[Senate Hearing 106-1138]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 106-1138
 
                      OVERSIGHT HEARING ON AMTRAK
=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 26, 2000

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation







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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington             JOHN D. ROCKEFELLER IV, West 
TRENT LOTT, Mississippi                  Virginia
KAY BAILEY HUTCHISON, Texas          JOHN F. KERRY, Massachusetts
OLYMPIA J. SNOWE, Maine              JOHN B. BREAUX, Louisiana
JOHN ASHCROFT, Missouri              RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee                BYRON L. DORGAN, North Dakota
SPENCER ABRAHAM, Michigan            RON WYDEN, Oregon
SAM BROWNBACK, Kansas                MAX CLELAND, Georgia
                  Mark Buse, Republican Staff Director
               Ann Choiniere, Republican General Counsel
               Kevin D. Kayes, Democratic Staff Director
                  Moses Boyd, Democratic Chief Counsel





                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on September 26, 2000...............................     1
Statement of Senator Cleland.....................................   103
Statement of Senator Kerry.......................................    73
    Prepared statement...........................................    82
Statement of Senator McCain......................................     1
    Prepared statement...........................................     3
Statement of Senator Snowe.......................................   106
Statement of Senator Wyden.......................................     4

                               Witnesses

Allard, Hon. Wayne, U.S. Senator from Colorado...................    14
Carmichael, Gilbert E., Chairman, Amtrak Reform Council..........    34
    Prepared statement...........................................    37
Coston, James E., Attorney, Chicago, IL, prepared statement......    95
Kaine, Hon. Timothy M., Mayor of Richmond, VA, on Behalf of the 
  U.S. Conference of Mayors, Boise, ID...........................    83
    Prepared statement...........................................    86
Mead, Kenneth M., Inspector General, U.S. Department of 
  Transportation.................................................     5
    Prepared statement...........................................     8
Scheinberg, Phyllis F., Associate Director, Transportation 
  Issues, U.S. General Accounting Office.........................    25
    Prepared statement...........................................    27
Thompson, Gov. Tommy, Chairman of the Amtrak Reform Board, 
  Accompanied by George Warrington, President, National Railroad 
  Passenger Corporation..........................................    20
    Prepared statement...........................................    22
Vranich, Joseph, Irvine, CA......................................    51
    Prepared statement...........................................    53

                                Appendix

Capon, Ross B., Executive Director, National Association of 
  Railroad Passengers, prepared statement........................   110
Selden, Andrew C., Vice President--Law and Policy, United Rail 
  Passenger Alliance, Inc., letter dated August 24, 2000 to 
  Senator McCain.................................................   109


                      OVERSIGHT HEARING ON AMTRAK

                              ----------                              


                      TUESDAY, SEPTEMBER 26, 2000

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:30 a.m. in room 
SR-253, Russell Senate Office Building, Hon. John McCain, 
Chairman of the Committee, presiding.

