financial Officer told us that reports  to management will focus more on performance outcomes, such as  performance per passenger mile. In addition, Amtrak is in the process of  developing a new cost-accounting system as directed through fiscal year  2006 appropriations to improve accountability. As of May 2006, the  operational initiatives have resulted in annual savings of $46 million for  fiscal year 2006, but are expected to save $190 million a year when fully  implemented.
section_title: Operational Challenges Associated with Access, Capacity, and Liability Issues
paragraphs: Any effort to reform the United States’ intercity passenger rail system must  recognize that there are access, capacity, liability, and workforce issues.  For instance, Amtrak benefits from a number of statutory access rights that  mask the potential capacity impacts of passenger rail service on freight  traffic. In addition, the potential liability associated with operating  passenger rail must be accounted for, as must statutory and contractual  workforce requirements. Currently, the liability framework surrounding  intercity passenger rail is complex, with statutory exceptions and  negotiated indemnification agreements altering default negligence rules.
subsections: section_title: Infrastructure Access and Capacity Issues
paragraphs: Amtrak’s statutory access and priority rights for intercity passenger  service—and the subsequent impact on freight capacity—is a source of  contention in the rail industry. Amtrak owns very little of the infrastructure  that it uses, and, in fact, most of the 22,000 miles of rail lines that Amtrak  uses are owned by four private, U.S.-based Class I freight companies—CSX,  Union Pacific, BNSF, and Norfolk Southern. Amtrak has three statutory  rights to privately owned rail infrastructure that no other operator has: (1)  access to tracks and facilities of railroads and regional transportation  authorities; (2) access charges at incremental cost; and (3) priority over  freight trains.
No other passenger rail service receives the benefit of statutory rights. For  instance, commuter rail agencies must negotiate with host railroads for  infrastructure access. Similarly, any private operator of intercity passenger  rail in the United States would have to negotiate for access to host-railroad  infrastructure without the benefit of these statutory rights. Because other  operators do not have these statutory rights, one state official said that his  state feels “stuck” with Amtrak. This state official said his state is  frustrated because there is no real alternative to Amtrak as long as these  rights belong solely to Amtrak. The freight railroad industry is adamantly  opposed to permitting a transfer of Amtrak access and incremental charge  rights to non-Amtrak operators, which was confirmed by officials from  freight railroads with whom we spoke.
One state official told us that, without Amtrak’s access rights, passenger  rail access fees are a “seller’s market”—that is, freight railroads can charge  whatever they want. State officials with whom we spoke generally estimate  that Amtrak’s per train-mile costs are approximately one quarter to one half  of what the freight railroads would charge another operator. Similarly, an  official from one freight railroad estimated that infrastructure access costs  for an intercity passenger rail operator negotiating “at arm’s length” would  be three to four times Amtrak’s current costs, and possibly as high as ten  times as much as current rates. According to this official, even these rates  would not capture the full impact of passenger trains on freight line  capacity.
While Amtrak’s access costs cannot be directly compared with a competing  intercity passenger rail operator, a comparison with commuter rail access  costs is informative. According to information provided by Amtrak, on  average, Amtrak paid $1.16 per train-mile for access to freight-owned  infrastructure in fiscal year 2005. In contrast, commuter rail agencies with  whom we spoke that operate primarily on freight railroad infrastructure  identified three types of access charges: per train-mile fees, fixed-access  fees, and capital contributions. All of these commuter agencies reported  paying per train-mile access fees for each line, with a range from $3.38 to  $40 per train-mile. These agencies reported paying either a one-time up  front access fee or an annual access fee for most lines as well (see table  10). In addition, all four commuter rail agencies with whom we spoke made  capital contributions to freight infrastructure for each line, either to gain  initial access to the freight infrastructure or to expand established  commuter rail operations. According to Amtrak, commuter rail trains— which are concentrated in the morning and evening weekday peak periods  and have long track occupancy due to frequent stops—require greater rail  line capacity, and therefore, impose much higher costs on the track owner  than a comparable number of intercity passenger rail trains that are spread  throughout the day or week.
According to several state officials, increases in intercity passenger rail  service, particularly corridor services, could conflict with freight rail traffic  for line capacity. For example, one state official stated that the rail lines  between New York City and Albany, New York, are heavily used by freight  railroads, commuter rail service, and Amtrak. Even today this line has  congestion problems, leading to delays for both passenger and freight  traffic. Desired improvements to address capacity restrictions will cost  about $700 million in capital improvements. An official with another state,  talking about the line between Washington, D.C., and Richmond, Virginia,  said that—between freight, Amtrak, and commuter service—the amount of  traffic on the corridor is increasing and delays are becoming more  common. Further, capacity constraints are causing delays that cause  dissatisfaction among riders.
Freight railroad officials have emphasized the growing challenge  associated with infrastructure capacity issues. An official at one railroad  said that, while freight traffic on his railroad had grown and decreased  capacity, nothing in the Amtrak model had changed, which he described as  increasing his railroad’s subsidy to Amtrak. An official of another railroad  stated that under the current Amtrak model—with guaranteed access to  track at incremental cost—freight railroads do not recover the lost value  created when freight trains are delayed because of passenger train priority.  He also stated that the current Amtrak model skews the incremental value  of freight and passenger train slots on a line in such a way that freight  railroads cannot capture the difference in value between low value  passenger train slots and higher value freight train slots. This official went  on to say that, without new capacity, there would be ripple effects  throughout the entire freight railroad industry as both freight and  passenger railroads try to accommodate ever-increasing traffic on a fixed- infrastructure network. He also stated that for intercity passenger rail to be  successful it must be attractive, efficient, and reliable.
