Amtrak was established by the Rail Passenger Service Act of 1970, after the nation’s railroads found passenger service unprofitable. It operates a 22,000-mile passenger rail system over 43 routes. (See fig. 1.) Amtrak owns 650 miles of track, primarily in the Northeast Corridor, which runs between Boston, Massachusetts, and Washington, D.C. It operates the remainder of its routes over tracks owned by freight railroads and pays these railroads for this access. From fiscal year 1971 through 2002, the federal government provided Amtrak with about $25 billion in federal operating and capital assistance, or an average of $807 million annually (in nominal dollars). Amtrak’s financial condition has been deteriorating and, in 2001, it experienced its largest net loss (revenues less expenses) ever of about $1 billion. In fiscal year 2001, only one of Amtrak’s 43 routes made enough revenue to cover its operating costs—the Metroliner/Acela Express service on the Northeast Corridor ($51 million). The other 42 routes had operating losses ranging from about $600,000 on the Vermonter (service between Washington, D.C., and Vermont) to $71.5 million on the Northeast Direct (generally service between Virginia and Massachusetts). (See app. I for the financial performance of all Amtrak routes.) Amtrak has changed its general approach to route and service actions over time, from attempting to improve its financial performance by cutting service to attempting to achieve the same result by increasing service. For example, in 1995, Amtrak eliminated 9 routes, truncated 3 routes, and changed the frequency of service on 17 routes. These actions were intended to cut costs by about $200 million while retaining 90 percent of revenues and 85 percent of passengers. Amtrak said the presumption was that passengers would use other trains to meet their travel needs, allowing it to retain most of its ridership and revenue. Although initially the route cutting actions had some financial success, subsequent financial results were below expectations because (1) management did not cut costs as planned, (2) less-than-daily service caused less efficient equipment usage and other unforeseen problems, and (3) passengers were no longer adjusting their travel plans to fit Amtrak’s new less-than-daily schedules. In 1998, Amtrak switched its strategy to increase revenues by expanding service. It used a market-based approach to identify the market for intercity passenger rail service. To do so, it used market research and computer-based models to determine the potential ridership, revenue, and costs of proposed route and service actions. According to Amtrak, this approach constituted a significant improvement in its route evaluation process because it represented the first comprehensive analysis of Amtrak’s route system, and the first attempt to apply rigorous financial analyses and modeling techniques to the design of Amtrak’s national network. The Network Growth Strategy was the first product of the market-based network analysis project that Amtrak initiated in October 1998 to address route evaluation deficiencies. The intent of the market-based network analysis was to (1) develop the financial tools that Amtrak needed to perform reliable and objective analyses of route and service changes; (2) help Amtrak achieve operational self-sufficiency by December 2002 by identifying route and service changes that, if implemented expeditiously, would produce positive financial impacts before the statutory deadline; and (3) express Amtrak’s vision of how its national network could be enhanced and improved. In December 1999, Amtrak’s board of directors adopted the Network Growth Strategy as part of Amtrak’s strategic business plan. The strategy consisted of 15 planned route and service actions, the majority involving the expansion of service. (See app. III.) Amtrak predicated the growth strategy on the acquisition of significant new revenue from hauling mail and express cargo and estimated that it would result in $65.6 million in net revenue through fiscal year 2002. In February 2000, Amtrak announced to Congress that it was going to implement the 15 routes in the Network Growth Strategy. Amtrak has been unsuccessful in implementing its Network Growth Strategy. About 2 years after announcing the Network Growth Strategy, Amtrak has cancelled 9 of the 15 planned route actions without implementing them. Amtrak implemented three route actions, although it cancelled one of these in September 2001. Finally, Amtrak plans to proceed with 3 other route actions, although their implementation will be at least 1 or 2 years later than originally planned. (See table 1.) According to Amtrak, the capital funds for one of the projects in planning (Silver Service restructuring in Florida) were frozen on February 1, 2002, in a company-wide effort to reduce use of cash. (In all, Amtrak cancelled nine routes without implementing them. Some routes were cancelled for more than one reason.) Amtrak told us that it cancelled six of the Network Growth Strategy routes before they were implemented, in part, because it overestimated expected increases