- TAX TREATMENT OF TRANSPORTATION

[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

TAX TREATMENT OF TRANSPORTATION INFRASTRUCTURE

=======================================================================

HEARING

before the

SUBCOMMITTEE ON OVERSIGHT

of the

COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

__________

JULY 25, 2000

__________

Serial 106-109

__________

Printed for the use of the Committee on Ways and Means

U.S. GOVERNMENT PRINTING OFFICE
71-648 WASHINGTON : 2001

_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402

COMMITTEE ON WAYS AND MEANS

BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida

A.L. Singleton, Chief of Staff

Janice Mays, Minority Chief Counsel

______

Subcommittee on Oversight

AMO HOUGHTON, New York, Chairman

ROB PORTMAN, Ohio WILLIAM J. COYNE, Pennsylvania
JENNIFER DUNN, Washington MICHAEL R. McNULTY, New York
WES WATKINS, Oklahoma JIM McDERMOTT, Washington
JERRY WELLER, Illinois JOHN LEWIS, Georgia
KENNY HULSHOF, Missouri RICHARD E. NEAL, Massachusetts
J.D. HAYWORTH, Arizona
SCOTT McINNIS, Colorado

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.

C O N T E N T S

__________

Page

Advisories announcing the hearing................................ 2

WITNESSES

ALSTOM Transportation Inc., Tim Gillespie........................ 33
American Association of Port Authorities, Alexandria, Virginia,
Jean Godwin.................................................... 63
American Consulting Engineers Council, and Anderson & Associates,
Inc. Tim Stowe................................................. 42
American Road and Transportation Builders Association, and
Parsons Transportation Group, William H. George................ 37
Association of American Railroads, and Union Pacific Corporation,
Bernard R. Gutschewski......................................... 54
Georgia Regional Transportation Authority, Catherine L. Ross..... 22
High Speed Ground Transportation Association, Mark R. Dysart..... 60
Morgan Stanley Dean Witter, James B. Query....................... 45
North Carolina Department of Transportation, David D. King,
Deputy Secretary for Transportation, and Intercity Passenger
Rail, Raleigh, North Carolina.................................. 18
Oberstar, Hon. James L., a Representative in Congress from the
State of Minnesota............................................. 14
Thompson, Hon. Tommy G., Governor of Wisconsin, and National
Railroad Passenger Corporation................................. 8

SUBMISSIONS FOR THE RECORD

American Society of Civil Engineers, statement................... 70
Bond Market Association, statement............................... 73
National Association of Railroad Passengers, Ross B. Capon,
statement...................................................... 76
Shuster, Hon. Bud, a Representative in Congress from the State of
Pennsylvania, statement........................................ 77
Talgo, Inc., Jean-Pierre Ruiz, statement......................... 79
Washington State Department of Transportation, Olympia, WA, Hon.
Sid Morrison, Secretary, statement and attachment.............. 83

TAX TREATMENT OF TRANSPORTATION

---------- IN
FRASTRUCTURE

TUESDAY, JULY 25, 2000

House of Representatives,
Committee on Ways and Means,
Subcommittee on Oversight,
Washington, D.C.
The Subcommittee met, pursuant to call, at 2:07 p.m., in
room B-318 Rayburn House Office Building, Hon. Amo Houghton
(Chairman of the Committee) presiding.
[Advisories announcing the hearing follow:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON OVERSIGHT

Contact: (202) 225-7601
FOR IMMEDIATE RELEASE
June 14, 2000
No. OV-20

Houghton Announces Hearing on
Tax Treatment of Transportation Infrastructure

Congressman Amo Houghton (R-NY), Chairman, Subcommittee on
Oversight of the Committee on Ways and Means, today announced that the
Subcommittee has rescheduled the hearing on the tax law treatment of
transportation infrastructure. The hearing will take place on Tuesday,
June 21, 2000, in the main Committee hearing room, 1100 Longworth House
Office Building, beginning at 3:00 p.m.

Oral testimony at this hearing will be from invited witnesses only.
Witnesses will include representatives from organizations with
expertise in the various modes of transportation. However, any
individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.

BACKGROUND:

One feature shared by all modes of transportation is that they are
capital intensive. For example, the railroad industry must build and
maintain the tracks upon which its trains travel as well as the
expensive rolling stock required to operate a rail system. The motor
vehicle industry is continually challenged to produce more fuel
efficient and safer vehicles, while governmental units are called upon
to expand and improve our highway system.

The tax law historically has recognized the unique character of the
transportation industry and has been tailored to address its special
circumstances. For example, the tax law imposes an excise tax on motor
fuel and aviation fuel, the proceeds of which fund improvements in
highways and airport facilities respectively. Likewise the tax law
provides tax-exempt bonding authority to high-speed intercity rail
facilities, as well as special rules for the treatment of railroad
repair expenditures and for the depreciation of railroad rolling stock.

In announcing the hearing, Chairman Houghton stated: ``Despite the
popular attention given to the new ``dot-com'' industries, the
transportation industry remains the backbone of an expanding economy.
Without the efficient movement of people and products, the continued
growth in our economy could be jeopardized. I want to explore how the
tax law affects the national transportation infrastructure and the
transportation industries' ability to serve the public.''

FOCUS OF THE HEARING:

The hearing will focus on how the tax law treats the transportation
industry and how it can promote better transportation infrastructure
for the various modes of transport, such as railroad, motor vehicle,
aircraft, etc.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch
diskette in WordPerfect or MS Word format, with their name, address,
and hearing date noted on a label, by the close of business, Wednesday,
July 5, 2000, to A.L. Singleton, Chief of Staff, Committee on Ways and
Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 200 additional copies for this
purpose to the Subcommittee on Oversight office, room 1136 Longworth
House Office Building, by close of business the day before the hearing.

FORMATTING REQUIREMENTS:

Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.

1. All statements and any accompanying exhibits for printing must
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or
MS Word format, typed in single space and may not exceed a total of 10
pages including attachments. Witnesses are advised that the Committee
will rely on electronic submissions for printing the official hearing
record.

2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.

3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.

4. A supplemental sheet must accompany each statement listing the
name, company, address, telephone and fax numbers where the witness or
the designated representative may be reached. This supplemental sheet
will not be included in the printed record.

The above restrictions and limitations apply only to material being
submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the Members, the press,
and the public during the course of a public hearing may be submitted
in other forms.

Note: All Committee advisories and news releases are available on
the World Wide Web at ``http://waysandmeans.house.gov''.

The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.

NOTICE-HEARING POSTPONEMENT

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON OVERSIGHT

Contact: (202) 225-7601
FOR IMMEDIATE RELEASE
June 16, 2000
No. OV-20-Revised

Postponement of Subcommittee Hearing on
Tax Treatment of Transportation Infrastructure

Congressman Amo Houghton (R-NY), Chairman of the Subcommittee on
Oversight of the Committee on Ways and Means, today announced that the
Subcommittee hearing on the tax law treatment of transportation
infrastructure, previously scheduled for Wednesday, June 21, 2000, at
3:00 p.m., in the main Committee hearing room, 1100 Longworth House
Office Building, has been postponed and will be rescheduled at a later
date (See Subcommittee press release No. ``ov-20.htm''>OV-20, dated
June 14, 2000.)

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON OVERSIGHT

Contact: (202) 225-7601
FOR IMMEDIATE RELEASE
July 18, 2000
No. OV-22

Houghton Announces Rescheduling of Hearing on
Tax Treatment of Transportation Infrastructure

Congressman Amo Houghton (R-NY), Chairman, Subcommittee on
Oversight of the Committee on Ways and Means, today announced that the
Subcommittee has rescheduled the hearing on the tax law treatment of
transportation infrastructure. The hearing will take place on Tuesday,
July 25, 2000, in room B-318 Rayburn House Office Building, beginning
at 2:00 p.m.

BACKGROUND:

The transportation sector of the economy includes trains, motor
vehicles, aircraft, and shipping. These various modes of transportation
play a critical role in the operation of our economy. The demands on
transportation industries have grown over time in step with the growth
in the population and with the growth in the economy. One feature
shared by all modes of transportation is that they are capital
intensive. For example, the railroad industry must build and maintain
the tracks upon which its trains travel as well as the expensive
rolling stock required to operate a rail system. The motor vehicle
industry is continually challenged to produce more fuel efficient and
safer vehicles, while governmental units are called upon to expand and
improve our highway system.

In announcing the hearing, Chairman Houghton stated: ``Despite the
popular attention given to the new ``dot-'' industries, the
transportation industry remains the backbone of an expanding economy.
Without the efficient movement of people and products, the continued
growth in our economy could be jeopardized. I want to explore how the
tax law affects the national transportation infrastructure and the
transportation industries' ability to serve the public.''

FOCUS OF THE HEARING:

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch
diskette in WordPerfect or MS Word format, with their name, address,
and hearing date noted on a label, by the close of business, Tuesday,
August 8, 2000, to A.L. Singleton, Chief of Staff, Committee on Ways
and Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 200 additional copies for this
purpose to the Subcommittee on Oversight office, room 1136 Longworth
House Office Building, by close of business the day before the hearing.

FORMATTING REQUIREMENTS:

Note: All Committee advisories and news releases are available on
the World Wide Web at ``http://waysandmeans.house.gov''.

Chairman Houghton. Good afternoon, ladies and gentlemen.
The hearing will now come to order.
This is a hearing on transportation infrastructure. The
transportation section of our economy, as you all know,
includes railroads, motor vehicles, aircraft, and shipping.
These all play an essential role in the operation of our
economy.
Furthermore, demands on the transportation industry have
grown in step with the growth of the population and the growth
in the economy. All modes of transportation are capital-
intensive. The railroad industry must install and maintain
tracks upon which its trains travel, as well as the expensive
rolling stock required to operate the system.
The motor vehicle industry is regularly challenged to
produce more fuel-efficient and safer vehicles, while
government is called upon to expand and improve our highway
system.
The tax law historically has sought to address the special
needs of the transportation sector, but it has not always
provided uniform assistance. Regrettably, there is an imbalance
in how Federal law addresses the unique needs of the various
modes of transportation.
For example, the tax law imposes an excise tax on highway
motor fuels, the proceeds of which are then deposited into the
Highway Trust Fund. The Highway Trust Fund provides a stable,
long-term source of funding for highway infrastructure
improvements.
In a similar manner, the excise tax on aircraft fuel is
deposited in the Airport and Airway Trust Fund. This provides a
stable source of long-term funding for infrastructure on the
aircraft sector.
However, there is no comparable source of stable, long-term
Federal support for the infrastructure related to passenger
rail service. The various modes of transportation should try to
operate evenly. If the current tax law does not treat all
transportation modes fairly, then we should point out where an
imbalance may exist and explore how to correct it.
Without the efficient movement of people and products,
continued growth in our economy will increasingly be in
jeopardy. As a result, it is right for the Committee on Ways
and Means today to explore how the tax law could be improved to
help the private sector meet the transportation infrastructure
needs of the next century.
I welcome our witnesses today, and I look forward to
hearing their testimony.
Chairman Houghton. I would like to recognize the Ranking
Democrat Mr. Coyne for his opening statement.
Mr. Coyne. Mr. Chairman, thank you. I, too, welcome today's
oversight hearing on tax incentives for transportation
infrastructure.
The witnesses appearing before us today will provide
valuable insight into the present law and rules on tax-exempt
financing, capital cost recovery, capital construction, and the
net operating loss carry-back for Amtrak.
In addition, I look forward to discussing the bill to
facilitate Amtrak's high-speed rail financing sponsored by
Chairman Houghton as a cosponsor of this bill, H.R. 3700, the
High Speed Rail Act of 2000, which would provide for tax-exempt
bond financing of high-speed rail construction and improvements
with the use of Federal tax credits in lieu of interest
payments.
This financing method has proven to be successful in other
areas and merits serious consideration for the long-term
development of high-speed rail throughout many parts of the
United States.
The federally designated high-speed rail corridors
throughout the Nation should be funded in an efficient and
timely manner. Amtrak's service and ridership in Pennsylvania
is impressive. Amtrak operates more than 100 trains daily in
Pennsylvania. The constituents that I represent know very well
the services of the Capital, Limited, the Pennsylvania, and
Three Rivers.
High-speed rail is an important component of our national
transportation infrastructure that should be fully supported,
and I thank the Chairman for holding a hearing on the entire
package of tax incentives of assistance to transportation
systems and infrastructure.
Thank you, Mr. Chairman.
Chairman Houghton. Thank you, Mr. Coyne.
Ladies and gentlemen, Jim Oberstar, a Member of Congress
from Minnesota, was going to be here first. He is not here, I
don't see him, and therefore we will try to blend him in a
little later on.
I would like to call the first panel, Hon. Tommy G.
Thompson, Governor of Wisconsin, Chairman of the Amtrak Reform
Board, and, Tommy, it is great to have you here; David King,
Deputy Secretary of Transportation, North Carolina Department
of Transportation in Raleigh; and Dr. Catherine L. Ross, a
director of Georgia Regional Transportation Authority, Atlanta,
Georgia. I am sure that John Lewis is going to be furious that
I have already introduced you, but he can do it a little later
on.
Chairman Houghton. Governor Thompson.

STATEMENT OF HON. TOMMY G. THOMPSON, GOVERNOR OF WISCONSIN, AND
CHAIRMAN, AMTRAK REFORM BOARD, NATIONAL RAILROAD PASSENGER
CORPORATION

Governor Thompson. Thank you very much, Mr. Chairman, thank
you, Mr. Coyne, both of you; you for sponsoring the bill, and
Mr. Coyne for being a cosponsor.
I want to thank you for holding this hearing. I really
appreciate it.
As both Chairman of the Amtrak Reform Board and Governor of
one of the 36 States that are currently pursuing high-speed
rail, I am absolutely honored to appear before your
Subcommittee today, Mr. Chairman, to discuss the innovative
ways through which the Federal Government can help finance
high-speed rail. I am going to focus on the High-speed Rail
Investment Act, H.R. 3700, which I believe is truly a creative
and historic piece of legislation.
Mr. Chairman, there is a rationale for an innovative
Federal role in developing high-speed rail to help Amtrak and
the States do what needs to be done, what we are attempting to
do, but what it cannot do nearly so well without the Federal
Government's involvement and their assistance.
The simple truth is that our Nation's transportation system
is in serious trouble. One of the clearest statements of the
nature of the trouble appeared last December in a Los Angeles
Times editorial. With your permission, Mr. Chairman, I would
like to read a brief excerpt of that editorial:
``California faces the millennium with its transportation
stuck in the freeway-mad jet-age sixties. The State that
pioneered the instantaneous connections of e-mail and e-
commerce stands on the verge of a broadband revolution that
promises to pipe feature movies into homes in seconds. But
residents still pack themselves into automobiles that travel at
Eisenhower-era speeds for most inner-city journeys, or into
shuttle jets that spend more time waiting for takeoff and
circling their destinations than en route.'' .
What is true of California is absolutely true of the rest
of the Nation. No wonder Governors, public policymakers,
business, and labor leaders are all coming to appreciate the
benefits that passenger rail can provide.
Even before the recent rises in oil prices, the National
Governors' Association has unanimously voiced its strong
collective support for Amtrak and high-speed rail corridor
development. Amtrak also enjoys strong support from the
National Conference of State Legislators, the U.S. Conference
of mayors, the National League of Cities, as well as many other
influential organizations. Most recently a brandnew
organization, States for Passenger Rail, has been formed to
support high-speed rail funding.
What are the benefits that high-speed rail offers? Improved
mobility, greater dependability, increased safety, lower travel
costs due to increased competition, and yes, a reduced need for
expensive and politically difficult construction of new
airports.
Mr. Chairman, these are the benefits of high-speed trains
in absolute terms, but to fully understand the critical
importance of high-speed rail to our Nation's future, it is
necessary to examine the benefits of investing in high-speed
rail in relative terms. Once you do that, one fact is glaringly
obvious: The costs of building new highways and airports are
going way up. The costs of adding to our rail capacity are
coming way down.
To put it plainly, you get more bang for your buck by
investing your transportation dollars in passenger rail than by
investing that same dollar in new highway or airport
construction. That is why 36 States are working with Amtrak on
passenger rail projects and demonstrating a real commitment to
high-speed rail on the part of the States. But States will be
limited in how much they can do because of the regional nature
of passenger rail systems.
If we truly want, which I believe we do--want a national
railroad system that we can really justly be proud of and that
is economically competitive, we have to muster the will and
national commitment to pay for it.
That is precisely what your bill, H.R. 3700, does. It
authorizes Amtrak to issue $1 billion annually in bonds for 10
years, the proceeds of which would primarily support the
development of high-speed rail corridors. Twenty percent of
these funds would be set aside in escrow, as you know, to
guarantee the repayment of the bonds. States would then be
required to match the Amtrak investment in a particular project
by 20 percent, thus making the $1 billion whole for investment.
Amtrak would not be allowed to invest bond receipts without
the State partnership. The Federal Government would provide tax
credits to bondholders in lieu of interest payments. The cost
to the Federal Government would be minimal. The Joint Committee
on Taxation places it at $762 million over 5 years and $3.3
billion over 10 years.
But as I have already explained, the benefits to this
country would be phenomenal. The private market guarantees
these bonds, so there is no risk to the Federal Government.
Already this bill enjoys broad support from a range of
interests. With your permission, I would like to introduce for
the record a complete set of endorsements for the bill.
I would also like to quickly note that just today the U.S.
Conference of mayors joined us by endorsing the bill at a
hearing in the Senate Finance Committee.
Mr. Chairman, for the past half century or so I think it is
fair to say that passenger railroads have been virtually
relegated to the dustbin of history. It has gotten to the point
where last year, in 1 year, the Federal Government spent more
than $33 billion in highways, $33 billion, more than $11
billion in aviation, which will rise to $14 billion this year,
and I don't criticize them for getting the money, more than $6
billion on mass transit, while we at Amtrak have really been
Cinderella, the poor stepchild. We have had to fight for $500
million in Federal funds, like dogs for table scraps.
But the tide is beginning to turn, thanks to you. Americans
are beginning to realize that our national railroad system is a
precious treasure that was unwisely neglected for decades. They
have also begun to recognize what the cost of not investing in
high-speed rail comes to: More gridlock in our interstates,
more air pollution in our cities, and a highway construction
bill that dwarfs the cost of upgrading the rails.
Americans have also become aware of something else: Amtrak
is here to stay. Our high-speed rail projects make us
competitive with other modes of intercity transportation. We
are highly recognized as a powerful engine for economic growth
in cities as well as States across the Nation.
I just want to quickly tell you that I am so happy about
these figures, that last month Amtrak had its highest ridership
in the past 9 years, and we set an all-time record, all-time
record for ticket revenues of more than $100 million in 1
month. That is amazing for Amtrak.
The third quarter ridership and revenue results are running
a full 8 and 13 percent higher respectively than a year ago.
Importantly, automated ticket sales in just the past several
weeks, spurred in good measure by the recently announced
satisfaction guarantee--we are guaranteeing everybody will be
satisfied--up by 16 percent. Thanks to the demand generated by
the satisfaction guarantee, we expect revenue and ridership to
continue to grow and grow strongly.
In the long run, meeting that demand will mean delivering
on our promise, the promise of America for high-speed rail.
In short, we have a crucial role to play in the
transportation industry, Mr. Chairman and Members, in the
economy of the 21st century. We respectfully, please, ask you,
the distinguished Members of this Subcommittee, to help us play
that role and be successful by giving us the tools, the
innovative funding mechanism we need to do our job. That
mechanism is your bill, H.R. 3700.
Thank you, Mr. Chairman and all the Members, for your
leadership on this very important issue for Amtrak, but, more
importantly, for America.
Chairman Houghton. Thank you very much, Governor Thompson.
You are great to fly in to give this testimony.
[The prepared statement follows:]

STATEMENT OF HON. TOMMY THOMPSON, GOVERNOR OF WISCONSIN, AND CHAIRMAN,
AMTRAK REFORM BOARD, NATIONAL RAILROAD PASSENGER CORPORATION

Mr. Chairman:
As both Chairman of the Amtrak Reform Board and as a
Governor of one of the 36 States currently pursuing high-speed
rail, I am honored to appear before your Subcommittee to
discuss innovative ways through which the federal government
can help finance high-speed rail. I'll be focusing on the High
Speed Rail Investment Act--H.R. 3700--which I believe is a
truly creative and historic piece of legislation. But I'd like
to preface my remarks with a few words about the role of the
federal government in promoting the general welfare.
As you know, I'm a Republican--and proud of it! I believe
that the government's role in our nation's life should be
limited. That was clearly what our Founders intended, and
that's what we Republicans have fought for over the years.
But believing in limited government is very different from
not believing in any government at all. Where the public
interest is served by federal action, Republicans recognize
that such action is warranted. As the father of our party,
Abraham Lincoln, put it 146 years ago, ``The legitimate object
of government is to do for a community of people whatever they
need to have done, but cannot do at all, or cannot so well do
for themselves--in their separate and individual capacities.''
There, Mr. Chairman, is the rationale for an innovative
federal role in developing high-speed rail: to help Amtrak and
the states do what needs to be done--what we are, in fact,
already attempting to do--but what we cannot do nearly so well
without the federal government's involvement and assistance.
Like most Republicans, I look to the example of Abraham
Lincoln for inspiration and guidance. In 1862, Congress passed
a measure that President Lincoln had long championed--the
Homestead Bill. Giving enterprising Western farmers 160 acres
of public land for a nominal sum, the Homestead Bill, in
historian Paul Johnson's words, was ``one of the most important
laws in American history''--a law that caused a tremendous
burst of economic growth and led to the rapid settlement of the
West.
The Homestead Bill was a remarkable--and highly original--
piece of legislation. As Johnson puts it, after the Homestead
Bill, ``it may be said [that] the United States no longer just
allowed farming to `happen'--it had a policy for it.'' That
policy can be summarized as expanding economic opportunity for
all Americans by providing incentives that promoted greater
choice.
Unfortunately, in the area of transportation policy,
Americans have lost sight of Lincoln's vision. As with farming
in the pre-Lincoln era, we have just allowed transportation to
``happen''--and the results have been appalling: massive
gridlock on our highways, growing congestion at our airports,
and a dangerous and growing dependence on a handful of OPEC
tyrants.
Most alarmingly, we have permitted matters to reach the
point where Americans are increasingly forced to use
automobiles whether they want to or not. If I may say so, Mr.
Chairman, this is a form of ``transportation slavery'' that
violates everything America stands for.
It's time to reverse these dangerous trends--and that's
what H.R. 3700 proposes to do. It will emulate Lincoln's
Homestead Bill by offering economic incentives to promote
economic growth and restore freedom of choice. The purpose of
this landmark legislation is to promote the modernization of
our passenger rail infrastructure and the creation of new high-
speed rail corridors. H.R. 3700 will increase America's
productivity, protect our environment, enhance our safety,
create more jobs, and promote ``smart growth'' through the
economic development of our downtown urban centers. It will
reduce congestion on our roads and in our skies.
The simple truth is that our nation's passenger
transportation system is in serious trouble. One of the
clearest statements of the nature of the trouble appeared last
December in a Los Angeles Times editorial. With your
permission, Mr. Chairman, I'd like to read a brief excerpt from
that editorial:
``California faces the millennium with its transportation
stuck in the freeway-mad, jet-age 1960s. The state that
pioneered the instantaneous connections of e-mail and e-
commerce stands on the verge of a broadband revolution that
promises to pipe feature movies into homes in seconds. But
residents still pack themselves into automobiles that travel at
Eisenhower-era speeds for most intercity journeys. Or into
shuttle jets that spend more time waiting for takeoff and
circling their destinations than en route.''
What's true of California is true of the rest of the
nation, as well. Indeed, a study issued by the Texas
Transportation Institute last year points to the fastest and
most pervasive growth in highway congestion that we've ever
experienced. Meanwhile, our nation's aviation system is
likewise becoming increasingly congested--especially in our
larger cities. In 1991, for example, 23 airports experienced
annual flight delays in excess of 20,000 hours. Today there are
27 airports with at least that amount, and that number is
expected to grow to 31 before the end of the decade.
No wonder governors, public policymakers, business and
labor leaders are all coming to appreciate the benefits that
passenger rail can provide. Even before the recent rise in oil
prices, the National Governors' Association unanimously voiced
its strong collective support for Amtrak and high-speed rail
corridor development. Amtrak also enjoys strong support from
the National Conference of State Legislatures, the U.S.
Conference of Mayors, the National League of Cities, and many
other influential organizations. Most recently, a new
grassroots organization--States for Passenger Rail--has been
formed to support high-speed rail funding.
What are the benefits that high-speed rail offers? A study
conducted for the Coalition of Northeastern Governors listed
five distinct gains:
Improved mobility, due to the diversion of
passengers from highways to high-speed rail;
Greater dependability, as rail operations are
least affected by inclement weather relative to road or air
travel;
Increased safety--the study estimated a reduction
of nearly 1,000 accidents in the Boston to New York Corridor
alone;
Lower travel costs, since the existence of a
strong new competitor in the travel marketplace will serve to
keep all travel prices down;
And a reduced need for expensive and politically
difficult construction of new airports by freeing up gate and
arrival/departure slots for long-distance flights.
The Governors' study also dealt with the environmental
benefits of high-speed rail. For example, it estimated that the
introduction of high-speed rail in the Boston to New York
Corridor will save 20 million gallons of jet fuel alone each
year, resulting in a reduction of 511 tons of carbon monoxide,
123 tons of hydrocarbons, and 270 tons of nitrogen oxide.
Savings from fewer automobile trips were placed at 4.5 million
gallons of gasoline annually.
Additionally, investment in high-speed rail has an
unusually powerful impact on the entire economy. An analysis
prepared by the Center for Urban Transportation Research at the
University of South Florida demonstrated that the economic
benefits of an investment in high-speed rail are greater than
an equivalent investment in the manufacturing, communications
or service industries, in all categories but job creation,
where high-speed rail is roughly equivalent. High-speed rail
yielded, on average, $3.2 in output for each dollar invested,
compared to manufacturing, communications and services, which
generate $1.8, $1.9, and $2.1 of output per dollar of
investment, respectively.
Finally, I should point out that although I have been
talking about the benefits of investment in passenger rail, the
upgrading of our underutilized passenger railroad network will
simultaneously bring with it a radical improvement in the
capacity of freight railroads to transport their cargo. That's
because in most areas of the United States today, passenger and
freight trains share the same track. But because high-speed
passenger rail infrastructure is used most extensively during
the day and evening, an additional benefit of investment in
high-speed rail is an improved infrastructure useable for
carrying freight at night, or sometimes concurrently with
passenger operations. In other words, when you invest in high-
speed rail, not only do you help passengers by relieving
gridlock and ``winglock''--you're also helping business by
unclogging the arteries of our nation's commerce.
Mr. Chairman, so far I have talked about the economic,
environmental, safety and mobility benefits of high-speed rail
mainly in absolute terms. But to fully understand the critical
importance of high-speed rail to our nation's future, it is
necessary to examine the benefits of investing in high-speed
rail in relative terms, as well--that is, as compared to making
investments in new highways and airports. And once you do that,
one fact is glaringly obvious: the costs of building new
highways and airports are going way up; the costs of adding to
our rail capacity are coming way down. You don't need to be a
rocket-scientist to figure out that as the marginal cost of
highway and airport construction rises, while the marginal cost
of increasing our passenger rail capacity falls, rail becomes
cost-effective relative to other transportation modes. To put
it plainly, you get more ``bang for your buck'' by investing
your transportation dollar in passenger rail, than by investing
that same dollar in new highway or airport construction.
There are many ways I could illustrate this point, but let
me provide just one telling comparison. A supply of highway
salt that would cover this country's needs for 12 winter months
costs $1.2 billion, which is about what it costs to build the
entire high-speed rail infrastructure from New York to Boston.
Think about it: 115 miles of continuous welded rail, 6.5 miles
of additional track to accommodate commuter traffic, 487,000
tons of ballast, 455,000 concrete ties, 115 bridge locations, a
new signal system, 25 electric power stations, 14,000
foundations, 12,000 poles, 1,500 miles of wire for the overhead
catenary system, 21 miles of new fencing, and a new Route 128
Station, all for about the price of three winters' worth of
highway salt. And when the rail infrastructure is complete,
you've got a high-speed rail service that will spark
extraordinary economic growth throughout the Northeast. It
seems to me that's worth a heck of a lot more than a big puddle
of salt water.
As I said, Mr. Chairman, you don't need to be a rocket--
scientist to figure all this out. Even politicians like myself
get it. That's why 36 states are working with Amtrak on
passenger rail projects. California, for example, plans to
invest $700 million out of a $5 billion infrastructure bill
expected to be earmarked for intercity passenger rail
investment next year. Also, as part of the $5 billion Midwest
Regional Rail Initiative, Illinois plans to spend $140 million;
Michigan spent $25 million; and my own state, Wisconsin, plans
to spend $60 million. The state of Washington has invested $125
million, New York will invest $100 million and both North
Carolina and Pennsylvania are investing $75 million in high-
speed rail projects. Virginia recently approved $75 million in
new spending for the Richmond-Washington high-speed rail
corridor, and Georgia recently approved $200 million out of $2
billion planned for investment in high-speed rail and commuter
rail in that state.
What's so significant about these investments is not simply
that they are happening, but that they are taking place without
a federal guarantee of funding. That indicates a real
commitment to high-speed rail on the part of the states. But
states will be limited in how much they can do because of the
regional nature of passenger rail systems. Like with the
genesis of the interstate highway system, the federal
government must lead the way with vision and financial
assistance.
For our part, Amtrak is working closely with the states to
help meet the growing demand for high-speed rail. We would like
to do a lot more, and if H.R. 3700 is adopted and long-term
capital funding becomes available for high-speed rail--the way
it now is for highways, airports and mass transit--believe me,
Mr. Chairman, we will do a lot more. In the 21st century, we
envision a national passenger railroad system consisting of
regional high-speed rail networks linked by market-responsive
long-distance service. This national system will empower
Americans to choose the fastest, safest, most efficient, and
most convenient way to reach their destinations. It will give
travelers more options--including the option not to travel by
car if they choose not to. Fundamental to the success of our
vision will be the fostering of mutually-beneficial
partnerships with states, with the freight railroads, with
other commercial enterprises, and yes--with the federal
government.
Mr. Chairman, the truth of the matter is that a modern
national railroad doesn't come cheap. Germany, for example,
spent more than $7.5 billion to develop the 215-mile Hanover-
Frankfurt corridor, and is planning to spend about $70 billion
on its railroad system over the next decade. France spent over
$12 billion on its TGV (Train a' Grande Vitesse) system and
plans to spend even more. The European Community is planning to
link key cities by a 12,000-mile high-speed rail network to
cost, when completed, $100 billion. If we want a national
railroad system that we can be proud of and that is
economically competitive, we have to muster the will and
national commitment to pay for it.
That is precisely what H.R. 3700 does. It authorizes Amtrak
to issue $1 billion in bonds annually for ten years, the
proceeds of which would primarily support the development of
high-speed rail corridors. Twenty percent of these funds would
be set aside in escrow to guarantee repayment of the bonds.
States would then be required to match the Amtrak investment in
a particular project at 20 percent thus making the $1 billion
whole. Amtrak would not be allowed to invest bond receipts
without state partnerships--thereby ensuring that these funds
will take into account both the more easily measured financial
benefits as well as the more difficult to measure public
benefits so critical to states. The federal government would
provide tax credits to bondholders in lieu of interest
payments. The cost to the federal government would be minimal--
the Joint Committee on Taxation places it at $762 million over
5 years, and $3.2 billion over 10 years--but as I have already
explained, the benefits to the country would be phenomenal and
the private market guarantees these bonds, so there is no risk
to the Federal Government.
Mr. Chairman, as you and your colleagues well know,
Congress gave Amtrak a mandate to achieve operational self-
sufficiency by 2003. I think the record-breaking ridership and
revenue numbers we've achieved demonstrate the considerable
progress we've already made in turning this company around.
There is no doubt in my mind, however, that having a stable
source of capital funding would help Amtrak do the long-term
planning necessary to reach, maintain and surpass our goal of
operational self-sufficiency.
Mr. Chairman, for the past half-century or so I think it's
fair to say that passenger railroads have been virtually
relegated to the dustbin of history. The passage of the 1956
Interstate Highway Act brought America's love affair with great
passenger trains like the ``Empire Builder'' and the
``Twentieth Century Limited'' to an abrupt end. Once it became
possible to ``see the USA in your Chevrolet'' Americans did
precisely that, and railroad ridership plummeted. It has gotten
to the point where, last year--in one year--the federal
government spent more than $33 billion on highways, more than
$11 billion on aviation, more than $6 billion on mass transit,
while we at Amtrak have had to fight for $500 million in
federal funds like dogs for table scraps.
But the tide is beginning to turn. Americans are growing
increasingly tired of spending billions to build more highways
and airports--and still getting stuck in gridlock and winglock.
They're beginning to realize that our national railroad system
is a precious treasure that we've unwisely neglected for
decades. They've started to understand that better utilization
of our railroads could free our highways and airports to better
fulfill their potential roles. They've also begun to recognize
what the cost of not investing in high-speed rail comes to:
More gridlock on our interstates, more air pollution in our
cities, and a highway construction bill that dwarfs the cost of
upgrading the rails.
Americans have also become aware of something else: Amtrak
is here to stay. Our high-speed rail projects make us
competitive with other modes of intercity transportation. We
are widely-recognized as a powerful engine for economic growth
in cities and states across the nation--a way to get cars off
of our gridlocked highways and to open up badly-needed slots at
our congested airports. In short, we have a crucial role to
play in the transportation industry of the 21st century--and we
respectfully ask the distinguished Members of this Subcommittee
to help us play that role by giving us the innovative funding
mechanism we urgently and desperately need to do the job: H.R.
3700.
Thank you, Mr. Chairman, and thank you for your leadership
on this issue.