In addressing capacity issues associated with passenger rail reform it will  be important to recognize balancing public and private investment with  public and private benefits. An official with the Washington State  Department of Transportation said his state is willing to pay for capital  projects that benefit passenger rail, and that freight railroads should pay  for projects, or parts of projects, that benefit their operations. This official  said most states use the “but for” argument in determining public rail  infrastructure investments—that is, would there be a need for investment  but for the passenger rail service? Similarly, the state of Virginia works with  host railroads to fund rail projects that increase both the freight and  passenger rail capacity of privately owned rail infrastructure in the state to  achieve public benefits. As we testified in June 2006, federal involvement  with rail infrastructure should depend on identifying wide-ranging public  benefits from potential projects and appropriately allocate the cost of  financing these benefits between public and private sectors, and, to the  extent possible, focus investments that yield national rather than just local  benefits.
section_title: Liability against Accident Risks
paragraphs: In addition to the access-to-infrastructure issues, there are also challenges  associated with liability against accident and other train-related risks. If a  passenger rail accident should occur, injured passengers may sue the  transportation provider for their damages. As our January 2004 report on  commuter rail noted, freight railroads have been traditionally sheltered  from this exposure when they haul freight. However, when a freight  railroad allows a commuter rail service (or intercity passenger rail service)  to operate over its rights-of-way, the freight railroad becomes exposed to  these risks—as passengers may sue the commuter rail’s (or intercity  passenger rail’s) provider and owner of the tracks. Consequently, freight  railroads do not want to allow such service on their rights-of-way unless  they are protected from liability. Freight railroads often use the “but for”  argument for requiring passenger rail operators to assume all risks  associated with their presence—that is, but for the presence of the service,  the freight railroad would not be exposed to certain risks and therefore  should be held harmless. Freight railroad officials have stated that they  must take this position to protect their businesses and shareholders from  lawsuits. As a result, passenger rail operators must contractually indemnify  freight railroads against all liability and obtain insurance as a guarantee  that payments will be made for any damages.
Amtrak currently has no fault liability agreements with most freight  railroads to cover risks associated with its operations. Under these  agreements, Amtrak indemnifies the host railroads against liability  resulting from any damages that occur to Amtrak passengers, equipment,  or employees regardless of fault if an Amtrak train is involved. Similarly,  the host railroads indemnify Amtrak against any liability resulting from  damages to host railroad employees and property regardless of fault. At  one time, Amtrak compensated the host railroads for the risk that they bear  by paying a negotiated risk charge of 7.34 cents per train-mile to the host  railroad. Amtrak has subsequently negotiated away this charge for all but  one line. In contrast, commuter rail operators with whom we spoke  manage liability with the freight railroads their own way. In the view of one  commuter rail official, the host railroads charge his company more per  train-mile for infrastructure access that Amtrak to compensate for the  liability costs associated with commuter rail operations. Another  commuter rail official stated that in addition to the per train-mile fees, his  agency purchases an insurance policy that indemnifies the host railroads  against all liability, including gross negligence and willful misconduct.
Both railroad and state officials with whom we spoke believe liability will  be a major issue should competition for intercity passenger rail service be  introduced. Officials from all 5 states cited concerns about liability issues,  particularly the potential cost of liability coverage. An official from one  state, Washington, told us that his state would not be able to pay for the  liability coverage freight railroads would require if Amtrak ceased  operating intercity passenger rail service and this service was taken over by  the state—the cost would be too prohibitive. An official from California  also said that liability would be a significant issue associated with  competition. Besides cost, this official said California is prohibited by law  from providing full indemnification to third parties. Consequently, any non- Amtrak passenger rail operators would have to provide their own liability  coverage that would indemnify not only the state, but also any freight  railroads they operated over. Freight railroad operators also expressed  concern about liability issues. An official from one freight railroad said his  company would not “bet the company” on the liability risk that could exist  with multiple passenger rail operators, and that his company would expect  full indemnity against liability risks created by passenger rail operators. It  would also be expected that this indemnity be backed up with sufficient  insurance coverage similar to the arrangement this company currently has  with Amtrak. Similar sentiments were expressed by another freight  railroad official.
Recognizing the freight railroads’ exposure to liability when hosting  passenger rail trains, Congress established liability provisions in the  Amtrak Reform and Accountability Act of 1997. Specifically, the act limits  the aggregate overall damages that may be awarded to all passengers for all  claims (including punitive damages) from a particular rail accident to $200  million. The act also permits Amtrak and other providers of rail  transportation to enter into indemnification agreements allocating financial  responsibility for passenger claims arising from accidents involving  passenger rail. As we reported in January 2004, our review of this  legislation concluded that the liability cap applies to commuter rail  operations on the basis of the plain language of the statute and our review  of pertinent legislative history. Our review of the statute and legislative  history also indicates this cap would apply to non-Amtrak providers of  intercity passenger rail service. However, our report goes on to note that  there are limitations to the protections provided by the legislation, such as  the fact that the legislation does not limit damages for claims brought by  nonpassengers; in addition, the application of the liability cap has not been  tested in federal court. As a result of these limitations many carriers are  being “super cautious” in requiring high levels of insurance.
section_title: Workforce Issues Associated with Intercity Passenger Rail Reform
paragraphs: Efforts to reform or restructure intercity passenger rail require  consideration of workforce issues that is, having enough people with the  requisite knowledge and skills to provide the amount and type of service  called for in a restructured system. This may not be as easy as it seems.
Amtrak employees currently provide a number of services that are integral  to operation of intercity passenger rail. This includes train and engine  crews that operate trains, on-board staff such as conductors and attendants  that take tickets and arrange for sleeping accommodations, and  maintenance staff that repair equipment and maintain the rights-of-way  over which trains operate. In addition, Amtrak employees dispatch trains  and maintain communication and signal systems, among other things. Over  the last several years Amtrak has reduced its employment levels as it has  tried to control costs (see fig. 17). In fiscal year 2005, 87 percent of  Amtrak’s workforce was unionized (14 unions and two councils covering a  variety of crafts and skills) and covered by collective bargaining  agreements. These employees are referred to as agreement employees. The  collective bargaining agreements specify not only wage and benefit rates  but also specific duties (defined in work rules) that employees can  perform. Between fiscal years 2001 and 2005 the number of unionized  employees decreased from 22,163 to 16,687 (a 25 percent decrease). There  has also been an overall 7 percent decrease in non-union employees over  this time period, with a slight increase in the number of non-union  employees between fiscal years 2003 and 2005. While these decreases  might have benefits in terms of cost reduction, they might also limit the  pool of qualified people available to operate intercity passenger rail under a  restructuring scenario.