            OPENING STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    The Chairman. Good morning. Today's hearing will be the 
first Amtrak oversight hearing by the full Committee since we 
approved comprehensive reform legislation nearly 3 years ago. 
Clearly not all Members of this Committee share the same 
perspective concerning the obligation imposed on the American 
taxpayers to fund Amtrak for what is now in its 29th year of 
subsidization, and more than $23 billion, even though Amtrak 
was to have been free of all federal assistance 2 years after 
it was established long ago in 1971.
    However, we did all work collectively on reform 
legislation, with the intent to give Amtrak the tools it said 
it needed to become operationally self-sufficient. I am eager 
to learn what progress Amtrak has made toward achieving that 
statutory goal.
    More important, we must examine whether the statutory 
provisions shepherded by this Committee will even be relevant 
if Amtrak and others are successful in enacting the $10 million 
bond funding scheme being pushed forward by the Senate 
Financing Committee. Despite my urging to the contrary, last 
week the Finance Committee was expected to report out 
legislation which included the bonding authority for Amtrak. 
The actual legislative language has still not been made 
available, but their postponed markup is now expected to occur 
this week.
    So far, this multibillion blank check has managed to sail 
through without even a single hearing by the Finance Committee, 
just like when it found a way to give Amtrak $2.2 billion in 
tax refunds, even though Amtrak has never earned a profit nor 
paid corporate taxes.
    There is a nagging feeling of deja vu, and I fear once 
again the American taxpayers will pay the price. As Chairman of 
the authorizing Committee, I will not sit idly by for another 
committee to effectively nullify the 1997 reform legislation 
developed by this Committee. I intend to do all I can to put 
the spotlight on how this funding scheme will impact the 
federal taxpayers and the legal obligations of the federal 
government, not to mention the spirit of the 1997 reform 
legislation.
    During this hearing, Amtrak will present a glowing report 
on its achievements. I caution my colleagues to not tune out 
those who will testify about the less than glowing facts. While 
Amtrak will discuss last year's record-setting year and this 
year's growing ridership revenues, the Department of 
Transportation Inspector General will report that Amtrak has 
also been experiencing its largest operating losses in history 
during the same record-setting period.
    Again, Amtrak has been experiencing its largest losses in 
history at the time when our Nation's economy has been at its 
strongest. Yet we would never know about these losses if we 
only relied on Amtrak's press releases. We never hear that 
Amtrak's expenses are rising, or that its ridership and revenue 
gains are actually below the levels projected in Amtrak's 
strategic business plan. I cannot understand how Amtrak can so 
easily issue press releases about its seemingly glowing 
statistics and outright ignore the realities of the bigger 
financial picture. To my knowledge, no legitimate business 
enterprise in this country could get away with deceiving its 
stakeholders in the manner Amtrak has been doing in its press 
releases about ridership and revenues.
    Obviously, ridership is not the end-all Amtrak wants us to 
think it is, if Amtrak is experiencing astronomical operating 
losses at the same time it is touting its ridership. Further, 
if you actually look at Amtrak's ridership historically, you 
will find that last year's record ridership was essentially at 
the same level it was in 1979. Amtrak's stagnant ridership 
cannot be ignored, particularly given the growth experienced by 
other passenger modes.
    In the past decade, car travel is up 25 percent, bus travel 
is up 7 percent, and air travel is up 37 percent. And, let us 
consider the actual ridership level comparison. Inner city 
buses carried 357 million passengers annually, compared to 
Amtrak's 21 million. That is 17 times more passengers. Airlines 
carry 582 million passengers, 28 times more than Amtrak 
carries, but we are supposed to be impressed that Amtrak's 
ridership is at the same level it was 20 years ago, and we will 
be asked to continue pumping billions of dollars in a form of 
transportation that the majority of the traveling public is not 
interested in utilizing outside of the Northeast.
    If we are serious about fulfilling our responsibilities, we 
need to consider all of the facts, good and bad. We need to 
oversee Amtrak based on its actual financial results and 
service demand. This cannot be accomplished if we allow our 
objectiveness to be overridden by notions of nostalgia and a 
single goal of retaining a form of transportation from 
yesteryear regardless of the cost.
    Perhaps today we cannot make a definitive conclusion on 
whether Amtrak can meet its statutory requirement to be free of 
operating assistance by the end of 2002. According to the 
recent report by the Inspector General, however, it is next to 
impossible.
    But one thing is certain today. Amtrak needs to make more 
progress before any further funding schemes are enacted, 
particularly schemes in which another committee is effectively 
authorizing Amtrak as a federal monopoly for another 30 years.
    I welcome today's witnesses, and look forward to hearing 
their testimony.
    Senator Wyden.
    [The prepared statement of Senator McCain follows:]