Chairman Houghton. Just a couple of things. I don't know
whether anybody has an opening statement.
John, do you have an opening statement, or Wes?
Mr. Lewis of Georgia. Mr. Chairman, I don't have an opening
statement, but I would like to take this opportunity to welcome
a friend and a longtime leader in the area of transportation
and planning, Dr. Catherine Ross from the State of Georgia, who
is doing a wonderful job; a former professor at Georgia Tech,
and now she is heading up the whole transportation planning for
the State of Georgia, and doing a great job to try to do
something about our transportation problem in metro Atlanta and
all over the State of Georgia.
Ms. Ross. Thank you, Congressman.
Mr. Lewis. Welcome, and we look forward to your testimony.
Chairman Houghton. Thanks very much, John.
Wes, do you have any remarks?
Mr. Watkins. No comments.
Chairman Houghton. Dr. Ross, if you and Mr. King would bear
with us for a minute, Congressman Oberstar has come here. I
know that you are a very busy guy.
Mr. Chairman, if you would like to give your testimony,
stick around for questions, or else whatever you think is
appropriate, and then I will go into the others.

STATEMENT OF HON. JAMES L. OBERSTAR, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MINNESOTA

Mr. Oberstar. Thank you very much for your courtesy. I
apologize for not getting here at the outset. My other hats
have held me up this afternoon on other matters.
Thank you for taking the lead and working together with me
to initiate this legislation, for holding this hearing, for
your sense of looking over the horizon. It has been my pleasure
to serve with you for many years in this body, and also on the
Canada-U.S. Interparliamentary Group, where you have, again,
shown the way to look at problems from a different perspective.
This is what we really need here.
I also want to express my appreciation to Senator
Lautenberg for cosponsoring a companion bill, S. 1990, over in
the Senate.
Mr. Chairman, this legislation puts us on the threshold of
a bold new era in transportation, one that has been preceded in
its significance only by the mobility given us by the Highway
Trust Fund and the Interstate Highway System, and the speed and
world access given us by the Aviation Trust Fund and our
aviation program.
Moving on high-speed rail for relatively short distances,
for intercity trips, is the answer to the congestion and the
Armageddon of gridlock that lies ahead of us in America.
I will not go into all the specifics of the bonding
authority to acquire rolling stock, rights-of-way, and signal
systems, or the State match in funds and the overall financing.
Those are all made clear in the legislation. You have probably
already discussed in your opening remarks.
The question that we have to address is not so much the
how, but the why and whether we have the will. For the first
time outside of the Northeast Corridor, we would have the
ability to finance systems of 500 to 700 miles in length of
high-speed rail and to actually build them, instead of
continuing to support a cottage industry of consulting firms
that have grown up around this issue.
Numerous studies have been undertaken over the past 30
years. We don't need more studies, we need to move forward and
began to build them. This legislation gives, I think, the most
practical and realistic and effective means of doing it. It
also provides for partnerships between States and private
firms.
The whether questions, whether we can and whether we
should, ought to be answered by the example of other countries.
The Japanese in the sixties began a commitment to high-speed
rail with the Shinkanshen, which I have ridden and probably
others in this room have also. The bullet train between Tokyo
and Osaka, a distance of 322 miles, reduced the travel from 8
hours to 2-1/2 hours. The Japanese now have a 25-mile long test
track for a maglev train that had been operating on a 12-mile
track. The expanded maglev test track has allowed them to
travel at speeds of well over 300 miles an hour.
Similarly, in Germany maglev technology proceeded almost to
the point of deployment when they had a change of government
which rethought the strategy, but will come back to it, I am
sure. They would have moved passengers between Hamburg and
Berlin, a distance of 288 miles, in just over an hour carrying
some 15 to 20 million passengers a year, according to their
studies. They are ready to do it.
In France, there is the TGV, that has achieved under test
conditions speeds of 300 miles an hour. TGC regularly travels
at 175 to 185 miles an hour, depending on which of the five
networks you are using. The French invested $12 billion in the
TGV, and now you can travel between Paris and Brussels at about
50 minutes. When I traveled from Paris to Bruxelles on a train
as a graduate student, it took a good 6 hours. Now you do it in
under an hour. It takes you less time to go to London by train
than it does to fly.
In Germany, the Intercity Express Train, the ICE, is
achieving the same speeds as the French have achieved with the
TGV on high-speed rail service. The German plan to invest $70
billion in their rail system much of it on them ICE system.
Contrast that with the United States, in which 94 percent
of paid intercity travel is by air. Only forty percent of paid
intercity travel in Europe is by air. Most of the rest is by
train.
We hear the argument time and again. Oh, the Americans'
love affair with the automobile will never allow them to move
from the car to the train. But, people fail to realize that the
most popular places for tourism in America are rail history
museums. Go to Sacramento where they have the most expansive,
detailed, and exciting rail history center. It is flooded with
people. Go to Scranton, Pennsylvania, to Steamtown, USA. It
too, is flooded with visitors; to Duluth, Minnesota, to the
Rail History Center, and it is flooded with visitors year
round, the city's most popular travel stop; and in St. Paul,
the same thing.
There is a love affair by Americans with travel by rail,
but they don't love traveling at slow speeds, at uncertain
times, and on risky rail beds. We have to completely rebuild
much of our rail metwork and reformulate our thinking about
intensity travel.
The policy in France is that for distances of under 500
kilometers or less, rail gets the preference for public
investment dollars. For distances between 500 and 750
kilometers, it is a toss-up between rail and air, but rail has
usually won. Between 750 and 1,000 kilometers or longer, there
is a preference for investment in air services.
In Europe there are limits on the number of operations that
can be handled at airports, the type of aircraft that can serve
the airport, on the noise the airports' neighbors will
tolerate, and on about emissions of NOX and other emissions
from aircraft.
We are now in a duel with the European community over
whether American D.C.-97 or B-727 reengineered and hush-kitted
aircraft can be sold to other countries and permitted to fly
into the European community airspace. They don't want the
noise.
At Charles DeGaulle, FedEx opened a $250 million cargo hub.
In exchange for the increased noise at night from these
operations, the airport had to agree to an overall limitation
of 250,000 operations a year at Charles DeGaulle Airport,
limiting its capacity and limiting the number of passengers,
unless you use more wide-bodied aircraft.
The limits that the Europeans have had to face are now
coming to America. In the congested East Coast Corridor, it
makes no sense to fly the average flight stage of 300 miles. It
makes no sense to fly. Train serves you better.
The other question is, can we do it? Of course we can. We
have the capacity. We have the funding. Governor Thompson has
just cited the billions of dollars we are spending on our
highway system; the transit systems, and on our aviation
system. Can not we afford the dollars to make an investment
that will improve the quality of life and the access of people
and preserve our highly level of mobility in this country?
Let me tell you how it was done in France. In 1968,
President Charles DeGaulle commissioned a study of a high-speed
train. A year later the Commission reported to DeGaulle and his
Cabinet. After the presenter concluded his remarks, the
Minister of Finance of the (French expression) said, (French
sentence), ``That is impossible, France cannot spend this
much.'' the Minister of Defense said (French expression), ``No,
we can't do this, this is going to hurt the defense of the
Motherland,'' and on it went through every Cabinet officer.
And DeGaulle said, simply, (French expression), ``Is there
another country in the world that has this technology?'' and
the answer was no. And DeGaulle said, (French expression),
``Then France will be the first.'' and they were.
And now America is a distant second. With your bill, we can
be first. Thank you, Mr. Chairman.
Chairman Houghton. Thank you very much, Jim.
[The prepared statement follows:]

STATEMENT OF HON. JAMES L. OBERSTAR, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF MINNESOTA

Mr. Chairman, Ranking Member Coyne, and Members of the
Subcommittee, thank you for holding this important hearing on
the tax treatment of financing of our Nation's transportation
infrastructure.
I welcome this opportunity to testify today on HR 3700, a
bill to create a new source of funding for developing the
infrastructure for high-speed rail passenger service. I would
like to thank Chairman Houghton for his leadership on this
issue, and as the principal sponsor of this legislation in the
House. I would also like to recognize Senator Lautenberg for
sponsoring the companion bill in the Senate, S1900. Both bills
offer an innovative approach to financing the construction of
high-speed rail systems.
Pursuant to ISTEA and TEA-21 a number of corridors around
the Nation have been designated as high-speed rail corridors
eligible for federal assistance. Amtrak, or any other
organization willing and able to build such systems, would,
under our bill, have the authority to issue bonds to help
finance them.
HR 3700 authorizes $10 billion in bonding authority between
FY2001 and FY2010. These funds could be used, for example, by
Amtrak to acquire rolling stock and to make improvements to
rail rights of way and signal systems to allow 100+ mile per
hour (mph) operations on a major Midwest route, such as between
Chicago-St. Louis. In order to ensure that the monies go to
projects with the most potential for success, the states are
required to provide a 20 percent match that would be deposited
in a trust account. These funds and the interest they draw
would be used to redeem the bonds. Requiring the states to
provide the match also helps ensure that only projects with
substantial support receive funding.
Bondholders, instead of receiving interest payments, would
be eligible for a federal tax credit equivalent in value to
what they would have received in interest. This tax credit
would be transferable in cases where the bondholder could not
make use of the credit. The cost to the U.S. Treasury for our
proposal would be much less than an equivalent amount in grant
money.
For the first time outside the Northeast Corridor,
sufficient funds would be available to do more than merely
study the potential for high-speed rail service. Over the
years, countless studies of the potential economic, energy, and
environmental benefits of high-speed rail passenger operations
have been conducted for different proposed projects scattered
around the Nation. A virtual cottage industry of consulting
firms has grown up to undertake these analyses. But, even when
the consultants identify significant economic potential, the
financial resources haven't been there to carry out the
project. Our proposal seeks to rectify that problem. By
partnering with the states and private firms, the revenues from
the bond sales will leverage sufficient resources to actually
build high-speed rail systems.
Around the world, other advanced industrial nations have
long recognized the need for a balanced system of intercity
transportation and have invested heavily in high-speed rail.
They continue to do so.
In the 1960s, the Japanese made the world's first major
commitment to high-speed rail by building the famous
Shinkansen, or ``bullet'' train between Tokyo and Osaka, a
distance of 322 miles. These trains, operating over a dedicated
right-of-way, reduced the travel time between these two cities
from 8 hours to 2\1/2\ hours. The service proved so successful
that the Japanese have built additional lines. Nor have they
rested on their laurels. Today, the Japanese are at the
forefront in developing Maglev technology--a technology, I
might add, that was invented here in the United States.
The French were quick to emulate the Japanese. Beginning in
1981, the French began operating the Train a Grande Vitesse
(TGV) between Paris and Lyon. These trains cruise along at
nearly 200 miles-per-hour (mph) and have demonstrated the
capability, under test conditions, to travel faster than 300
mph. The French have spent $12 billion on a network of TGV
trains that now stretches for more than 800 miles, and they
plan to invest more. The Germans followed suit in the 1980's
with their Intercity Express trains (ICE). Over the next decade
Germany will invest $70 billion in its railroad network, much
of it on high-speed rail service. At the same time, Germany is
continuing to research and develop the Maglev technology at its
test facility in Emsland in Northern Germany. Spain, Italy, and
other European nations are also investing heavily in high-speed
rail.
Some have argued that the European and Japanese experiences
are not relevant to the United States. They claim that
demographic and geographic differences make high-speed rail
more workable in Europe and Japan than in the U.S. They also
point to the enormous investments we have made in our highways
and in our aviation system and claim that most Americans simply
prefer to drive or fly. However, what these critics often fail
to realize is that travel choices are greatly influenced by
public policy choices. The governments of Europe and Japan made
conscious policy decisions to provide high-speed rail for short
and intermediate distance trips while reserving scarce airport
and airway capacity for long-distance (primarily international
and intercontinental) travel. They have developed multi-modal
and intermodal solutions to meet the travel needs of their
citizens. They provide the mode of transportation best suited
to the type of trip.
In fact, following the introduction of both the Shinkansen
in Japan and the TGV in France, there were dramatic declines in
airline traffic between Tokyo and Osaka and Paris and Lyon
respectively. Airport slots and other facilities that had been
taken up by these short-distance, feeder operations were now
available to accommodate the flights serving longer distance
markets. This is simply good economics--reserving scarce
resources for their highest and best uses.
I have spent nearly all my 25 years in the Congress working
on transportation-related issues. I have been especially
involved in the aviation area, serving as Chairman of the
Aviation Subcommittee between 1989 and 1994. Never have the
nation's airports and airways been as congested as they are
today. Nightmarish delays are becoming an almost nightly
feature on the evening news. Recently the Congress enacted the
Aviation Investment and Reform Act for the 21st Century (AIR21)
and that legislation will help the nation meet its future
aviation infrastructure needs, but it will not completely solve
the problem of demand outpacing supply.
Europe and Japan have long faced serious aviation system
capacity constraints. We in the United States have generally
not had the same aviation system capacity problems as the
Europeans and Japanese. Only a few of our airports were
capacity constrained. But now, our nation's airports and
airways are becoming more and more congested. It is very
difficult to expand system capacity by building new airports or
new runways. Except for the New Denver Airport, which opened 5
years ago, no new airport has been constructed in the past
quarter century. Noise considerations limit our ability to
shift more flights to off peak periods. Land use considerations
make it difficult to build whole new facilities or even add new
runways.
Therefore, we need to allocate scarce air system capacity
to where it is most needed--primarily long haul domestic and
international operations. Intercity trips of 400-500 miles or
less by high-speed rail can be time competitive with air. We
need to begin to invest in high-speed rail systems so that this
option is available to the traveling public.
In addition, we need to embrace intermodalism. The concept
of intermodal transportation is central to modern logistics
management. Those responsible for shipping freight organize
their use of the modes of transport to get the best service at
the lowest cost. We need to do the same for passenger travel. A
high-speed train between Detroit and Chicago, for example, that
served O'Hare Airport could eliminate the need for many short
distance feeder flights as well as much air travel between
Chicago and Detroit. This would free up space at O'Hare to
handle the types of traffic that must go by air.
Investing in high-speed rail transportation now is
essential if we are to preserve for future Americans our
precious right to mobility. Our bill is a downpayment on
America's future freedom to travel.
Again, thank you, Mr. Chairman, for your leadership on this
issue and I look forward to working with you in the hope of
seeing HR 3700 enacted this fall.

Chairman Houghton. Now I am going to call on David King,
deputy secretary of transportation for North Carolina.

STATEMENT OF DAVID D. KING, DEPUTY SECRETARY FOR
TRANSPORTATION, NORTH CAROLINA DEPARTMENT OF TRANSPORTATION,
RALEIGH, NORTH CAROLINA

Mr. King. Mr. Chairman, this is patently unfair, having me
follow Representative Oberstar. We pronounce TGV somewhat
differently in North Carolina. After those two eloquent
speakers, I am humbled, but I do join them--in their enthusian
for rail transportation and this bill.
Chairman Houghton. Can you say something in French?
Mr. King. Like my two predecessors, I appreciate the fact
that you have taken the lead on this and have called us here.
This legislation is something I have been waiting an entire
career for.
As you said in your opening statement, there is a giant
void in our transportation programs nationally, and it is in
intercity rail. The Federal partner in intercity rail has been
missing.
I am here today representing the coalition of States for
Intercity Passenger Rail, ably led by Governor Thompson's
Secretary of Transportation Terry Mulcahy. We have 18 members.
Our only objective is to try to help find a way to get capital
funding into intercity rail service.
I have submitted my comments for the record, but I want to
make just a very few points in my brief time. The most
important point is that I would hope that you and your
colleagues look at this bill not as an Amtrak capital program,
but as a intercity rail capital program for States.
We expect to work with Amtrak. We will look to them for
their expertise and experience, particularly in operating
trains and in buying train sets. But States are good at major
transportation capital projects. We simply have never had a
Federal partner with which to work on the intercity rail side.
But with this bill, including a means of selecting projects
that ensures that we select the most meritorious projects
across the country, and that those selections are equitable and
give the dozen or so high-speed rail corridors we have in this
country an opportunity to make incremental progress, we believe
that the very sort of scenario that Congressman Oberstar just
painted will, in fact, come to pass.
In North Carolina, our Governor for the last 8 years,
Governor Jim Hunt, has been pushing us to connect Raleigh and
Charlotte with 2-hour service. Right now we average 46 miles an
hour and the schedule is 3 hours and 45 minutes. But with
relatively modest investments, and I say that with respect to
the kinds of investments we make every day in highways, that
time can be 2 hours. It takes you 2 hours and 45 minutes to
drive it. We believe that reduced trip times will make a
significant difference in the number of people who choose the
mode of intercity rail.
We as a Department of Transportation in North Carolina
awarded $1.25 billion in highway projects last year, so we know
how to build major transportation projects. Our two major Class
1 railroads in North Carolina are Norfolk Southern and CSX. We
have developed relationships with both of those railroads that
will allow them, we believe, to work with us on a positive
basis to get this work done, to do it expeditiously, to do it
honoring the planning processes that we must follow when we
build major highway projects, to get public involvement, to be
conscious of grade crossing protection and community impacts
and all the sorts of things we have to do when we manage our
highway projects.
We look forward to working with Amtrak and calling on their
vast expertise, but we want you to consider this a State
program. I think it gets colored the wrong way, frankly, when
it is characterized as an Amtrak capital program, when in fact
we intend to build infrastructure with and in partnership with
Amtrak, but in partnership with Class 1 railroads and other
entities as well, including local and regional transit
providers who are also sharing these corridors and, in many
cases, sharing the stations that serve these corridors. State
funds will satisfy the 20% match requirements, not Amtrak
funds.
So that is the single most important point, Mr. Chairman,
that I would bring to your attention. I hope that this bill
will be considered by this Committee, and the others in this
Congress who are looking at these bills, as a State government-
based DOT capital program for intercity rail, filling that void
that you mentioned in your opening statement, Mr. Chairman.
We have a more stable and larger Federal program for
bicycle transportation in my Department than we do for
intercity rail. We need a Federal partner.
The final point I would make is that we feel a sense of
urgency. I hope that there will be a way to move your bill this
year. We are ready to go. Our partners up and down the East
Coast, from Georgia, South Carolina, North Carolina, and
Virginia, who are working together, those four States are ready
to go.
We have projects that are ready to go. We have match money
for our 20 percent match that is ready to go. We are ready to
move. We do feel a sense of urgency. We have serious air
quality concerns as do others. We believe this is a very real
way to begin to address that problem.
Mr. Chairman, I look forward to any questions you and your
colleagues may have, but I do commend you for your leadership
on this. We really hope this bill will meet with some success
this year.
Chairman Houghton. Thank you, sir, very much, Mr. King.
[The prepared statement follows:]

STATEMENT OF DAVID D. KING, DEPUTY SECRETARY OF TRANSPORTATION, NORTH
CAROLINA DEPARTMENT OF TRANSPORTATION, RALEIGH, NORTH CAROLINA

Mr. Chairman, my name is David King. I serve as the Deputy
Secretary for Transportation of the North Carolina Department
of Transportation. My responsibilities include highways,
ferries, aviation, bicycles and pedestrians, public
transportation and rail.
I testify today on behalf of the States for Intercity
Passenger Rail. States for Intercity Passenger Rail is a grass
roots organization of state departments of transportation.
North Carolina is one 18 of states in the group ably chaired by
Secretary Terry Mulcahy of the Wisconsin DOT. Our growing
membership is drawn from around the country and includes states
with existing passenger rail service as well as those in the
implementation stages. From large states and small states, we
span the political persuasion continuum with varied interests
and geography. We are quite a diverse group and we are a
national group. Our strength is initiative created and
supported by states which share a common goal. It is refreshing
to characterize our state-based transportation group as
national after the fractious, regionally based alignments that
characterized the TEA-21 debate.
Five basic principles provide the foundation of States for
Intercity Passenger Rail:
First, intercity passenger rail complements existing
intercity passenger and freight systems. Those systems, mainly
road and air, are saturated to the point that safety and
reliability are compromised. The states and the private sector
are meeting the challenge by investing record amounts of money
in those systems. We have made the business decision that we
receive a greater return on investment by increasing the
capacity of passenger rail rather than by making alternative
investment decisions. An example is the cost of adding a lane
of interstate is more expensive than improving a segment of
rail.
Second, because intercity passenger rail trips tend to be
100 to 500 miles in length, many of the corridor planning,
analysis, and construction management tools routinely used at
the state level apply. States can and do plan, build and
maintain interstate transportation corridor systems. We meet a
myriad of environmental, planning, and safety standards. These
projects require massive investments and we deliver them every
day.
Third, improved intercity passenger rail is attractive to
states because it is incremental. Our programs are publicly
funded to deliver public services, and states must make prudent
investments. We recognize that new transportation
infrastructure cannot be built overnight, but we need to start
where we are today and work to improve those systems. Our
stockholders, the citizens of our various states, have very
high expectations.
Fourth, states recognize the importance of partners in this
process. Because railroading is both a capital and labor
intensive business, we must have the full participation of the
freight railroads, existing shippers, and labor. The freight
railroads own most of the assets outside the Northeast
Corridor. Publicly and privately held railroad assets are
currently shared in part by commuter agencies. Our emphasis
will be to assure that nothing we do to improve rail passenger
service diminishes the ability of the freight railroads to
provide safe, reliable freight service. All workers have a
right to expect equitable compensation and decent working
conditions. The burden is on the states to learn and work with
our partners effectively.
Fifth, the federal government has a role to play in
intercity passenger rail because financial investment is in the
national interest. Beyond the interest of the individual states
and groups of states in nearly a dozen corridors, it is in the
interest of the Nation to have series of vibrant, well built,
well operated intercity rail corridors. These corridors
contribute to a national commitment to improve mobility and the
social and economic quality of life for all our citizens. They
anchor an integrated system of public transportation services
including local and regional transit and access to major
airports. States, however, cannot accomplish this laudable goal
alone or even collectively; transportation federalism dictates
a need for a federal partner.
Capital formation is an essential role for the national
government in transportation federalism.
The federal government fulfills a vital role in highway,
public transportation, aviation and inland water transportation
by creating a series of excise taxes and fees, placing them in
trust funds, and allocating those resources.
We need a federal partner that provides a stable,
dedicated, long-term financial commitment. Further, these
financial resources must expand the overall level of financial
commitment to all modes of transportation. The lack of progress
nationally in improving intercity rail passenger service is
directly attributable to the lack of a meaningful federal
partner.
More specifically:
The complex, long-term nature of corridor development
dictates a multi-year tool. The federal government, through the
tax code, can provide useful means of organizing larger amounts
of investment capital. States are currently investing in
intercity passenger rail. These funds can be used as match for
federal investments. In fact, the issue of matching funds
deserves a more thorough and complete examination. States are
creatively using a broad array of public and private resources
to provide improved rail service. A broadening of the sources
of eligible matching funds should be encouraged. The
combination of federal, state and other funds can help achieve
both economies of scale and funding levels attractive to
investors.
Further, we need to increase investment in transportation
infrastructure. States are responsible for delivering a broad
array of transportation services. This requires program
stability and a reliable and predictable source of revenue. In
large measure this stability is derived from the latest multi-
year surface transportation bill ``The Transportation Equity
Act of the 21st Century of 1998'' or ``TEA-21.''
States for Intercity Passenger Rail do not want to re-open
TEA-21. Rather, we wish to draw upon a major strength of the
bill--its commitment to financial innovation and equity. The
Transportation Infrastructure Finance and Innovation Act
(TIFIA) is especially instructive. It is encouraging to note
that one of the first TIFIA investments was Pennsylvania
Station in New York City, which is in part an intercity
passenger rail facility.
HR 3700: ``The High Speed Rail Investment Act'' is a highly
significant financial innovation for states and their partners.
The structure of HR 3700 benefits all levels of
transportation federalism. For the federal partners it provides
significant additional capital without unduly straining budget
resources and the appropriations process. On the state side it
provides a stable, long-term, source of financial resources.
HR 3700 maintains the integrity of TEA-21. By capping the
amount of funding any single corridor can receive, it is more
likely that an equitable distribution of the funds will occur.
States for Intercity Passenger Rail support enactment of HR
3700 as amended.
I believe three areas merit perfecting language:
1. Project development: What constitutes a worthwhile
project? Characteristics of an appropriate project need to be
described in greater detail.
2. Project selection: Is there a more effective means of
ensuring that the most meritorious projects move forward?
3. Project management: States should manage the projects.
We do not believe that these are insurmountable problems.
Individually and collectively we are eager to work with the
committee, the subcommittee and others to clarify language to
strengthen the bill.
Clarification can promote the success of the bill. A clear
understanding of the roles and responsibilities of the partners
will lead to prompt implementation. All the partners should
focus on the strengths and experiences they bring to the
effort.
In this regard we view Amtrak as a partner whose strength
is to operate passenger rail services as well as mail and
express business. This bill should not be seen in any way as an
alternative for Amtrak funding. Our National Railroad Passenger
Corporation has a continuing need for capital investment at the
levels provided in authorizing legislation.
We value our partnership with Amtrak but we believe that
giving states a choice of providers and partners will lead to a
stronger and more efficient Amtrak.
North Carolina is ready to move forward, now.
Based on Governor Jim Hunt's unwavering support for
intercity rail over the past eight years, North Carolina is
ready to implement this legislation now. Two years ago we
invested over $72 million to acquire control of the North
Carolina Railroad. We have invested nearly $40 million in train
stations around the state. We are poised to invest another $48
million in track and signal improvements this year. Our high-
speed rail corridor forms an integral part of North Carolina's
freight and passenger rail network and will serve all North
Carolinians.
We feel a sense of urgency from our citizens who perceive
correctly that despite our record levels of investment in
transportation infrastructure, congestion and air quality
continue to be problematic. We look forward to working with you
on this critical project. Thank you for allowing me the
opportunity to testify before you today.

Chairman Houghton. Dr. Ross.