There are several workforce issues that will likely present challenges in  efforts to reform or restructure intercity passenger rail. These include:  Availability of a qualified labor pool. Reform of intercity passenger rail  that results in new services or operators will require that there be  sufficient staff to provide service, conduct maintenance, and perform  other duties related to running passenger railroads. In the short term,  obtaining sufficient staff could be a challenge. As we reported in April  2006, in the context of commuter railroad service, if Amtrak were to  abruptly cease to provide service, some commuter railroad agencies  might be able to replace Amtrak employees dedicated to their particular  commuter rail service with employees from another railroad. However,  according to agency officials, a number of agencies would not be able to  quickly replace current Amtrak employees because of workforce  limitations, such as the availability of a qualified labor pool. In part, this  is because of strains on the current workforce due to growth in the  demand for freight rail transportation. In addition, it was estimated that  it could take months to train replacements if Amtrak train crews were  unavailable. Over the short term it is feasible that a restructuring that  resulted in new intercity passenger rail services could face a shortage of  qualified employees if (1) Amtrak employees did not transfer to the new  services or operators, (2) they retire or leave the railroad industry, or (3)  there are insufficient applicants with necessarily skills to provide the  employees needed.
Workforce flexibility and productivity. Reform of intercity passenger  rail resulting in new services or operators will also require consideration  of workforce flexibility and the extent labor productivity can be  increased. One key to providing cost-effective service is to have high  levels of labor productivity. Collective bargaining agreements and their  related work rules specify the work that employees are expected to do  and the amount of compensation they will receive for performing this  work. Although such agreements can and do include changes designed  to increase employee productivity by increasing or broadening the types  of tasks that employees can perform, such agreements can also affect  productivity by limiting the amount or type of work that employees can  perform. Foreign passenger rail reform efforts have included actions to  increase workforce flexibility and productivity. For example, from 1993  to 1998, as a result of revenue growth and an increased focus on cost  control, VIA Rail entered into negotiations with rail labor in order to  obtain more flexibility in its workforce. Among other things, these  negotiations resulted in a significant consolidation of jobs. According to  VIA Rail, union members got enhanced pension benefits in return for  reduced employment levels and increased job responsibility. The latter  included consolidating a number of on-board service and conductor  positions into one customer-service manager who has the flexibility to  interchange positions for on-board service staff and is responsible for  everything that goes on inside a train.
Potential labor protection payments. If, as the result of reforming  intercity passenger rail, Amtrak employees lose their jobs, there could  be liability for labor protection payments. In general, labor protection  payments are made to employees who lose their jobs as a result of a  discontinuation of service. The Amtrak Reform and Accountability Act  of 1997 made a number of changes to labor protection, including  eliminating existing rights to such protection—again subjecting labor  protection to collective bargaining, and requiring Amtrak to negotiate  new labor protection arrangements with its employees. As we have  previously reported, after Amtrak and its employees could not reach  agreement, an October 1999 arbitration decision (1) capped labor  protection payments at a 5-year maximum (rather than 6 years under the  statutory arrangement), (2) made employees with less than 2 years of  service ineligible for payments, and (3) based payments on a sliding  scale that provided less payout for each year worked than did the  previous system. Even with these changes, in September 2002, we  reported that Amtrak would have had unsecured labor protection claims  of about $3.2 billion had Amtrak been liquidated on December 31, 2001.    Although a reform of intercity passenger rail may or may not involve a  liquidation of Amtrak, it is clear that should Amtrak employees lose  their jobs as the result of a discontinuation of service there could be  substantial financial obligations as a result. To the extent that Amtrak  employees can and do accept jobs elsewhere (whether in the railroad  industry or not) this obligation could be reduced. In general, should this  be the case, then labor protection payments would be limited to the  differences, if any, between what the employees were previously making  at Amtrak and their wages at the new jobs.
Amtrak labor-relations officials state that a significant barrier to any  attempts to reform—or to negotiating their collective bargaining  agreements even in the absence of broader corporate restructuring—is the  lack of flexibility in the current labor agreements. First, the provision of the  Amtrak Reform and Accountability Act of 1997 that altered rail labor  protection—eliminating the statutory labor protection provision and  allowing Amtrak and the affected labor unions to negotiate contractual  labor protection arrangements in their place—did not give Amtrak as much  flexibility as it had hoped. Although significant changes resulted from  negotiations about new labor protection arrangements (such as limiting the  maximum number of years’ wages that could be received in the event of job  loss to 5 years instead of 6), Amtrak is still bound by expensive labor  protection obligations if jobs are lost because of route cancellations or  service reductions. Amtrak officials referred to rail labor protection as the  “last of the last” of the old type of unemployment benefits. As such, labor  protection continues to be a stumbling block in Amtrak’s internal  restructuring efforts, as well as collective bargaining. In addition, Amtrak  officials stated that Amtrak would like additional flexibility in the work  rules that define the tasks that employees can perform to improve  productivity. The current work rules allow most employees to perform  tasks outside their enumerated work duties only 2 hours per day.  According to Amtrak labor relations officials, current work rules allow  Acela employees 4 hours of flexibility per day. Amtrak would like to extend  this to all labor contracts. Amtrak officials stated that Amtrak wants the  increase to 4 hours of flexibility to gain desired improvements in efficiency  of operations. Without the work rule change, these improvements will be  difficult to achieve.
Workforce challenges also include determining how a potentially reformed  intercity passenger rail system fits into the current scheme of railroad- specific labor-management, retirement, and injury compensation systems.  Amtrak is currently subject to, among other things, the Railway Labor Act,  the Railroad Retirement Tax Act, and the Federal Employers’ Liability Act,  which govern labor-management relations, retirement, and injury  compensation, respectively, in the railroad industry. Amtrak’s collective  bargaining agreements generally do not expire and are subject to  requirements designed to reduce labor strikes; Amtrak participates in, and  provides financial contributions to, the railroad retirement-system  (approximately $400 million annually); and Amtrak and its employees are  subject to a tort-based injury compensation system under the Federal  Employers’ Liability Act. We have reported that these legal requirements  raise railroad costs compared to nonrailroad industries. Amtrak’s April  2005 Strategic Reform Initiatives also suggested that meaningful reform of  intercity passenger rail will require changing how these apply to passenger  rail. On the other hand, rail labor has argued for the importance of these  laws in protecting employee rights, ensuring a sustainable retirement  system, and adequately compensating employees injured on the job.
State officials we interviewed expressed more general concern about the  potential impact of Amtrak’s labor agreements and obligations on the  future of passenger rail. Some state officials viewed Amtrak’s labor  agreements as a significant barrier to reform. One official stated that  serious labor reform is needed for intercity passenger rail reform to  succeed. Some state officials with whom we spoke also questioned  whether alternative operators would be bound by Amtrak’s labor  agreements and thought that it was unlikely another operator could  provide significant improvements in cost savings or quality of service if  they were. Another official stated that Amtrak’s labor agreements would  put Amtrak at a considerable disadvantage over alternative operators in a  competitive market if the alternative operators were not bound by the same  agreements.
