Amtrak was created by the Rail Passenger Service Act of 1970 to operate and revitalize intercity passenger rail service. Prior to Amtrak’s creation, intercity passenger rail service was provided by private railroads, which had lost money, especially after World War II. The act, as amended, gave Amtrak a number of goals, including providing modern, efficient intercity passenger rail service; giving Americans an alternative to automobiles and airplanes to meet their transportation needs; and minimizing federal subsidies. Through fiscal year 1998, the federal government has provided Amtrak with over $20 billion in operating and capital subsidies. Amtrak provides intercity passenger rail service to 44 states and the District of Columbia (see fig. 1). In fiscal year 1997, Amtrak served about 20 million intercity rail passengers on 40 routes and had passenger revenues of about $964 million. Amtrak also operates intercity passenger rail service that is financially supported by others—such as a state or a group of states. As illustrated in figure 1, in fiscal year 1997, 11 states paid Amtrak a total of about $70 million for such service to transport about 4.6 million passengers. In addition, Amtrak operates commuter rail service under contract. During fiscal year 1997, Amtrak was the contract operator of seven commuter rail systems serving about 49 million passengers. According to Amtrak, an average of 179,000 passenger trips are made each weekday on the 708 commuter trains it operates; and in fiscal year 1997, Amtrak received about $242 million in revenue to operate commuter rail service. Amtrak also provides train-dispatching, maintenance-of-way, and other services for commuter and freight railroads that use its tracks and facilities. According to Amtrak, four commuter rail systems (with more than 429,000 passengers per day)—mostly on the Northeast Corridor—pay to use its rails or facilities. In fiscal year 1997, four freight railroads operated on the Northeast Corridor: the Springfield Terminal Railway Company, the Providence and Worcester Railroad, the Connecticut Southern Railroad, and Conrail. As measured in train-miles—the movement of a train the distance of 1 mile—Conrail is by far the largest freight user of the Corridor. Overall, the freight railroads own about 97 percent of the tracks over which Amtrak operates (about 22,300 miles), and Amtrak directly owns only about 650 miles of tracks. Despite attempts to address growing losses, Amtrak’s financial condition raises the specter of possible bankruptcy. At the end of fiscal year 1996, the gap between Amtrak’s operating deficits and federal operating subsidies had begun to grow; Amtrak was continuing to experience working capital deficits (the difference between current assets and current liabilities); and debt levels had increased significantly. In fiscal year 1997, Amtrak’s net loss was $762 million, and its overall loss was $70 million.Although these losses were less than those for fiscal year 1996, Amtrak’s overall loss was still about $26 million more than planned. In addition, as of September 30, 1997, Amtrak had borrowed $75 million from banks to meet payroll and other operating expenses. Financial prospects for fiscal year 1998 may also be dim. Amtrak’s strategic business plan projects a cash flow deficit of about $100 million by September 1998, even assuming the successful implementation of all of the strategic business plan’s actions. The Congress recently provided about $2.2 billion in the Taxpayer Relief Act of 1997 that may be used to acquire capital improvements.However, because of high operating costs, Amtrak continues to face challenges in improving its financial health. Should Amtrak’s financial condition force it to file for bankruptcy, it must do so under chapter 11 of the Bankruptcy Code. This chapter contains provisions regarding the management and reorganization of debtors, including railroads, and specifies the circumstances under which a railroad may be liquidated. Among other things, chapter 11 seeks to protect the public interest in continued rail service. However, a railroad may be liquidated upon the request of an interested party (such as a creditor), if the court determines liquidation to be in the public interest. A railroad must be liquidated if a plan for reorganizing it has not been confirmed within 5 years after filing for bankruptcy. The trustee who is appointed plays a key role and, subject to the court’s review, directs the railroad and its affairs during bankruptcy. In a liquidation, the trustee administers the distribution of the railroad’s assets (called the estate) in accordance with the Bankruptcy Code. Appendix I contains a more detailed description of the bankruptcy process as it might apply to Amtrak. In September 1997, Amtrak estimated the net cost to creditors and others of a possible liquidation to be between about $10 billion and $14 billion over a 6-year period. However, the financial impacts associated with a possible liquidation are difficult