STATEMENT OF CATHERINE L. ROSS, EXECUTIVE DIRECTOR, GEORGIA
REGIONAL TRANSPORTATION AUTHORITY, ATLANTA, GEORGIA

Ms. Ross. Thank you, Mr. Chairman. I want to commend
yourself and the panel for your leadership in this arena.
Leadership not only matters, it is critical. A particular
thank-you to Congressman Lewis, who has made such an
outstanding contribution not only to the citizens of the State
of Georgia, but to the citizens of the United States of
America. Again, thank you.
I am particularly pleased to have this opportunity to bring
you a perspective on how a State agency views the High-Speed
Rail Corridor Investment Act, H.R. 3700, in terms of innovative
infrastructure financing.
First, let me tell you a bit about the Georgia Regional
Transportation Authority, or, as it is better known in Atlanta,
as GRTA. We are a very unique agency. GRTA was established by
the Georgia legislature to deal with the problems of the 13-
county region of metropolitan Atlanta in reaching conformity
with the Clean Air Act. We can plan, finance, and operate
transportation systems, cause counties to build transportation
facilities, and generally implement regional solutions to
traffic congestion and poor air quality.
Frankly, there are few transportation choices in Atlanta.
Ironically, Atlanta, which was founded as a railroad terminus,
now only has the two-county MARTA heavy rail station, and a
twice-a-day Amtrak service via the Southern Crescent.
For too long, our solution to congestion was another
highway lane. But that was the last century. We now have a
Governor and legislature and, I believe, most of the people of
the region who are committed to alternative forms of
transportation.
In acknowledging that passenger rail transportation in
Georgia needs a new focus, Governor Barnes proposed that the
Georgia Department of Transportation, the Georgia Rail
Passenger Authority, and the Georgia Regional Transportation
Authority form a program management team comprising two members
from each agency.
I am speaking today on behalf of the Georgia Rail Passenger
Program Management Team whose chairman, Walter Deriso, is also
vice chairman at GRTA. This team is now in charge of developing
a rail passenger network in the State.Seven of these rail lines
under study would link up in downtown Atlanta and provide key
commuter rail service in the region. Two routes, Atlanta to
Athens and Macon to Atlanta, could open as early as 2004.
Let me pause for a moment to thank Representative Mac
Collins, a member of the Ways and Means Committee, for his help
in moving the Macon-to-Atlanta line along. The Congressman
provided the State $30 million in TEA-21 funding for the Macon
corridor.
I also want to thank Representative John Lewis, a Member of
this Subcommittee, and Senator Max Cleland, who provided a
combined $20 million to help construct an intermodal passenger
terminal in downtown Atlanta. Their efforts provided an
extraordinary boost to our commuter rail program.
But, Mr. Chairman, we cannot count on those earmarks in the
future. The total estimated cost of Georgia's intercity rail
service is $1.5 billion. Georgia is now beginning to ``flex''
highway dollars into commuter rail, and the 3-year
transportation improvement program for the Atlanta region has
programmed $230 million in State and Federal funds for rail
passenger service, but we are still a long way off from
reaching $1 billion.
That is why the High-Speed Rail Corridor Investment Act is
so important to our future. We need more investment tools if we
are going to establish a rail passenger network. The currently
designated Southeast High-Speed Rail Corridor from Charlotte to
Atlanta follows Amtrak's Southern Crescent route. The corridor
itself extends to Macon and would follow our planned commuter
rail connection. Eventually, we would like to see the corridor
designation extend to the coast, where it would link up with
Amtrak's Eastern Seaboard trains.
Railroads were popular in the 1800s and early 1900s for one
simple reason: They were the fastest form of transportation
available to most people at that time. If we expect people to
ride trains today, we have to make them as fast as we feasibly
can.
But if we want to provide rail service in the 21st century,
we cannot offer 20th century service. Nostalgia isn't going to
get the job done. Additional funding that could be provided
under H.R. 3700 would allow us to improve safety at grade
crossings, provide modern signaling systems, realign track, and
cut about 20 minutes off the travel time along the Atlanta-to-
Maconline.
The Southeast High-Speed Rail Corridor will be the backbone
of our State's rail network and will link our system to a
national rail passenger network. That is why this bill has been
endorsed by the Georgia Department of Transportation, the
Georgia Passenger Rail Authority, and the Georgia Regional
Transportation Authority.
I believe it is important that we seek Federal assistance
as provided under H.R. 3700. The State of Georgia will pay its
share and will meet the 20 percent match required under H.R.
3700.
However, we could not hope to finance this system if we
have to come to our congressional delegation each year seeking
Federal funding. That is a heavy burden when we are already
seeking help for our regional transportation solutions. We need
desperately an innovative investment strategy, and the bonds
program as provided in H.R. 3700 would be precisely the kind of
tool we envision.
The modernization of our rail infrastructure and the
creation of high-speed rail corridors will improve the
efficiency of our overall transportation system and reduce
congestion on our roads. Innovative financing is critical if we
are to provide the transportation investment we need if
Georgia--and our Nation--is to remain economically competitive.
Thank you very much.
[The prepared statement follows:]

STATEMENT OF CATHERINE L. ROSS, EXECUTIVE DIRECTOR, GEORGIA REGIONAL
TRANSPORTATION AUTHORITY, ATLANTA, GEORGIA

Thank you, Mr. Chairman.
I appreciate the opportunity today to bring you a
perspective on how a state agency views the High-Speed Rail
Corridor Investment Act, H.R. 3700, in terms of innovative
infrastructure financing.
First, let me start off by explaining that the Georgia
Regional Transportation Authority is a unique agency. GRTA was
established by the Georgia Legislature to deal with the
problems of the 13-county region of metropolitan Atlanta in
reaching conformity with the Clean Air Act. We can plan,
finance and operate transportation systems, cause counties to
build transportation facilities and generally implement
regional solutions to traffic congestion and poor air quality.
Frankly, there are few transportation choices in Atlanta.
Ironically, Atlanta, which was founded as a railroad terminus,
now only has the two-county MARTA heavy rail system, and a
twice-a-day Amtrak service via the Southern Crescent. For too
long our solution to congestion was another highway lane. But
that was the last century. We now have a governor and
Legislature, and I believe most of the people in the region,
who are committed to alternative transportation.
In acknowledging that passenger rail transportation in
Georgia needs a new focus, Governor Barnes proposed that the
Georgia Department of Transportation, the Georgia Rail
Passenger Authority and GRTA form a Program Management Team
comprising two board members from each agency.
I am speaking today in behalf of the Georgia Rail Passenger
Program Management Team, whose chairman, Walter Deriso, is also
vice chairman at GRTA. This team is now in charge of developing
a rail passenger network in the state. Seven of these rail
lines under study would link up in downtown Atlanta and provide
key commuter rail service in the region. Two routes, Athens to
Atlanta and Macon to Atlanta could open as early as 2004.
Let me take a moment here to thank Rep. Mac Collins, a
member of the Ways and Means Committee, for his help in moving
the Macon to Atlanta line along. The Congressman provided the
state $30 million in TEA-21 funding for the Macon corridor. I
also want to thank Rep. John Lewis, a member of this
subcommittee, and Sen. Max Cleland who provided a combined $20
million to help construct an intermodal passenger terminal in
downtown Atlanta. Their efforts provided an extraordinary boost
to our commuter rail program.
But, Mr. Chairman, we cannot count on those earmarks in the
future. The total estimated cost of Georgia's intercity rail
service is $1.5 billion. Georgia is now beginning to ``flex''
highway dollars into commuter rail, and the 3-year
Transportation Improvement Program for the Atlanta region has
programmed $230 million in state and Federal funds for rail
passenger service. But, we are still a long way off from
reaching a billion dollars.
That is why the High-Speed Rail Corridor Investment Act is
so important to our future. We need more investment tools if we
are going to establish a rail passenger network. The currently
designated Southeast High-Speed Rail Corridor from Charlotte to
Atlanta, follows Amtrak's Southern Crescent route. The corridor
itself extends to Macon and would follow our planned commuter
rail connection. Eventually we would like to see the corridor
designation extend to the coast where it would link up with
Amtrak's eastern seaboard trains.
Railroads were popular in the 1800s and early 1900s for one
simple reason -they were the fastest form of transportation
available to most people at that time. If we expect people to
ride trains today, we have to make them as fast as we feasibly
can. But if we want to provide rail service in the 21st
Century, we can't offer 20th Century service. Nostalgia isn't
going to get the job done. Additional funding that could be
provided under H.R. 3700 would allow us to improve safety at
grade crossings, provide modern signaling systems, realign
track--and cut about 20 minutes off the travel time along the
Atlanta-to-Macon line.
The Southeast High-Speed Rail Corridor will be the backbone
of our state's rail network and will link our system to a
national rail passenger network. That is why this bill has been
endorsed by the Georgia Department of Transportation, the
Georgia Passenger Rail Authority, and the Georgia Regional
Transportation Authority. I believe it is important that we
seek Federal assistance as provided under H.R.3700. The State
of Georgia will pay its share, and will meet the 20 percent
match required under H.R. 3700.
However, we could not hope finance this system if we have
to come to our congressional delegation each year seeking
Federal funding. That is a heavy burden when we are already
seeking help for our regional transportation solutions. We need
an innovative investment strategy and the bond program as
provided in H.R. 3700 would be the kind of tool we need. The
modernization of our rail infrastructure and the creation of
high-speed rail corridors will improve the efficiency of our
overall transportation system and reduce congestion on our
roads. Innovative financing is critical if we to provide the
transportation investment we need if Georgia--and our nation--
is to remain economically competitive.
Thank you.

Chairman Houghton. Thank you, Dr. Ross.
We have been joined by Mr. Portman, and also Mr. Hulshof
down here.
Gentlemen, do you have any opening statements you would
like to make?
Mr. Hulshof. No, sir.
Mr. Portman. No, thank you.
Chairman Houghton. We will go to questions. I will turn to
Mr. Coyne.
Mr. Coyne. Thank you, Mr. Chairman.
Governor, I wonder if you could expand a little bit on why
tax-exempt bond financing is critical to Amtrak's development
process.
Governor Thompson. As you know, we are under the
Accountability Act that was passed by Congress. We have to be
self-sufficient operationally by 2003. We are on a glide path
to do that. The first year we were up by $500,000. Last year we
exceeded our glide path by $800,000. This year we are going to
fall short because the high-speed trains have not been able to
get on board as soon as expected, but as soon as they are, that
will generate about $180 billion in additional profit. So we
are on our glide path. We are going to be able to follow the
congressional law that we will be self-sufficient.
But capital, we are so short on capital and we don't have
any way to finance new equipment, improve our railbeds, and be
able to develop the high-speed corridors. This is our answer.
This is our way of getting the capital to really establish
high-speed corridors and be able to do it.
The tax credit way is cheaper for Congress. Over 5 years,
the financing, the mark-down is about $700 million. Over 10
years it is $3.3 billion. We know we cannot come and get the
amount of money we need for capital even though we need it. So
this is one way we can finance it. The tax credits gives us the
opportunity to go into the private sector and get the money for
it.
The 20 percent set-aside will help us repay it at the end
so there will not be any liability to the United States
government.
Mr. Coyne. Thank you, Mr. Chairman.
Chairman Houghton. Mr. Watkins?
Mr. Watkins. Thank you, Mr. Chairman.
In your statement, I would like to just reemphasize--
because I like to find equity, especially in the Plains area,
in Oklahoma. We just recently got Amtrak not too long ago.
Governor Thompson. It is doing well, much better than we
anticipated, Congressman.
Mr. Watkins. Thank you, Congressman. We do exist in this
great United States--Oklahoma.
Mr. Thompson. Yes, we recognize that, Congressman. That is
why we put the rail in there.
Mr. Watkins. I enjoy the Eastern Corridor, but they forget
our area. Mr. Chairman, we don't get even our tax dollars back
to the Highway Trust Fund. We don't get the portion we are
supposed to or we send back in.
Mr. Chairman, I would like to make sure everyone heard the
Chairman's statement. We have to have equity if we are going to
really participate in this. If not, it is hard for me to go
back and sell it to the people.
The Chairman said the tax-exmpt status helps to address the
special needs of the transportation sector, but has not always
provided uniform assistance. I take that, when I read that,
that it has not provided uniform assistance geographically. I
know we have not had it maybe in the highways, rail, or
airfields; but when I read that, that touches me real closely,
because we have not had that equity.
I would just ask, Mr. Thompson, you have done a great job
as Governor of your State, and have done a great job now of
trying to make sure we have equity, so some of us, we are
enthusiastic about this type of legislation. I basically would
be in favor of it. But as we look at it, how do we make sure
some of these States--I think one of the worst votes I have
ever cast was the deregulation of airlines.
For instance, the hubs do not--they discriminate against
States like Oklahoma. I don't want to vote for anything else
that is going to discriminate against my home State. We don't
even have a lot of the things coming in by air. It is
ridiculous. It is crazy, what we have done in this country with
our airlines.
That is part of the reason why we also, in the Chairman's
statement, hear about all of the problems in the airways and
all of the things that are at the top of the agenda this very
day over in the Senate.
What kind of assurance can I go back and tell my people
that we will have if this is passed; that Oklahoma will be able
to participate with equity in the program, have the right kind
of equity in the program?
Governor Thompson. Congressman, I applaud you for asking
the question. It is the same question that I ask myself. When
you were talking about Oklahoma being somewhat shortchanged in
all these formulas, I can only think of my own State.
Mr. Watkins. Yes.
Governor Thompson. We are ranked 49th. We are treated even
more shabbily than you are, Congressman, in Wisconsin. We only
get--we are the 49th poorest State as far as getting money back
from the Federal Government.
I know what you are talking about, and I can assure you as
Chairman of Amtrak and as Governor of the State of Wisconsin,
that we want to grow Amtrak. We want to make sure that Oklahoma
and Wisconsin, North Carolina, Georgia, and every State in
America gets service.
There is also a limitation on this bill, H.R. 3700, that
the maximum amount of 30 percent could only go into the
Northeast Corridor. We wrote that in to assure that the rest of
the country could be assured of getting some of this extra
money.
We have put Amtrak rail service now in into Oklahoma, and,
as I said, it is doing much better than anybody had
anticipated. We had a market survey done of all of our Amtrak
rails across America. What we are trying to do as an Amtrak
board and management, we are trying to grow Amtrak. We want
every State covered by Amtrak service, and we want to expand
rail service. We don't want to curtail and cut back, we want to
expand. That is going to include Oklahoma.
So I can give you my assurance as chairman of the board
that we are going to make sure that Oklahoma and Wisconsin and
every other State gets their just due.
Mr. Watkins. I will bet Wisconsin is not at the bottom by
the time you get through.
Governor Thompson. I will not be doing my job if it is.
Mr. Oberstar. Mr. Watkins, if I might supplement the
Governor's statement, Mr. Chairman----.
Chairman Houghton. Mr. Oberstar.
Mr. Oberstar. The idea of this legislation is not
necessarily to achieve geographic balance by directing funds to
one or another part of the country, but, rather, to assure that
those projects with the greatest promise of success will get
the funding.
The way you do that is to ensure the State match, so we
want States to be up front partners. They are required to have
a 20 percent match that would be deposited in a trust account.
Those funds and the interest they draw would be used to redeem
the bonds. What we are looking at here is a grassroots-up
initiative. Those areas of the country like your State of
Oklahoma--and if you think you are left out, we don't have--
Minnesota and Wisconsin do not have the world's greatest rail
service either, but with the improvements that are being made
in Amtrak, it is getting better.
But that is the way you achieve the objective, is to get
the States in at the first rung, at the ground floor to develop
the plans, provide the match, and assure that those projects
that have the best chance for success will get the priority
funding.
Mr. Watkins. I appreciate that, Mr. Chairman.
Let me say, I really appreciate the kind of commitment that
I have heard here today. I am an enthusiastic believer and
rider of Eurail when I go to Europe--or Britrail. It is a
tremendous way to travel. I get there with all the college
students, and I get out there and really have a good time.
Chairman Houghton. OK. Thanks very much.
Mr. Lewis.
Mr. Lewis. Thank you very much, Mr. Chairman. Mr. Chairman,
I would like to piggyback, I guess I could use that phrase;
piggyback, one of those transportation things, with my
colleague, the gentleman from Oklahoma. I think we have some of
the same problems, Governor Thompson, in the South and in the
Southeast.
All of the Census data, all of the projections, tend to
show this movement of the population to the Sunbelt, to the
heart of the South, and the Southwest. But under this
legislation, I think Dr. Ross testified to the fact that in a
city like Atlanta that we consider the capital of the South,
this growing international city with a major airport, the
busiest commercial airport maybe in the world, that we have
three interstate highways running through the heart of the
city, but at the same time we only have twice-a-day Amtrak
service.
You have to arrange to get on the train before. People have
to make reservations far in advance. Is there some way that
some of these resources from H.R. 3700 can serve to help North
Carolina, and say to Georgia, to Alabama, to Tennessee, that we
are going to have improved service?
Governor Thompson. That is the reason for the capital. That
is the reason for H.R. 3700. We don't have the capital to
expand our purchase of new rolling stock. We don't have the
capital in Amtrak right now to improve the railbeds. What we
need is an infusion of capital, and H.R. 3700 gives us the
opportunity to do that.
We are setting up high-speed corridors across America, with
no money to implement them. The South has one of those. The
Crescent comes in there, but we would like to have a high-speed
corridor so Atlanta could be serviced. We would like to have a
high-speed corridor up in Wisconsin and Minnesota serviced, so
the hub would be Chicago. Atlanta would be the hub in the
South. We want to make sure our high-speed trains get up and
running in the Northeast Corridor.
What we are trying to do is grow Amtrak. Just to give some
idea, we are spending $33 billion a year on highways, I don't
begrudge them at all, and $14 billion on airports, and I don't
begrudge them for getting that, and $6 billion on mass transit.
We are only spending $521 million on Amtrak.
What we are trying to do is just trying to get some parity.
We are trying to be able to get some new rolling stock so we
can show America that we can have high-speed corridors
developed and have good, modern equipment placed on there to
really service all of America.
That is what we are trying to do. We won't be able to
service every State, but we want to be able to start getting
high-speed corridors in the densely populated areas where they
can be profitable and where we can show America that we can
move the population.
Mr. Lewis. Thank you very much, Governor.
Dr. Ross, are you interested in commuter rail, in high
speed? Are you more interested in moving people in and out of
Atlanta, or are you interested in both?
Ms. Ross. Both.
Mr. Lewis. Do you have a priority?
Ms. Ross. We do. Atlanta to Macon and Atlanta to Athens in
terms of commuter service, we are looking at those two lines.
The Governor has basically--Amtrak had their board meeting
in Atlanta not long ago, and our Governor addressed the board
and made a commitment at that point in time to Georgia doing
its share in regard to the match, if this bill passes and we
have something to match, so that we can look at the development
of a comprehensive system, with Atlanta being the place we
envision jump-starting such service, but then spreading it out
to eventually look at the high-speed corridor from Atlanta to
Charlotte and to eventually Macon, perhaps.
So we have taken a comprehensive approach. That is why he
established this oversight Committee, responsible for all of
rail transportation in the State of Georgia, where we are
simply starting to begin to look at Atlanta.
We have coined a phrase, I know you are all familiar with
the term, ``in-filled housing.'' I think in a way, nationally,
regionally, locally, we are beginning to do in-filled
transportation planning. What is the difference? We are not so
much looking at new frontiers, we are saying how do we go back,
invest in systems, take opportunities or missed trains, if you
will, opportunities we should have put in place, service we
should have been committed to?
We did make that commitment, and now it is really at a
critical juncture in terms of air quality, in terms of
alternative transportation, in terms of the new millenium and
the kind of preparedness a region and the country has to
address to continue to be competitive.
So we have taken a very comprehensive approach. Our
Governor is very, very much committed to it. He is doing a lot
of political work so he can do his financial planning, if you
will, to make sure that when these opportunities present
themselves, we are well positioned to take advantage of them.
Mr. Lewis. Mr. King, would you agree with Dr. Ross that in
cities like Atlanta, Raleigh, Durham, Charlotte, that we need
to find ways to make it easier for people to move between the
cities, get them out of their cars, have cleaner air, bring in
cities and communities and neighborhoods closer together?
Mr. King. We in North Carolina, as you may have heard us
say before, looking at Atlanta, it is where Charlotte may be in
a couple of years, and hope to learn some lessons and be like
the Atlanta that is good, and avoid those things that have not
turned out so well. And congestion and air quality are two of
them.
So absolutely, the marriage of high-speed intercity and
regional rail, where you knit your surrounding communities that
are 40 to 50 miles away and form the commutershed of the
economic engine, in your case Atlanta, in our case Charlotte
and the Triangle, and then local bus service and connections to
airports, all of that needs to work together.
The spine, in our case, the Southwest Corridor from Atlanta
to Washington, pairing up with the Northeast Corridor here in
Washington, is what all of that hangs on. Without it you are
missing the strategy piece of the integrated transportation
puzzle. So I think our situation is very analogous to Atlanta.
Mr. Lewis. Thank you very much. Thank you, Mr. Chairman.
Chairman Houghton. Thank you.
Mr. Hulshof.
Mr. Hulshof. Thank you, Mr. Chairman. I thank all of you
for being here.
Governor Thompson, I appreciate your passion. In your last
remarks you mentioned the different trust funds. You mentioned
the Highway Trust Fund and the amount of priority that we put
as far as the amount of money.
I accept your point. But I think it also then goes to what
my friend, Wes Watkins said, is that as far as the Highway
Trust Fund and the billions of dollars that are committed to
the Highway Trust Fund, there are highways all across the
United States, whereas Amtrak is not available throughout the
United States.
So I think there is a little bit of caution that needs to
be used as far as comparing the amount of money that we commit
to highways. And even, too, in Missouri, Mr. Watkins, we think
Oklahoma is flyover country.
Just kidding. I am just kidding.
Mr. Oberstar. There you go.
Mr. Hulshof. I am just kidding.
Mr. Oberstar. So much for your hub.
Mr. Hulshof. On a serious note, regarding the tax-exempt
financing available through H.R. 3700, I have had a running
commentary on a different matter, but somewhat related with the
United States Treasury Department regarding similar financing
instruments on Qualified Zone Academy Bonds. They are called
QZABs.
I am not going to go into that today, but my general
questions that I ask of Treasury, let me ask to anybody on the
panel: How do you believe or how does Amtrak believe that the
private financial community would find bonds created under H.R.
3700 an attractive investment? Because we haven't seen that
with QZABs as far as Qualified Zone Academy Bonds and school
construction. There are various ways to talk about school
construction. That is sort of the premise of my question. But
the private financial community has not seen fit as far as
QZABs to find them an attractive investment.
What would be the difference here?
Governor Thompson. So far, Congressman, we have discussed
it with Wall Street, many different bonding houses. Everybody
has indicated that this would be very easily placed. It is
something that we need.
We cannot expand and do what America needs and have a
national rail passenger service without capital. We can limp
along and meet the obligations of the congressional law of
being operationally self-sufficient. I know that you have big
concerns, Congressman, about tax credits. Sometimes I applaud
your position, but not in this case.
It is one way that we can become more private. It is one
way in which we can go to the market with tax credits and tell
the market that we have a way to pay these things back by the
20 percent set-aside by the States. We have the tax credits
there to enhance them, that they have indicated is what they
need in order to buy the bonds and give us the capital so we
can expand, so we can give the kind of rail passenger service
that America wants and needs.
So it is basically the most reasonable way for the Federal
Government to help us out. It gives us the opportunity to go to
the market and be more like a private company, which Congress
wants us to do. We can pay it back without any difficulty
whatsoever. That is why this financing is so important to us--
and the beauty of this financing.
Mr. Hulshof. What assurances--and maybe it is in the
legislative language; and Jim, I may ask you this question,
too, but what guarantees would we have to make sure that the
bond proceeds would not be used to pay for, say, operating
expenses? You mentioned capital investment.
Governor Thompson. The language is in there, Congressman.
Mr. Oberstar. There is protective language to ensure that.
Mr. Hulshof. Is it strong enough, Jim? Are you satisfied
that it creates a firewall that we don't have to be concerned
about?
Mr. Oberstar. We fought this fight over Amtrak
reauthorization 3 years ago; that none of the new capital
provided should go to operating expenses for Amtrak in
providing the unused tax credits from the predecessor railroads
to finance the capital investments for Amtrak. So the language
that is included in this legislation is built on that, against
that background.
Mr. Hulshof. OK. The other question that I have in the
remaining minutes, Mr. Chairman, I am told that about 2 or 3
weeks ago, a new public relations campaign called Service
Guarantee----.
Governor Thompson. That is correct.
Mr. Hulshof. Under the program, I am told, ``You are
satisfied, or the ride is free.'' i AM looking forward to my
Amtrak ride on Sunday to the City of Brotherly Love.
Governor Thompson. Philadelphia. I will be there to meet
you, Congressman.
Mr. Hulshof. I hope the city is ready for us, Governor. I
hope it is the City of Brotherly Love when we get there.
How is the program going? I know it has just been a couple
of weeks. Does anybody want to comment on that?
Governor Thompson. Our ridership has been up by 16 percent.
This past month is the first month we have ever, in Amtrak's
history--and you will like this, Congressman. We went over $100
million in revenue, the first time in our history. Our
ridership is up. Our guarantee is working 99.6 percent. We are
expecting it to 99.9 percent.
I will be there after you get off. If you are not
satisfied, we will give you a free trip back, Congressman.
Mr. Hulshof. Thank you all.
Thanks, Mr. Chairman. I yield back.
Chairman Houghton. I have just one question.
Jim, what is it going to take to make us number one?
Mr. Oberstar. The last thing I said in my opening remarks
is political will: The vision to see what is needed and the
will to undertake it. That is what DeGaulle provided, that is
what was done by President Eisenhower when he initiated the
interstate highway system.
It was, again, President Eisenhower who saw a need to
finance airports, and in 1958 launched the beginnings of our
national airport system, an integrated system of airports
across the United States that needed the investment of Federal
funds to get started. Until then, it was cities that financed
airports. It took a national vision to do this.
When I was a graduate student in Bruge and traveled from
Parhelion, Lyons the second largest city of France. It was a 4-
\1/2\ hour trip in 1957. I came back a few years later, as
staff director of the Committee on Public Works and
Transportation, to look at an air track cushion-suspended light
rail train system they were developing in France at the time.
The trip then had improved. It was then 4 hours instead of 4-
\1/2\ hours.
In 1989, as Chair of the Aviation Subcommittee, in pursuit
of aviation security issues in Paris, I said, I want to try the
TGV, which had now been operating for just a few months.
American Airlines had opened a hub in Lyons and a pair-city
arrangement in the United States. There were 3 million air
passengers between Paris and Lyons and 500,000 rail passengers.
But with the TGV, the trip, instead of 4-\1/2\ hours, now took
2 hours and 1 minute. Within 6 months, American pulled down
their hub.
There are now 5 million rail passengers a year between
Paris and Lyons and 500,000 air passengers. The TGV system not
only is paying back the $12 billion capital investment made by
the French government, it is also subsidizing the rest of the
French rail system, including freight rail.
Now, that took vision. That took political will to launch
this system. But today we have a track record on which to
build. I think that that is the essential ingredient. In these
densely populated corridors where air traffic is congested,
where speed and mobility are important, if we do not move some
people off the highways and out of the airways, then the vision
of Apocalypse will not be fire raining down upon the Earth, it
will be all of us sitting in our cars on America's highways,
firmly gripping the steering wheel while we run out of gas.
Mr. Watkins. Mr. Chairman, may I inquire?
Chairman Houghton. Yes.
Mr. Watkins. We talk about vision. What is a master plan
and what is a vision for all of America, not just this
corridor, but for all of America?
Mr. Oberstar. That is the idea, is to move out, move out of
the East Coast Corridor.
Mr. Watkins. Show me the master plan. We will help you get
a will. We have to build a will.
Governor Thompson. We have a master plan. We would love to
sit down and talk to you about it, Congressman.
Mr. Oberstar. There are high-speed rail corridor plans all
across the country, but no money to implement them.
Mr. Watkins. All of America, not just the high-density
area. If we are at the tail end of it, we never get served. So
we have to be included, just what you are saying about the
French. It supports all the rest of the area. If you just take
the one area, then you run out of the rest of it.
Excuse me, Mr. Chairman.
Mr. Oberstar. To the gentleman from Oklahoma, I just want
to say there is a reason I am supporting this legislation. It
moves us beyond the East Coast Corridor.
Chairman Houghton. We will have to get at the overall plan
somehow. I think it will be helpful.
You were suggesting you would like to sit down and explain
to us what it is. I think it would be helpful if we could
sometime. You have a piece of your skin in this, and so do we.
We would like to know more about it.
Thank you very, very much. I certainly appreciate your
being with us.
Governor Thompson. Could I just have 15 seconds, Mr.
Chairman?
We have moved our board to a different location across the
country. We are in Atlanta. We were out in California. I just
would like to give you one figure. We were in California and
one of the speakers came up and said, by the year 2020,
California will have 18 million more people living in the State
of California. That means 45 million people. There is no way
that California can survive by building enough highways or
siting enough airports. The only solution is high-speed rail
for all America.
Chairman Houghton. Thank you very much. Now we are going to
have our second panel.
Mr. Gillespie is Manager of government Relations of ALSTOM
Transportation, Inc.; Mr. George, Senior Vice President of
Parsons Transportation Group, on behalf of the American Road &
Transportation Builders Association; Timothy Stowe, Vice
President, Transportation and Planning, Anderson & Associates
Inc., on behalf of the American Consulting Engineers Council.
I hope you can all hear me.
James Query is the Principal, Public Finance, Morgan
Stanley Dean Witter. We have Mr. Gillespie, Mr. George, Mr.
Stowe. We are delighted to have you here. Thank you for your
patience.
Chairman Houghton. Mr. Gillespie.

STATEMENT OF TIM GILLESPIE, MANAGER, GOVERNMENT RELATIONS,
ALSTOM TRANSPORTATION, INC., CHEVY CHASE, MARYLAND

Mr. Gillespie. Thank you, Mr. Chairman. I appreciate you
inviting us to appear before the Committee today to talk about
H.R. 3700, the High-Speed Rail Investment Act. We appreciate
your leadership and sponsorship of this bill.
My name is Tim Gillespie. I represent ALSTOM
Transportation, a manufacturer of rail passenger equipment.
ALSTOM is also a member of the Railway Supply Industry, the
Railway Progress Institute, and the American Passenger Rail
Coalition. We are also supporters of this legislation.
As you know, ALSTOM has a strong interest in the
development of high-speed rail in the United States. I know you
have visited the facility in Hornell, Mr. Chairman, and are
familiar with the fact that ALSTOM took over that facility a
few years ago, with 50 employees. There are now about 800
employees, and with plans to expand by another 350 people in
the not too distant future, with the support of the State of
New York, I might add.
Frankly, had it not been for the high-speed rail project in
the Northeast Corridor, ALSTOM probably would not have a
facility in the United States, but as you know, they are a
partner with the Acela project, with Bombardier, and that is
working well.
I am here today, Mr. Chairman, as a representative of
business, and specifically of the passenger rail supply
industry, to tell you that in addition to the obvious benefits
of increasing the efficiency of our transportation system and
producing environmental benefits, the development of high-speed
rail in the United States under this legislation is good public
policy because it will also provide economic benefits.
Investments in passenger rail directly create jobs in the
construction, engineering, manufacturing, and service
industries, and indirectly in the local economies where
increased commerce takes place because of the existence of
improved transportation options.
After a summer of headlines about delays in air traffic and
traffic congestion on the highways, and heightened airline
passenger frustration and high gas prices, this legislation is
good news because it would help put more balance in our
transportation system and provide an alternative for short-
distance intercity travelers looking for ways to avoid delays
being experienced at airports and on our highways.
Mr. Chairman, H.R. 3700, the High-Speed Rail Investment
Act, is critical to the success of high-speed rail.
Unfortunately, the cold reality is that the transportation
appropriations process is not capable of assisting in the
development of high-speed rail service in this country.
Mandatory spending programs in transportation have reduced
the ability of Congress to provide the funds necessary for
high-speed rail development through the transportation
appropriations bill. About 85 percent of the resources in the
bill, the DOT appropriations bill, are for guaranteed spending
programs, but there are no guarantees for rail passenger
service. As a result, there is very little available for high-
speed rail projects within the remaining 15 percent of
discretionary funding in transportation. That 15 percent is
usually used for things like Coast Guard, FAA, and
transportation safety programs.
As you know, H.R. 3700 allows for the sale of $10 billion
in bonds over a 10-year period, and provides the bondsholder
with a tax credit in lieu of interest payments. It also
requires participating States to provide at least a 20 percent
match.
Because the full faith and credit of the Federal Government
is not pledged, there is no risk to the Federal Government. The
Joint Committee on Taxation has scored the cost of the program
at a modest $13 million for the first year and $762 for over 5
years.
We think that H.R. 3700 is exactly the kind of tax policy
that is good for taxpayers, good for the economy, good for the
environment, and good for American businesses. Apparently, so
do many Members of Congress. To date, over 130 House Members
and half the Senate are cosponsors of this legislation.
As Congress struggles to assemble legislation that
represents a tax policy acceptable to Congress and the
administration, H.R. 3700 would be an attractive addition to
consider as part of any tax package that Congress passes this
year. This bill would bring a significant amount of support to
the table at a very low cost, enhancing the prospects of
enacting an overall tax bill that would be good for all
Americans.
As you know, this legislation will encourage the
development of high-speed rail projects for States who are
interested in relieving congestion, enhancing the environment,
and improving the economy. Because we can no longer depend on
traditional transportation infrastructure funding for rail,
this Committee should be commended for taking the initiative on
such a creative funding alternative, particularly because it
limits the exposure of the taxpaying public and involves
private sector funding.
Mr. Chairman, many States have already begun to take the
initiative on developing high-speed rail projects through
planning and engineering studies. We are ready to begin
implementation of the infrastructure improvements necessary for
high-speed rail, and as Mr. Oberstar said, we just need to do
it. Once enacted, the United States can again count itself
among the leaders of the world that provide high-quality
balanced transportation for its citizens, and as we approach
the end of the second session of the 106th Congress, it is
critical that this Committee do everything that it can to
include this legislation in the appropriate vehicle that will
get enacted this year.
H.R. 3700 is the last opportunity in this Congress to
ensure that States will be able to progress their plans for
high-speed corridor development.
Mr. Chairman, again I want to thank you and the Members of
the Committee today for the opportunity to appear here and for
your leadership on this important issue.
Thank you, sir.
Chairman Houghton. Thank you very much.
[The prepared statement follows:]

STATEMENT OF TIM GILLESPIE, MANAGER, GOVERNMENT RELATIONS, ALSTOM
TRANSPORTATION, INC., CHEVY CHASE, MARYLAND

Mr. Chairman, my name is Tim Gillespie, ALSTOM
Transportation Inc., Government Relations.
ALSTOM is among the world's leaders in manufacturing rail
equipment. As you know, ALSTOM has a facility for manufacturing
and re-building railroad passenger equipment in Hornell, New
York. We have a significant interest in high-speed rail
development in the United States and are a part of the
consortium responsible for building the high-speed rail
equipment for the Northeast Corridor. Frankly, without the
Northeast Corridor high-speed rail project, ALSTOM would not be
in the United States.
We were pleased to have you and Governor Pataki participate
in the recent ground breaking ceremony in Hornell for the first
phase of our expansion. When ALSTOM took over the facilities in
Hornell a few years ago, there were less than 50 employees.
Today we employ nearly 800 workers and with our plans for
expansion we expect the employment level to grow by another 350
people over the next few years.
If we are to continue and sustain the employment growth at
our facility in Hornell, the American passenger rail industry
must grow. And the only way for this to happen is for federal
government to make a commitment to help develop a
transportation financing mechanism for high-speed rail in the
United States. The bill before this committee today would do
just that.
I am here today as a representative of business, and
specifically, of the passenger rail supply industry, to tell
you that in addition to the obvious benefits of increasing the
efficiency of our transportation systems and producing
environmental benefits, developing high speed rail corridors in
this country will provide significant economic benefits,
especially in job creation. Investments in passenger rail
creates jobs directly in the construction, engineering,
manufacturing, and service industries, and indirectly in the
local economies where increased commerce takes place because of
the existence of improved transportation options.
The high-speed project in the Northeast Corridor provides
an excellent example of increased employment through
development of passenger rail. Our story of moving from 50 to
800 employees in Hornell in just a few years is just one of
many similar stories. The Acela project, with 70% Buy America
participation overall, created contracts with over 70 suppliers
in 23 states. In the process, over 10,000 construction and
manufacturing jobs were created. Spending from these jobs
provides businesses an opportunity to grow and enhances the
financial health of the communities in which they are located.
I am delighted that, as our home-town representative in
Congress, you are the sponsor of H.R. 3700, the High Speed Rail
Investment Act, and that you are taking the time to hold a
hearing on this important legislation. Your active support for
this bill demonstrates your knowledge of the value of this
legislation to your district and the nation.
Today, highways, transit and airports all have dedicated
sources of federal funding that are guaranteed to those
entities in law under ``contract authority,'' but passenger
rail does not. As a result, obtaining the funds necessary for
high-speed rail development will be very difficult. As you
know, Amtrak has had to struggle in a very competitive federal
funding environment for limited capital resources. Under
current law, it is very difficult for the Appropriations
process to provide the type of funding necessary to meet
Amtrak's basic capital needs and almost impossible to obtain
the funding necessary for the development of high-speed rail.
That is why I applaud your efforts to support such an
innovative funding concept that allows the development of high-
speed rail, minimizes the amount of federal outlays, and
involves the states as funding partners for these critical
infrastructure improvements.
As you know, under this bill states must provide at least a
20 percent match, and bondholders would get federal tax credits
rather than interest payments. The 20 percent state payments
would go directly to the projects. An interest earning escrow
account would be established with $200 million of the proceeds
of the original bond sale, which would be managed by an
independent trustee, and this would be used to pay off the
principal. Because the full faith and credit of the Federal
government is not being pledged, there is no risk to the
Federal government. The Joint Committee on Taxation has scored
the cost of the program--providing $10 billion over ten years
to develop high speed corridors nationwide--at a modest $13
million for the first year, $762 million over five years, and
$3.2 billion over ten years.
We think that H.R. 3700 is exactly the kind of tax policy
that is good for taxpayers, the economy and American
businesses. It is this type of legislation that will encourage
the development of high-speed rail where states are interested
in relieving congestion, enhancing the environment and
improving the economy. Americans cannot continue to rely on
traditional transportation infrastructure funding to accomplish
these goals. This committee should be commended for taking the
initiative on creative funding alternatives that limit the
exposure of the tax paying public and, at the same time,
provide improvements to its overall transportation
infrastructure.
Mr. Chairman, even in the absence of federal support for
high-speed rail, the states have begun to initiate high-speed
rail projects. They are ready, Amtrak is ready and the industry
is ready to begin the task of implementing the infrastructure
improvements required for high-speed rail. But, to meet the
growing demand for high-speed rail, a federal role is
necessary. Once that support is forthcoming, the United States
can once again count itself among the leaders in the world that
provide high-speed rail service for its citizens.
As we approach the end of the Second Session of the 106th
Congress, it is critical that this committee do everything that
it can to include this legislation in any tax bill that
Congress moves prior to the end of the session. It is clear
that the restraints within the Department of Transportation
Appropriations bill will not permit the level of funding
necessary to allow for high-speed rail development. The bill
before you today is the last opportunity in this Congress to
ensure that states will be able to progress their plans for
corridor development.
Thank you for the opportunity to appear before this
committee and for your leadership on this important matter.