Rail labor union officials with whom we spoke expressed several concerns  about the effects any potential reform of intercity passenger rail might have  on their members. Foremost, union officials expressed concern about the  history of Amtrak’s successive “reforms” and the detrimental effects on  labor–management relations and employee morale. In their view, past  Amtrak reforms have brought fewer union jobs and the loss of health and  safety programs with no improvement in Amtrak’s service to the public,  while it continues to flounder with funding uncertainty. A union official  stated that the first step should be getting Amtrak to operate like other for- profit businesses, including the freight railroads. The emphasis should be  on applying basic business principles, including transparent accounting,  and repairing its relationship with the unions and improving national  railroad passenger service—rather than on reducing the federal subsidy.
This should be addressed before moving on to something other than the  current system and route structure. In addition, union officials emphasized  that some union members are highly skilled and highly specialized and  cannot be easily replaced. Any restructuring of intercity passenger rail  would still require any operator—Amtrak, alternative operators, or a  successor to Amtrak—to work through the unions to maintain a labor force  or to train additional workers. Total compensation for employees moving  forward is another concern; however, union officials told us, where  alternative operators have succeeded Amtrak in operating commuter  railroads, unionized employees have been offered more compensation than  they received from Amtrak with no accompanying change in work rules.
section_title: Financial Reporting, Internal Control, and Governance Requirements and Practices for Federal Entities and Public Companies
subsections: section_title: Current Accountability Requirements and Practices
paragraphs: The Amtrak Reform and Accountability Act of 1997 removed Amtrak from  the list of government corporations subject to the Government Corporation  Control Act of 1945.  The 1997 act, however, did not change Amtrak’s  status as a private, for-profit corporation established to provide intercity  and commuter rail passenger transportation in the United States and is  neither an agency nor an instrumentality of the U.S. government, nor an  issuer of securities to the public. Consequently, Amtrak is not subject to the  basic accountability requirements of either federal entities or public  companies, but has been subject to specific reporting requirements  contained in its grant and loan agreements and Amtrak-specific statutory  provisions in Title 49 of the U.S. Code. Following are the basic  accountability requirements that encompass financial reporting, internal  controls, and governance at these organizations.
subsections: section_title: Federal Entities
subsections: section_title: Financial Reporting
paragraphs: The Chief Financial Officers Act of 1990 (CFO Act), as amended by the  Government Management Reform Act of 1994 (GMRA), requires the major  24 agencies of the federal government to submit annual audited financial  statements to the Office of Management and Budget (OMB).  The  Accountability of Tax Dollars Act of 2002 (ATDA) expanded this  requirement to include most other executive agencies.  Federal  government corporations had been subject to financial reporting  requirements for many years under the Government Corporation Control  Act.   Quarterly, the executive agencies required to submit annual financial  statements under the CFO Act, GMRA, and ATDA (31 U.S.C. § 3515) are  required by OMB to submit unaudited financial information to OMB.    These interim unaudited financial statements, required on a quarterly basis,  may be submitted without footnotes and limited to a balance sheet,  statement of net cost, and statement of budgetary resources. Management  discussion and analysis and supplementary information are not required  for quarterly reporting. Chapter 91 of Title 31 of the U.S. Code, commonly  known as the Government Corporations Control Act, requires government  corporations to submit annual management reports to Congress (with  copies to the President, OMB, and us) no later than 180 days after the end  of the government corporation’s fiscal year. OMB has accelerated the  submission deadline to no later than 45 days after the end of the  government corporation’s fiscal year. Annual management reports are  therefore required to include the following:  a statement of financial position;   a statement of operations;  a statement of cash flows;   reconciliation to the budget report of the corporation, if applicable;   a statement of internal accounting and administrative control systems  by the head of corporation management, consistent with the  requirements under amendments to the act made by 31 U.S.C. § 3512 (c),  (d), commonly referred to as the Federal Managers’ Financial Integrity  Act of 1982 (FMFIA);   a financial statement audit report; and   any other information necessary to inform Congress about the  operations and financial condition of the corporation.
Government corporations are not required by OMB to submit quarterly  information. The federal government does not have a certification for  government corporations or federal agencies comparable to section 302 of  the Sarbanes–Oxley Act of 2002, which requires the chief executive  officers (CEO) and chief financial officers (CFO) of public companies to  certify their company’s financial statements.
Under OMB Circular No. A-136, Financial Reporting Requirements (rev.  July 24, 2006), annual performance and accountability reports (PAR) issued  by federal government agencies consist of the Annual Performance Report  required by the Government Performance and Results Act of 1993 (GPRA)   with audited financial statements and other disclosures, such as agencies’  (1) assurances on internal control, (2) accountability reports by agency  heads, and (3) Inspectors General’s assessments of the agencies’ most  serious management and performance challenges.  OMB Circular No. A- 136 states that PARs are intended to provide financial and performance  information to enable the President, Congress, and the public to assess the  performance of an agency relative to its mission and to demonstrate the  agency’s accountability. The PAR’s management’s discussion and analysis  (MD&A) section, which serves as a brief overview of the entire PAR,  should include the most important matters that could lead to significant  actions or proposals by top management of the reporting unit; are  significant to the managing, budgeting, and oversight functions of Congress  and the administration; or could significantly affect the judgment of  citizens about the efficiency and effectiveness of their federal government.
OMB Circular No. A-136 also requires federal entities in their MD&A to  include information to help users understand the entity’s financial results,  position, and condition as conveyed in the principal financial statements.  The MD&A also includes comparisons of the current year to the prior year  and should provide an analysis of the agency’s overall financial position  and results of operations to assist users in assessing whether that financial  position has improved or deteriorated as a result of the year’s activities.  The MD&A should also include a discussion of key financial measures that  emphasize financial trends and assess financial operations.
section_title: Internal Control
paragraphs: According to OMB, the passage of the Sarbanes–Oxley Act of 2002 served  as an impetus for the federal government to reevaluate its current policies  related to internal control over financial reporting and management’s  related responsibilities.  While section 404 of the Sarbanes–Oxley Act  created a new requirement for managers of publicly traded companies to  report on the internal controls over financial reporting, federal managers  have been subject to similar internal-control reporting requirements for  many years.