   Prepared Statement of Hon. John McCain, U.S. Senator from Arizona
    Today's hearing will be the first Amtrak oversight hearing by the 
Full Committee since we approved comprehensive reform legislation 
nearly 3 years ago.
    Clearly, not all Members of this Committee share the same 
perspective concerning the obligation imposed on the American taxpayers 
to fund Amtrak for what is now in its 29th year of subsidization--and 
more than $23 billion dollars--even though Amtrak was to have been free 
of all federal assistance 2 years after it was established in 1971. 
However, we did all work collectively on the reform legislation with 
the intent to give Amtrak the tools it said it needed to become 
operationally self-sufficient. I am eager to learn what progress Amtrak 
has made toward achieving that statutory goal.
    The Amtrak Reform and Accountability Act of 1997 provided the 
operational, procurement, labor, and liability reforms that Amtrak 
requested so it could operate more like a legitimate business. The 
reforms were designed to allow Amtrak to run its operations based on 
good business decisions, rather than political pressures. For example, 
the reforms allowed Amtrak to set its own route structure, instead of 
conforming to a statutory mandate. The reforms allowed Amtrak to 
contract out work where Amtrak decides it makes sense to do so. The 
reforms further allowed Amtrak to negotiate more reasonable labor 
protection agreements in lieu of the statutory six-year guaranteed 
severance. I will be very interested in learning how Amtrak has 
utilized its new authorities and what cost savings these long sought 
after reforms have actually generated.
    In another area, the law required the Department of Transportation 
Inspector General (DOT-IG) to oversee an independent audit of Amtrak's 
financial books in order to establish a performance bench-mark. 
Subsequent annual audits by the DOT-IG were also required. In addition, 
the law created an 11-member Amtrak Reform Council (ARC) to review 
Amtrak's operations and financial results and make recommendations to 
help Amtrak improve both operationally and financially. Today we will 
hear from the DOT-IG and the ARC on their findings and perspective 
about Amtrak's future. The General Accounting Office (GAO) will also 
provide us with an overview on their various reports.
    As I said, during this hearing we will hear about Amtrak's progress 
toward meeting the statutory requirement of operational self-
sufficiency. I am sure that Amtrak will present a glowing report on its 
achievements. But I caution my colleagues to not tune out those who 
will testify about the less glowing facts. For instance, Amtrak will 
discuss last year's ``record setting year'' and this year's growing 
ridership statistics. However, we will also be told by the DOT-IG that 
during the same ``record setting'' year, Amtrak also experienced its 
largest operating losses in history. Amtrak's operating loss for FY 
1999 was $907 million and its projected loss for this year is nearly as 
great.
    Again, Amtrak has been experiencing its largest losses in history 
at the time when our nation's economy has been at its strongest. Yet we 
would never know about Amtrak's losses if we only relied on Amtrak's 
press releases. I for one, cannot understand how Amtrak can so easily 
issue press releases about its seemingly glowing statistics and 
outright ignore the realities of the bigger financial picture. To my 
knowledge, no legitimate business enterprise in this country could get 
away with deceiving its stakeholders in the manner Amtrak has been 
doing in its press releases about ridership and revenues. Sure, 
ridership has been up a month here and there--and that's great news. 
But, obviously, ridership is not the end-all we would expect it be if 
Amtrak is experiencing astronomical operating losses at the same time 
it is touting its ridership.
    Further, if you actually look at Amtrak's ridership historically, 
you will find that last year's ``record ridership'' is essentially at 
the same level it was in 1979! Yes, its ridership was 21.4 million in 
1979 and 21.5 million in 1999. But no one relying only on Amtrak's 
cheers would ever know this to be the case.
    Amtrak's stagnate ridership shouldn't be ignored particularly given 
the growth experienced by other passenger modes. In just the past 
decade, car travel is up 25 percent, bus travel is up 7 percent and air 
travel is up 37 percent. And let's consider the actual ridership level 
comparison: intercity buses carry 357 million passengers annually 
compared to Amtrak's 21 million--that is 17 times more passengers. 
Airlines carry 582 million passengers--28 times more than Amtrak 
carries. But we are supposed to be impressed that Amtrak's ridership is 
at the same level it was 20 years ago and we'll be asked to continue 
pumping billions of dollars into a form of transportation that the 
majority of the traveling public isn't interested in utilizing outside 
of the Northeast.
    If we are serious about fulfilling our responsibilities, we need to 
consider all of the facts, good and bad. We need to oversee Amtrak 
based on its actual financial results and service demand. This cannot 
be accomplished if we allow our objectiveness to be overridden by 
nostalgia, and the notion of retaining a form of transportation from 
yesteryear at no matter what cost.
    We cannot predict today whether Amtrak will meet its statutory 
requirement to be free of operating assistance by the end of 2002. Some 
are certain Amtrak will reach operational self sufficiency. Some, like 
the DOT-IG, are skeptical and still others consider it virtually 
impossible. But I am certain about one thing: Amtrak needs to make more 
progress before any further funding schemes are considered.
    I am strongly opposed to Amtrak's efforts to enact legislation to 
provide it up to $10 billion of additional funding above and beyond 
that provided in Amtrak's existing authorization as developed by this 
Committee. This latest proposal is being sold as a way to fund high 
speed rail projects across the country through the issuance of Amtrak 
bonds. It is too bad there isn't a single highspeed route in operation 
today to give us any real inkling if the traveling public would utilize 
highspeed service at a rate to even come close to making it cost 
effective beyond the Northeast Corridor. Why should we hand over 
billions of more dollars to Amtrak to selectively invest in highspeed 
corridors when it hasn't been able to effectively carry out its 
underlying mission?
    Intercity rail passenger ridership has remained essentially 
unchanged during Amtrak's near 30-years of operation and $23 billion 
dollars in subsidies, while ridership via other transportation modes 
has fastly grown. Amtrak's capital needs are projected by the GAO to be 
$4 billion dollars through 2004 and at least another $5.1 billion 
dollars through 2015. I would think it would make a lot more sense for 
Amtrak and its proponents to focus their efforts on finding a way to 
fund these already identified capital infrastructure needs before 
looking to spend billions of dollars on service not even in operation.
    More important, Amtrak has not yet fulfilled the operating self-
sufficiency mandate required under the law. Therefore, I find it very 
premature, at best, to be pushing a new $10 billion funding proposal at 
this juncture. I will nevertheless be very interested to learn how the 
proposed bond legislation, if enacted, would impact the federal 
taxpayers, the legal obligations of the federal government, and the 
spirit of the 1997 Act. And, if enacted, will Amtrak cease to expect 
future federal subsidies entirely? Somehow, I doubt it.
    I welcome today's witnesses and look forward to hearing their 
testimony.