Chairman Houghton. Mr. George.

STATEMENT OF WILLIAM H. GEORGE, SENIOR VICE PRESIDENT, PARSONS
TRANSPORTATION GROUP, ON BEHALF OF THE AMERICAN ROAD &
TRANSPORTATION BUILDERS ASSOCIATION

Mr. George. Mr. Chairman, Members of the Subcommittee, good
afternoon. I am William H. George, Senior Vice President of
Parsons Transportation Group, which is headquartered here in
Washington, D.C. Our company specializes in the planning,
design, engineering, and program management of transportation
projects in all modal areas.
Today I am representing the American Road and
Transportation Builders Association, or ARTBA. I am president
of ARTBA's Planning and Design Division and chairman of its
Railroad and Public Transportation Advisory Council.
ARTBA, founded in 1902, represents all sectors of the
transportation construction industry. Our members are on the
frontlines of building, designing, and managing transportation
infrastructure projects.
I would like to commend Chairman Houghton and other Members
of the Subcommittee for convening today's hearing. A safe and
efficient transportation network is critical to the nation's
economy, public health, and quality of life. This Committee
plays a key role in ensuring that the necessary financial
resources are available to build and maintain it.
One of the core principles underlying U.S. transportation
policy is the imposition of Federal transportation excise
taxes, or user fees, to generate the revenue necessary for
improving the safety and efficiency of the nation's
transportation infrastructure. It is a principle that ARTBA
wholeheartedly supports.
This policy directly links Federal transportation capital
improvement programs and Federal tax laws. The transportation
user fee financing concept has been a clear success, but the
nation still has a long way to go to meet its transportation
capital needs.
One conspicuous hole in transportation capital financing is
the lack of a dedicated funding source for intercity passenger
rail capital improvements. The Federal Government currently
invests general fund revenue in passenger rail through the
annual appropriations process. I cannot overemphasize the
importance of reliable Federal investment for all modes of
transportation. Transportation infrastructure projects, by
their nature, are highly capital-intensive and often require
multiple years to plan, design, and construct. Funding
uncertainty at the Federal level can disrupt and delay the
delivery of transportation projects.
Congress has moved decisively to minimize such uncertainty
in Federal highway, mass transit, and airport investment by
enacting TEA-21 and AIR-21. We strongly recommend enactment of
a similar reliable funding mechanism for intercity passenger
rail.
For that reason, ARTBA is pleased to endorse H.R. 3700,
introduced by Chairman Houghton earlier this year. This measure
would provide $10 billion in bonding authority for high-speed
rail projects over the next 10 years. H.R. 3700 also recognizes
the key role that public-private partnerships can play in
financing the development of transportation facilities.
These partnerships, which are becoming more widely accepted
and used across the nation, provide a crucial supplement to
traditional financing mechanisms. Enactment of H.R. 3700 would
also help minimize unproductive conflicts between modal
advocates over how to pay for passenger rail improvements. For
example, some now propose using Federal Highway Trust Fund
revenues to support intercity passenger rail. Such proposals
force policymakers to make a false choice between
transportation solutions. As the saying goes, it is robbing
Peter to pay Paul. ARTBA vigorously opposes this approach
because the nation has enormous unmet highway and bridge
capital needs, not because we oppose rail improvements.
Mr. Chairman, that leads me to the final point I would like
to make today. Just as highway and aviation users pay Federal
user fees to finance capital improvements for those modes of
travel, so should rail passengers pay a Federal user fee to
help support capital improvements for Amtrak and high-speed
rail. There should be a Federal rail passenger ticket tax, like
there is a gasoline tax and an aviation ticket tax.
Intercity and high-speed rail are expensive propositions.
They are also critical to meeting the nation's future mobility
needs. We should not be shy in saying we need to raise money as
a nation for these endeavors, and users should pay their fair
share. That has been a successful formula for other
transportation modes. It can be successful for passenger rail,
as well.
Thank you, Mr. Chairman, for inviting us to participate in
this hearing.
Chairman Houghton. Thanks very much, Mr. George.
[The prepared statement follows:]

STATEMENT OF WILLIAM H. GEORGE, SENIOR VICE PRESIDENT, PARSONS
TRANSPORTATION GROUP, ON BEHALF OF THE AMERICAN ROAD & TRANSPORTION
BUILDERS ASSOCIATION

Chairman Houghton, members of the subcommittee, thank you
for convening this hearing of the Subcommittee on Oversight to
review transportation-related federal tax law and for allowing
the American Road & Transportation Builders Association
(ARTBA) to take part in this important dialogue.
My name is William H. George. I am senior vice president of
the Parsons Transportation Group, which specializes in the
planning, design, construction engineering, and program
management of transportation projects from concept through
construction. Our company maintains offices in 21 states, the
District of Columbia, and 17 countries.
I am appearing today as a representative of the American
Road and Transportation Builders Association. I am honored to
serve as the as president of the ARTBA Planning and Design
Division and chairman of the association's Railroad and Public
Transportation Advisory Council. ARTBA, founded in 1902, is the
only national association that exclusively represents the
collective interests of all sectors of the U.S. transportation
construction industry before the White House, Congress and
federal agencies.
ARTBA supports the development and maintenance of a safe
and efficient, multi-modal U.S. transportation network that
allows Americans to choose their mode of travel.
The U.S. transportation construction industry, which ARTBA
represents, generates more than $175 billion annually in U.S.
economic activity and provides employment for more than 2.2
million Americans.

Transportation and Tax Law

Mr. Chairman, the imposition of federal transportation
excise taxes--or user fee--to generate revenue for improving
the safety and efficiency of the nation's transportation
infrastructure is one of the core principles underlying U.S.
transportation policy. It is a principle ARTBA wholeheartedly
supports. This policy directly links federal transportation
capital improvement programs and federal tax laws. The user-fee
concept distinguishes the transportation programs from other
federal programs in that they are largely self-financing.
The 1998 ``Transportation Equity Act for the 21st
Century,'' or TEA-21, established a direct linkage between
federal highway user fee revenue collections and federal
highway investment. This landmark provision of TEA-21 has led
to dramatically increased investment for the federal highway
and transit capital programs.
Congress and the Clinton Administration earlier this year
enacted the ``Aviation Investment and Reform Act for the 21st
Century,'' or AIR-21. Like TEA-21, AIR-21 ensures that revenues
generated by user fees paid by air travelers will be invested
to improve the safety and efficiency of the nation's aviation
system. This legislation will increase airport capital
investment more than 60 percent.
The user fee concept to finance transportation programs has
been a clear success. In poll after poll, Americans indicate
their support for paying user fees to improve the nation's
transportation network. Despite the effectiveness of this
policy, our nation still has a long way to go to meet its
transportation system needs.

Passenger Rail

One conspicuous hole in transportation capital financing is
the lack of a dedicated funding source for intercity passenger
rail. The federal government currently invests general fund
revenue in passenger rail through the annual appropriations
process. It has also provided occasional infusions of capital
resources, such as the Amtrak provision in the ``Taxpayer
Relief Act of 1997.'' Unlike federal highway, transit and
airport infrastructure programs, however, intercity passenger
rail does not enjoy a reliable, dedicated funding source for
capital improvements.
Mr. Chairman, I would like to take a moment to emphasize
the importance of reliable federal investment for all modes of
transportation. Transportation infrastructure projects, by
their nature, are highly capital intensive. They frequently
require multiple years to complete the necessary environmental
approvals, design work and construction. Developing an
effective national transportation infrastructure is also a
long-term, ongoing process that requires continual attention.
Clearly, uncertainty about the level of federal investment
for any transportation facility can be disruptive for project
owners, such as Amtrak and state departments of transportation,
and the construction industry that is charged with developing
these facilities. The inevitable fluctuations that occur from
year-to-year in the appropriations process can impede or delay
needed transportation projects.
Congress moved decisively to minimize the volatility of
federal transportation investment in the highway and aviation
areas by enacting TEA-21 and AIR-21. As a result, states,
transit authorities and airports now have a predictable level
of federal transportation infrastructure investment they will
receive through 2003. We strongly recommend that Congress enact
similar reliable funding mechanisms for intercity passenger
rail.
In that regard, the American Road and Transportation
Builders Association is pleased to endorse the "High-Speed
Rail Investment Act of 2000," (H.R. 3700) introduced by
Chairman Houghton earlier this year. H.R. 3700 has 130
bipartisan cosponsors from all regions of the United States.
Senator Frank Lautenberg has introduced a similar measure, S.
1900, in the Senate that has 49 bipartisan cosponsors. The
diversity of support for these bills demonstrates the key role
of passenger rail service as part of the nation's
transportation network. The broad interest in these bills also
again showcases the unifying role of transportation
infrastructure as a means to improve thequality of life for all
Americans.
H.R. 3700 would provide $10 billion in bonding authority
for high-speed rail projects over the next 10 years. These
bonds would be used exclusively for capital projects to improve
existing high-speed rail lines and develop new ones. Through
the use of this innovative financing mechanism, the federal
government would be able to leverage its investment in
passenger rail to generate $1 billion per year for high-speed
rail capital projects.
The funding mechanism in H.R. 3700 also capitalizes on the
increasing trend of federal, state and private sector
partnering that is being utilized in all modes of
transportation to meet the nation's growing transportation
infrastructure needs. ARTBA's Public-Private Ventures Division,
which consists of financial professionals, has been a leading
proponent of new innovative transportation financing techniques
and increased private sector involvement in the development of
transportation capital projects. Innovative financing
proposals, like H.R. 3700, are critical supplements to the core
federaltransportation programs and will play a key role in
future federal transportation policy initiatives. Consequently,
we urge this subcommittee to continue to explore other tax
measures that will encourage the use of innovative financing
for transportation projects.
A final observation about the merits of H.R. 3700 is that
this measure could help to prevent unproductive conflicts
between the various modes of transportation. The lack of a
dedicated funding source for intercity passenger rail has led
some to propose allowing the use of Highway Trust Fund revenues
for high-speed rail. Given the nation's enormous highway and
bridge capital needs, ARTBA opposes this.
Proposals that attempt to "rob Peter to pay Paul"
forcepolicy makers to make false choices between transportation
solutions.
Mr. Chairman, given this situation and the nation's
passengerrailway needs, we also believe it is time that
Congress seriouslyconsider the imposition of a federal rail
passenger user fee to helpfinance capital improvements. Just as
the users of the highway andaviation systems help finance the
infrastructure they use, so shouldrail passengers.
When one travels from Washington, D.C., to New York City by
auto,they are paying federal and state gasoline taxes and tolls
inMaryland, Delaware, New Jersey and New York. Most of this
collectedtax revenue is put back into roadway improvements.
When one flies between Washington, D.C., and New York City
by air,they are investing eight percent of their ticket price
in the federalAirport and Airway Trust Fund. On a $400 round-
trip ticket, that is$32 that is going to support the air
traffic control system andairport improvements.
When one travels between Washington, D.C., and New York
City viaAmtrak, however, not a penny is collected by government
that could bededicated toward Amtrak capital investments. That
is not right. And weurge the Ways and Means Committee to
address this issue.
Again, this approach would lessen, if not eliminate, the
pressureat the state level to seek money for passenger rail at
the expense ofroad and bridge improvements.

Other Tax Issues Impacting Transportation

Mr. Chairman, as I have previously mentioned, the concept
behindthe Highway Trust Fund and the imposition of a federal
tax on motorfuels is simple: those who drive should contribute
to the developmentand upkeep of the nation's road and bridge
system in a mannercommensurate with their use of the system.
The more motor fuel youuse, the more you contribute--through
motor fuel excises-to theHighway Trust Fund.
A car operating on gasohol causes as much wear and tear on
ourroadways and bridges as does a car operating on gasoline.
But thegasohol/ethanol user is not now paying his or her fair
share to theHighway Trust Fund.
The motorist using gasoline contributes 18.3 cents per
gallon tothe Highway Trust Fund through the federal gas tax--
15.44 cents pergallon to the trust fund's Highway Account and
2.86 cents per gallonto the fund's Mass Transit Account. (An
additional 0.1 cents pergallon is contributed to the Leaking
Underground Storage Tank TrustFund.)
The motorist using gasohol (with 10 percent ethanol),
however, isonly contributing 9.8 cents per gallon to the
Highway Trust Fundthrough federal excises--6.94 cents per
gallon to the trust fund'sHighway Account and 2.86 cents per
gallon to the Mass Transit Account.
It is also worth noting that 3.1 cents of the federal per
gallonexcise on 10 percent gasohol and 2.5 cents of the tax on
less than 10percent gasohol is deposited in the federal General
Fund.Consequently, not only are ethanol fuels not paying their
fair shareto improve the nation's roadways and bridges, but
also ethanol'scurrent tax status returns the favor to the
federal government byproviding over $400 million per year to
the federal General Fund.During these times of escalating
federal budget surpluses, there is nojustification for a
portion of a federally imposed highway user fee tobe dedicated
to the federal General Fund.
The computations below in Table 1, based on 1998 ethanol
use datareported in the Federal Highway Administration's ``1998
Highway Statistics Report,'' show federal tax policy toward
ethanol supported motor fuels costs the nation's highway
improvement program nearly $1.1 billion per year!

Table 1

10 percent gasohol usage: 10,487,912,000 gallons
5.4 cents per gallon subsidy: $566,347,248
3.1 cents per gallon to the general fund:$325,125,272
Highway Trust Fund shortage: $891,472,520
Less than 10 percent gasohol usage: 3,490,851,000 gallons
3.1 cents per gallon subsidy:$108,216,381
2.5 cents per gallon to the general fund: $87,271,275
Highway Trust Fund shortage: $195,487,656

Total Highway Trust Fund shortage: $1,086,960,176

This highway robbery is occurring at the same time the
U.S.Department of Transportation reports 58.7 percent of the
nation's roadmiles are in need of repair and 29.6 percent of
the nation's bridgesare structurally deficient or functionally
obsolete. The same reportfinds available highway and bridge
investment from all levels ofgovernment falls short of the
amount necessary to improve theseconditions by $45.3 billion
each year!
Given these staggering needs, we suggest federal tax
subsidies forethanol is poor public policy. If promotion of
ethanol use in motorvehicles is intended to provide federal
support to agriculturalinterests, it should be financed, like
all other discretionaryagriculture programs, through the
General Fund. At a minimum, we urgethis subcommittee to explore
why current federal tax law supports aportion of the ethanol
excise being used to contribute to the budgetsurplus instead of
improving the safety and efficiency of the nation'sroadways.
In a related matter, ARTBA also urges repeal of the 4.3
cents pergallon federal motor fuels tax on diesel fuel that is
currently paidby freight railroads. The revenue from this
excise is deposited in thefederal General Fund for deficit
reduction purposes. Much like theportion of the ethanol tax
that is directed to the General Fund, thegrowing federal budget
surplus eliminates the need for the railroadsto pay a federal
fuels tax that generates revenue fornon-transportation
infrastructure purposes.
The revenue from the 4.3 cents per gallon federal motor
fuels taxpaid by highway users that previously went to the
General Fund wasredirected to the Highway Trust Fund by the
Taxpayer Relief Act of1997. Congress included a provision
repealing the 4.3 cents per gallontax paid by the railroads as
part of a larger tax bill in 1999 thatwas vetoed by President
Clinton. We urge the Ways and Means Committeeto continue
pursuing the elimination of this unwarranted tax.

Conclusion

In conclusion, Mr. Chairman, the American Road &
TransportationBuilders Association greatly appreciates the
opportunity to appearbefore your subcommittee. As my testimony
indicates, there arenumerous critical issues that impact the
nation's transportationinfrastructure network that fall within
the jurisdiction of the HouseWays and Means Committee. We hope
you and other committee members willcontinue to review these
important matters. We also look forward toworking with you and
the other supporters of H.R. 3700 to see thislegislation
enacted.
Thank you again for the opportunity to testify today and I
would behappy to answer any questions regarding my testimony or
other issues.

Chairman Houghton. Mr. Stowe.

STATEMENT OF TIM STOWE, VICE PRESIDENT, TRANSPORTATION AND
PLANNING, ANDERSON & ASSOCIATES, INC., ON BEHALF OF THE
AMERICAN CONSULTING ENGINEERS COUNCIL, BLACKSBURG, VIRGINIA

Mr. Stowe. Good afternoon, Mr. Chairman, Members of the
Subcommittee. My name is Tim Stowe and I am representing the
American Consulting Engineers Council today. We strongly
support H.R. 3700.
I am Vice President of Transportation and Planning for
Anderson & Associates, a consulting engineering firm located in
Blacksburg, Virginia. I also serve as chairman of the Committee
on Transportation and Infrastructure for ACEC. I am delighted
to have this opportunity to address you on behalf of ACEC, the
largest, oldest organization representing engineering firms. We
have a membership of about 5,700 engineering firms that
represent 250,000 design professionals, and about 77 percent of
our firms are small businesses with 30 or less employees. I
would also note that we are primarily engineers who do design
work. We are not qualified to drive trains.
ACEC members are deeply involved with every aspect of our
Nation's transportation systems, designing roadways, bridges,
railroads, transit systems, airports, runway facilities. We
have a sense of environmental stewardship and public safety,
and we regularly provide infrastructure projects, designs and
plans for infrastructure that improve the safety and capacity
of our Nation's transportation systems.
In recent years, we have enjoyed a tremendously vibrant
economy here in our country. There have been numerous
opportunities for businesses and individuals to grow as part of
our economic growth. For example, in the growth of our economy,
it has been possible for businesses to move into new
facilities, to expand, and for their employees to also expand
into new homes and new facilities.
But an important part of this vibrant economy that sustains
all levels is a strong transportation system. As our Nation's
growth has occurred, our members have witnessed significant
increases in demands that are placed on our Nation's
transportation infrastructure.
One system experiencing this significant increase in demand
is our Nation's highway systems. The Congress recognizes this
and, through the passage of the TEA-21 legislation about 2
years ago, provided substantial resources in order to address
some of the shortcomings that have been recognized in the
highway system.
Another highly overworked transportation system is our air
transportation. Congestion relief in our airways and traveler
safety was a major concern on the minds of Members of this body
when Congress passed the Aviation Investment and Reform Act for
the 21st century earlier this year.
These two pieces of legislation have provided a significant
flow of resources to our highway and air systems, but not
anything for the high-speed rail system infrastructure.
Within the United States, there are a number of densely
populated travel corridors in which the highways and airports
are chronically congested. In these densely developed areas,
the costs and impacts of providing highway improvements is
extraordinary and, many locations, not practical at all. It is
in these areas that we feel significant benefits can be
recognized and lessons can be learned and can be expanded out
into other parts of the country as well.
Having a self-sufficient alternative mode of transportation
that is fast, efficient, and environmentally friendly would be
a very appealing alternative to thousands of stranded highway
travelers. As our Nation's population and numbers of travelers
continues to grow, we will see more and more demands being
placed on this transportation infrastructure.
We see one of the benefits of H.R. 3700 not only lies with
Amtrak, although the investment would be with Amtrak and their
rolling stock and in their systems, but much of the railroad
that Amtrak operates on is also owned by other freight
railroads. We see some spinoff benefits that those systems
would recognize, thereby providing an overall improvement in
the rail transportation system, not just for Amtrak. We think
that is a significant benefit for the country as we look at
this program.
However, all of this cannot happen without a funding source
for the intercity rail program. As I mentioned previously, TEA-
21 provided resources for highways, AIR-21 provided resources
for our air system, and we see a definite need for the
dedicated revenue source needed for the air travel as well.
We at ACEC strongly support H.R. 3700, which provides
authorization for the sale of $10 billion worth of bonds for
the purposes of infrastructure, rolling stock, and other
necessary improvements and upgrades in the high-speed rail
corridors. We see this initiative as a catalyst that is needed
to boost the rail system to the level where it would be a
viable travel mode alternative throughout a number of
geographic regions in our country.
We also see the benefits associated with the tax-exempt
status of the bonds, very similar in nature to another piece of
legislation being considered in this Committee, which is the
Highway Innovation and Cost Savings Act. We see a lot of
parallels between these two packages.
We frequently see news about doc-com companies and e-
commerce, but most of this e-commerce would not occur without a
strong infrastructure, a transportation network in place to
deliver the merchandise and goods being sold over the Internet.
Adequately funding and maintaining all parts of this
transportation system is paramount to sustaining a vibrant
economy in this country. We applaud the leadership of this
Committee and Subcommittee to seek and create tools by which
the needs for our rail systems can be addressed.
Thank you, Mr. Chairman.
Chairman Houghton. Thanks very much.
[The prepared statement follows:]

STATEMENT OF TIM STOWE, VICE PRESIDENT, TRANSPORTATION AND PLANNING,
ANDERSON & ASSOCIATES, INC., ON BEHALF OF THE AMERICAN CONSULTING
ENGINEERS COUNCIL, BLACKSBURG, VIRGINIA

Good Morning, Mr. Chairman and members of the subcommittee,
my name is Tim Stowe, I'm representing the American Consulting
Engineers Council and we strongly support HR 3700.
I am Vice President of Transportation and Planning for
Anderson and Associates, a consulting engineering firm in
Blacksburg, VA. I also serve as Chairman of the Transportation
Committee for the American Consulting Engineers Council. I am
delighted to have the opportunity to address you on behalf of
ACEC, the largest and oldest organization representing
engineering firms. The American Consulting Engineers Council
(ACEC) is the largest national organization of engineers
engaged in the independent practice of consulting engineering.
ACEC has more than 5,700 member firms employing nearly 250,000
professional engineers, land surveyors, scientists and
technicians who design over $150 billion in construction
projects annually. More than 77 percent of these firms are
small businesses with fewer than 30 employees each. In
accordance with the terms of rule XI, clause 2(g)(4), of the
Rules of the House of Representatives, neither myself nor ACEC
has received, any federal grant, contract or subcontract in the
last two years.
ACEC members are deeply involved with virtually every
aspect of our nation's transportation system, designing roads,
bridges, transit and rail systems, and airport and runway
facilities in every state. Our member firms have a strong sense
of environmental stewardship and public safety, and regularly
provide engineering solutions that improve the safety and
capacity of our nation's transportation systems.
Mr. Chairman, in recent years we Americans have enjoyed a
tremendously vibrant economy that has provided numerous
opportunities and benefits for our businesses and citizens. The
growth of our economy has made it possible for business to grow
into new facilities, and for the employees of these businesses
to grow into new homes. An important part of maintaining a
vibrant economy is having an efficient and balanced
transportation system. This system must be made up of all modes
of travel including highway, air, rail and transit services.
As our nation's economic growth has occurred, our members
have witnessed significant increases in the demands placed on
our Nation's infrastructure systems. One such system is our
highway system. Through the passage of the Transportation
Equity Act for the 21st Century, Congress (TEA-21) provided
$128 billion for our highway and transit systems.
Another highly overworked infrastructure system is our air
transportation system. Congestion in our airways and traveler
safety were major considerations earlier this year when
Congress passed the Aviation Investment and Reform Act for the
21st Century (AIR-21) which provided a $10 billion increase in
the nation's aviation system.
These two pieces of legislation have provided a significant
flow of resources to our highway and air systems, but not for
high-speed rail.
Within the United States there are a number of densely
populated travel corridors in which the highways and airports
are chronically congested. In these densely developed areas the
cost and impacts of providing highway improvements is
extraordinary, and in many locations not practical at all. It
is in these areas that we at ACEC feel significant benefits can
be recognized from investments in the inter-city rail program.
Providing a self-sufficient alternative mode of transportation
that is, fast, efficient and environmentally friendly would be
a very appealing to thousands of stranded highway and air
travelers.
As our nation's population and number travelers grows we
will see more and more demands being placed on our
transportation infrastructure. Having modal choices in travel
will serve to balance travel demand among those modes thereby
alleviating overcrowding and congestion of a single mode.
There will be a broad-based set of benefits to the overall
railroad community. A majority of infrastructure improvement
work will occur on freight lines. This program will now improve
those tracks which means freight will receive indirect
benefits. This translates into a better overall transportation
program.
However, all of this cannot happen without a funding source
for the inter-city passenger rail program. As I mentioned
previously, TEA-21 provided resources for our highways and AIR-
21 provided resources for our air system. A dedicated revenue
source is needed for rail travel as well. We at the American
Consulting Engineers Council support HR 3700, which provides
authorization for the sale of $10 billion dollars of bonds for
the purpose of infrastructure, rolling stock and other
necessary improvements and upgrades in high-speed rail
corridors. This initiative will provide the catalyst that is
needed to boost the rail system to a level where it will be a
viable travel mode alternative throughout a number of
geographic regions.
I also want to reiterate ACEC's support of the Highway
Innovation and Cost Savings Act. This bill, sponsored by
Congresswoman Dunn, would help increase the private sector's
role in delivering highway and bridge projects and eliminates
the disincentive that exists in the tax law.
Under current law tax exempt financing is available for
projects built and operated by the federal government and non-
highway public-private partnerships. We encourage Congress to
pass this legislation.
Conclusion
We frequently see news about DOT COM companies and E-
Commerce, but most of the E-Commerce would not occur without a
strong transportation network in place to deliver the
merchandise being sold over the Internet. Adequately funding
and maintaining all parts of this transportation system is
paramount to sustaining a vibrant economy in this country and
we applaud the leadership of this Committee to seek create
tools by which the needs of our rail systems can be addressed.
At the appropriate time, I'd be happy to answer any of your
questions.

RESOLUTION OF THE AMERICAN CONSULTING ENGINEERS COUNCIL (ACEC)
TRANSPORTATION COMMITTEE

Relating to Intercity High Speed Rail

WHEREAS, an improved, efficient balanced transportation
system, including highway, air, rail and transit services, is
vitally important to the mobility of American businesses and
citizens as we enter the twenty-first century; and
WHEREAS, the federal Transportation Equity Act for the 21st
Century, commonly known as TEA 21, included significant
increases in dedicated funding for highway and transit
programs; and
WHEREAS, the Congress passed and the President recently
signed the reauthorization of the federal aviation program,
commonly known as Air 21, that includes significant increases
in dedicated funding for aviation programs; and
WHEREAS, neither TEA-21 nor AIR-21 includes significant
dedicated federal funding to support existing or future capital
needs of a high density intercity rail passenger corridor
program; and
WHEREAS, legislation has been introduced in the United
States Congress as Senate Bill'S 1900 and House Bill HR 3700
providing $10 billion in bonding over 10 years for high-speed
passenger rail infrastructure, without impacting existing
highway, transit or aviation funding sources; and
WHEREAS, there exist in the United States several high
density intercity travel corridors with chronically congested
airports and highways that cannot be reasonably expanded, and
where high speed rail would provide a choice for improved
mobility and congestion relief; and
WHEREAS, high speed rail services in the appropriate
corridors can provide excellent mobility benefits while
conserving energy and resulting in low pollution, and with
operating revenue covering operating costs; and
NOW, THEREFORE, the ACEC Transportation Committee supports
a significantly increased dedicated capital funding program to
be applied to intercity high speed rail projects, and supports
Senate Bill'S 1900 and the companion House Bill HR 3700.

Chairman Houghton. Mr. Query.