Federal agencies are subject to many legislative and regulatory  requirements that promote and support effective internal control:  31 U.S.C. § 3512(c), (d), commonly referred to as FMFIA, provides the  statutory basis for management’s responsibility for, and assessment of,  internal control. OMB Circular No. A-123, Management’s Responsibility  for Internal Control (rev. Dec. 21, 2004), sets out the guidance for  implementing the statute’s provisions.
The CFO Act of 1990 requires agency CFOs to maintain an integrated  accounting and financial management system that includes financial  reporting and internal controls. 31 U.S.C. § 902(a)(3).
The Federal Financial Management Improvement Act (FFMIA) of 1996,  as implemented by OMB Circular No. A-127, Financial Management  Systems (rev. Dec. 1, 2004), requires the 24 CFO Act agencies to  implement and maintain integrated financial management systems that  comply substantially with federal financial management system  requirements, applicable federal accounting standards, and the U.S.  Standard Government Ledger at the transaction level.
The Inspector General Act of 1978, as amended, requires Inspectors  General to submit semiannual reports to Congress on significant abuses  and deficiencies identified during agency reviews, and recommended  actions to correct those deficiencies. 5 U.S.C. Appx. § 5.
Government Auditing Standards, GAO-03-673G (rev. June 2003)  (commonly referred to as the “Yellow Book”), and OMB Bulletin No. 06- 03, Audit Requirements for Federal Financial Statements, (Aug. 23,  2006), require auditors to report on internal control as part of a federal  agency financial-statement audit, including a description of reportable  conditions and material weaknesses in internal control over financial  reporting.
Recent federal governmentwide initiatives have contributed to  improvements in financial management and placed greater emphasis on  implementing and maintaining effective internal control over financial  reporting. In December 2004, OMB issued a significant update to its  Circular No. A-123, the implementing guidance for FMFIA. The update  requires the 24 CFO Act agencies to include the FMFIA annual report in  their PAR, under the heading “Management Assurances.”  The FMFIA  annual report must include a separate assurance on internal control over  financial reporting, along with a report on identified material weaknesses  and actions taken by management to correct those weaknesses.
FMFIA and OMB Circular No. A-123 apply to each of the three objectives of  internal control outlined in our Standards For Internal Control in the  Federal Government: effective and efficient operations, reliable financial  reporting, and compliance with applicable laws and regulations. OMB  Circular No. A-123 calls for internal control standards to be applied  consistently toward each of the objectives. The circular’s new Appendix A,  which applies only to the 24 CFO Act agencies, requires management to  document the process and methodology for applying A-123 standards when  assessing internal control over financial reporting. Appendix A also  requires management to use a separate materiality level when assessing  internal control over financial reporting. The agency head’s annual  assurance statement on the effectiveness of internal control over financial  reporting required by Appendix A is a subset of the assurance statement  required under FMFIA on the overall internal control of the agency.
section_title: Governance (Audit Committee)
paragraphs: Audit committees are becoming increasingly important in federal entities  and public companies as a mechanism to improve accountability and  enhance oversight. Overall, in the federal government, audit committees  are intended to protect the public interest by promoting and facilitating  effective accountability and financial management, which is accomplished  by providing management with independent, objective, and experienced  advice and counsel.
In 2002, the Government Finance Officers Association (GFOA)—a  professional association of state and local finance officers—recommended  that every government entity establish an audit committee or its  equivalent.  An audit committee can facilitate communication between  management, the auditor, and the governing board, according to GFOA,  and is also useful in focusing on and documenting the process for managing  the organization’s financial statement audit. GFOA’s guidelines for  establishing an audit committee include recommendations that (1) the  audit committee should be formally established by charter, enabling  resolution, or other appropriate legal means; (2) the members of the audit  committee collectively should possess the expertise and experience in  accounting, auditing, financial reporting, and finance needed to understand  and resolve issues raised by the independent audit of the financial  statements; and (3) a majority of the members of the audit committee  should be selected from outside of management. GFOA also states that the  audit committee’s primary responsibility should be to oversee the  independent audit of the government’s financial statements, from the  selection of the independent auditor to the resolution of audit findings.  GFOA further recommends that the audit committee should present  annually to the governing board and management a written report of how it  has discharged its duties and met its responsibilities, and that the report be  made public.
section_title: Public Companies
paragraphs: The corporate failures and fraud that resulted in substantial financial losses  to institutional and individual investors at the turn of the 21st century led to  renewed focus on accountability and governance in public companies and  culminated in the enactment of the Sarbanes-Oxley Act of 2002, which  enhanced the disclosure and internal control requirements imposed by the  Securities Exchange Act of 1934 as amended (Exchange Act); the  Sarbanes-Oxley Act also implemented new accounting reforms for public  companies. The Sarbanes-Oxley Act contains provisions for the  governance, auditing, and financial reporting of public companies,  including provisions intended to deter corporate accounting fraud and  corruption and to punish violators. The 2002 act generally applies to  companies required to file reports with the Securities and Exchange  Commission (SEC) under the Securities and Exchange Act of 1934.
subsections: section_title: Financial Reporting
paragraphs: The Exchange Act, including SEC implementing regulations, requires  publicly traded companies to make periodic filings with the SEC that  disclose their financial status and changes in financial condition, including  annual and quarterly financial reports. Annually, public companies file  reports containing audited financial statements prepared in conformity  with generally accepted accounting principles (GAAP) and audited by  registered accounting firms. Quarterly reports, which may be unaudited,  contain financial statements and the MD&A. In addition to the company’s  financial statements, annual filings contain information including (1)  selected financial data, (2) supplementary financial information, and (3)  the MD&A of the company’s financial condition and results of operations.  The objective of the MD&A is to enable the reader to assess material  changes in financial condition and the results of operations of the  company. The MD&A is not audited; however, the auditor is required to  consider whether the information is materially consistent with information  appearing in the financial statements. The SEC reviews a selection of  annual and quarterly filings for compliance with accounting and disclosure  requirements. Generally, the MD&A is required to contain a discussion of  material changes in liquidity, capital resources, off-balance sheet  arrangements, aggregate contractual obligations, and results of operations;  known material trends, events, and uncertainties that could render  historical financial information non-indicative of future operations or  financial condition; the cause of material changes in line items of the  interim financial statements from prior-period amounts; and any other  information necessary for an understanding of the company’s financial  condition, changes in financial condition, and results of operations.