to mail and express revenue under the Network Growth Strategy. Amtrak estimated that this expected increase would improve Amtrak’s bottom line by $65.6 million through fiscal year 2002. Specifically, it estimated that mail and express revenues would exceed costs by $68.2 million, offsetting a loss of $2.6 million from expanded passenger operations. Most of the revenue increase was expected to come from new express business. This expanded mail and express traffic did not materialize and Amtrak’s revised plans have reduced expected Network Growth Strategy-associated mail and express revenue by about half—from $271 million to $139 million (a $132 million reduction). Amtrak said that there were several reasons why this overestimation occurred. The current president of Amtrak’s mail and express unit told us that Amtrak expected to substantially expand its route system to generate this revenue and to begin running longer trains mostly filled with express traffic. However, he said that at the time Amtrak made its mail and express revenue estimates, it gave little thought to whether such an expansion was feasible—that is, whether Amtrak could likely capture this business or whether freight railroads that own the tracks would agree to Amtrak’s expansion plans. According to Amtrak, it did not have a rigorous approach to estimating expected express business. Amtrak officials told us that, until recently, Amtrak estimated express revenue largely on the basis of an analysis of a database of commodities being shipped nationally. Amtrak estimated the portion of this business that it thought it could obtain. An Amtrak official said that it now focuses more on determining existing customers’ shipping needs, assessing these needs in light of current economic trends, and evaluating Amtrak’s ability to meet these needs given existing train capacity. Finally, Amtrak officials told us that express shippers were reluctant to enter into contracts for service that did not yet exist. Amtrak officials also told us that the company did not know route-by-route costs for its mail and express program when it announced its Network Growth Strategy. This is because Amtrak has never separately identified these costs. Rather, it has integrated these costs into the overall financial results of its intercity strategic business unit. Knowing these costs was important because Amtrak expected that the expansion of mail and express service would produce the revenue needed to make its route expansion profitable. Not until 2000 did Amtrak begin efforts to separately identify mail and express costs and develop separate mail and express financial information. According to Amtrak, in October 2001, it began producing separate profit and loss statements for its mail and express business. However, an Amtrak official said the corporation still has a long way to go in producing reliable mail and express financial information and in understanding the true cost of this business. Amtrak could not implement its Network Growth Strategy unless it reached agreement with freight railroads over funding for capital improvements (such as upgrading tracks and signals to improve safety and support higher-speed passenger operation) and access to freight railroads’ track. Quick agreement was necessary because Amtrak wanted to implement the new routes and services to help it reach operational self- sufficiency by December 2002. Amtrak encountered substantial difficulties in gaining freight railroad agreement to allow Amtrak to expand service over freight railroad tracks. This difficulty in reaching agreement contributed, in part, to Amtrak canceling six of its planned routes. Amtrak planned to operate the 15 Network Growth Strategy routes over freight railroad tracks, including the transportation of mail and express as authorized by law. However, Amtrak was largely unable to gain freight railroads’ agreement. Such agreement was critical to the implementation of Amtrak’s strategy. Freight railroads are required by law to allow Amtrak to operate over their tracks and to give Amtrak’s trains priority over their own. In addition, freight railroads are required to charge Amtrak the incremental cost—rather than the full cost—associated with the use of their tracks. These amounts are negotiated by Amtrak and the freight railroads. Federal law also gives Amtrak the authority to carry mail and offer express service. These mandates result in an ongoing tension between Amtrak and freight railroads for several reasons. One reason is that accommodating passenger trains affects freight railroads’ ability to serve their customers and earn a profit. Second, accidents involving passenger trains may create liability issues for freight railroads. Third, freight railroads believe that they are not fully compensated for providing this service. Finally, Amtrak’s express business may compete with freight railroads’ business and Amtrak may be able to offer lower rates than freight railroads, everything else being equal, because Amtrak only has to pay freight railroads the incremental, rather than the full cost, of operating on freight railroad tracks.