STATEMENT OF JAMES B. QUERY, PRINCIPAL, PUBLIC FINANCE, MORGAN
STANLEY DEAN WITTER, PHILADELPHIA, PENNSYLVANIA

Mr. Query. Mr. Chairman, distinguished Members of the
Subcommittee, my name is James Query. I am a Principal in the
Public Finance Department at Morgan Stanley Dean Witter. We are
an international investment banking firm. I presently serve as
manager for the firm's efforts as financial advisor and
underwriter for surface transportation and transit agencies
nationally.
I have worked in public finance for more than 15 years, and
our firm has been fortunate enough to work with a number of the
country's largest transit and transportation agencies. I thank
you for the opportunity to appear before this Committee to
testify for Amtrak on transportation financing for intercity
passenger rail, and specifically speak to the benefits to be
realized from the proposed High-Speed Rail Investment Act, H.R.
3700.
I would like to address two basic questions in my time this
afternoon. Both of them are from the perspective of a
participant in the private capital markets.
The first question is, is there a need for innovative
capital funding proposals for high-speed rail of the sort
provided by H.R. 3700; and second, can the funding mechanism
that has been proposed by H.R. 3700 be an effective approach to
meeting a portion of the capital needs faced by intercity
passenger rail over the next several years? The answer to both
questions in my view is, without question, an emphatic yes.
The need for innovative capital funding by government for
high-speed rail can be demonstrated in a number of ways. When
we look at the transportation industry among all the different
types of industry that need to finance themselves in the
capital markets today, without question, transportation is one
of the most capital-intensive industries. We recognize this as
a basic fact of transportation.
It depends upon large-scale sustained capital support of
the major infrastructure that supports it. This is true for all
the many different segments of the passenger transportation
industry that you have talked about this afternoon, including
rail, highways, and air transportation.
Each of these sectors depends upon reliable, ongoing
governmental support for much of the basic capital
infrastructure which supports the system. This is true not only
across transportation modes, but across governmental
jurisdictions around the world as well.
We are aware of no major provider of rail passenger transit
service, here or in any other country, that does not rely upon
significant ongoing governmental support to meet its capital
funding needs for infrastructure. This long-term, reliable,
governmental support is a necessary part of any dependable,
efficient transit service, irrespective of how well managed the
system may otherwise be or whether service is provided by
public or private corporate entities.
I just want to underscore that again. From the market's
perspective, it is not a question of how well the agency is
run. It should be run well and we certainly will look for
evidence of how well it is run. But in addition, the market
looks for the ongoing support for basic infrastructure needs
that is part of any successful system.
Amtrak has been very successful in recent years in relying
upon the private capital markets in a variety of ways to meet
its capital financing needs. It has used the lease market to
provide financing for rolling stock; it has used the taxable
and tax-exempt fixed income markets to meet other
infrastructure needs, and it has called upon major financial
institutions such as ourselves to provide direct lending
support. Through these efforts, Amtrak has established itself
as a creditworthy institution, recognized by independent credit
rating analysts as being of investment grade quality. Amtrak's
management team, its financial management team, has established
considerable credibility with both investors and private market
analysts.
The major question in the minds of the private capital
market participants such as ourselves at this point in Amtrak's
history is whether or not the Federal Government will continue
to provide the long-term ongoing capital support needed for
infrastructure investment that all transit systems everywhere
rely upon.
Passage of legislation such as that provided by H.R. 3700
would provide the evidence of long-term Federal support that
private investors would find of greatest value. As a result,
H.R. 3700 not only provides direct capital assistance that
Amtrak needs, but in addition, by demonstrating that Federal
support, it can strengthen Amtrak's ability to use the capital
markets independently and more cost-effectively as well.
To address the second question quickly, the innovative tax
credit bonds proposed by H.R. 3700 can be a very effective
capital funding tool for intercity passenger rail needs. It has
several elements which I believe can be of great value.
First, the requirement for State matching funding
contributions recognizes the partnership approach that
characterizes many, if not most, infrastructure projects
underway in the country today. As has been true of many recent
Federal efforts, such as the Transportation Infrastructure
Finance and Innovation Act, this legislation leverages limited
governmental transportation dollars as effectively as possible.
As we have heard already this afternoon, many States are
eager to invest their transportation dollars in such projects.
What they are looking for is a viable source of investment
funds from legislation such as this to create an effective
partnership.
Second, H.R. 3700 benefits from recent legislative efforts
to expand the use of tax credit bonds for infrastructure needs.
There has been significant discussion by capital market
participants of various tax credit proposals, such as the
Qualified Zone Academy Bonds authorized by the Taxpayer Relief
Act of 1997; the proposed Qualified School Modernization Bonds,
and Better America Bonds. H.R. 3700 takes advantage of
reactions made to these earlier proposals by allowing for some
very important features which will improve upon the funding
mechanism here versus what has been seen to date.
Some of those features include the strippability of the tax
credit and the underlying debt instrument so that the tax
credit aspect of this financing vehicle can be separated from
its investment component; and second, features such as matching
of quarterly credit dates to generate improved cash flow
benefits for investors.
Perhaps most importantly, by providing that the State match
be used to fund an escrow for the repayment of principal on the
bonds at maturity, H.R. 3700 will create a high credit quality
financial instrument that should find greater investor appeal.
At this point, questions necessarily remain. It is not
clear how large the market for investors for these high-speed
rail bonds will be at this point in time. Every market clearly
grows with use. The proposal is extremely well structured to
begin the process of market development.
Mr. Query. This program is large enough to provide some
investor liquidity, which has been sorely missing from programs
such as the QZAB program to date, and it is also flexible
enough to attract tax credit investors. We are confident that
there will be a ready market for investors for these
securities.
There are a few questions of implementation that would be
helpful to address. It would be helpful to make it clear, for
example, that States can use tax-exempt debt to fund their
State match requirements with appropriate exemptions from
arbitrage restrictions, and it is important that the
regulations establishing the interest rate on which the credit
will be based are keen and sensitive to the market rate of
returns that will be necessary to have this investment vehicle
hold its own among others.
Overall, let me say that H.R. 3700 will not answer all the
capital funding challenges faced by Congress, Amtrak, the
States, transit authorities, and private investors as they
jointly face the financing needs of infrastructure for
intercity high-speed rail. This legislation, however,
represents a significant commitment of governmental support at
a particularly important time that will sustain and accelerate
the research and development and effort that has already been
put into place.
These efforts will benefit all who depend on a
transportation system that clearly is growing increasingly
complex, expensive, and interdependent among its various modes.
Thank you very much. I welcome any questions you might
have.
[The prepared statement follows:]

STATEMENT OF JAMES B. QUERY, PRINCIPAL, PUBLIC FINANCE, MORGAN STANLEY
DEAN WITTER, PHILADELPHIA, PENNSYLVANIA

Chairman Houghton, Distinguished Committee Members:
My name is James Query. I am a Principal in the Public
Finance Department of Morgan Stanley Dean Witter, an
international investment banking firm. I presently serve as
manager for the Firm's efforts as financial advisor and
underwriter for surface transportation and transit agencies
nationally. I have worked in the public finance industry for
more than 15 years. Our Firm has worked with a number of the
country's largest transit and transportation agencies. I thank
you for the opportunity to appear before this distinguished
committee to testify for Amtrak on transportation financing for
intercity passenger rail and specifically on the benefits to be
realized from the proposed High Speed Rail Investment Act, HR
3700.
Mr. Chairman, I would like to address two basic questions
in my testimony today. First, is there a need for innovative
capital funding proposals for high-speed rail of the sort
provided by HR 3700? Second, can the funding mechanism proposed
in HR 3700 be an effective approach to meeting a portion of the
capital needs faced by intercity passenger rail over the next
several years? The answer to both questions, in my view, is an
emphatic yes.
The need for innovative capital funding by government for
high-speed rail can be demonstrated in a number of ways. First,
transportation is a capital-intensive industry; it depends upon
large scale, sustained capital support of major infrastructure.
This is true for the many different segments of the passenger
transportation industry including rail, highways and air
transportation. Each of these sectors depends upon reliable,
ongoing governmental support for much of the basic capital
infrastructure which supports the system. This is true not only
across transportation modes but across governmental
jurisdictions around the world as well. I am aware of no major
provider of rail passenger transit service, here or in any
other country, that does not rely upon significant governmental
support to meet its capital funding needs for infrastructure.
This long-term, reliable, governmental support is a necessary
part of any dependable, efficient transit service irrespective
of how well-managed the system may otherwise be or whether
service is provided by public or private corporate entities.
Amtrak has been successful in recent years in relying upon
the private capital markets in a variety of ways to meet its
capital financing needs. It has used the lease market to
provide financing for rolling stock; it has used the taxable
and tax-exempt fixed income market to meet other infrastructure
needs and it has called upon major financial institutions to
provide direct lending support. Through these efforts, Amtrak
has established itself as a creditworthy institution recognized
by independent credit rating analysts as being of investment
grade quality. The major question in the minds of private
capital market participants at this point in Amtrak's history
is whether or not the federal government will continue to
provide the long-term, ongoing capital support needed for
infrastructure investment that all transit systems rely upon.
Passage of legislation such as that provided by HR 3700 would
provide the evidence of long-term federal support that private
investors would find of greatest value. As a result, HR 3700
can provide not only direct capital assistance for Amtrak, but
it can strengthen Amtrak's ability to use the capital markets
independently and cost-effectively as well.
To address the second question, the innovative tax-credit
bonds proposed by the HR 3700 can be a very effective capital
funding tool for intercity passenger rail needs. It has several
elements which I believe can be of great value:
First, the requirement for state matching funding
contribution of 20% recognizes the partnership approach that
characterizes many, if not most, infrastructure projects
currently. As has been true of many recent federal efforts such
as the Transportation Infrastructure Finance and Innovation Act
(TIFIA), this legislation leverages limited governmental
transportation dollars as effectively as possible.
Second, HR 3700 benefits from other recent legislative
efforts to expand the use of tax-credit bonds for
infrastructure needs. There has been significant discussion by
capital market participants of various tax-credit proposals
such as the Qualified Zone Academy Bonds (QZABs) authorized by
the Taxpayer Relief Act of 1997, the proposed Qualified School
Modernization Bonds (QSMBs) and Better America Bonds (BABs). HR
3700 takes advantage of reactions made to earlier proposals by
allowing for features including:
strippability of the tax credit and the underlying
debt instrument
quarterly credit dates to generate improved cash
flow benefit for investors.
Perhaps most importantly, by providing that the state match
be used to fund an escrow for the repayment of principal on the
bonds at maturity, HR 3700 will create a high credit quality
financial instrument that should find greater investor appeal.
Questions necessarily remain. It is not clear how large the
market of investors for these high-speed rail bonds will be.
Every market grows with use. The proposal is well structured
however, to begin the process of market development. In
expanding the usefulness of this measure, it would be helpful
to address certain implementation issues. For example, it would
be useful to make it clear that states can use tax-exempt debt
to fund their state match requirement.
Overall, let me say that HR 3700 will not answer all of the
capital funding challenges faced by Congress, Amtrak, the
states, transit authorities and private investors as they
jointly face the financing needs of infrastructure for
intercity high speed rail. However, this legislation does
represent a significant commitment of governmental support that
will sustain and accelerate the investment and effort that has
already been made.
These efforts will benefit all who depend on a
transportation system that grows increasingly complex,
expensive and interdependent.
Thank you.

Chairman Houghton. I would just like to make a statement
before I turn to Mr. Coyne.
I think the point that you make about the States and their
having bonding capacity is really important. We do not have
that in the bill, and I think we probably ought to add that.
Thanks very much.
Mr. Coyne.
Mr. Coyne. Thank you, Mr. Chairman.
Mr. Query, what is your understanding of who would be
liable for the debt of the tax-exempt bond structure that is
proposed by Amtrak?
Mr. Query. As we have looked at the bill, our reaction is
basically to look at it in its two components: Who will pay the
interest on this debt, and how will principal be repaid.
The interest on the debt, inasmuch as it is coming in the
form of a tax credit from the Federal Government, when it comes
to the individual investor, they have great comfort that, in
fact, the Federal Government will make good on that promise of
the tax credit over time. So with regard to its interest rate
payments, the investor is fully protected and comfortable.
From the question of who will repay principal on this debt,
they will be looking to this escrow once again established by
the State match contribution. We anticipate that that escrow
would be of the highest possible credit rating, similar to the
types of escrows that you would see for refunding of securities
in the tax-exempt market today. As a result, it would again
carry the highest possible credit rating.
That is one of the primary differences that we see between
this type of tax credit vehicle and some of the others that
have been structured to date. Many of the investor concerns
with regard to the nature of the credit quality of this
investment vehicle will be answered, put to rest, and investors
can concentrate simply on the rate of return for this
particular instrument and understanding how it works.
Mr. Coyne. In your testimony, you point out H.R. 3700 will
create a high credit quality financial instrument that should
find greater investor appeal.
Mr. Query. Right.
Mr. Coyne. Are you talking about AAA, or AA----.
Mr. Query. AAA, based upon the nature of the securities in
the escrow, with the assumption that the securities themselves
are AAA quality, which, again, is achieved in other markets by
using a variety of Treasury securities or agency securities, or
triple-A-rated guaranteed investment contracts of one form or
another. We should be able to achieve that type of rating
level.
Mr. Coyne. Also in your testimony you point out that, and I
quote, ``It is not clear how large the market of investors for
these high-speed rail bonds will be.'' .
Could you expand on that a little bit?
Mr. Query. I can expand on it to this point: I thought it
was important to recognize the fact that this is an important
new investment vehicle. In that regard, we are building a new
market. QZABs have been an experiment in that market, but given
the fundamental nature of that program, the limitations they
have put on investors, it hasn't been a very clearcut
demonstration of exactly what the market potential is.
We think the size of this program gives important liquidity
for investors. It also gives a focus for investors who clearly
understand the single purpose for which this investment vehicle
is intended, and they can clearly understand the single type of
credit that is being dealt with.
As a result, we are quite comfortable that the dollar
volumes that are being looked to for this program are very
achievable. It is the perfect way to, in fact, start the
introduction of a tax credit vehicle such as this. I can't
think of a better way.
Mr. Coyne. Thank you.
Chairman Houghton. Thank you.
Mr. Watkins?
Mr. Watkins. Just a quick question.
Mr. Query, you indicated the interest would be backed up by
tax-exempt bonds; Federal, like a lot of tax-exempt bonds that
exist out there today, but also the principal would be backed
up by the States. So these will be limited and issued just from
State to State and will not be from the entire system? That is
a point that I want to try to make sure that I make here.
Mr. Query. Representative Watkins, as I have understood the
program, since it is structured in such a way to ensure a
partnership approach between the provider of intercity rail
service and the State trying to introduce high-speed rail
service in conjunction with this larger program, the 20 percent
State match again is contributed to an escrow in order to fund
the principal at repayment. The investor dollars that are
raised for the other 80 percent, if you will, are going to
build the bricks and mortar, if you will pardon the expression
because it does not really apply to rail, but the rail and
rolling stock necessary to support the rail service.
So it is up to the States, if you will, to find the
revenues necessary to make their State match contribution.
I think it is just important to recognize that as States go
about finding their match, just as is the case for highway and
for other transportation priorities in a State, they look to a
variety of funding sources. Sometimes it is straight gas tax
moneys; sometimes it is other funds available to the State
general fund. Frequently it is debt issued by the State and
supported by the State.
I just think it is very important to make sure this bill
allows States to fund it in that way.
Mr. Watkins. Let me ask a follow-up with this. We have a
cap of 30 percent for a certain area, for a State----.
Mr. Hulshof. Corridor.
Chairman Houghton. Northeast Corridor.
Mr. Watkins. What is the minimum, the floor? Do you have a
minimum floor?
Mr. Query. I'm sorry?
Mr. Watkins. A minimum floor that we could expect in a
rural populated area of the Nation?
Mr. Query. I think I understand the question: How small an
issue might be acceptable to the marketplace; is that the
question?
Mr. Watkins. Well, we are going to cap the high populated
areas. What can we expect that we would get in the rural areas
of the country?
Mr. Gillespie. Mr. Watkins, I think there is a provision in
the bill that allows up to 10 percent of the funds available to
be used for nondesignated corridors, so an area like Oklahoma,
if it had its 20 percent match, may be able to apply with
Amtrak to use some of the revenues generated by the bonds to
put into that service in Oklahoma. I think--I believe it is up
to 10 percent.
Mr. Query. Representative Watkins, one thing that I thought
was particularly interesting about this bill basically was that
by setting it up so that the States were required to put up
this 20 percent matching contribution, essentially it allowed a
State like the State of Oklahoma to place high-speed rail
within its own transportation priorities. So it actually had
the opportunity to say, this is how important an investment it
is to us. And to the extent that you reach the determination
that it is extremely important to you, and you make that
investment, you have the opportunity then to----.
Mr. Watkins. I was just trying to see if there would be
anything left when it gets around to Oklahoma.
Mr. Query. I understand.
Mr. Watkins. Let me say this, I want to be for this. Like I
say, I enjoy Eurail, I enjoy Britrail. I spent quite a bit of
time on those. I have not learned how to speak French out of it
all, like Oberstar, but in my area I'm trying to figure out how
I can be for this. I want to be for it.
I want to be able to get up on the floor and speak for this
type of legislation, because we look around and we realize we
do not have this. I think it could be of great assistance for
transportation.
I got on three different airlines yesterday trying to get
back here. Let me tell you, I know we have a mess out there in
the airlines. I was on American, Midway, and finally USAir
trying to get back here.
I want to be for it, and I want to work with the Chairman,
but I have to make sure that when we get down, that the bucket
is not empty. We want to try to have some help. Ten percent is
not very much for undesignated areas when there is a huge
undesignated area out across America right today.
Thank you, Mr. Chairman.
Chairman Houghton. Thank you.
Mr. Hulshof?
Mr. Hulshof. Mr. Chairman, if this were the game show
Jeopardy, I would say, I will stay with Mr. Query for $800.
Mr. Chairman, I say this as nonconfrontationally as I can
be.
I respect the last part of your statement, Mr. Query, about
you cannot think of a better way or a better goal. Perhaps Mr.
Rangel and Mrs. Johnson from this Committee might disagree.
They have a similar idea about school construction, and using
similar instruments for that priority as well.
You have anticipated some of my questions. I looked through
your testimony before you got up here. This is just from
memory. I think when Treasury was before us in the Full
Committee, back with the Taxpayer Relief Act of 1997, I think
we authorized about $800 million in bonding authority for
QZABs. I think over the last 2 years we have asked Treasury to
update us, and their most recent figure was less than $300
million in bonds have been allocated.
I respect your point, and let's talk a little about it. In
the Chairman's bill we are talking about $10 billion of bonding
authority over 10 years, so it is roughly $1 billion a year.
You say that under the Chairman's bill that we take
advantage of reactions made to these earlier proposals. You
talk about strippability or salability of a tax credit and the
underlying debt instrument.
I guess the quarterly credit dates, that is also to provide
some more liquidity, built-in liquidity?
Mr. Query. That is correct.
Mr. Hulshof. When we talked to Treasury about QZABs, one of
the things they had to acknowledge was that many of these bonds
are sold below par. How can we be assured that in this
instance--I guess there are really no guarantees, but what
would you say regarding that factor; that, OK, maybe we address
the liquidity, but how do we ensure that these bonds are not
sold below par, at least substantially below par?
Mr. Query. Right. A few quick differentiations between this
structure and the QZAB structure.
We have already talked about the size difference. I cannot
overemphasize how important liquidity is to the marketplace to
allow investors in this new instrument the opportunity to
basically get out. The more liquid this investment is, the more
readily we can attract investors into the market as well.
The size of this program is a fundamental improvement over
the size of the individual QZAB issues that we have been
looking at, which typically have been less than $5 million
individually. Infrequently they have been more than $10
million. So while Treasury may estimate $300 million in total,
my guess is that that represents somewhere north of 50
individual issues, often more, and it is frankly very, very
difficult for individual investors to deal with that amount of
complexity, each one of them being, frankly, a different form
of credit related to the individual school district that may be
issuing the QZAB.
The second and perhaps most fundamental barrier, from our
perspective, to attract ready investment is the requirement for
a 10 percent private business contribution. It is not that it
is a bad idea, it simply creates an obstruction to finding the
right match between someone who is in a position to invest and
someone who is also in a position to make that private business
contribution.
There is an explicit limitation on the type of investors in
the QZAB legislation. It specifically addresses banks,
insurance companies, and other lenders. Obviously, by
eliminating those types of restrictions, you are just
broadening the market. We would think that for this type of
tax-advantaged investment, you would find a ready market among
corporations as well as individuals.
Last, there is credit quality itself. Rather than dealing
with that diverse body of credit quality, here you have AAA
credit quality.
As for the significant discount, in fact, I think one of
the attractions, if you will, of the QZAB program, even though
it may be a disappointment from certain perspectives, the
discount has allowed that instrument, in spite of all the
limitations, to find a home, if you will. So I think allowing
for that discount is a very important market feature, but I
think you are absolutely right to try to design the program in
such a way that that discount is minimized.
That is for a couple of different reasons. One is the
budgetary costs that imposes on the user of that vehicle, if
you will. Second, as well, it just means that the right
attention has been paid at the time of drafting and regulations
to the amount of tax credit that is intended to be given to
investors in the first place.
Mr. Hulshof. Not to switch trains here, but how conversant
are you with the school construction piece, and how does H.R.
3700 compare as far as some of the specifics, such as--in this
country there are QZABs, but I am talking about the Rangel-
Johnson idea on school construction. How does this bonding
authority compare with that?
Mr. Query. I would say that the advantages that that bill
offers as compared to QZABs have been incorporated into this
bill in the form of both strippability and the more close
matching of cash flows from investors----.
Mr. Hulshof. But as far as school construction and this,
are these essentially the same?
Mr. Query. I would say the fundamental difference between
the two is the credit quality of the two instruments. Again, I
think this is a preferable vehicle from a market perspective
because the credit will actually be more readily understood.
Mr. Hulshof. Thank you, Mr. Chairman.
Thank you, Mr. Query.
Chairman Houghton. Thank you.
I don't think I have a question, but I do think that this
has enormous ramifications. I don't think there has been
anything like this in years. It is really a turning around of
the railroad industry.
Obviously, this has an impact as far as you are concerned,
Mr. Gillespie, in terms of an old railroad town that is now a
railroad town in a different way, coming from zero employment
up to, what are you, 1,200 now?
Mr. Gillespie. It is 800 now, sir, and with the anticipated
growth, another 350 in the next few years.
Chairman Houghton. That is very important, and also what
this is doing to increase land value and what it is doing to
station development and intermodal transportation within
cities. It is very, very important.
So I appreciate your being here. Thank you for your
testimony. We will look forward to talking to you further.
Thanks very much.
We will have the next panel.
The next panel is Mr. Gutschewski, vice president and tax
counsel of Union Pacific; and Mark Dysart, president of the
High Speed Ground Transportation Association; and Jean Godwin,
executive vice president and general counsel of the American
Association of Port Authorities.
Ken, would you like to introduce Mr. Gutschewski?
Mr. Hulshof. We are glad to have him. Go ahead, Mr.
Chairman.
Chairman Houghton. All right.
All right, Mr. Gutschewski. Please begin your testimony.

STATEMENT OF BERNARD R. GUTSCHEWSKI, VICE PRESIDENT, TAXES,
UNION PACIFIC CORPORATION, ON BEHALF OF THE ASSOCIATION OF
AMERICAN RAILROADS, OMAHA, NEBRASKA

Mr. Gutschewski. Good afternoon, Mr. Chairman, and Members
of the Subcommittee. My name is Bernie Gutschewski. I am Vice
President of Taxes of Union Pacific Corp. I am testifying today
on behalf of the Association of American Railroads, a trade
association representing major freight and passenger railroads.
The AAR appreciates the opportunity to discuss key
infrastructure tax issues impacting the railroad industry, and
we wholeheartedly support your objective of attaining equity
between the different transportation modes.
As I explained in my written statement, the tax laws impose
several major burdens on our industry and place us at an unfair
disadvantage compared to our chief competitors and other modes
of transportation. Should Congress create a level playingfield,
individual railroad companies would be better able to obtain
the capital necessary to build and maintain their
infrastructure, which clearly advances the public's desire and
need for a growing railroad industry.
The most immediate tax inequity facing our industry is the
discriminatory deficit reduction fuel tax that continues to be
imposed on railroads. The AAR urges Congress to promptly repeal
this tax. The current tax structure imposes an inequitable
deficit reduction tax on the railroad industry. The
transportation industry was singled out to pay this tax because
it is based on fuel consumption. Today within the
transportation industry only railroad and barge companies
continue to pay such a tax.
The deficit reduction fuel tax places the railroad industry
at a significant economic disadvantage compared to its chief
competitor, the trucking industry. More than 2 years ago
Congress determined that all revenues from fuel taxes paid by
the truckers should be directed into the Highway Trust Fund, to
be used for improvements and maintenance of highway
infrastructure, a direct benefit to the trucking industry.
Therefore, while railroads continue to contribute to the
financing of a nonexistent deficit, the truckers are merely
funding their own infrastructure improvements. Meanwhile, the
railroad industry builds and maintains its own private
transportation network. In 1999 alone, freight railroads spent
$7.7 billion maintaining and improving their own
infrastructure.
Further, Congress should reject suggestions that the
railroads' fuel tax be transferred into a government-
administered railroad trust fund. Under the proposed scenarios,
the beneficiaries of the funds, while having contributed little
or nothing, would profit from a cross-subsidy from the large
freight railroads. We believe cross-subsidies are bad public
policy, and the fuel tax revenues paid by freight railroads are
needed to meet their own significant infrastructure needs.
Moreover, large railroads do not care to finance their own
infrastructure needs by inefficiently sending funds to
Washington, D.C., simply to be returned to them minus
administrative and overhead costs.
Other tax laws also burden the railroad industry, which is
the most capital-intensive component of the industrial sector
of the U.S. Economy. These burdens are more fully explained in
my written statement.
Very briefly, the existing capital recovery rules require
railroads to capitalize and depreciate the vast majority of
their infrastructure costs. In contrast, the vast majority of
trucking infrastructure costs are paid in the form of fuel
taxes, which are immediately deductible. This competitive
advantage enjoyed by trucking under the income tax laws is
further exacerbated by the advantage heavy trucks obtain by
paying less than two-thirds of the infrastructure damage costs
they generate.
Other taxes on the industry, like the $453 million of
annual property taxes paid by railroads on their privately
owned right-of-ways, and sales taxes paid on infrastructure
materials, are not paid by trucking companies and further
magnify the disparate infrastructure cost comparison.
Finally, railroads' payroll taxes are substantially higher
than any other industry.
In summary, the AAR urges Congress to eliminate the tax
inequities that competitively disadvantage the railroad
industry and that unnecessarily burden our customers and hamper
their international competitiveness.
The AAR urges the prompt enactment of H.R. 1001 repealing
the deficit reduction fuel tax as a first step in this area.
Beyond this first step, the AAR strongly recommends that
Congress eliminate all the inequities in current tax laws,
thereby leveling the tax playingfield and allowing railroads
better access to additional sources of capital to enhance the
industry's ability to more efficiently and safely meet the
freight transportation requirements of a growing economy.
Thank you.
Chairman Houghton. Thank you.
[The prepared statement follows:]

STATEMENT OF BERNARD R. GUTSCHEWSKI, VICE PRESIDENT, TAXES, UNION
PACIFIC CORPORATION, ON BEHALF OF THE ASSOCIATION OF AMERICAN
RAILROADS, OMAHA, NEBRASKA

Good afternoon, Mr. Chairman and members of the
subcommittee, my name is Bernard R. Gutschewski, and I am Vice
President--Taxes of Union Pacific Corporation. I am testifying
as a representative for the Association of American Railroads
(AAR). The AAR is a trade association representing major
freight and passenger railroads.\1\ The AAR appreciates the
opportunity to present its members views regarding key tax
issues impacting the railroad industry. After providing you
background information about the railroads, I will use this
opportunity to address how the tax laws impose major burdens on
our industry and place us at an unfair disadvantage compared to
our chief competitors and other modes of transportation. This
competitive disadvantage arises under federal excise, income,
and employment tax laws, as well as under state and local tax
laws. Should Congress create a level playing field, individual
railroad companies would be better able to make the much-needed
capital investments in their infrastructure, which clearly
advances the public's desire and need for a growing railroad
industry.
---------------------------------------------------------------------------
\1\ AAR's membership includes freight railroads that operate 75
percent of the line-haul mileage, employ 91 percent of the workers, and
account for 93 percent of the freight revenue of all railroads in the
United States; and passenger railroads that operate almost all of the
nation's intercity passenger trains and provide commuter rail service.

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Railroads Play a Vital Role in Today's Economy

Freight railroads move just about everything--from lumber
to vegetables, from coal to orange juice, from grain to
automobiles, from chemicals to scrap iron--and connect
businesses with each other across the country and with markets
overseas. They carry 40 percent of the nation's inter-city
freight--more than trucks, barges, pipelines, airplanes or
automobiles; 70 percent of vehicles from domestic
manufacturers; 64 percent of the nation's coal; and 40 percent
of the nation's grain. In 1999, railroads hauled 18 million
carloads of freight, plus over 9 million trailers and
containers, nearly tripling the intermodal volume of 1980.
The U.S. freight railroads directly contribute $13 billion
a year to the U.S. economy in wages and benefits to more than
200,000 employees; U.S. rail employees are among the very best
compensated and most productive in all of U.S. industry. Beyond
this, railroads spend several billion dollars every year to
purchase materials, equipment and services. The railroad
industry pays significant taxes. In 1999 alone, Class I
railroads \2\ paid $3 billion in taxes in addition to federal
income taxes:
---------------------------------------------------------------------------
\2\ The Surface Transportation Board defines a Class I railroad for
1999 (latest available) as any railroad earning annual operating
revenues of $258.5 million or more.
---------------------------------------------------------------------------
$2.1 billion in federal payroll taxes
$453 million in property taxes on their privately-
owned right-of-way;
$164 million in federal fuel taxes\3\ and
---------------------------------------------------------------------------
\3\ This figure includes both the deficit reduction fuel tax and
the LUST tax.
---------------------------------------------------------------------------
$260 million in other taxes.\4\
---------------------------------------------------------------------------
\4\ FORTUNE 500 Annual Survey of Assets to Revenue (April 2000).
See also U.S. Department of Commerce Bureau of Census Annual Survey of
Manufacturers (1996) for capital expenditures as a percent of sales.
---------------------------------------------------------------------------
All of these facts are evidence of how integral the
railroads are to the continued vitality of the U.S. economy.
The ability of the U.S. railroads to continue to provide
the transportation services that the country needs has been, in
large part, dependent upon the nature of regulation to which it
is subject. I will not belabor the history of how pervasive and
intrusive economic regulation almost destroyed the private
sector U.S. freight rail industry prior to 1980. The troubles
of the rail industry at that time, when railroads owning almost
one-quarter of the nation's rail trackage were in bankruptcy
and many others were teetering on the edge, are well
documented. The freight railroads overall have become much
sounder financially in the nearly 20 years since enactment of
the Staggers Rail Act of 1980, which provided much-needed
regulatory reform. Moreover, deregulation has benefited
railroad customers as well. On average it costs 28 percent less
to move freight by rail now than it did in 1981 and 57 percent
less in inflation-adjusted dollars.
In order to continue to satisfy the country's demands for
safe and efficient railroad transportation, the industry must
find the capital funds needed to make critical infrastructure
improvements. Funding of these infrastructure improvements
while operating on an uneven playing field is among the most
critical challenges now facing the industry.

The Deficit Reduction Tax Imposed on the Railroads Creates
Competitive Inequities

The most immediate tax inequity facing our industry is the
discriminatory deficit reduction fuel tax that continues to be
imposed on railroads. AAR urges Congress to promptly repeal
this tax that adds to other tax burdens already imposed on the
railroads--burdens that extend well beyond those imposed on our
chief competitors. The transportation industry was singled out
to pay this deficit reduction tax because it is based on fuel
consumption. Moreover, within the transportation industry,
today only railroad and barge companies continue to pay such a
tax. The deficit reduction fuel tax rate has varied over time,
and currently stands at 4.3 cents per gallon on diesel fuel
consumed. Since inception of the tax in 1990, freight railroads
have paid nearly $1.6 billion in deficit reduction fuel taxes.
The inequities of the current tax structure affect railroads
directly, but also unnecessarily burden our customers and
hamper their international competitiveness.
The deficit reduction fuel tax places the railroad industry
at a significant economic disadvantage compared to its chief
competitor, the trucking industry. More than two years ago,
Congress determined that all revenues from fuel taxes paid by
the truckers should be directed into the Highway Trust Fund to
be used for improvements and maintenance of highway
infrastructure--a direct benefit to the trucking industry.
Therefore, while railroads continue to contribute to the
financing of a non-existent deficit, the truckers are merely
funding their own infrastructure improvement.
Even though trucking companies pay various federal and
state fuel and other taxes that are dedicated to highway
construction and maintenance, heavy trucks on average pay less
than two-thirds of the cost of the damage they cause to the
national highway system. In effect, a substantial portion of
the cost of building and maintaining the trucking industry's
infrastructure is subsidized through fuel taxes paid by general
public highway users.
By contrast, none of the deficit reduction fuel tax paid by
railroads is used for rail infrastructure; instead, the
railroad industry builds and maintains its own private
transportation network. In 1999 alone, freight railroads spent
$7.7 billion maintaining and improving their own
infrastructure. Other taxes, like the $453 million of annual
property taxes paid by railroads on their privately owned
right-of-ways, and sales taxes paid on infrastructure
materials, are not paid by trucking companies and further
magnify the disparate infrastructure cost comparison.
The chart below illustrates the inequity of the current tax
structure:

Tax Comparisons by Transportation Sector
----------------------------------------------------------------------------------------------------------------
Railroads Trucks Barges Pipelines Aviation
----------------------------------------------------------------------------------------------------------------
Non-Infrastructure Fuel Taxes (cents/gal)
----------------------------------------------------------------------------------------------------------------
General Fund 4.3 None 4.3 None None
LUST Fund 0.1 0.1 01 None 0.1
----------------------------------------------------------------------------------------------------------------
Infrastructure (Right of Way) Costs:
----------------------------------------------------------------------------------------------------------------
Paid By Industry Government Government Industry Government
Subsidized Subsidized Subsidized
Method of Private 24.3 Cent 20.0 Cent Private 21.8 Cent
Funding Capital Fuel Tax Fuel Tax Capital Fuel Tax
Tax Recovery Period 7-50 Years 1 Year 1 Year 15 Years 1 Year
(exclusing repairs)
AMT Exposure Due to Yes No No Yes No
Infrastructure
Property Yes No No Yes No
and Sales
Taxes on
Infrastructure
----------------------------------------------------------------------------------------------------------------
AAAAAAANote: Information in bold indicates the sector at a competitive disadvantage when compared to the other
sectors.