Since the enactment in 2002 of the Sarbanes-Oxley Act, public companies  have been required by section 404 to file annual reports with the SEC that  include (1) management’s assessment of the effectiveness of internal  controls over financial reporting, and (2) the auditor’s attestation and  report on management’s assessment. Public companies are also required  to disclose in both quarterly and annual reports filed with the SEC any  changes in their internal control over financial reporting that occurred  during the last fiscal quarter that has materially affected, or is reasonably  likely to affect, the company’s internal control over financial reporting. In  addition, most companies are required to evaluate the effectiveness, as of  the end of each fiscal quarter, of its disclosure controls and procedures and  disclose in its quarterly report filed with the SEC the conclusions of the  company's CEO and CFO regarding the effectiveness of such procedures.
Under SEC rules adopted pursuant to section 302 of the Sarbanes–Oxley  Act, each annual and quarterly report a public company files with the SEC  must include, as an exhibit, the certification signed by the company’s CEO  and CFO stating in pertinent part that they each have reviewed the report  being filed and that, based on their knowledge, it does not contain untrue  statements or omissions of a material fact resulting in a misleading report  and that, based on their knowledge, the financial information in the report  is fairly presented.  The act includes criminal penalties for certifying the  financial statements while knowing that the financial statements do not  fairly present the financial condition and results of the public company.   The certification requirement motivated corporate executives and  managers to increase their scrutiny of the company financial statements  and, in many cases, put specific accountability mechanisms in place in their  companies to help assure reliable financial statements.
The SEC’s Division of Corporate Finance reviews public company filings  periodically to determine whether publicly held companies are meeting  their disclosure requirements and whether improvements are needed in the  quality of the disclosures. To meet the SEC's requirements for disclosure, a  company issuing securities must make available all information, whether it  is positive or negative, that might be relevant to an investor's decision to  buy, sell, or hold securities in the company.
section_title: Internal Controls
paragraphs: Internal control serves as a first line of defense in safeguarding assets,  preventing and detecting errors and fraud, and in providing assurance over  the reliability of financial reporting. Internal control is defined as a process  that is effected by an entity’s board of directors, management, and other  personnel, and is designed to provide reasonable assurance regarding the  achievement of the following objectives: (1) effectiveness and efficiency of  operations; (2) reliability of financial reporting; and (3) compliance with  laws and regulations.
Section 404 of the Sarbanes–Oxley Act establishes requirements on internal  control for companies and auditors. It requires companies to publicly  report on (1) management’s responsibility for establishing and maintaining  an adequate internal control structure, including controls over financial  reporting and (2) the results of management’s assessment of the  effectiveness of internal control over financial reporting. Section 404  requires accounting firms that serve as external auditors for public  companies to (1) attest to the assessment made by the companies’  management and (2) report on the results of their attestation and whether  they agree with management’s assessment of the company’s internal  control over financial reporting.
Internal control over financial reporting is further defined in SEC  regulations implementing Section 404. These regulations define internal  control over financial reporting as a process providing reasonable  assurance regarding the preparation of financial statements and the  reliability of financial reporting, including policies and procedures that do  the following:   pertain to the maintenance of records that accurately and fairly reflect  the transactions and dispositions of company assets;  provide reasonable assurance that transactions are recorded as  necessary to permit preparation of financial statements in conformity  with GAAP, and that receipts and expenditures of the company are being  made only in accordance with authorizations of management and  directors of the company; and   provide reasonable assurance regarding prevention or timely detection  of unauthorized acquisition, use, or disposition of company assets.
section_title: Governance (Audit Committees)
paragraphs: Independent audit committees have become, within public companies, an  integral part of governance and oversight over financial reporting, internal  control, and the audit process. The 1987 Treadway Commission’s Report on  Fraudulent Financial Reporting recognized as a key practice in reducing  fraudulent financial reporting the establishment by the company’s board of  directors of  “an informed, vigilant, and effective” audit committee to  oversee the  financial reporting process. In 1998, the New York Stock  Exchange (NYSE) and the National Association of Securities Dealers  (NASD) formed the Blue Ribbon Committee on Improving the  Effectiveness of Corporate Audit Committees. The committee released a  10-point plan in 1999 toward improving audit committee effectiveness.  NYSE-, Amex-, and NASD-listing standards—which were the primary  guidance for audit committees of public companies—were changed to  reflect the recommendations of the Blue Ribbon Committee. Although this  guidance, as well as recommendations of the Treadway Commission,  existed prior to enactment of the Sarbanes–Oxley Act of 2002, the act  provided a statutory basis—primarily in sections 202, 204, 301, and 407— for the composition and responsibilities of public-company audit  committees  in provisions similar to the Treadway Commission and the  Blue Ribbon Committee recommendations.
Section 301 of the Sarbanes–Oxley Act of 2002 requires that audit  committee members be selected from the company’s board of directors and  that they be independent (i.e., unaffiliated with the company and receiving  no consulting fee, advisory fee, or other compensatory fee from the  company). The audit committee is responsible for the appointment,  compensation, and oversight of the auditor, oversight of company  management regarding financial reporting, and the resolution of  disagreements between management and the auditor. Finally, Section 301  provides that the audit committee should have the authority and funding to  engage advisors when necessary; ensure that processes are in place for the  receipt, retention, and treatment of any complaints from “whistle-blowers”  about accounting, internal controls, or auditing issues; and maintain open  channels for employees to use in communicating knowledge of  malfeasance or errors to the audit committee without fear of management  retaliation.
Section 202 of the act requires the audit committee to preapprove all audit  and nonaudit services by an auditor to guard against potential conflicts that  could occur if services such as bookkeeping and information-system design  and implementation are provided by the company’s auditor.
Section 204 of the act requires that the auditor report to the audit  committee all critical accounting policies followed in the course of an  audit, all alternative accounting treatments within GAAP related to  material items discussed with company management, and other material  written communications between the auditor and company management.
