The Rail Passenger Service Act of 1970 created Amtrak as the nation’s intercity passenger railroad. Prior to Amtrak’s creation, intercity passenger service was provided by a number of individual 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 operating subsidies. As of June 1999, Amtrak provided intercity passenger service along 42 routes that include most states. Like all major national intercity rail services in the world, Amtrak receives substantial government support. From 1971 through June 1999, the federal government provided Amtrak with nearly $23 billion in financial assistance. However, in December 1994, at the direction of the administration, Amtrak established the goal of eliminating its need for federal operating subsidies, that is, achieving operational self-sufficiency, by fiscal year 2002. In addition, the Amtrak Reform and Accountability Act of 1997 authorized appropriations for Amtrak’s operating and capital expenses through fiscal year 2002 but prohibited Amtrak from using federal funds for operating expenses, except for an amount equal to excess Railroad Retirement Tax Act payments after 2002. In fiscal year 2002, Amtrak expects to spend only $185 million (its estimated payments to the railroad retirement system in excess of the retirement benefits for Amtrak employees) of federal funding for expenses other than capital projects. To meet the goal of operating self-sufficiency and respond to continually growing losses and a widening gap between operating deficits and federal operating subsidies, Amtrak developed a series of strategic business plans. By following these plans, Amtrak has attempted to increase revenues and control costs through such actions as expanding mail and express service, adjusting routes and service frequency, and reorganizing into strategic business units. Its Board of Directors approved Amtrak’s most recent strategic business plan in October 1998. Historically, Amtrak received separate federal appropriations for operating expenses and capital improvements. For fiscal year 1999, Amtrak received a single capital appropriation of $609 million instead of separate appropriations for operating and capital assistance. However, the conference report accompanying the appropriation provided that Amtrak could use appropriated funds for the maintenance of equipment (an operating expense) in addition to traditional capital investments. The Congress also provided Amtrak with financial assistance through the Taxpayer Relief Act of 1997. This act made a total of about $2.2 billion available to Amtrak in fiscal years 1998 and 1999 to acquire capital improvements and pay for the maintenance of existing equipment, among other things. The Amtrak Reform and Accountability Act of 1997 made certain reforms to Amtrak’s operations. Among other things, the act (1) eliminated existing statutory and contractual labor protection arrangements as of May 31, 1998, and required negotiations over new arrangements; (2) repealed the statutory ban on contracting out work when it would result in employee layoffs and made contracting out part of the collective bargaining process (except for food and beverage service, for which contracting out was already allowed); and (3) placed a $200 million cap on the aggregate amount that Amtrak and others must pay rail passengers for all claims (including claims for punitive damages) arising from a single accident or incident. The act also established an independent council—the Amtrak Reform Council—to evaluate Amtrak’s performance and make recommendations for cost containment, productivity improvements, and financial reforms. If at any time more than 2 years after the enactment of the act and the implementation of a financial plan for operating within authorized funding levels, the Council finds that Amtrak is not meeting its financial goals or that Amtrak will require federal operating funds after December 2002, then the Council is to submit to the Congress, within 90 days, an action plan for a restructured national intercity passenger rail system. In addition, if the above events occur, Amtrak is required to develop and submit an action plan for its liquidation. The act also eliminated the requirement that Amtrak issue preferred stock to the Department of Transportation in the value of federal appropriations received. As a result, beginning with its fiscal year-end 1998 audited financial statements, Amtrak, following guidance from its external auditors, recorded a significant amount of federal financial assistance as revenues instead of preferred shareholder equity. In addition, a significant amount of the federal funds made available by the Taxpayer Relief Act was also recorded as revenues. One effect of this situation is that Amtrak’s fiscal year 1998 financial statements are not comparable to previous financial reports unless certain adjustments are made. In this report, we present net loss and working capital amounts that exclude the amount of federal assistance