Congress has recognized the inequity of the current tax
structure, and the elimination of the unfair fuel tax imposed
on railroads and barges is widely supported. The Taxpayer
Refund and Relief Act of 1999, passed by Congress on August 5,
1999, acknowledged the current inequity and included repeal of
this tax.
(The Act was vetoed for reasons other than the repeal of
the fuel tax.) Moreover, other entities have supported the
railroads' efforts to seek the repeal of the unfair tax. The
U.S. Chamber of Commerce and the American Road and
Transportation Builders Association have adopted policies in
support of repealing the 4.3-cent deficit reduction fuel tax.
Numerous agriculture groups, including the American Farm Bureau
Federation, American Soybean Association, National Association
of Wheat Growers, and the National Corn Growers Association,
are also on record supporting the repeal of this tax.

Other Tax Laws Also Burden The Railroad Industry

Income Taxes

Railroads--the most capital-intensive component of the
industrial sector of the U.S. economy\5\
---------------------------------------------------------------------------
\5\ Tier I of Railroad Retirement, which is functionally equivalent
to social security (both in terms of rates and benefits), is financed
by a 7.65 percent payroll tax (including the Medicare portion) on
employees and employers. Railroad employers and employees pay an
additional 21 percent payroll tax (16.1 percent employer and 4.9
percent employee) into Tier II of Railroad Retirement, which is the
only industry retirement plan in which contributions and benefits are
regulated and administered by the federal government.
---------------------------------------------------------------------------
--are further disadvantaged vis a vis their competitors by
existing capital recovery provisions of the income tax laws.
For income tax purposes, railroads must capitalize and
depreciate, over a period of years, the costs incurred in
building new or expanding their existing infrastructure. In
addition, the Internal Revenue Service argues that railroads
must capitalize many of the costs of repairing and maintaining
that existing infrastructure. In contrast, the fuel taxes paid
by trucking companies (used for both new capital expenditures
and highway repair and maintenance) can be deducted
immediately. As a result, trucking companies obtain an economic
advantage for each infrastructure dollar they spend. For
example, $100 capitalized by railroads produces depreciation
deductions with a net present value of only $26, resulting in a
$74 true economic cost. In contrast, $100 of fuel tax paid by
trucking companies produces a $35 immediate tax benefit,
resulting in a $65 true economic cost. If a railroad is subject
to the Alternative Minimum Tax (AMT), the disparity in the true
economic cost of capitalized infrastructure investment is
further exacerbated, since accelerated depreciation deductions
are a preference item for calculating the AMT but fuel tax
deductions are not. This economic advantage enjoyed by trucking
companies under the income tax laws is in addition to the
economic advantage heavy trucks obtain by paying less than two-
thirds of the infrastructure damage costs they generate.

Employment Taxes

Railroads' payroll taxes are higher than any other
industry. Railroad employees are covered by the Railroad
Retirement System, which is significantly more expensive than
the Social Security System, further disadvantaging the freight
railroads' ability to compete. In total, rail employers and
employees pay retirement payroll taxes of 36.3 percent compared
with 15.3 percent paid by their competitors.\6\ Over and above
the social security equivalent, railroad employers annually
contribute some $2.0 billion and railroad employees contribute
$560 million into the railroad retirement system. Rail
employers also fund a government-administered supplemental
pension plan for railroad workers; this additional obligation
cost the industry over $141 million in fiscal year 1999.
Moreover, government imposed investment restrictions on
railroad retirement funds significantly limit their returns,
making the system more expensive for the industry.\7\
---------------------------------------------------------------------------
\6\ For example, average annual returns on the railroad retirement
Tier II account were 9.1 percent compared with 15.2 percent for large
multi-employer plans and 16.3 for large single employer plans.
\7\ For example, average annual returns on the railroad retirement
Tier II account were 9.1 percent compared with 15.2 percent for large
multi-employer plans and 16.3 for large singel employer plans.
---------------------------------------------------------------------------

State and Local Taxes

Railroads historically have been subject to discriminatory
state and local taxes, so much so that in 1976, Congress passed
legislation intended to prohibit future discriminatory taxation
of railroads by states. In recent years, however, the United
States Supreme Court has been expanding states rights in many
areas. This expansion threatens the protection from predatory
state taxation provided to the industry by the 1976
legislation.

Relieving the Railroad Industry of Inequitable Tax Treatment
Would Facilitate Much-Needed Investment by the Industry in its
Infrastructure

A prompt leveling of the playing field would be the most
effective means to correct the competitive inequity caused by
the current structure and to facilitate much-needed railroad
infrastructure investment. Since 1980, major freight railroads
have spent more than $260 billion to maintain and improve their
infrastructure and equipment. Despite such enormous
investments, over the next 20 years the railroad industry will
need to make new expenditures equal to the cost of rebuilding
that infrastructure twice over to meet the country's
transportation needs. Elimination of the inequities in current
tax laws would help provide railroads with access to additional
sources of capital to enhance the industry's ability to more
efficiently and safely meet the freight transportation
requirements of a growing economy.

Trust Funds Are Not the Answer

Congress should reject suggestions that the railroads' fuel
tax be transferred into a government-administered railroad
trust fund. Several proposals to use the 4.3 cents per gallon
deficit reduction fuel tax paid by the railroads and barges
have been made, including the creation of new government trust
funds to finance short-line/regional railroad improvements,
inter-city or commuter passenger rail needs, and highway-rail
crossing traffic control devices. In these scenarios, the
beneficiaries of the funds, while having contributed little or
nothing, would profit from a cross-subsidy from the large
freight railroads. Large freight railroads oppose contributing
to a trust fund that could be used to finance infrastructure
improvements of competing railroads, and it is inappropriate to
expect the large railroads to provide additional funding
support for passenger rail, short-lines, or highway-rail
traffic control devices. Cross-subsidies are bad public policy,
and the fuel tax revenues paid by freight railroads are needed
to meet their own significant infrastructure needs. Finally,
large railroads do not care to finance their own infrastructure
needs by inefficiently sending funds to Washington, D.C.,
simply to be returned to them, minus bureaucratic
administrative and overhead costs.

Conclusion

As the first step toward eliminating the tax law inequities
that competitively disadvantage the railroad industry, the AAR
urges Congress to eliminate the unfair tax burden imposed on
the railroad industry by the deficit reduction fuel tax. The
AAR urges the prompt enactment of H.R. 1001 repealing the 4.3-
cent deficit reduction fuel tax. This unfair tax increases the
tax burdens already imposed on railroads, burdens that already
extend well beyond those imposed on our chief competitors. The
elimination of this unfair tax would contribute toward
increased infrastructure spending by railroads, thus
encouraging a growing and prospering railroad industry,
consistent with sound public policy. Beyond this first step,
the AAR strongly recommends that Congress eliminate all of the
inequities in current tax laws thereby leveling the tax playing
field and allowing railroads better access to additional
sources of capital to enhance the industry's ability to more
efficiently and safely meet the freight transportation
requirements of a growing economy.

Chairman Houghton. Mr. Dysart?

STATEMENT OF MARK R. DYSART, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, HIGH SPEED GROUND TRANSPORTATION ASSOCIATION

Mr. Dysart. Thank you, Mr. Chairman. I am Mark Dysart,
president of the High Speed Ground Transportation Association.
We are honored to have the opportunity to appear before this
Committee to speak in support of H.R. 3700.
The HSGTA is now in its 18th year as a trade association
with a very broad-based membership that includes engineering
firms, railcar and locomotive manufacturers, railway equipment
suppliers, Federal, State, and local transportation agencies,
academia, other transportation associations, and organized
labor. Our membership represents or employs nearly 3 million
American citizens.
HSGTA engages in advocacy on three major issues: One, the
expansion of intercity passenger rail through incremental
upgrades such as the Northeast Corridor, Pacific Northwest and
the Midwest Regional Rail Initiative; two, the development of a
world-class high-speed rail as we have seen in Japan and Europe
over the past 25 years and presently envisioned in California
and elsewhere; and three, we represent and advocate for the new
promising magnetic levitation technology, generally known as
maglev.
The intercity passenger rail industry is at a turning
point. H.R. 3700 will provide an opportunity to develop high-
speed rail in this country. If we allow this chance to slip
away, it will be years before it comes by again.
Many States have taken advantage of the provisions of TEA-
21 to do extensive investigation of high-speed rail corridors.
There is not only tremendous enthusiasm generated from these
studies, there is also intense financial commitment in the
various States. By my reckoning, over $1.3 billion so far has
been spent or committed to high-speed rail and intercity
passenger rail by the States of this Nation.
ISTEA and TEA-21 established federally designated corridors
that are eligible to receive Federal funding for high-speed
rail development. Unfortunately, no mechanism has been
established to fund these corridors. H.R. 3700 will do just
that.
In addition to the conventional rail approach, there are
seven State and regional projects vying to become the first to
build a, magnetically levitated ground transport system capable
of moving travelers at over 300 miles per hour, as Congressman
Oberstar mentioned. There is more interest in intercity
passenger rail and maglev at this time than we can ever recall.
I must say that I have been with this association since day
1 for 18 years, and this is a very exciting day to know that we
may actually reach our goal of seeing high-speed rail and
intercity passenger rail in general put on an even keel, in
some ways at least, with highways and transit.
It is fair to say that in a very short time, the States
have moved past the Federal vision in their plans for high-
speed rail. The transportation community at the State level
simply has the best grasp of their future options, and the
realization is quickly sinking in that the only real untapped
source of intercity transportation capacity at this point lies
with the rail system.
In our view, it is no longer a question of whether the
Federal and State governments move toward utilization of
passenger rail, it is really a question of when and how. Our
airways and highways are at or past capacity and need relief.
Intercity passenger trains can and will provide that relief as
a complement to our national transportation system. Intercity
ground transportation will add an alternative mobility we badly
need to sustain our economy and protect our environment.
Intercity passenger rail is the missing element in our Nation's
intermodal passenger transportation system.
Technology is advancing quickly to ensure safer and more
efficient rail service. The only real impediment to moving
forward at this time is the political will to find an
acceptable financing methodology for capital improvements. To
this end, we believe that H.R. 3700 provides the best
alternative available to meet this need.
The up front commitment of the 20 percent match will compel
States to choose the most economic and responsible projects
before the bonding process moves forward. The HSGTA is
confident that taxpayers will get their money's worth with H.R.
3700.
The United States Department of Transportation has an
already established due diligence process to deal with capital
programs financed by credit instruments. Such as TIFIA projects
like the Alameda Corridor.
The Federal Government's leverage is large; $3.2 billion of
tax expenditure yields $10 billion of rail improvements. This
does not include the downstream revenue generation from the
taxes yielded by the goods produced, nor does it include the
benefits yielded to the overall transportation system in
general in terms of congestion mitigation, cleaner air, and
less dependence on imported oil.
H.R. 3700 will provide a long-term source of funds for rail
that is currently only available to highways and transit. The
yield in dollars from H.R. 3700 is very much like a penny from
the gas tax. The equitable distribution of dollars is a
necessary prerequisite to good tax legislation. I wish Mr.
Watkins were still here, because H.R. 3700 does ensure that
benefits are equally distributed geographically. There is ample
evidence to show that real improvement needs are very
widespread around the country.
The High Speed Ground Transportation Association, Mr.
Chairman, thanks you for your leadership in exploring how the
tax laws affect the national transportation infrastructure and
the transportation industry's ability to serve the public. We
thank you for the opportunity to testify in favor of H.R. 3700,
and look forward to working with the Committee and its staff as
this legislation moves forward.
Chairman Houghton. Thank you very much.
[The prepared statement follows:]

STATEMENT OF MARK R. DYSART, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
HIGH SPEED GROUND TRANSPORTATION ASSOCIATION

I am honored to have the opportunity to appear before this
committee to speak in support of H.R. 3700 on behalf of the
members of the High Speed Ground Transportation Association.
The HSGTA, now in its 18th year, is a trade association with a
broad-based membership and an equally broad advocacy agenda.
The HSGTA's membership includes engineering firms, railcar and
locomotive manufacturers, railway equipment suppliers, Federal,
State and local transportation agencies, academia, other
transportation associations, organized labor and individuals.
Our membership represents or employs nearly 3 million citizens.
We engage in advocacy for three major issues:
1. The expansion of intercity passenger rail through
incremental upgrades such as in the Northeast Corridor, Pacific
Northwest and the Midwest Regional Rail Initiative.
2. The development of world class high-speed rail as in
operation in Europe and Japan over the past 25 years and
presently envisioned for California.
3. The new, highly promising magnetic levitation technology
known generally as maglev.
The intercity passenger rail industry is at a turning
point. H.R. 3700 will provide an opportunity to develop high-
speed rail in this country. If we allow this chance to slip
away, it will be years before the opportunity will be available
again.
Many states have taken advantage of the provisions of TEA-
21 to do extensive investigation of high speed rail corridors.
There is not only tremendous enthusiasm generated from these
studies, there is also financial commitment showing up in
numerous states for various projects. For example; California
plans to invest $700 million over the next year on intercity
passenger rail, Illinois $140 million, Wisconsin $60 million,
New York $100 million, North Carolina, Virginia and
Pennsylvania $75 million each, and Georgia $200 million for
commuter and intercity rail. Michigan has spent $25 million and
the state of Washington $125 million. In all, 36 states are
pursuing expanded intercity passenger rail. This is real
commitment.
ISTEA and TEA-21 established Federally designated corridors
that are eligible to receive Federal funding for high-speed
rail development. Unfortunately no mechanism has been
established to fund these corridors. H.R. 3700 will fill that
need.
In addition to the conventional rail approach, there are
seven state and regional projects vying to become the first to
build a magnetically levitated ground transport system capable
of moving travelers at 300 miles per hour as part of the
Federal Railroad Administration's Maglev Deployment Program.
There is more interest in intercity passenger rail and maglev
at this time than we can ever recall. The need is there, the
desire by States to build more ground transport systems is
there, but we need the Federal Government to provide the
funding catalyst and program the development of interstate
commerce. H.R. 3700 and its Senate companion S. 1900 will
provide that catalyst.
It is fair to say that in a very short span of time, the
individual states have moved past the federal vision at this
point in their plans for high speed rail. The reasons for this
are quite clear. Self-interest is at the heart of the matter.
The transportation community at the State level simply has the
best grasp of their future options; and the realization is
quickly sinking in that the only real untapped source of inter-
city transportation capacity at this point lies with the rail
system. As highway and air routes continue to become more
congested (and by inference more expensive to the consumer and
the general economy), this realization will become more and
more apparent over time.
In our view, it is no longer a question of whether the
Federal and State governments move toward utilization of
passenger rail, it is really a question of when and how. Our
airways and highways are at or past capacity and need relief.
Intercity passenger rail in its many forms can and will provide
that relief as a complement to our national transportation
system. Intercity ground transportation will add an alternative
mobility we badly need to sustain our economy and protect our
environment. Intercity passenger rail is the only missing link
in our nation's funded transportation system.
Technology is advancing quickly to ensure safer and more
efficient rail service. The only real impediment to moving
forward at this time is the political will to find an
acceptable financing methodology for capital improvements. To
this end, we believe that H.R. 3700 provides the best
alternative available to meet this need.
The upfront commitment of the 20% match will compel states
to choose the most economic and responsible projects before the
bonding process moves forward. The HSGTA is confident that
taxpayers will get their money's worth with H.R. 3700. Along
with the State's internal project review process the U. S.
Department of Transportation will have oversight ensuring the
viability of projects before applicants projects are approved.
The U.S. DOT has an already established due diligence process
to deal capital programs financed by credit instruments. TIFIA
capital program financed projects such as the Alameda corridor
and Penn Station rehabilitation are recent examples.
The Federal government's leverage is large. Under H.R.
3700, $3.2 Billion of tax expenditure yields $10 Billion of
rail improvements. This does not include the downstream revenue
generation from the taxes yielded by the goods produced. Nor
does it include the benefits yielded to the overall
transportation system in general in terms of congestion
mitigation, cleaner air and less dependence on imported oil.
H.R. 3700 will provide a funding mechanism for rail that is
currently only available to highways and transit. (The yield in
dollars from the bonds is just under what would be generated by
1 penny of the gas tax) The bonding mechanism proffered by H.R.
3700 has a long and historical relationship with transportation
projects. In just one example, airports such as Dulles
International and Reagan National have taken advantage of the
process.
The bonding program will necessarily be reviewed three
years from now in the TEA-21 reauthorization process. If
necessary, adjustments in program implementation can be made at
that time.
The High Speed Ground Transportation Association favors the
language in H.R. 3700 that allows for State DOT's and other
rail carriers to receive these funds.
The equitable distribution of tax dollars is a necessary
prerequisite to good tax legislation. The HSGTA favors the
provisions in H.R. 3700 that ensure benefits are equitably
spread around the country. There is ample evidence to show that
rail improvement needs are very widespread around the country.
The High Speed Ground Transportation Association thanks you for
your leadership in exploring how the tax law affects the
national transportation infrastructure and the transportation
industries' ability to serve the public.
We thank you for this opportunity to testify in favor of
this innovative legislation, and would appreciate the chance to
work with the Committee and its staff as the legislation
progresses.

Chairman Houghton. Ms. Godwin.

STATEMENT OF JEAN GODWIN, EXECUTIVE VICE PRESIDENT AND GENERAL
COUNSEL, AMERICAN ASSOCIATION OF PORT AUTHORITIES, ALEXANDRIA,
VIRGINIA

Ms. Godwin. Thank you, Mr. Chairman. It is hard being the
last witness on a long afternoon. I notice the room is a little
emptier, so I will try to be brief.
We also appreciate the opportunity to testify this
afternoon on behalf of our 83 U.S. public port members on the
tax treatment of port infrastructure development.
Currently more than 95 percent of all U.S. foreign commerce
flows through the ports along our Nation's coastlines and the
Great Lakes. Deep-draft commercial ports in the U.S. handle
more than $600 billion a year in international trade. Our ports
serve as key import/export links to other transportation
infrastructure, such as rail, trucking, barge, and pipeline
operations that transport goods to all 50 States.
In announcing this hearing, you said, and I quote,
``Without the efficient movement of people and products, the
continued growth in our economy could be jeopardized.'' That is
really the statement that I would like to focus on while we are
testifying here, because a variety of Federal tax policies can
really make or break the efficiency of the waterborne
transportation system.
The message that I want to leave with you today is that by
the year 2010, the value of the international trade is expected
to double. By the year 2040, some forecasts have indicated that
imports and exports will increase eightfold. These numbers are
very dramatic. The increase will impact not only ports, but
also the other transportation modes that carry cargo from the
ports, such as rail, truck, and waterways. This growth will
just increase congestion if improvements and alternatives are
not provided.
One number that struck me recently is that on the east
coast alone, that level of growth could mean more than 1,100
more rail containers and 10,000 more trucks along the I-95
Corridor every day. That is a truck every 270 yards between
Miami and Boston, a very significant growth.
The question of whether or not this country will be ready
to absorb that kind of growth really, again, depends on some of
the tax policies that you have before you in this Committee.
The health of our Nation's ports depends on a strong and
longstanding partnership between the local public port
authorities that we represent and the Federal Government.
Unfortunately, the Federal Government appears less and less
willing to uphold its end of the partnership. My members are
State and local agencies which are already making significant
investments to try to handle these increased volumes. In 1998
alone, they spent $1.5 billion, and they plan to spend another
$9.1 before 2002.
The use of bonding authority has been very important in
being able to come up with the local capital needs. In 1998,
revenue bonds accounted for nearly 41 percent and general
obligation bonds more than 5 percent of the total investment
our members made. We have also sought simplification of
arbitrage rebate regulations and looked for an acceleration of
the increase in private activity bond caps to try to facilitate
more capital for our members, to make more financing
alternatives available.
Despite the significant local financial investment over the
years, we have had to continue to fight for money in
appropriation cycles. The Federal Government has slowly and
continually shifted away from its financial responsibilities
for funding dredging. These are issues that will come before
this Committee. Prior to 1986, the Federal Government paid for
all dredging, including new construction and maintenance
dredging. In 1986, the funding was changed by instituting the
Harbor Maintenance Tax on goods to fund maintenance dredging
and requiring our members, the local sponsors, to cost-share
the construction projects. While the export portion of the
Harbor Maintenance Tax has been declared unconstitutional, the
remainder of the tax has been subject to challenge by our
trading partners before the WTO. This issue will come squarely
before this Committee, probably in the near future.
While the administration has proposed to remedy the
situation by imposing nearly $1 billion in new taxes on ocean
carriers, that proposal would allow the Federal Government to
completely abdicate its financial responsibility for dredging,
including the Federal cost share for new projects. We are very
pleased that Congress rejected that proposal during this year's
budget debate.
We spent a number of years looking at this issue as the
case went through the Supreme Court. We have come to the
conclusion that there is no user fee that can really equitably
raise revenues in reasonable relation to the distribution of
benefits to the Nation, because the difficulty we had coming up
with the proposal in eighties we still face today. You cannot
allocate a flat user fee without hurting our low-value exports.
At the same time increasing fees can cause diversion of cargo
to non-U.S. ports, a concern to our members.
We support H.R. 1260, which Mr. Oberstar, who was here,
sponsored along with Congressman Borski, to repeal the Harbor
Maintenance Tax and return to the original system of
authorizing general revenues to pay for maintenance dredging.
We believe this industry is already very heavily taxed. The GAO
report last year showed there were 124 Federal fees and
assessments on maritime commerce that collected over $22
billion in 1998, with about $20 billion of that going directly
into the General Treasury. Some folks have looked at the
Customs-related fees and said, maybe we should look at that to
fund dredging. Again, either of those types of alternatives
would require PAY-GO.
These are issues on your horizon. I know they are not on
the agenda at the present time. We do ask you to start looking
at these issues and consider some of the tax policies that do
affect the movement of freight in this country. We would be a
happy to come back and participate in any other discussions you
have on these issues.
Chairman Houghton. Thank you.
[The prepared statement follows:]

STATEMENT OF JEAN GODWIN, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL,
AMERICAN ASSOCIATION OF PORT AUTHORITIES, ALEXANDRIA, VIRGINIA

Good afternoon. I am Jean Godwin, Executive Vice President
and General Counsel for the American Association of Port
Authorities (AAPA). I am testifying today on behalf of the 83
U.S. public port members of AAPA. Founded in 1912, AAPA
represents virtually every U.S. public port agency, as well as
the major port agencies in Canada, Latin America and the
Caribbean. AAPA members are public entities mandated by law to
serve public purposes--primarily the facilitation of waterborne
commerce and the generation of local and regional economic
growth.
Mr. Chairman, we are pleased to come before you today to
discuss tax treatment of port infrastructure. Ports are
critical links in this nation's ability to internationally
transport goods and people. Since colonial times, waterborne
commerce has stimulated the economic growth and vitality of
this great nation.
A modern, world-class, well-maintained port system is
essential to our nation's competitiveness, international trade,
and national security. A large measure of this country's
unprecedented economic growth is due to the increased
productivity of the American economy and foreign trade. In
order to remain competitive in the global marketplace, U.S.
businesses must have an efficient and reliable transportation
system. Ports provide just that. Currently, more than 95
percent of all U.S. foreign commerce flows through ports along
our nation's coastlines and the Great Lakes. Deep-draft
commercial ports in the U.S. handle more than $600 billion in
international trade. Ports serve as key import/export links to
other transportation infrastructure such as rail, trucking,
barge, and pipeline operations that transport goods to all 50
states. Principal commodities carried by marine transportation
include petroleum and petroleum products, coal, farm products,
chemical and allied products, forest products (wood, chips,
pulp and paper), crude materials (sand, stone, iron and non-
ferrous ore, scrap, sulphur, clay and salt) and other
manufactured goods. Ports also provide the gateway for the
cruise industry--serving over five million U.S. passengers a
year.
Foreign trade is an increasingly important part of the U.S.
economy, accounting for over 27 percent of the Gross Domestic
Product in 1999. U.S. manufacturers increasingly rely on
multinational products; retailers similarly source and sell
globally. More than 11.5 million U.S. jobs now depend on
exports. Significantly, wages for jobs supported by exports are
13 to 17 percent higher than non-export-related jobs.
U.S. exports and imports currently represent about $1.7
trillion worth of goods. By the year 2010, the value of
international trade is expected to more than double, and by the
year 2040 forecasts indicate that imports and exports will
increase eightfold. The demand on port services to meet this
growth in international trade is already being felt and will be
even greater as we move toward the opening of international
markets. Between 1998 and 2010, liner trade growth is projected
to increase 95 percent in terms of the volume of cargo carried.
This increase will impact not only ports, but other
transportation modes that carry cargo from the port such as
rail, truck, and waterways. Such growth will increase
congestion if improvements and alternatives are not provided--
on the East Coast alone such growth could mean 10,000 more
trucks in the I-95 corridor (or one truck every 270 yards
between Boston and Miami) and 1,100 more rail containers per
day.
Ports are already making significant investments to develop
the landside infrastructure to handle these increased volumes.
In 1998 alone, local investment in port facilities was nearly
$1.5 billion; an additional $9.1 billion of non-Federal
investment is expected before 2002. The use of bonding
authority, including tax exempt bonds, is a significant factor
in generating revenue for much-needed port development. In
1998, revenue bonds accounted for nearly 41 percent, and
general obligation bonds more than five percent, of the total
investment. Locally, ports are responding to the service
challenges presented by their customers and providing economic
development opportunities for their communities by upgrading
existing terminals and investing in new, more flexible
equipment and technology. They are installing larger cranes,
building on-dock rail, and improving rail and truck grade
separations. Because of the importance of industrial
development bonds, AAPA supports implementing a full increase
of the private activity bond volume cap to the greater of $75
per capita or $225 million. This will provide state and local
authorities with the additional resources necessary to support
one of the economic development community's most successful
public-private partnership programs. Under current law this
change will not become effective until 2007.
Paying for maintenance and improvement of port
infrastructure is a challenge. While the Federal government
currently spends nearly $35 billion per year on surface
transportation projects, less than $1 billion is spent by the
Federal government on harbors. The health of our nation's ports
depends on the strong and long-standing partnership between
local public port authorities and the Federal government.
Navigation channels are our nation's highways to the
international marketplace and the world. We must continue to
work together to strengthen the partnership between local
public port authorities and the Federal government to ensure
that the United States has the most efficient, safe, and
environmentally responsible marine transportation system in the
world.
As called for in the Constitution, the Federal government
has sole jurisdiction over this nation's navigational
waterways--a function primarily delegated to the U.S. Army
Corps of Engineers but paid for by specialized Federal taxes,
and other Federal, state and local money. Local port
authorities and industry provide funding for land
infrastructure. Port authorities are also responsible for
dredging berthing areas and access channels connecting port
facilities to the Federal navigation channels, and providing
required cost-sharing financing of dredging. Local, state, and
Federal government funds are also used to support intermodal
landside access to ports, some of which is paid through the
Highway Trust Fund.
Despite the significant local financial investment, over
the years, the Federal government has slowly and continuously
shifted its financial responsibilities for funding dredging to
others. Prior to 1986, the Federal Government paid for all
construction, operation and maintenance of Federal navigational
channels. In 1986, Congress changed the funding mechanism by
instituting the Harbor Maintenance Tax on goods and passengers,
and by requiring a local sponsor to cost share construction and
some operation and maintenance for deeper channels. In 1991
this tax was tripled to 0.125 percent on the value of the cargo
in order to pay for 100 percent of operation and maintenance of
these Federal channels.
While the export portion of this tax was declared
unconstitutional, the current tax is still a significant burden
on shippers and it increases the possibility of diversion of
goods to Canadian ports. (Goods that are off-loaded at Canadian
ports and then transported to the U.S. are not subject to the
Harbor Maintenance Tax.) The ports most hard hit by this
increase are those in close proximity to Canada--the North
East, North West, and Great Lakes. The latest attempt to
transfer the financial burden for navigational channels is the
Administration's proposal to establish a Harbor Services Tax
that would allow the Federal government to completely abdicate
its financial responsibility including the Federal cost share
for new construction projects by imposing $1 billion in new
taxes on ocean carriers. We commend Congress for rejecting this
poorly crafted proposal during this year's budget debate.
There are several other problems with the Harbor
Maintenance Tax that Congress will need to address in the
future. First, the balance of the trust fund has continued to
grow because Congress has not appropriated the entire amount
collected due to overall Congressional spending limits. The
most recent report from the Corps of Engineers shows that the
surplus for FY 1999 exceeds $1.9 billion. This surplus comes at
the same time that the Corps of Engineers projects an operation
and maintenance backlog of $180 million within the deep-draft
area.
Perhaps the biggest driver for change is the U.S. Supreme
Court decision in 1998 that declared the export portion of the
law unconstitutional and repealed the application of the tax on
exports. The Constitution prohibits a tax on exports, the Court
found, although user fees are allowable. Due to the fact that
there was a surplus in the trust fund and that there was not a
close correlation between what shippers pay in and what they
get out, the Court also found that the Harbor Maintenance Tax
was not a true ``user fee.'' Therefore, the tax is currently
being collected only on domestic and imported goods. However,
the import portion of the tax is expected to be brought to the
World Trade Organization as an unfair trade practice, and
Congress and this Committee need to respond by repealing the
complete tax.
AAPA has spent three years looking at possible alternatives
to the Harbor Maintenance Tax. In that process, AAPA identified
four criteria that U.S. ports believe must be addressed in any
alternative user fee, and we urge the Committee to use these
criteria as well as it considers possible options.
There should be equity among ports so that each
port gets a reasonable return for fees paid on cargo moving
through it;
The fee should not add to the price of the
nation's bulk or breakbulk export products (e.g., grain, coal,
paper products), making these commodities uncompetitive in
international markets;
The fee should not alter the competitive position
among U.S. ports or induce the diversion of cargo from U.S.
ports to non-U.S. ports; and,
The fee should meet the constitutional test set
out by the Supreme Court that it should be reasonably related
to the service provided.
During our study, we were unable to identify any user fee
that can equitably raise revenues in reasonable relation to the
distribution of benefits to the nation. Therefore, AAPA
endorses H.R. 1260, the ``Support for Harbor Investment
Program'' Act (The SHIP Act) sponsored by Representatives
Borski and Oberstar to repeal the Harbor Maintenance Tax and
return to the original system of authorizing general revenues
to pay for operating and maintaining our Federal navigational
channels. The commercial maritime industry already pays
significant fees directly into the General Treasury. A study
last year from the General Accounting Office concluded that
there are 124 Federal fees and assessments on maritime commerce
that collected $22 billion in 1998, with approximately $20
billion of this going directly into the General Treasury. Most
of this money is from Customs-related fees, therefore, some
have recommended setting aside a portion of the Customs
receipts for harbor dredging since most are collected from
users of ports. The biggest problem to these solutions is the
revenue off-set rules applied to the budget. Since this tax is
broken, however, we hope that Congress will forgo the ``pay-
go'' rules to address this issue.
In summary, let me thank you for allowing me to testify
today to brief the Subcommittee about the vital role ports play
in the transportation system in the United States and the
Federal taxes that impact this infrastructure. To ensure our
nation's continued international competitiveness, it is now
more important than ever to continue to invest in an improved
and efficient water transportation system.

