Amtrak was created by the Rail Passenger Service Act of 1970 to operate and revitalize intercity passenger rail service. Prior to its creation, intercity passenger rail service was provided by private railroads, which had continually lost money, especially after World War II. The Congress gave Amtrak specific goals, including providing modern, efficient intercity passenger service; helping to alleviate the overcrowding of airports, airways, and highways; and giving Americans an alternative to automobiles and airplanes to meet their transportation needs. Through fiscal year 1997, the federal government has invested over $19 billion in Amtrak. (App. I shows the federal appropriations for Amtrak since fiscal year 1988.) In response to continually growing losses and a widening gap between operating deficits and federal operating subsidies, Amtrak developed its Strategic Business Plan. This plan (which has been revised several times) was designed to increase revenues and control cost growth and, at the same time, eliminate Amtrak’s need for federal operating subsidies by 2002. Amtrak also restructured its organization into strategic business units: the Northeast Corridor Unit, which is responsible for operations on the East Coast between Virginia and Vermont; Amtrak West, for operations on the West Coast; and the Intercity Unit, for all other service, including most long-distance, cross-country trains. Amtrak is still in a financial crisis despite the fact that its financial performance (as measured by net losses) has improved over the last 2 years. At the end of fiscal year 1994, Amtrak’s net loss was about $1.1 billion (in 1996 dollars). This loss was $873 million if the one-time charge of $255 million—taken in fiscal year 1994 for accounting changes, restructuring costs, and other items—is excluded. By the end of fiscal year 1996, this loss had declined to about $764 million. However, the relative gap between total revenues and expenses has not significantly closed, and passenger revenues (adjusted for inflation)—which Amtrak has been relying on to help close the gap—have generally declined over the past several years (see apps. II and III). More importantly, the gap between operating deficits and federal operating subsidies has again begun to grow. Amtrak continues to be heavily dependent on federal operating subsidies to make ends meet. Although operating deficits have declined, they have not gone down at the same rate as federal operating subsidies (see app. IV). At the end of fiscal year 1994, the gap between Amtrak’s operating deficit and federal operating subsidies was $75 million. At the end of fiscal year 1996, the gap had increased to $82 million. Over this same time, federal operating subsidies went from $502.2 million to $405 million. Amtrak’s continuing financial crisis can be seen in other measures as well. In February 1995, we reported that Amtrak’s working capital—the difference between current assets and current liabilities—declined between fiscal year 1987 and fiscal year 1994. Although Amtrak’s working capital position improved in fiscal year 1995, it declined again in fiscal year 1996 to a $195 million deficit (see app. V). This decline reflects an increase in accounts payable, short-term debt, and capital lease obligations, among other items. A continued decline in working capital jeopardizes Amtrak’s ability to pay immediate expenses. Amtrak’s debt levels have also increased significantly (see app. VI). Between fiscal years 1993 and 1996, Amtrak’s debt and capital lease obligations increased about $460 million—from about $527 million to about $987 million (in 1996 dollars). According to Amtrak, this increase was to finance the delivery of new locomotives and Superliner and Viewliner cars—a total of 28 locomotives and 245 cars delivered between fiscal years 1994 and 1996. These debt levels do not include an additional $1 billion expected to be incurred to finance 18 high-speed trainsets due to begin arriving in fiscal year 1999 and related maintenance facilities for the Northeast Corridor (at about $800 million) and the acquisition of 98 new locomotives (at about $250 million). It is important to note that Amtrak’s increased debt levels could limit the use of federal operating support to cover future operating deficits. As Amtrak’s debt levels have increased, the interest expenses that Amtrak has incurred on this debt have also increased signficantly (see app. VII). In fact, over the last 4 years, interest expenses have about tripled—from about $20.6 million in fiscal year 1993 to about $60.2 million in fiscal year 1996. This increase has absorbed more of the federal operating subsidies each year because Amtrak pays interest from federal operating assistance and principal from federal capital grants. Between fiscal year 1993 and fiscal year 1996, the percentage of federal operating subsidies used to pay interest