that Amtrak’s audited financial statements include as revenues or current assets in 1998. These adjustments allow us to better compare Amtrak’s net loss and working capital positions over time. Amtrak had made some progress in reducing its net losses in recent years—from about $833 million in fiscal year 1994 to $762 million in fiscal year 1997. However, Amtrak’s net loss (adjusted to exclude $577 million of federal funds that its audited financial statements count as revenues)increased to $930 million in fiscal year 1998. (See fig. 1.) This amount is the largest net loss in the last 10 years. One of the reasons for the increase is that the 1998 figure includes retroactive payments attributable to labor negotiations concluded by the end of 1998. But, even when the roughly $106 million of such labor payments are not included in the net loss, the net loss is still $824 million, $62 million more than in fiscal year 1997. Amtrak officials stated that the increase in net loss is also due to an increase in capital investment that resulted in increased depreciation expenses. Specifically, depreciation expenses, a noncash item, increased by $52 million in 1998—from $242 million in fiscal year 1997 to $294 million in fiscal year 1998. Amtrak expects that depreciation expenses will grow by another $66 million in fiscal year 1999 and by additional amounts in subsequent years as it makes additional capital investments. While an increase in depreciation—which reflects the amount of capital equipment that is consumed and must be replaced in future years—increases net loss, Amtrak points out that investments resulting in increased depreciation expenses are expected to have positive effects in the future, such as increasing revenues, reducing costs, and eliminating the need for federal operating support. In October 1998, Amtrak estimated that the net loss for fiscal year 1999 will be $930 million. However, through April 1999, Amtrak’s net loss for the current fiscal year is $11.4 million less than expected. Another measure of Amtrak’s overall financial condition is its working capital (current assets less current liabilities). Working capital measures a corporation’s ability to pay its bills when due. Amtrak’s working capital deficit (adjusted to exclude $647 million in short-term investments and related interest resulting from unspent Taxpayer Relief Act funds) at the end of fiscal year 1998 was about $400 million. This amount is $100 million worse than the $300 million working capital deficit Amtrak recorded at the end of fiscal year 1997 and is the worst such deficit in at least the last 10 years. Figure 2 shows the degree to which working capital balances have fallen over the past 4 years. Amtrak continues to need to borrow money to pay its current-year operating expenses, including those for payroll, fuel, ticket stock, and food. At the end of fiscal year 1997, Amtrak had outstanding borrowing of $75 million to meet its operating expenses. At the end of fiscal year 1998, the amount of outstanding borrowing needed to meet operating expenses had fallen to $50 million. This $50 million in year-end borrowing was half of what Amtrak had estimated at the beginning of the fiscal year. However, at the end of fiscal year 1999, Amtrak estimates, it will need to have $100 million in borrowing to meet its operating expenses. Additionally, Amtrak plans to have short-term borrowing of $100 million outstanding at the end of fiscal year 2000. To help its cash flow, Amtrak is seeking legislation specifically authorizing it to use its fiscal year 2000 capital appropriation to pay for a wider variety of maintenance expenses than in fiscal year 1999. This would be similar to the flexibility allowed recipients of federal transit financial assistance. For fiscal year 2000, Amtrak is requesting the authority to use its capital appropriation for maintenance-of-way expenses (e.g., costs for maintaining tracks) in addition to maintenance-of-equipment expenses, as permitted in fiscal year 1999. Without this authority, Amtrak has stated that it will not be able to use existing cash to cover $50 million of its operating expenses in fiscal year 2000. As of June 1999, Amtrak had not developed a way to meet its financial obligations if the Congress does not allow this flexibility. Amtrak’s October 1998 strategic business plan does not anticipate that the corporation will use any federal subsidies for operating expenses (other than for excess railroad retirement expenses) in fiscal year 2002—1 year earlier than requested by the administration and specified in the Amtrak Reform and Accountability Act of 1997. However, considerable uncertainty exists about whether Amtrak will be able to achieve its targets for revenues and expenses for several key business plan actions, and Amtrak historically has not met its financial goals for increasing revenues and reducing expenses. Amtrak’s efforts are pointed toward achieving operating self-sufficiency by fiscal year 2002.