Chairman Houghton. Mr. Hulshof?
Mr. Hulshof. I do, Mr. Chairman, briefly, and again a
comment, Mr. Gutschewski. It has been a busy day for you. It
has been a good day for you, because I note, number one, in
your conclusion of your written testimony on page 9, you say
you urge the prompt enactment of H.R. 1001, and about 6 hours
ago we did that, so you are a very powerful man. I do
appreciate you being here today.
Also, as one of really the chief authors of H.R. 1001, I
want to thank Mr. Coyne and Mr. Houghton and you for
cosponsoring that legislation.
While we did not spend a lot of time with it in the Full
Committee today, while I have a chance to get you on the record
and maybe help develop the record a little bit more, let me
say, first of all, I think we need to make sure that everyone
understands that a repeal of the 4.3 cent deficit reduction tax
on diesel fuel for your industry, for the barge industry, does
not take any money out of transportation funds. Is that true?
Mr. Gutschewski. That is correct.
Mr. Hulshof. Second, even as we were having our hearing
today in the Full Committee on Ways and Means, you probably
knew that one of the other Committees here on Capitol Hill was
discussing the possibility of a railway trust fund.
Mr. Hulshof. Now you indicate in your testimony, again,
that that is not something that Union Pacific and I assume your
industry, AAR, does not support; is that a fair statement?
Mr. Gutschewski. AAR does not support the trust fund.
Mr. Hulshof. Would you again--I know you touched on it
briefly--but just reiterate again why you believe that is a bad
idea.
Mr. Gutschewski. We would rather administer the funds
ourselves, as opposed to creating a trust fund, paying into the
trust fund, sending it to Washington, D.C., and then have it
flow back to us. We are a private enterprise system, and that
is the way we prefer to operate.
Mr. Hulshof. You mentioned not only the inefficient way of
Washington collecting money and then doling it back to you, but
also you mentioned cross-subsidies; and amplify that point for
me again, if you would, of why these--or how there would be
cross-subsidies were such a trust fund to be created.
Mr. Gutschewski. Well, it is a function of who actually
takes the money out of the trust--and who pays it in. The large
freight railroads, being the major users of the fuel, would pay
in the vast majority of the tax into the fund, and there is
certainly no guarantee that we would get our fair share out of
the fund. So we would rather get rid of the tax, not have the
fund, and manage our own infrastructure.
Mr. Hulshof. And let me amplify that point if I could,
because in your testimony you talk about--in your written
statement as well--you indicate, rightly so, that having this
additional 4.3 cent excise tax that you pay, that the trucking
industry does not, puts you and actually the barge industry at
a competitive disadvantage, say, vis-a-vis the trucking
industry; but even beyond that competitiveness, if you had the
money, I mean, what would happen to infrastructure generally as
far as your industry is concerned?
Mr. Gutschewski. We have tremendous infrastructure needs,
not much different than the discussion we heard earlier this
afternoon about the public sector with their tremendous
infrastructure needs. Since 1980 we have spent, I think, over
$260 billion on our private interstate highway system, so to
speak, for the freight railroads. In the next 20 years we will
spend two times over the cost to replace that system.
So there are tremendous infrastructure needs, and they are
funded privately by the freight railroads.
The difference between most of the testimony that has
occurred today and what I am saying is the freight railroads in
the private sector, operating without subsidies, and that is
how we want to remain. We are not intending to advocate any
changes to current law that would detrimental to other
tranportation industries. Rather we appreciate the opportunity
to be able to point out how we are disadvantaged by the tax
laws as they impact to our ability to find capital to fund our
infrastructure needs.
Mr. Hulshof. And I think one other quick point, Mr.
Chairman, if I may. My congressional district in Missouri has
the Missouri River as part of its boundary and the Mississippi
River forming the eastern boundary, and so, you know, river
traffic is important as well. In the Inland Waterway Trust
Fund, there are moneys that have accumulated in that trust fund
that have not been put into infrastructure for the waterways.
So my fear is--I echo what you say about creating a new railway
trust fund--my concern is that suddenly you have a trust fund
and then moneys accumulate and that money doesn't actually go
into investment or modernization of infrastructure, and so I
echo what you say.
And, Mr. Chairman, again I am appreciative that--I know
this hearing had been set for some time and we were able to get
the 4.3 cent deficit reduction included in the railroad
retirement bill that passed our Full Committee today.I
appreciate the fact that we had 36 of 39 members on the Ways
and Means Committee who cosponsored the repeal of the deficit
reduction tax, and I am hoping that the Senate will take this
up and hopefully that the President would sign it into law.
So thank you for this opportunity, and thank for your
testimony.
Chairman Houghton. Thank you, Mr. Hulshof. Thanks so much
for your leadership on H.R. 1011.
There are two money issues. One is the issue of taxes, both
Federal and State, which hurts your operation, and the other is
the issue in terms of infusion of money. And I assume, unless
there is anything to the contrary, that the bonding mechanism
has been pretty successful in a whole variety of ways,
particularly in port authority; is that right?
Ms. Godwin. Yes, sir, that is correct.
Chairman Houghton. So in taking a look at this first cut
here of the railroads, what we want to do is sort of take a
larger look and then a larger and then a larger, to see what we
can do really to make this an extraordinary operation and not
just stop with this $10 billion funding.
What other things do you think we ought to do? What other
taxes are terribly important to the operations of the
railroads? Would you like to answer that?
Mr. Gutschewski. I point them out in more detail in the
written statement, but the deficit reduction fuel tax is key.
Beyond that, for our basic infrastructure spending, as I said,
we capitalize and depreciate over a period of years the
substantial majority of the costs we spend. The trucking
industry funds their infrastructure costs with fuel taxes, and
they obviously thereby get an immediate deduction. So there is
a significant disparity there. Further, because we own and
maintain our own private interstate highway system in essence,
we pay State property taxes on that. I do not know of anything
that Congress can do about that. As a matter of fact, in 1976,
Congress passed the 4-R Act which prevents discriminatory State
taxation of railroads, nevertheless--we still pay $450 million
a year in state property tax because we own our infrastructure.
Most of our transportation competitors do not own the
infrastructure upon which they operate.
What we wanted to point out were some of the issues that
create inequities.
On the depreciation issue, that is a difficult question to
answer because different freight railroads are in different
taxpaying positions, and we don't have a single answer yet in
the freight industry as to what final approach result we would
want to use to address that inequity. But it is a significant
disadvantage for the private freight railroads in terms of the
tax treatment that their infrastructure dollars receive, versus
the tax treatment of the fuel tax that the truckers pay.
Chairman Houghton. I know in New York there have been
extraordinary taxes on real estate, and it has been very
hurtful for the railroads that operate there. And so you can
have a great system in Pennsylvania and a great one in Vermont
and New Hampshire, and you have to go through New York and it
is very, very difficult. So that is of concern.
The other thing I think about is in terms of other
financing needs. If we are really going to sort of leap ahead
and take advantage of the technologies, whether it is high-
speed rail, whether it is maglev, or whatever, I can see a
whole series of other bonding opportunities coming along. Do
you feel this way also?
Mr. Dysart. Absolutely. I think it seems apparent that some
sort of trust fund or use of trust funds is not going to be
politically acceptable at least at this point in time. So we
have to find innovative ways to finance what we need to do.
There is no doubt we have indeed--and yes, Mr. Chairman, I
think indeed we will find some other things that need bonding
and there will be opportunities for those that issue bonds and
buy them.
Chairman Houghton. Thank you. Ms. Godwin have you got any
other comments that you would like to make?
Ms. Godwin. I don't really have anything to add on the rail
side, sir, but again there are a lot of different policies out
there that increase costs in different places along the way,
taxes on trade, in a variety of aspects. If you are all
interested in looking at that, I would be happy to provide you
with some more information.
Chairman Houghton. Well, thank you very much to the panel.
We appreciate your testimony, all the information. The hearing
is adjourned.
[Whereupon, at 4:25 p.m., the hearing was adjourned.]
[Submissions for the record follow:]

STATEMENT OF AMERICAN SOCIETY OF CIVIL ENGINEERS

Mr. Chairman and Members of the Subcommittee:
The American Society of Civil Engineers (ASCE) is pleased
to offer this statement for the record on the tax treatment of
transportation infrastructure.
ASCE was founded in 1852 and is the country's oldest
national civil engineering organization. The Society represents
more than 125,000 civil engineers in private practice,
government, industry and academia who are dedicated to the
advancement of the science and profession of civil engineering.
ASCE is a 501(c)(3) non-profit educational and professional
society.
We have a longstanding interest in increased investment in
our national transportation infrastructure as a proven method
to enhance America's productivity and global competitiveness.
America's public capital stock, which is the sum of the
nation's existing public facilities, is the foundation on which
the economy stands and grows. As the economy grows, so must the
capital stock. Without increased infrastructure investment, the
added burden of a larger economy will stress the existing
infrastructure beyond its capacity to perform.
For this reason, ASCE has long supported the use of
targeted federal tax policies as a means of supporting the
required investment in all forms of infrastructure, especially
that relating to transportation.
Since the inception of the Highway Trust Fund in 1956, ASCE
has supported the use of federal excise taxes on gasoline and
other motor fuels to raise the funds necessary to finance
federal-aid highway construction projects. Indeed, the Society
helped to lead the fight in Congress to enact the
Transportation Equity Act for the 21st Century (TEA-21), Pub.L.
105-178, June 9, 1998, 112 Stat. 107. A key provision of the
Act was the extension of the federal excise tax on gasoline and
other fuels to support the Highway Trust Fund.
Similarly, ASCE supported passage of the Wendell H. Ford
Aviation Investment and Reform Act for the 21st Century (AIR-
21), Pub.L. 106-181, Apr. 5, 2000, 114 Stat. 61, which extended
the federal excise tax on aviation fuel to finance the Airport
Improvement Program (AIP).

The Need for Investment in the Transportation Infrastructure
ASCE strongly supports the concept of transportation
infrastructure investment. Furthermore, we believe that this
investment ought to come in the form of designated trust funds
that are apart from the unified federal budget or have revenues
that are segregated from other federal program revenues.
The lack of adequate investment in America's infrastructure
has left us with a vast backlog of deteriorated facilities that
no longer meet our nation's increasing demands. We reported in
the Report Card for America's Infrastructure in 1998 that the
nation will need to spend more than $1 trillion by 2003 to
upgrade and modernize its entire infrastructure.
Moreover, we agree with the Congressional Budget Office
that the federal government needs to better account for the
costs of capital acquisition and improvements.
Under current [budgeting] practice, acquisition costs are
frequently paid for by an account other than that of the user,
and the holding costs of capital are almost never recognized.
Purchases are often paid for by a funding source outside the
program, such as a central capital account, an agency other
than the user, or even a different level of government. And
once an asset is acquired, neither the decline in its value
from aging and use nor the interest on the public debt that
could be retired if the asset was sold is recognized as a cost
of the decision to retain and use that asset. In fact, the
costs of acquiring and holding capital are reflected in the
operating costs of the using entity only in the unusual case in
which the asset is purchased by the program agency with funds
borrowed from the Treasury.
June E. O'Neill, Director, Congressional Budget Office,
Statement on Capital Budgeting before the President's
Commission to Study Capital Budgeting (Apr. 24, 1998)

Federal Tax Policies and the Infrastructure
A number of federal tax policies already have some impact
on transportation infrastructure. The taxes have a variety of
policy purposes; some are designed to assist in infrastructure
funding and development, others to mitigate the environmental
impact of an expanding infrastructure and still others to alter
the transportation mix, which in turn affects infrastructure
development policy choices. Among these policies are:
A local tax on aviation fuel that may be levied as
long as the local law requires all revenues to be used
exclusively for capital or operating expenditures for an
airport or for ``any other local facility that is owned or
operated by the... entity that owns or operates the airport. .
..'' .''
A 10 percent tax credit (not to exceed $4,000) for
any year in which a taxpayer places a ``qualified electric
vehicle'' in service. The credit will be phased out, ending
entirely in 2004 under current law.
A federal excise tax (currently set at five
percent) on any passenger vehicle that costs $30,000 or more.
This tax will expire on December 31, 2002, under current law.
An excise tax (currently set at 20 cents a gallon)
on fuel used in commercial transportation on inland waterways
to finance the Inland Waterways Trust Fund.
An excise tax of 7.5 percent of the ticket price
on all air travel to support the Airport Improvement Program.
In addition, a tax of $2.50 is currently imposed for each
flight segment on all domestic flights.
An excise tax of $3 on each passenger who boards a
passenger vessel in the United States.
ASCE supports stable funding for all transportation
infrastructure systems, i.e., aviation, highways, harbors,
inland waterways and mass transit. The revenues must be steady
to provide orderly and predictable allocations to meet current
and future demand. Each of the taxes discussed above satisfies
some of the transportation infrastructure needs of the country
and should be retained in substantially their present forms.

The Harbor Maintenance Trust Fund
A significant long-term transportation infrastructure
funding issue still remains to be resolved by Congress. Before
1986, general funds from the U.S. treasury were used to pay 65
percent of the cost to operate ocean and inland ports and to
maintain and deepen their channels. The other 35 percent was
paid by ports, or by state or local governments.
Congress enacted the Harbor Maintenance Tax (HMT) in the
Water Resources Development Act of 1986. Pub.L. 99-662, Nov.
17, 1986, 100 Stat. 4082. HMT revenues were to cover not more
than 40 percent of the cost (i.e., what had been the local
share) of maintaining U.S. ports and harbors. The balance came
from the general fund. In 1990, Congress amended the law to
eliminate the general fund and local shares entirely in order
to have the tax on passengers and cargoes cover all of the
costs of maintaining the harbors. See Water Resources
Development Act of 1990, Pub.L. 101-640, Nov. 28, 1990, 104
Stat. 4604, 4641.
The HMT applied a uniform charge on the shipment of goods
shipped from and arriving in U.S. ports. In 1998, the U.S.
Supreme Court overturned the export provision of the HMT on
constitutional grounds. See U.S. v. U.S. Shoe Corp., 118 S.Ct.
1290 (1998). The Supreme Court ruled that the Export Clause of
the Constitution prohibits a tax on exports.\1\
---------------------------------------------------------------------------
\1\ In Princess Cruises Inc. v. U.S., 201 F.3d 1352 (2000),
however, the U.S. Court of Appeals for the Federal Circuit upheld the
constitutionality of the HMT on passengers traveling on commercial
cruise vessels (`` 'Articles' and `goods' [under the Export Clause]
relate to items of commerce, not people.'').
---------------------------------------------------------------------------
In addition to the tax on cruise ship passengers, the HMT
continues to be collected on imports arriving at U.S. ports and
on domestic cargo shipped within the U.S. The HMT on
passengers, domestic cargo and imports raised $551.3 million in
fiscal year 1999. The Harbor Maintenance Trust Fund surplus
totaled $1.6 billion in FY 1999.
In August 1998, the Clinton Administration proposed to
replace the entire HMT (including the levy on imports and
cruise passengers) with a tax on vessel cargo capacity. This
Harbor Services User Fee (HSUF), which might--or might not--
meet the Supreme Court's constitutional objections to an export
tax, would raise about $1 billion a year and continue the
requirement that the entire cost of port and waterway
maintenance be borne by the shipping industry. This proposal is
somewhat controversial and has not yet been enacted.
The Corps of Engineers predicts that the Harbor Maintenance
Trust Fund surplus will grow to approximately $2.5 billion by
fiscal year 2004 without any change in current tax law (in part
because congressionally authorized expenditures from the Trust
Fund in fiscal years 1999-2000 totaled only about $12 million
together).
That otherwise rosy picture is clouded by a legal challenge
from the European Union (EU) to the tax on imports, which
accounts for about 60 percent of total Harbor Maintenance Trust
Fund revenues. Europe views the import tax as a barrier to
international trade. If successful, the EU challenge would
drastically reduce revenues available for port and harbor
maintenance.\2\
---------------------------------------------------------------------------
\2\ The EU filed a complaint with the World Trade Organization
(WTO) in early 1998, alleging that the HMT on goods arriving in the
United States violates the General Agreement on Tariffs and Trade
(GATT) of 1994. The dispute remains unresolved. See European
Commission, REPORT ON UNITED STATES BARRIERS TO TRADE AND INVESTMENT:
2000 19 (2000).
---------------------------------------------------------------------------
ASCE therefore supports efforts to preserve the financial
integrity of the Harbor Maintenance Trust Fund. This may
require innovative methods of financing infrastructure capital
projects or the continued use of methods that have been proven
successful in the past. These methods include:
Tax-exempt bond financing and related
infrastructure funding strategies for establishing public-
private partnerships, expanding state revolving loan funds, and
creating a Federal Infrastructure Bond Bank.
State infrastructure financing agencies supported
in part by federal loans to provide low interest loans for new
construction, rehabilitation or replacement.
User fees for operation, maintenance, replacement
or rehabilitation of transportation infrastructure.
Development fees and impact fees to pay for new
infrastructure construction.
Dedicated user taxes and trust funds for specific
classes of infrastructure such as highways, airport systems and
ports and harbors.
We think that these methods, or a combination of them,
would be appropriate to place the Harbor Maintenance Trust Fund
on a secure long-term footing. In addition, Congress may wish
to consider a tax on the draught of vessels or their dock
capacity to relate the tax more closely to the benefit received
from well-maintained port facilities. This would more closely
resemble a classic user fee than would the cargo capacity tax
proposed by the Administration.
Finally, Congress may wish to add a general fund component
to the fiscal mix in order to spread the costs of the harbor
and port maintenance program, which benefits all Americans.
Mr. Chairman, that concludes our prepared statement. Thank
you for your interest in our concerns. If you have any
questions, please contact Michael Charles of our Washington
Office at (202) 789-2200 or by e-mail at ``[email protected].

STATEMENT OF BOND MARKET ASSOCIATION

The Bond Market Association appreciates the opportunity to
comment on the effect of tax laws on the development of
transportation infrastructure, and in particular, on issues
related to innovative financing for public projects. The Bond
Market Association represents approximately 200 securities
firms and banks that underwrite, trade, and sell debt
securities both domestically and internationally.
We are pleased Chairman Houghton has chosen to explore the
use of innovative financing solutions to fund transportation
infrastructure. The High-Speed Rail Investment Act (H.R. 3700)
introduced by Chairman Houghton is an example of such a
solution. The legislation would authorize issuance of tax-
credit bonds, a new public financing structure that seeks to
substitute tax credits for interest payments.
The Bond Market Association generally supports policy
initiatives designed to leverage private capital and provide
innovative financing solutions to policy issues. In this
statement we focus on the structure of tax-credit bonds from a
capital markets perspective, including for Qualified Intercity
Passenger Rail Carrier Bonds (QIRB) and for other tax-credit
bond proposals.

The Background of Tax Credit Bonds
In a traditional debt financing, bond investors (lenders)
earn periodic interest income paid by bond issuers (borrowers).
In contrast, buyers of tax-credit bonds earn the ability to
claim federal income tax credits which are designed to be in
lieu of interest payments by bond issuers. The amount of the
credit is equal to a credit rate set daily by the Treasury
Department times the amount of tax-credit bonds an investor
holds. If tax-credit bonds work as designed, issuers should
receive zero-cost financing on their borrowing. Theoretically,
all the return earned by investors results from the tax credit.
The Taxpayer Relief Act of 1997 authorized $800 million of tax-
credit bonds over two years in the form of Qualified Zone
Academy Bonds (QZABs). Congress later reauthorized and extended
the program through 2001. QZABs are designed to subsidize
borrowing by targeted public school districts to finance
improvements to school infrastructure.
Tax-credit bonds, despite their limitations, have the
potential to provide deep subsidies to state and local
government borrowers. Although in most instances tax-credit
bonds have not lived up to their promise of offering zero-cost
financing, they provide a lower cost of capital for states and
localities than any other available source except for direct
grants. Still, the structure could be improved significantly by
adopting several targeted changes.

Problems with Current QZABs

In order to be successful and offer states and localities
the lowest possible cost of borrowing, tax-credit bonds for
land conservation or greenspace preservation should be
appealing to investors and other capital markets participants.
The success of QZABs under current law has been hampered by
several elements of their structure.

The timing of tax-credits may be mismatched.

A QZAB investor earns the ability to take an annual credit
on the anniversary date of a bond's issuance. However, the
credit becomes economically valuable to the investor only when
it has the effect of reducing a tax payment, and that occurs
only on a day when an investor is required to make a federal
tax payment. For some investors, tax payment dates occur only
once per year. The mismatch in timing between the time a credit
is earned and the time it generates a cash flow for the
investor can significantly reduce the value of the credit.

The program is small.

Congress has authorized only $400 million of QZAB issuance
per year for four years, only a small portion of which has
actually been used. This $1.6 billion amount is allocated among
all the states, so any one state receives a relatively small
allocation. The small size and short term of the program
results in several problems. First, it is difficult for bond
issuers, attorneys, underwriters, investors and others
associated with municipal bond transactions to commit resources
to developing expertise on a new and unknown financing vehicle
when very little issuance will be permitted to take place.
Second, the small issuance volume has resulted in no
significant secondary market for QZABs. A lack of market
liquidity discourages investors and raises costs for issuers.

Investors are limited.

Only three classes of investors are permitted to earn
federal income tax credits by holding QZABs: banks, insurance
companies and ``corporations actively engaged in the business
of lending money.'' Individual investors, a potentially strong
source of demand for tax-preferred investments, are excluded as
QZAB investors. Recently proposed changes to the program would
open the market for QZABs to other investors, including
individuals.

Changes to the Structure of Tax-Credit Bonds in H.R. 3700

The structure of the tax-credit bonds provided for in the
High-Speed Rail Investment Act include a number of positive
changes from the original QZABs program. Some key improvements
in H.R. 3700 include:

Strippability.

Under H.R. 3700, it would be possible to strip the tax
credit from the underlying debt instrument and market the tax
credit separately. This change would help ensure that those
investors who bought and held the credit would be those most
likely to actually incur a tax liability over the term of the
credit, and would help ensure that the credit is priced more
efficiently. It would also permit the debt portions of tax-
credit bonds to be sold to tax-exempt investors such as pension
funds. A similar stripping provision applied to traditional
tax-exempt bonds would improve pricing and efficiency in that
market, as well.

Quarterly credit dates.

Under H.R. 3700, credit accrual dates would be quarterly
and would be timed to match quarterly estimated tax payment
dates. This would help minimize a mismatch in timing between
when a tax credit accrues and when it generates a cash flow for
an investor. H.R. 3700 places no limitations on how long the
credits can be carried forward.

Transferability.

Under H.R. 3700, there would be no limit on the
transferability of the credit through sale and repurchase.
Moreover, an investor would need to hold a bond only on the
allowance date in order to qualify for the credit that quarter.
This would permit an investor who had no tax liability in a
given period to ``repo out'' a tax-credit bond--sell the bond
temporarily to another investor at a price that reflects the
value of the tax credit--and still benefit from the credit.

Exemption from ``arbitrage'' restrictions.

Tax-credit bond issuers under H.R. 3700, would not be
required to limit the return on the investment of bond
proceeds. Issuers would not be required to rebate arbitrage
earnings to the federal government as is the case with other
tax-exempt bonds. (Arbitrage restrictions place limits on
profits issuers of tax-exempt bonds can earn from investing the
proceeds of the bonds.) This would substantially reduce the
costs of projects financed with tax-credit bonds. Arbitrage
restrictions applied to traditional municipal bonds have
resulted in uneconomic incentives and have imposed significant
compliance costs on states and localities.

No Limit on Investors

H.R. 3700 places no restrictions on who is able to hold a
QIRB and claim the corresponding credit, thus effectively
expanding the market for the bonds compared to other current
law.

Additional Issues and Recommendations

Despite these significant improvements to the tax-credit
bond structure in the High-Speed Rail Investment Act, there
remain significant limitations that would erode the value of
tax-credit bonds and increase costs to school districts and
other issuers. These include:

Consequences of issuer violations

The bill does not address cases where an issuer fails to
comply with the conditions of the program while bonds remain
outstanding. The only remedy in such a case would be to rescind
the ability of investors to claim credits for the bonds in
question.
This provision would impose risks on investors and would
hamper the success of tax-credit bonds. Similar risks exist for
investors in tax-exempt municipal bonds. The tax risk for tax-
credit bond investors, however, is greater than for tax-exempt
bonds. With a tax-exempt bond, only a portion of an investor's
after-tax return results from the tax preference. If the tax-
exemption on a municipal bond issue were repealed, investors
would still earn a cash flow from the bond's issuer, albeit at
a much lower after-tax return than originally anticipated. For
tax-credit bonds, all the return earned by investors results
from the tax preference. If the tax preference were rescinded,
investors' rates of return would fall to zero.
It is unreasonable to impose a penalty--the loss of tax
credits--on investors who have no control over issuer
compliance with the terms of the program. The tax-credit bond
structure should be amended so that in cases of issuer
violations of the terms of the program, the government's only
course of remedy would be against bond issuers. Investors
should not be subject to penalties for violations they did not
commit.

Secondary market

The overall size of the QIRB program would result in
relatively small and illiquid secondary markets. (``Secondary
market'' refers to the buying and selling of securities after
they are issued. ``Liquidity'' refers to the ease with which an
investor can buy or sell a bond on the secondary market.) The
bill would authorize $1billion of QIRB issuance per year for 10
years. In the context of the capital markets overall, however,
this is a relatively small volume of issuance, especially given
the novelty of the financing structure.
In contrast, there are approximately $1.5 trillion of
traditional municipal bonds currently outstanding. As in any
market with a small total outstanding volume of securities, the
relatively small size of the tax-credit bond market would
ensure that little secondary market trading took place. Tax-
credit bonds would be illiquid instruments. As a result,
investors would demand a liquidity premium, or a higher rate of
return from bond issuers to compensate for the risk and cost of
illiquidity. Short of authorizing substantially higher levels
of tax-credit bond issuance--an impractical policy--the ability
to mitigate this effect is limited. One possible remedy would
be to encourage states and localities to employ pooled
financing arrangements in order to generate larger bond issue
sizes.

Additional issues

Market participants have identified other limitations of
pending tax-credit bond proposals that QIRBs share. The
features would tend to limit their attractiveness to bond
issuers. Many of these appear to be purposeful limitations
designed to restrict or target the level of subsidy associated
with tax-credit bonds. The following are three examples:
The credit rate for QIRBs would be set on the day
before the day of issuance and would be based on yields on
corporate bonds rather than taxable municipal bonds. The
interest rate should be continuously set to reflect as best as
possible current conditions in the credit markets.
The maximum maturity for QIRBs would be limited to 20
years, whereas many public infrastructure projects currently
are financed with debt up to 30 years in maturity and sometimes
longer.
The tax-credit itself would be treated as taxable income,
which would make the instruments less attractive to targeted
investors.

Related Legislation

Another bill (H.R. 859) introduced in the House would also
provide preferential tax treatment for the financing of
transportation infrastructure. The legislation, introduced by
Rep. Jennifer Dunn (R-WA), would permit on a pilot basis tax-
exempt private-activity bond financing for highways and other
surface transportation projects. The Bond Market Association
fully supports this proposal.
The tax-exemption on municipal bonds is one of the most
important sources of federal assistance to states and
localities for investment in infrastructure. However, state and
local issuance of tax-exempt bonds is subject to a complex set
of federal regulations and restrictions, especially when the
projects being financed involve more than a de minimis level of
private participation. Some of the limits on state and local
borrowing are reasonably designed to ensure that only worthy
projects can benefit from the federal assistance inherent in
the tax-exemption. Many of the restrictions, however,
unreasonably limit the amount of public investment that states
and localities can undertake and limit the financial
flexibility of state and local governments in new
infrastructure development, especially in utilizing public-
private partnerships. One such restriction is the prohibition
on tax-exempt bonds issued to finance highway projects that
involve private concessions.
H.R. 859 would allow the Department of Transportation to
approve a limited number of pilot highway projects that would
be eligible for tax-exempt private-activity financing. The
financing of private highway concessions in the tax-exempt bond
market would permit such projects to be built faster, more
efficiently and at a lower cost than if the projects were
wholly public. The Bond Market Association also believes the
proposal is entirely justifiable on tax policy grounds, since
all the projects that are likely candidates for the pilot
program would probably be undertaken by the public sector and
financed with tax-exempt bonds anyway. Indeed, it is possible
the pilot program would result in no net additional tax-exempt
bond issuance--and, depending on the efficiencies inherent in
utilizing private-sector involvement, perhaps even less
issuance--than under current law.
Permitting the bonds to be issued outside of state private-
activity bond volume caps, as H.R. 859 would allow, will make
the pilot program more effective. Highway projects are so large
that without an exemption from the volume caps, the pilot
program would be of very limited usefulness. Many projects
would simply exhaust too large a portion of a state's annual
cap allocation.
There is no public policy justification for the current-law
prohibition on private-activity, tax-exempt financing of
highways. The Bond Market Association has long argued highways
should be included as permitted ``exempt facilities'' under
Section 142 of the Internal Revenue Code. H.R. 859 is a welcome
move in that direction.

Conclusions and Recommendations

The Bond Market Association supports the use of creative
financing mechanisms that allow states and localities to
leverage the capital markets to address policy issues. In this
respect, we believe that tax-credit bonds could potentially
provide an attractive form of federal assistance to states and
localities to help finance capital investment. Most important,
tax-credit bonds could potentially give issuers a lower cost of
capital than they could achieve with any other instrument.
However, a key element of the proposal--the ability of the IRS
to rescind the tax credit in cases of issuer violations--would
impose undue risks on tax-credit bondholders. If Congress
considers tax-credit bonds, we urge the adoption of an
amendment to hold bondholders harmless in cases of issuer
violations. In addition, we recommend that the proposal be
amended with respect to the treatment of sinking funds under
arbitrage limitations as specified above.

STATEMENT OF ROSS B. CAPON, EXECUTIVE DIRECTOR, NATIONAL ASSOCIATION OF
RAILROAD PASSENGERS

Thank you for the opportunity to submit this statement. Our
non-partisan Association--whose members are individuals--has
worked since 1967 towards development of a modern rail
passenger network in the U.S. We strongly support H.R.3700 and
greatly appreciate your initiative in sponsoring it.
The traveling public's thirst for high-speed rail is
reflected in impressive ridership growth on today's trains, as
reflected in the table below. With improvements such as this
bill would permit, the growth will be even more impressive.
Ridership Growth in Selected Amtrak Corridors

----------------------------------------------------------------------------------------------------------------
San Diego-Los
Empire Corridor (NY Pacific Chicago- San Joaquin Angeles-Santa
State) Northwest (1) Milwauke e Valley Barbara
----------------------------------------------------------------------------------------------------------------
1975 652,600 244,900 ............... 63,040 353,600
1993 ..................... 226,000 (2) ............... ............... ...............
FY 1999 1,262,700 565,100 413,000 674,900 1,540,200
% change +93% +150% +69% +971% +336% (3)
----------------------------------------------------------------------------------------------------------------

Note (1): Initially, Seattle-Portland only; now extends
south to Eugene, Oregon, and north to Vancouver, B.C.
Note (2): First year of the Amtrak/State of Washington
partnership.
Note (3): This understates growth of passenger rail in this
corridor, because today's extensive commuter-rail service along
most of this line did not exist in 1975.
Improved passenger rail service means a U.S. transportation
system with more:
Capacity to move people--a requirement for a
growing economy;
Reliability--since modern trains are less
vulnerable to bad weather;
Choices available to travelers;
Energy efficiency--and thus less vulnerability to
future energy crises; and
Flexibility to use varied energy sources (where
lines are electrified).
Thus far, federal funding for intercity passenger rail
partnerships with states has been severely limited, primarily
to those situations where a courageous state has had a program
ready at one of those serendipitous moments when Amtrak had the
ability to offer matching funds. I say ``courageous'' because
it is tough for state rail people to explain to other state
officials (including legislators) why rail investments are
appropriate when those investments leverage little or no
federal money, while highway and aviation investments usually
leverage 80% federal funding.
Federal policy treats the aviation and highway trust funds
essentially as ``mode-specific money machines'' which encourage
investment in more road and aviation capacity even where rail
could do the job better. With no indication of any near-term
change in that philosophy, rail passenger progress depends on
meeting the challenge to find other federal funding sources.
The principle embodied in H.R.3700 and S.1900 appears to meet
that challenge.
The popularity of rail is reflected not just in the
ridership growth on trains that are slow by European and Asian
standards, but also in the number of co-sponsors these bills
have. What's more, the most common reasons we have heard for
failure to co-sponsor are:
(a) fear that the legislator's corridor will not get a big
enough share of the money; and
(b) lack of a corridor in the affected state or district.
There is little or no substantive opposition to improving
passenger rail corridors.
Thank you very much for the opportunity to submit this
statement.