expenses has increased from about 6 to about 21 percent. As Amtrak assumes more debt to acquire equipment, the interest payments are likely to continue to consume an increasing portion of the federal operating subsidies. Implementing the strategic business plans appears to have helped Amtrak’s financial performance—as evidenced by the reduction in net losses between fiscal year 1994 and fiscal year 1996 (from about $873 million to about $764 million). As we reported in July 1996, about $170 million in cost reductions came in fiscal year 1995 by reducing some routes and services, cutting management positions, and raising fares. Amtrak projected that these actions would reduce future net losses by about $315 million annually once they were in place. The net loss was reduced in fiscal year 1996 as total revenues increased more than total expenses did. In contrast, Amtrak estimates that its net loss in fiscal year 1996 would have been about $1.1 billion if no actions had been taken to address its financial crisis in 1994. Although the strategic business plans have helped reduce the net losses, targets for these losses have often been missed. For example, Amtrak’s plans for fiscal years 1995 and 1996 included actions to reduce the net losses by $195 million—from about $834 million in 1994 (in current year dollars) to $639 million in fiscal year 1996. This reduction was to be accomplished, in part, by increasing revenues by $191 million while holding expenses at about the 1994 level. However, the actual net losses for this period totaled about $1.572 billion, or about $127 million more than the $1.445 billion Amtrak had planned. This difference was primarily due to the severe winter weather in fiscal year 1996—a contingency that Amtrak had not planned for and one that added about $29 million to expenses—and the unsuccessful implementation of various elements of the fiscal year 1996 business plan. For example, many of the productivity improvements (such as reducing the size of train crews) that Amtrak had planned in fiscal year 1996 were not achieved. As a result, cost savings fell short of Amtrak’s $108 million target by about $60 million. For fiscal year 1997, as a result of higher than anticipated losses and an expected accounting adjustment, Amtrak planned for a net loss of $726 million. However, after the first quarter of operations, revenues were below target, and although expenses were lower than expected, the operating deficit was almost $4 million more than planned for that quarter. Through February 1997, the operating deficit had increased to $8.5 million more than planned. Furthermore, the fiscal year 1997 financial results will be affected by the postponement of route and service adjustments planned for November 1996. Amtrak estimates that postponing these adjustments will bring a net revenue reduction of $6.9 million and a net cost increase of $29.2 million. Part of this increased cost will be offset by an additional federal operating grant of $22.5 million made to keep these routes operating. In part, as a result of these increased costs, Amtrak revised its planned fiscal year 1997 net loss upward to $762 million from the originally projected $726 million. However, the loss could be even greater. As a result of additional unanticipated expenses and revenue shortfalls, at the end of the first quarter Amtrak projected that its actual fiscal year 1997 year-end net loss could be about $786 million. Second quarter financial results are expected to be available in May 1997. Amtrak’s projected fiscal year 1997 financial results may also affect its cash flow and the need to borrow money to make ends meet. For example, in March 1997, Amtrak projected a cash flow deficit of about $76 million at the end of fiscal year 1997—about $10 million more than planned. This deficit required Amtrak to begin borrowing in March 1997 to pay its bills. Moreover, the cash flow deficit may be even larger than projected if Amtrak does not receive the revenues it anticipates from the sale of property ($11 million) and the sale of rights to use its rights-of-way to telecommunications companies ($45 million). According to Amtrak, cost savings from lower electric power prices in the Northeast Corridor—expected to yield $20.5 million in improved cash flow—has been delayed. Amtrak’s fiscal year 1998 projected year-end cash balance is also bleak. On the basis of financial results through February 1997, Amtrak estimates that it may have to borrow up to $128 million next year. However, Amtrak has recently testified before the Congress that it could run out of cash during fiscal year 1998. Amtrak currently has short-term lines of credit of $150 million. Amtrak’s need for capital funds remains high. We reported in June 1996 that Amtrak will need billions of dollars to address its capital needs, such as bringing the Northeast Corridor up to a state of good repair.