Finally, Section 407 of the act and implementing SEC regulations requires  public companies to disclose whether the audit committee has at least one  financial expert, the expert’s name, and the expert’s independence from  management. If the company does not have a financial expert on the audit  committee, it is required to explain why.
section_title: Amtrak
subsections: section_title: Financial Reporting
paragraphs: Until 1997, Amtrak was classified as a mixed-ownership government  corporation under the Government Corporation Control Act. Government  Corporation Control Act was intended to make government corporations  accountable to Congress for their operations while allowing them the  flexibility and autonomy needed for their commercial activities. Generally,  a mixed-ownership corporation can be defined as a corporation with both  government and private equity. In the case of Amtrak, the federal  government held its preferred stock, and there were private entities that  held common stock (three railroads and a holding company). The Amtrak  Reform and Accountability Act of 1997 changed Amtrak’s status as a mixed- ownership government corporation by removing Amtrak from the list of  mixed-ownership government corporations in the context of making  Amtrak operationally self-sufficient by 2002. As we noted in our October  2005 report, today Amtrak is most similar to a “government-established  private corporation.”
Consistent with Amtrak-specific statutory provisions in Title 49 of the U.S.  Code, Amtrak’s management and Board of Directors annually shall submit  the financial statements to Congress with its operations reports. The  annual financial report prepared and issued by Amtrak includes the audited  financial statements and accompanying notes. However, the report does  not include an MD&A section. Amtrak’s annual financial statements are  required to be submitted to Congress, but are not submitted to, or formally  reviewed by, OMB or any regulatory agency. However, Amtrak is required  in its grant and loan agreement to produce a variety of daily, monthly, and  annual reports that are submitted to its board, Congress, and FRA. The  monthly performance report is an extensive report averaging 80 to 90 pages  that contains financial results, route performance, workforce statistics, and  performance indicators; it is also posted to Amtrak’s Web site.
section_title: Internal Control
paragraphs: As a government-established private corporation, Amtrak is not subject to  the internal control requirements that govern either federal entities or  publicly traded companies, and thus its annual report does not include a  management report on internal control. An annual audit is performed using  Government Auditing Standards; therefore, Amtrak’s management and  Board of Directors receive a report on internal controls and compliance  with laws, regulations, contracts, and grant agreements. However, the  internal control report is not included in Amtrak’s annual report.  In our  October 2005 report, we noted that DOT officials told us that they receive  the internal control and compliance report. We also stated in our October  2005 report that Amtrak officials were not able to provide us with a  distribution list and they had no recollection of the report being requested  by, or sent to, any external party.
section_title: Governance (Audit Committee)
paragraphs: In its original authorizing legislation in 1970, Amtrak’s Board of Directors  was authorized for 15 members, but there have never been more than 13  members serving. The current limit of 7 members was a reduction from 9  made by the Amtrak Reform and Accountability Act of 1997. The members  are appointed by the President with the advice and consent of the Senate.   The board has operated with less than a full complement of 7 voting  members since July 2003. Between October 2003 and June 2004, the board  had only 2 voting members (excluding the Secretary of Transportation or  his designee). As of September 2006, the board had 5 members (excluding  the Secretary of Transportation or his designee and the President of  Amtrak); however, the term of 2 members is expiring in January 2007, so  the board will be back to 3 members. Amtrak’s bylaws also authorize the  establishment of committees to assist the board in carrying out its  management responsibilities. In March 2002, the board eliminated ad hoc  committees, along with the Corporate Strategy Committee and the Safety,  Service, and Quality Committee. At that time, committees were established  for audits, corporate affairs, finance, compensation and personnel, and  legal affairs. Amtrak’s bylaws permit it to conduct periodic meetings  between the Board of Directors and the shareholders, as necessary.  Following enactment of the Amtrak Improvement Act of 1981, which  abolished the election of any members of the Board of Directors by the  common or preferred shareholders,  Amtrak has not held a shareholders’  meeting.
Currently the board is using the former audit committee charter in carrying  out its responsibilities for the oversight of its accounting and financial  reporting processes and the audits of Amtrak’s financial statements by an  independent auditor. Since the Board of Directors includes the President  and CEO, the audit committee would not be considered “independent”  under the requirements and practices for public companies, as provided in  section 301 of the Sarbanes–Oxley Act of 2002.
In commenting on a draft of our October 2005 report, both DOT and  Amtrak officials told us that, given the limited number of board members,  Amtrak’s full board of directors had assumed the functions of the audit  committee.  DOT officials said these functions included meeting with  Amtrak’s auditor to discuss audit and internal control issues, and that some  of these meetings were held without the presence of Amtrak management.  Our analysis showed that the board performed some audit committee  oversight functions. Currently, the board is using the audit committee  charter in carrying out its responsibilities for the oversight of the  corporation’s accounting and financial reporting processes and the audits  of Amtrak’s financial statements by an independent auditor.
section_title: Opportunities for Improvement at Amtrak
subsections: section_title: Financial Reporting
subsections: section_title: MD&A
paragraphs: Currently, Amtrak’s financial statements do not include an MD&A, an  important part of financial statements that is required for federal entities  and public companies. The MD&A provides users with information relevant  to an assessment of the organization’s financial condition and the results of  its operations as determined by an evaluation of the amounts and certainty  of cash flows from operations and from outside sources.   For a hybrid  organization such as Amtrak—a for-profit corporation that receives  substantial federal subsidies—an MD&A would seem especially important  to understand the numbers presented in its financial statements, and for  users of the financial statements to interpret material changes in financial  condition and the results of operations.
section_title: Quarterly Financial Statements
paragraphs: Currently, Amtrak does issue a variety of reports, but does not issue  quarterly financial statements that include footnotes. Public companies are  required to file quarterly financial statements with footnotes and MD&A  with the SEC. Under OMB Circular No. A-136, the executive agencies  required to submit annual financial statements under the CFO Act, GMRA,  and ATDA (whose requirements are now all codified at 31 U.S.C. § 3515)  are also required to submit quarterly financial statements without  footnotes to OMB. To issue quarterly financial statements, an organization  must adopt a rigorous financial reporting process that, by its frequency,  becomes more practiced and routine. Companies that are more successful  at closing their accounting systems and issuing financial statements on a  regular basis tend to have more automated systems and routine processes,  which can minimize fraud and errors. We previously recommended that  Amtrak should engage an independent public accountant to provide  review-level attestation work on Amtrak’s quarterly financial statements in  order to strengthen financial reporting procedures. Preparation of  quarterly financial statements with footnotes is a basic financial reporting  function that contributes to the overall effectiveness of financial reporting  and the organization’s control environment.