to estimate because of the uncertainties connected with the financial condition of the Corporation at the time of liquidation. These uncertainties are associated with different types of costs. These costs include, for example, (1) obligations that are due to creditors, such as lenders, vendors, and Amtrak employees; (2) costs that Amtrak currently pays, or might have to pay in the future, that could be assumed by other parties; and (3) costs to administer and close out the estate. Virtually all the costs associated with a liquidation would likely be borne either directly by those who do business with Amtrak or by those who benefit from Amtrak’s existence. In this regard, most of these costs would represent Amtrak’s existing financial obligations and the costs of providing future levels of rail service, which would be borne by other parties. One of the uncertainties associated with any estimate of the financial impacts involved in a liquidation is the obligations to creditors. These obligations can vary over time. For example, Amtrak’s debt levels and capital lease obligations have increased significantly in recent years—from $492 million in fiscal year 1993 to about $1.3 billion in fiscal year 1997. This total does not include about $820 million that is expected to be incurred in fiscal year 1998 and beyond to finance high-speed trainsets and locomotives and related maintenance facilities for the Northeast Corridor. Future obligations to creditors may be affected by a variety of factors, such as the Taxpayer Relief Act of 1997. This act provides Amtrak with a total of about $2.2 billion in federal funds in fiscal years 1998 and 1999 that may be used to acquire capital improvements and repay principal and interest on certain debt. In addition, a default on Amtrak’s obligations to creditors primarily represents a transfer to its creditors and/or their insurers to the extent that assets are not sufficient to satisfy Amtrak’s debts, rather than generating an additional cost resulting from liquidation. This is because the responsibility to repay financial obligations existed before any liquidation occurred and did not arise solely because of the liquidation. Also uncertain is Amtrak’s future labor protection obligations to those employees who would lose their jobs as the result of a discontinuance of service. Amtrak has estimated that, if it were liquidated, its labor protection obligations to its employees could amount to about $6 billion over 6 years. Since this estimate was made, the Congress passed the Amtrak Reform and Accountability Act of 1997. This act eliminates current labor protection arrangements on May 31, 1998, and requires Amtrak and its unions to negotiate new arrangements for the payment of salaries, wages, and benefits to employees who would be affected if service were discontinued. Amtrak’s obligations, if any, to employees who lose their jobs as a result of a liquidation would depend on the results of these negotiations. Finally, after a liquidation, costs to operate, maintain, and rehabilitate infrastructure, such as tracks and stations, that Amtrak currently pays could be borne by other parties as a result of decisions to provide passenger or other rail service. For example, existing commuter rail agencies might assume some of these costs. How much of these costs might actually be assumed is uncertain because, in part, it would depend on such factors as the extent to which the commuter authorities needed the infrastructure, the price the new owner might charge for use of the facilities, and the level at which the infrastructure would be maintained. Amtrak believes that the Northeast Corridor’s infrastructure costs would not decrease much if intercity passenger service were eliminated. However, several commuter rail agencies disagree, telling us that, without Amtrak, they would not need as much infrastructure as currently exists and would pare it back to reduce costs. Nevertheless, costs might increase if the new owner of the infrastructure charged more for its use than Amtrak currently charges. The amount of infrastructure costs that might be assumed is also uncertain because it would depend on future capital investments. As we reported in May 1997, the Federal Railroad Administration (FRA) and Amtrak estimated that about $2 billion in capital funds would be needed over a 3- to 5-year period to upgrade tracks and other infrastructure on the southern end of the Northeast Corridor and preserve Amtrak’s ability to operate at current service levels. Some amount of the $2.2 billion provided by the Taxpayer Relief Act may be used to address these needs. As discussed for default on obligations to creditors, these infrastructure costs might be assumed by others as a result of liquidation but would not arise solely because of a liquidation. In a liquidation, Amtrak’s institutional creditors could sustain losses. As of September 1997, data from Amtrak showed that its combined secured and unsecured debt liability could be about $2.2 billion.