STATEMENT OF HON. BUD SHUSTER, CHAIRMAN, COMMITTEE ON TRANSPORTATION
AND INFRASTRUCTURE, AND A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
PENNSYLVANIA

Thank you, Mr. Chairman, for allowing me the opportunity to
submit my views on a current proposal for assisting in the
upgrade of rail passenger infrastructure. It is my
understanding that H.R. 3700 will be discussed in some detail
at this hearing.
H.R. 3700 deals extensively with Amtrak, and therefore
affects not only implementation of the Amtrak Reform and
Accountability Act of 1997, but also future federal policy
toward rail passenger service and its infrastructure. I would
like to offer some pertinent observations on Amtrak's situation
and H.R. 3700. With your permission, I would also request that
my remarks be included in the record of the Subcommittee's
hearing.
H.R. 3700 Infrastructure Funding
The bill would authorize the issuance of $10 billion in
bonds to be issued nominally by any rail passenger carrier.
These bonds, instead of being marketed on the basis of the
creditworthiness of the issuer and prevailing rates of
interest, would carry a federal income tax credit calculated to
equal the value of the prevailing interest rate on high-quality
corporate bonds. The tax credits would also be saleable and
transferable (page 12, lines 1-4 of the bill). To put the size
of this fund in perspective, $10 billion is almost half of the
entire cumulative federal spending on passenger rail since
1970.
The bond proceeds would constitute an infrastructure fund
intended for various rail corridors that would be at least
partially improved with a view to future high speed rail
passenger service. States or groups of states could only access
this fund for use on their respective rail corridors by
providing a 20 per cent contribution, with the project funded
from the bond/infrastructure fund.
I want to point to a very positive difference between H.R.
3700 and its counterpart in the other body, S. 1900. The House
bill (p. 13, lines 16-20) affirms that any Amtrak-issued bonds
are backed by Amtrak only, not the U.S. Treasury. This upholds
the current state of the law, as reflected in two rulings of
the Comptroller General in 1986 and 1997-that the federal
government is not liable for any of Amtrak's corporate
obligations.
Conflict with the 1997 Repeal of Amtrak's Former Monopoly
One concern I have with H.R. 3700 as introduced is that the
ability to issue bonds appears, in practical effect, to be
limited to Amtrak only. H.R. 3700 (p. 5, lines 5-6) permits the
special bonds to be issued by any ``intercity rail passenger
carrier,'' and defines such a carrier (page 8, line 24 through
page 9, line 4) as one meeting the definition in Amtrak's own
statute (49 U.S.C. 24102(7)). Although such a ``rail carrier''
can include ``a unit of state or local government,'' the
definition adopted in the bill could well preclude direct
hiring of non-Amtrak contract operators by a state or group of
states, especially if such operators did not constitute ``rail
carriers'' under the existing federal statutes.
A core element of the 1997 reform law was the elimination
of Amtrak's former statutory monopoly over intercity rail
passenger service. Although Amtrak alone still possesses
compulsory access and eminent domain powers respecting the rail
network owned by private freight railroads, the reform law
sought to subject Amtrak to competitive market discipline and
incentive by empowering new alternative operators to enter the
market. (When the Interstate Commerce Commission was abolished
in 1995, federal entry and exit regulation over rail passenger
service was also eliminated.) Any measure that in practice
makes Amtrak-or any operating company--the sole source of
infrastructure assistance for future high-speed rail corridors
directly contradicts that policy.
Direct and Delegated Decisions on High-Speed Rail
Infrastructure Resource Allocation
H.R. 3700 also contains no statutory structure (other than
that states contribute at least 20 percent of the cost of each
project) establishing the respective roles of federal and state
government in upgrading rail passenger infrastructure. Instead,
the ``intercity rail passenger carrier'' is given control and
discretion over the allocation of resources. To take but one
extreme example, there is no assurance that a state that
proffers the required 20 per cent contribution will receive any
funding. The Secretary of Transportation would have to
``approve'' a project (page 5, line 13-15), but there are no
criteria for such approval, and if the issuer-operator refused
to seek DOT approval for a state-supported project, DOT could
potentially play no role at all.
This contrasts with the statutes governing our existing
infrastructure programs for airports, highways, and transit,
under which the relationship between the Department of
Transportation and state governments is spelled out clearly,
along with the parties' respective rights and responsibilities.
I also have concerns about Amtrak's ability to manage such
a large amount of capital funds. A report I commissioned from
the General Accounting Office (GAO/RCED/AIMD-00-78, February
2000) concluded that Amtrak spent some 90 per cent of the
examined sample for unauthorized purposes. More importantly,
GAO found that Amtrak had no workable internal tracking or
accounting procedures to assure that the money was properly
spent in accordance with the Internal Revenue Code directives.
Amtrak has also engaged in what is, in my view, the highly
questionable practice of ``borrowing'' from the refund-
statutorily limited to capital use-for other purposes. This
practice has no sanction in the 1997 tax law.
Another area that requires further analysis is the
distribution of project funds. On a broader level , H.R. 3700
provides only very general geographic limits on total
expenditures. Specifically, the bill sets a $3 billion, or 30
percent, maximum for use of bond proceeds on the Amtrak-owned
Northeast Corridor (page 8, lines 7-11). There is also a 10
percent, or $1 billion, cap on resources for all potential U.S.
high-speed rail corridors other than the Northeast Corridor and
those already designated by DOT under existing law (page 7,
lines 7-14). By default, the corridors outside the Northeast
already designated by DOT have unlimited access up to the full
$10 billion limit.
I want to be sure that investments in corridors are made
wisely and in a coordinated fashion. In TEA 21, we created a
similar program to upgrade High Priority Highway Corridors. In
that program, we required corridor management plans and other
safeguards to ensure that corridor investments were made in a
coordinated manner. I would like to see similar safeguards
here.
I applaud efforts to arrange for a stable, long-term
program of rail passenger infrastructure improvement. The use
of bond-issuing technique itself may prove to be a viable
method of channeling much needed resources into rail passenger
corridors. But any such effort must be consistent with the
Congressional decisions embodied in the 1997 Amtrak reform law,
and must reflect a comprehensive set of reasoned national
priorities, formulated in cooperation with the states, and
empowering the states to make many of the important end-use
decisions.
Newest GAO Information on Amtrak Cost Structure and Capital
Needs
I have recently released a report, completed by GAO at my
request, on Amtrak. It is entitled Intercity Passenger Rail:
Amtrak Will Continue to Have Difficulty Controlling Its Costs
and Meeting Its Capital Needs (GAO/RCED-00-138, May 2000). I
would like to share with you a few highlights of the report, to
provide some context for evaluating Amtrak's current condition,
management, and prospects. I will only touch on a few salient
points, and recommend the entire report to your Subcommittee.
1. Costs Versus Revenues
GAO found that Amtrak's total operating costs have
increased from 1995 to 1999 more than 12 percent above the rate
of inflation (pp. 8, 18). As in its handling of the 1997 tax
``refund,'' Amtrak apparently lacks an orderly internal
accounting system to help it control these costs. For example,
GAO found that Amtrak has no line-of-business measures of labor
productivity, even though labor costs are half of total
operating costs, and have been growing at 10 per cent above the
rate of inflation, net of any productivity savings (pp. 22,
25). On commuter railroads, the comparable rate of increase was
1.5 per cent above inflation (p. 22, note 6).
On the other side of the ledger, Amtrak met its revenue
targets in only 2 of these 5 years (p. 38). During the same
five years, Amtrak's debt obligations more than doubled, from
$890 million to $1.9 billion (p.29).
2. Amtrak's Capital Needs Without Additional High-Speed
Rail Corridors
GAO concluded that Amtrak will require over $9.1 billion in
capital through 2015-a period equal to only three-quarters of
the life of the bonds created under H.R. 3700 (p. 40). The
Northeast Corridor alone will require $1.4 billion by 2004,
just to return it to a state of good repair (p. 41). Another
$4.4 billion will be required there through 2015 (p. 52). In
short, Amtrak is facing huge capital requirements, along with
inadequately controlled costs, just with its existing routes
and infrastructure-not a whole new network of high-speed
corridors.
These figures represent GAO analyses of Amtrak data;
amazingly, Amtrak has no long-term capital plan whatever, and
for the last 3 years, has prepared capital plans with only a 1-
year timeline (p. 58). According to GAO, without any long term
plan, ``Amtrak is incapable of ensuring effective use

of these funds'' (pp. 5859). I would add that this is all
the more reason not to make Amtrak the exclusive and unfettered
conduit for federal resources to assist the development of
high-speed rail corridors.
I hope that your Subcommittee will find this information
useful in your hearing and any subsequent legislative action.
Thank you again for considering my views and making them a part
of your hearing record.

STATEMENT OF JEAN-PIERRE RUIZ, CHIEF EEXECUTIVE OFFICER, TALGO, INC.

Mr. Chairman. My name is Jean-Pierre Ruiz and I am the
Chief Executive Officer of Talgo, Inc. with main offices in
Seattle, Washington. I am very pleased to submit this testimony
in support of HR 3700, the High Speed Rail Investment Act.
Talgo, Inc. is an American rail passenger car manufacturer,
wholly owned by Patentes Talgo, S.A. (PTSA). PSTA has been
building rail passenger cars on a unique design for over 50
years. In fact, the very first Talgo trains were build here
in the United States in 1949. Our design permits us to build
high speed passenger trains that tilt naturally--using mother
nature instead of high technology to achieve a safe, smooth,
comfortable, high speed ride on track that is not specifically
designed for such traffic. And it can do that at less cost
because it does not need to install or maintain costly
computers and mechanical devices to achieve this end.
We wish to commend the provisions of HR 3700 to the
Committee for a number of important reasons. But the main
reason is that the time for efficient, timely, reliable
Intercity Rail is now
Talgo America is a US company incorporated under the laws
of the State of Delaware. Talgo America, and its US
subsidiaries, design, manufacture and maintain intercity
passenger railcars and locomotives. At present, four (4) Talgo
passenger trainsets are being operated by Amtrak in the Pacific
Northwest Corridor under the brand name: Amtrak Cascades. The
Washington Department of Transportation (``WSDOT'') owns two of
these trainsets, and Amtrak owns another two. These trains
operate between Seattle (WA) and Vancouver (BC), and between
Seattle (WA) and Portland and Eugene (OR). Since the
introduction of Talgo's equipment, this corridor has seen
growth in excess of 150%.\1\ In 1999, some 570,000
people rode the Cascades. More than 60% of the operating costs
were covered by fare box revenues.\1\ The entire corridor has
been revitalized with an estimated 400 permanent jobs
created.\1\
---------------------------------------------------------------------------
\1\ Washington State Department of Transportation.
---------------------------------------------------------------------------
The success of the Amtrak Cascades is but an indication of
the need for and the acceptance of intercity rail in America.
Far from being competition to the automobile and the airplane,
efficient, timely, reliable Intercity Rail will complement
those other modes of transportation. In effect, intercity rail
is the third leg of a three-legged stool. It is undeniable that
a complete and efficient transportation network is the backbone
of a strong economy and only by making each leg as strong as
the other will America have such a network.
Independent statistics demonstrate the waste resulting from
congested highways and airports. Furthermore, Amtrak's results,
in the corridors where it is allowed to succeed, demonstrate
the public's acceptance of this mode of transportation.
Not so long ago, America had the most efficient rail
transportation network in the world! This was because it was
the most efficient transportation mode of its time. Hence, in
1929 there were 20,000 passenger trains in the US. That number
had dwindled to 11,000 by 1946, and 500 by 1970.\2\
---------------------------------------------------------------------------
\2\ A further 100 were in the process of discontinuance. ``Off the
track,'' D. Itzkoff, Greenwood Press (ed. 1985).
---------------------------------------------------------------------------
When the US government began to actively subsidize the
automobile and the airplane, shortly after World War II, rail
was doomed. Initially, the results of such a shift in
transportation thinking were favorable. At a time when
Americans were beginning to travel extensively and businesses
were becoming national vs. regional, the loss of rail was
easily overcome. But as the volume increased, the lack of third
leg on the three-legged transportation stool became noticeable.
Hence, America is literally being paved over. We now have some
4 million miles of roada...enough to circle the planet more
than 157 times, or go to the moon and back more than 8
times.\3\ Between 1970 and 1995, passenger travel nearly
doubled, growing by an average of 2.7% a year. Over the same
period, passenger-miles per person increased from 11,400 to
17,200 miles per year. The rise in automobile use grew by 1
trillion passenger-miles, while air travel more than tripled
from 118 billion to 415 billion passenger-miles (a 5% growth
rate). As a result, in 1995, the average distance cars and
lights trucks (mostly SUVs and pick-ups) were driven equaled a
journey nearly halfway around the world. The total mileage was
2.2 trillion miles, or nearly \1/10\ of the distance to the
nearest star outside our solar system. And it's not likely to
get any better. USDOT's Volpe Center estimates that miles
traveled will continue to grow at an average annual rate of
2.2-2.7% between 2000 and 2030.\4\ In fact, the Volpe Center
also reports that vehicle miles traveled grew by 40% in only 7
years, between 1983 and 1990.\5\
---------------------------------------------------------------------------
\3\ USDOT, Bureau of Transportation Statistics.
\4\ ``Description of VMT Forecasting Procedure for `Car Talk'
Baseline Forecasts.'' Volpe Center, USDOT.
\5\ ``Travel Behavior Issues in the 1990s.'' National Personal
Transportation Survey, USDOT (1992).
---------------------------------------------------------------------------
If all this travelling were efficient there would be little
to comment on. However, transportation accounts for \2/3\ of
America's total oil consumption, with highway vehicles
accounting for the largest share followed distantly by air
transportation.\6\
---------------------------------------------------------------------------
\6\ USDOT. Bureau of Transportation Statistics.
---------------------------------------------------------------------------
In 1994 automobiles used 39% of all transportation energy,
while light trucks (i.e., mini-vans, SUVs and pick-ups) used
20%, for a combined total of 59%. We Americans now spend
approximately $100,000/minute to buy foreign oil for cars and
trucks ($9B a year)! \7\ That's 6B gallons of gasoline each and
every year.\8\ Enough to fill 670,000 gasoline tank
trucks. Or 134 super tankers. For each driver, that means 100
gallons wasted waiting in traffic each year. American
households now spend more of their income on transportation
than on any expense category other than housing.\9\ And the
situation is getting worse.
---------------------------------------------------------------------------
\7\ Union of Concerned Scientists.
\8\ ``Annual Mobility Report.'' Texas Transportation Institute
(1999).
\9\ ``Our Nation's Travel.'' USDOT (1999).
---------------------------------------------------------------------------
The Energy Information Administration estimates that
imported oil will supply 60% of US oil demand by 2005.\10\
Moreover, air pollution from automobiles hasten the death of
some 64,000 Americans every year, while acidic air pollution
from cars and trucks cause some $2-3B-worth of damage to
agricultural crops every year.\11\ Each year cars and light
trucks cause nearly \2/3\ of all CO2; \1/3\ of all NO; and,
nearly of all hydrocarbons. In 1994 some 3.4 million people
were injured in motor vehicle crashes, of which some 428,000
were incapacitated, at a cost to the economy of some $150.5B.
Lastly, it is estimated that we Americans waste some $65B in
congested highways and airways (i.e., non-productive driving
time).\12\ Imagine if all that lost productivity could be
``injected'' into the economy!!!
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\10\ ``Urban Mobility Study.'' USDOT (1999).
\11\ Union of Concerned Scientists.
\12\ ``Annual Mobility Report.'' Texas Transportation Institute
(1999).
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Rail was and remains the most effective means of
transportation in a circle of 100-400 miles. A single railroad
track can carry as many people as a 10-lane highway at a
fraction of the cost.\13\ The success of European and Asian
railways are sufficient testimony to this fact. However, we
should not speak of ``high-speed'' rail in the USA. We are
simply not ready. The infrastructure has been neglected and the
transportation consumer needs to be reeducated. Rather, we
should focus on efficient, reliable, timely Intercity Rail.
This is a more logical, and less expensive, solution to
gridlock and winglock. Hence, efficient, reliable, timely
Intercity Rail is faster and safer than travel by automobile.
It is more affordable than travel by air, and in some cases
more affordable than travel by car. It is less prone to be
adversely affected and is infinitely friendlier to senior
citizens and handicapped travelers.
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\13\ Rail tracks cost some $1.5-3.5M/mile, less than \1/10\ that of
highway construction.
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Let us also readily face the fact that the other two modes
of transportation ``thrive'' because of governmental subsidies.
Hence, between 1982 and 1994 $145.3B was spent by the
government to construct, operate and maintain a national air
traffic system and airport network.\14\ This does not include
the many direct cash subsidies as well as federal, state and
local tax breaks received by the airline industry. Similarly,
between 1982 and 1994, the government spend $725.4B for road
construction (a $1Trillion since the 1920s). In 1956, the
Highway Trust Fund was established ensuring a continuous flow
of money for road building. Of course, this industry too
received generous federal, state and local tax breaks. The
passenger rail industry? Unfortunately, it received no tax
breaks whatsoever or financial subsidies after the expiration
of the land program in the 19th century. In fact, Amtrak is
burdened with heavy property taxes on each of its passenger
terminals! It is interesting to note that Amtrak's 1999 budget
request of $571M was smaller than the budget INCREASE granted
to highways for that same year.
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\14\ USDOT.
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Offered similar subsidies (i.e., let the federal government
build the rail tracks as it builds the highways and the
runways, along with building the train stations as it builds
airport terminals and rest areas on highways, not to mention
dispatch the trains as it does the airplanes through the FAA)
and watch Amtrak succeed beyond the government's wildest hopes.
However, burdened as it is, it is little surprise that Amtrak
has not yet achieved self-sufficiency. In fact, it is a
tremendous achievement on Amtrak's part to even attempt to be
self-sufficient by 2003 under the present rules. The playing
field is simply neither level nor fair. The result has become
disastrous and continues to worsen. But there is hope!
Amtrak serves some 519 US cities and communities providing
essential mobility for congested metropolitan areas and for
hundreds of small urban and rural communities.\15\ In 1997,
more than 20 million passengers relied on Amtrak trains to get
to and from work everyday. Without Amtrak, an additional 7,500
fully-booked 757 airplanes (over 20 a day) would fill the skies
each year. Each year Amtrak purchases approximately $500
million in goods and services. All the while, it recovers more
of its costs of operation than any other passenger railroad in
the world. \15\ But Amtrak can be so much more if given the
chance.
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\15\ American Passenger Rail Coalition.
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The success of incremental rail in the State of Washington
demonstrates amply what can be achieved. This is a partnership
between Talgo, WSDOT, Amtrak Wes and Burlington Northern Santa
Fe. The Seattle-Everett corridor ranks as the 2nd most
congested urban area and with an average population growth of
9%. \16\ Studies indicate that total traffic delay time will
grow from some 0.8 billion-person-hours in 1990 to 4 billion-
person-hours by 2020.\16\ This would represent a productivity
loss of $40B by 2020, up from $10B in 1990.\16\ Average vehicle
freeway speed would drop from some 27 mph in 1990 to less than
10 mph in 2020. The WSDOT embarked on 20-year, $2.1B
incremental high-speed rail program to reduce congestion and
pollution.\17\ What that meant is that, instead of spending
billions of dollars in building dedicated tracks and/or
electrifying the corridor to provide service at 150 mph or
above, WSDOT decided to progress by steps, with minimal
investment at each step. That way, if the venture did not pan
out, the loss would be kept to a minimum.
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\16\ Annual Mobility Report. Texas Transportation Institute (1999).
\17\ Washington State Department of Transportation.
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WSDOT began by leasing a Talgo Pendular trainset to provide
service between Seattle (WA) and Vancouver (BC-Canada).
Although this route had been abandoned some 10 years before,
the introduction of new equipment and exceptional service from
Amtrak's onboard personnel soon led to the service running at
capacity. In fact, the venture was so successful that the lease
was later renewed for a year and, in 1996, WSDOT and Amtrak
purchased brand new equipment. Talgo's tilting feature allowed
for the immediate reduction of travel time between the
destination points without significant infrastructure
expenditure. Hence, WSDOT literally could have ended the
experiment at any time for a minor investment. Instead of
believing that if they build it, people would come, as is the
case with dedicated high-speed rail; they decided that if they
build it and people came, they would build some more.
By 1999, the service known as the Amtrak Cascades had
increased its ridership in excess of 150%, from 226,391 in 1993
to over 570,000. Fully 54% of the time, the trains rode at
capacity (i.e., 198 days out of 365). Most telling, 98% of
riders deemed themselves satisfied or very satisfied with the
service (80% were very satisfied), and 84% of riders would ride
the Cascades again.\17\ As a result, the service diverted more
than 30M miles of regional highway traffic while eliminating
more than 690 tons of air pollution.\17\ The service has
created more than 400 permanent jobs; more than $18M in annual
wages; and more than $3M of goods and services are purchased
every year from local companies.\17\ Revenues have increased in
excess of 575%.\17\ In 1998 alone, revenues increased by 31%,
covering more than 60% of operating costs. It is predicted that
revenues will cover 100% of operation costs by 2015.\17\ All of
this with only 4 trains ... and without the support of the
federal government. Imagine the possibilities!!!
This indicates the viability of efficient, reliable, timely
Intercity Rail. But does this mean that ``high-speed'' rail is
not feasible. We do not believe so. But it is not feasible
today. The vast sums of funds needed to create such a network
are an unneeded burden upon the states and the federal
governments. Particularly at a time when this resource is
scarce and getting more so. Even more so for the uncertain
financial returns that such a network may offer. However, once
an efficient, reliable, timely Intercity Rail system is
operational and accepted, the time will come to ``graduate'' to
high-speed rail. efficient, reliable, timely Intercity Rail
also counters suburban sprawl, pulling people, jobs and
businesses back to urban centers and encouraging downtown
development. It reduces commuter flights at congested airports,
freeing gates for more cost-effective longer flights. It
promotes tourism and intra-regional transfer of goods, while
stations encourage economic development in generally
economically challenged areas. It creates temporary jobs during
construction and permanent jobs thereafter. In fact, studies
reveal that each $1 invested in passenger rail creates 314 jobs
the year after the investment is made, while businesses realize
a gain in sales 3 times the investment capital (i.e., each $10M
invested leads to a $32M increase in business sales).\18\ Give
a strong economy the chance to grow stronger. Listen to the
states and the constituents. Give rail a chance to complement
the other modes of transportation. Open the market to new
technologies. Support the states, the regional initiatives and
the FRA in their efforts. Let Amtrak succeed. A well-integrated
efficient, reliable, timely Intercity Rail can makes us
stronger. A divided transportation network will fall upon
itself.
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\18\ Washington State Department of Transportation.
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Congress can begin to avoid that unnecessary disaster by
passing HR 3700. The states will provide 20 percent match that
will go directly into the projects, thus demonstrating the
states' vital interests in this transportation mode. There is
no risk to the Federal government because its ``full faith and
credit'' is not being pledged. The escrow account that would be
established under this bill would earn interest and be managed
by an independent trustee. The principle would be repaid from
this escrow account.
It is time for the United States to take full advantage of
all its modes of transporting its citizens to where they need
to go. No one mode meets every need with equal efficiency and
convenience. But, neither can we achieve those important goals
if any one mode is neglected. Rail passenger service has been
neglected and we all have suffered consequences in our economy,
environment and efficiency. HR 3600 leads us away for that
oversight and to a full, flexible, versatile transportation
system this great nation deserves.

STATEMENT OF SID MORRISON, SECRETARY OF TRANSPORTATION, WASHINGTON
STATE DEPARTMENT OF TRANSPORTATION

Thank you Mr. Chairman and members of the Committee, for
the opportunity to provide testimony for the record in support
of House Resolution 3700 (HR 3700), the High Speed Rail
Investment Act of 2000.
I am Sid Morrison, Secretary of Transportation for the
Washington State Department of Transportation (WSDOT).
HR 3700 is vital to the states that are developing both
high speed and conventional rail service as a viable method of
moving our citizens. In Washington State, we believe that a
balanced transportation system that provides mobility options
to our citizens is the only way to ensure that we maintain our
economic vitality. Many of our fellow states have reached a
similar conclusion. It is anticipated that the Pacific
Northwest region of eight million people will grow by 50% over
the next 20 years, with intercity travel increasing by 75%
during the same time period.
The Central Puget Sound is already considered the fourth
worst congested area of the nation for highway travel. The fact
is that we cannot accommodate our growth, nor can we hope to
reduce the impacts of congestion by only building more roads.
Our geography, pre-existing development, and environmental
regulations make it virtually impossible, and cost prohibitive,
to expand highway capacity in many areas. Even with highway and
airport expansion, travel demand will outstrip capacity in the
future. Rail provides a safer, environmentally superior, and
cost effective method for increased travel capacity.
WSDOT, at the direction of our Governor, the Legislature,
and our Transportation Commission, began developing the Pacific
Northwest Rail Corridor in 1993. This corridor reaches 466
miles, from Vancouver, British Columbia, connecting with
Seattle, Portland, and southward to Eugene, Oregon. It is one
of the original federally designated high speed rail corridors
to be developed. This effort is a partnership of the States of
Washington and Oregon, the Province of British Columbia,
Amtrak, the host freight railroads, our ports, and regional and
local governments.
We are proud of the fact that the development of the
Pacific Northwest Rail Corridor is a resounding success. We
have received a great deal of attention nationwide as being a
``blueprint'' for developing rail passenger service. Our
incremental approach to rail corridor development is now being
pursued in at least 16 other states. Corridor ridership has
increased more than 170% since 1993, with more than 560,000
riders last year. Double digit increases continue each
successive month. We are the first corridor to introduce modern
European style equipment--purchased with state funds--in
regular service.
Our Amtrak Cascades service is continuously ranked the best
in the entire United States for customer satisfaction. We have
developed and begun a logical series of intercity rail capital
and operating improvements. Washington State has invested more
than $125 million to improve local Amtrak service between 1993-
1999. Our partners invested more than $325 million during that
same time period.
We have made wonderful progress in the Pacific Northwest.
However, we have a very long way to go. Our vision includes
hourly service in each direction between major metropolitan
destinations, with travel times that are more than competitive
with other modes of travel by 2018. We believe that proper and
timely capital investment will allow for the operations in our
corridor to eventually pay for themselves. HR 3700 is the key
to our ability, as well as the ability of other regions of our
nation, make the capital investment required to provide this
cost-effective method of moving people that is desperately
important to our future.
HR 3700 provides the states the main ingredient that has
been missing in the development of high speed rail in the
United States--a long term, dedicated source of capital
funding. Because the funds will be generated by the sale of
bonds, funding for highway, aviation and transit systems will
not be impacted. These funds are critical to Washington, as
well as other states, if we are going to make high speed rail a
reality. In an era of uncertain state resources for
transportation, it is vitally important that Washington and
other states seize this opportunity to further leverage
federal, state, regional and private investments.
Although the HR 3700 authorizes Amtrak to issue bonds, it
is important to clearly understand that this is a bill for the
States. In fact, we are willing to have third party
administration of the program so long as Wall Street would not
object, or penalize us with higher interest rates. One
possibility would be through the office of the USDOT Associate
Deputy Secretary for the Office of Intermodalism. Corridor
development is performed at the direction of the States.
The primary use of the funds generated by these bonds would
directly benefit the States. In our state, as well as
nationwide, Amtrak is our contracted operator of service and
has provided capital partnership opportunities when it has been
available. Amtrak is an important partner, however, the states
should continue to remain the senior partners of high speed
rail development.
Further evidence of HR 3700 being a bill for the States is
the bill language that limits the Amtrak owned and operated
Northeast Corridor to no more than 30% of the funds made
available over the life of the bill. The corridor states feel
that such a cap is a prudent safeguard to protect the primary
intent of the bill--the development of designated high speed
rail corridors that are being developed at the direction of the
states, throughout the country.
On behalf of Washington State, and other rail corridor
states, I urge your support in the passage of HR 3700. The
development of high speed rail passenger service is an
increasingly important component of a balanced transportation
system we need to ensure the mobility of our citizens and our
nation's continued economic vitality.

Amtrak Cascades Ridership

How Many People Ride Amtrak in the Northwest and British
Columbia?
In 1998 more than 550,000 people rode Amtrak within the
Pacific Northwest Rail Corridor. This diverted more than 30
million miles of traffic from regional highways. Ridership
growth continues in 1999, but has slowed. The WSDOT Rail Office
currently estimates 1999 ridership growth will increase more
than 3 percent to 571,000. Annual ridership has increased more
than 150 percent since 1993. Sold-out trains during peak travel
times; changes in seat availability, particularly during peak
travel times; and increased ticket prices to maximize revenue
all contribute to slowing ridership growth.

What Is the Average Ridership on Amtrak Cascades Trains?

Average ridership in January of 1999 was 97 per train.
Average ridership in August of 1999 was 153 per train. Average
ridership in October of 1999 was 99 per train. Average
ridership varies by season. January is representative of off-
season travel, August off-peak season travel and October off-
shoulder season travel. Ridership also varies by day of week.
Trains routinely sell out at peak travel times throughout the
year, particularly Fridays and Sundays.

What Is the Average Ridership on Seattle-Portland Amtrak
Cascades Trains?

Average ridership in January 1999 was 115 per train.
Average ridership in August 1999 was 165 per train. Average
ridership in October 1999 was 124 per train.

What is the Average Ridership on Seattle-Vancouver, BC Amtrak
Cascades Trains?

Average ridership in January 1999 was 85 per train. Average
ridership in August 1999 was 191 per train. Average ridership
in October 1999 was 83 per train.

How Many Seats are on Each Train?

The number of seats per Amtrak Cascades Talgo train varies
depending upon customer demand and train operations
requirements. When feasible, seat capacity is adjusted to
maximize ridership and revenue. Because Amtrak Cascades Talgo
trains are articulated--adjacent cars share an axle--it is more
difficult to adjust train capacity to customer demand than on
other passenger trains. However, enhanced safety and reduced
travel times are benefits of these articulated trains. The
number of available seats can range dramatically, from slightly
more than 100 to slightly less than 300. Trains have recently
been reconfigured to add seats to more popular schedules and
reduce available seats on less popular schedules.

Do Customers Like Amtrak Cascades Service?

Customer satisfaction remains among the highest in the
nation. Convincing people to sample Amtrak Cascades service
remains important. Ninety eight (98) percent of people who ride
the Amtrak Cascades say they will recommend riding the Amtrak
Cascades to family and friends. Eighty four (84) percent of
people who ride the Amtrak Cascades say they will ride again
during the next year.

How Often are Amtrak Cascades Trains Sold Out?

In Federal Fiscal Year 1999 (October 1998 through September
1999) at least one Amtrak Cascades train was sold out on 198
days. This means that on more than half of the days of the year
at least one train is completely full and potential customers
are being turned away. Fridays, Saturdays, Sundays, days
surrounding holiday weekends and the summer are the most busy.
At least one train was full on all but four days in August
1999.