section_title: Certification by CEO and CFO
paragraphs: An important provision of the Sarbanes–Oxley Act, section 302, requires  the CEO and CFO of public companies to certify that they have reviewed  the company’s financial statements and that, based on their knowledge, the  financial statements do not contain any untrue statements or omissions of  material fact; also, they must certify that the financial statements are fairly  presented. Amtrak’s executives are not required to so certify the  organization’s financial statements. Amtrak’s CEO and CFO would need to  implement additional internal processes and controls to allow them to  make such a certification. Because Amtrak relies heavily on federal  subsidies, such a certification process would be useful for those charged  with making decisions about the level of financial subsidies that are being  used.
section_title: Review of Financial Statements
paragraphs: Currently, Amtrak is required to provide various financial and performance  reports to FRA and/or DOT; however, Amtrak’s financial statements are not  reviewed by OMB or any other regulatory agency. Requiring Amtrak’s  financial statements to be filed with, and subject to review by, SEC or OMB  (or both) could further strengthen accountability and assurance that  Amtrak’s financial statements represent its true financial condition. If  Congress were to require Amtrak to file annual reports and other periodic  reports with the SEC, Amtrak would need to adhere to the SEC’s  regulations and guidance, which require consistent disclosure of financial  and operations information. If Congress were to require Amtrak to submit  its financial report to OMB, Amtrak would need to comply with appropriate  OMB and federal financial reporting regulations and guidance, and respond  to OMB’s inquiries about Amtrak’s reported financial information.
section_title: Internal Control
subsections: section_title: Management’s Assessment and Report on Internal Controls
paragraphs: Currently, Amtrak does not have requirements for management to evaluate  and report on internal control effectiveness. A management evaluation of  the effectiveness of internal control and a management report on the  results of the assessment holds management accountable for  understanding the organization’s internal control, recognizing and  correcting deficiencies, and maintaining effective internal controls. FMFIA  and OMB Circular No. A-123 and section 404(a) of the Sarbanes–Oxley Act  have requirements for management’s assessment of internal controls for  federal agencies and public companies, respectively.
section_title: Auditor’s Attestation
paragraphs: An auditor’s opinion on the effectiveness of internal control provides an  independent assessment of management’s assessment of its internal  controls. Although not required for federal entities, we support internal  control opinions as an important accountability mechanism. In addition, an  independent auditor’s opinion on internal control was a key provision of  the Sarbanes–Oxley Act. Under section 404(b), public companies are  required to have an independent auditor attest to, and report on,  management’s assessment of the effectiveness of internal control over  financial reporting.
section_title: Governance (Audit Committee)
paragraphs: Amtrak currently does not have an audit committee separate from its  Board of Directors due to its current board size. A minimum of three audit  committee members is required for NYSE-listed companies, and a  minimum of three members was recommended by the Blue Ribbon  Committee on Improving the Effectiveness of Corporate Audit  Committees. Because Amtrak relies heavily on federal subsidies, an audit  committee with duties and responsibilities that mirror those of publicly  traded companies and meets regularly is important to oversight of Amtrak’s  accountability for federal funds.
section_title: Comments from National Railroad Passenger Corporation
paragraphs: The following are GAO’s comments on National Railroad Passenger  Corporation’s letter dated October 23, 2006.
subsections: section_title: GAO Comments
paragraphs: 1. Our report is not intended to imply that Amtrak’s mission is to generate  profits rather than provide services that produce public benefits on a  break-even basis. In fact, the first section of the report discusses the  characteristics (both financial and non-financial) of the types of service  provided by intercity passenger rail in the United States and the types  of service that could increase the transportation benefits and public  benefits of intercity passenger rail. Regarding operating losses, we  recognize that Amtrak’s operating loss is projected to decrease in fiscal  year 2006 and have changed the report to reflect that, instead of  increasing, operating losses continue to remain high. Finally, we do not  believe our report is inconsistent in how operating loss is portrayed.  Non-cash items such as depreciation and interest expenses are  legitimate expenses to the business and were reported based on  Amtrak’s audited financial statements. The report also includes a figure  excluding these items to illustrate their relative contribution over  Amtrak’s reported cash losses. In our discussion of the financial  performance of routes, we used the route financial data provided to us  by Amtrak, which does not include non-cash items such as depreciation  charges. 2. The trend in passenger rail revenue between fiscal years 2002 and 2005  was stable. Based on data provided by Amtrak we included a footnote  to recognize the projected increase in passenger rail revenue in fiscal  year 2006. We have eliminated any reference to “promotional pricing”  being the reason for revenue decreases.  3. We recognize that a significant percentage of long distance passengers  that are not traveling for work purposes may be traveling for family or  personal/family business reasons. This is still a form of leisure travel  and we have modified our definition of “leisure” to include travel for  family or personal business reasons. Regarding long distance  passengers traveling less than 500 miles, our report notes that many— but certainly not all—of these passenger trips may have characteristics  similar to those on corridor routes. The example cited in the report, on  the Empire Builder route, is intended to illustrate the type of  circumstances where this may apply. Regarding the financial  performance of long distance routes, we agree that on a per passenger  mile basis the difference between long distance service and other non- NEC trains may be attributable to state subsidies. Our report notes that  one reason for the wide variance in financial performance among  corridor routes is the level of state support. 4. Our report also recognizes the growth in state-supported services and  that these services are the fastest growing in terms of ridership and  illustrate the significant potential for further growth. Finally, we agree  that on state-supported routes, states play a much greater decision  making role. We have changed our report to recognize this role. 5. We agree that rail network capacity is an important national policy  issue and that freight and passenger railroads, as well as governments  at all levels need to work together to address this issue. This will be  particularly important in the future as rail infrastructure capacity  continues to become constrained. Our report discusses the challenges  associated with addressing this issue. We also address the issue of cost  sharing between the federal and state governments and how this is  common in some transportation modes other than intercity passenger  rail. Moreover, we identify factors that need to be considered in making  federal investments in private infrastructure. Finally, the report  identifies some of the factors as to why commuter railroads pay  amounts different from incremental cost to access freight and other  privately owned infrastructure. It was for this reason that we made a  qualitative, rather than a quantitative, comparison between Amtrak and  commuter rail infrastructure access costs.
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the above individual, Randy Williamson (Assistant Director),  Tida Barakat, Jay Cherlow, Jeanette Franzel, Greg Hanna, Bert Japikse,  Richard Jorgenson, Ryan Lambert, Kimberly McGatlin, John Saylor, Stan  Stenersen, Lacy Vong, and Diana Zinkl made key contributions to this  report.