                 STATEMENT OF HON. RON WYDEN, 
                    U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you, Mr. Chairman. I very much 
appreciate your holding this oversight hearing. I personally 
think a whole lot more oversight needs to be done in the U.S. 
Congress, and I am glad that you are going forward with today's 
hearing.
    Once again we have another troubling Inspector General 
report about Amtrak. This one shows very clearly that Amtrak 
continues to employ Alice in Wonderland financial analysis. For 
more than a year, both the Inspector General and the General 
Accounting Office have been raising concerns that Amtrak is not 
going to meet its legal obligation to become subsidy free by 
2003.
    Despite these warnings, Amtrak keeps issuing rosy 
projections and asserting that its business plan is going to 
make the railroad self-sufficient one year ahead of schedule. 
The recent Inspector General report states that Amtrak's 
business plan will not achieve operating self-sufficiency in 
2003.
    When it unveiled this plan, Amtrak claimed realigning its 
routes would generate an additional $105 million in revenue, 
but one of the key auditors says, and I quote, ``Amtrak never 
gave us any support for their numbers,'' unquote. In reality, 
the new high-speed trains which are the linchpin of Amtrak's 
plan for financial solvency run into delay after delay.
    Originally scheduled to begin running last fall and 
generate $180 million in profits next year, these trains still 
have not gone into service. Even as it became clear that the 
trains were not going to run as scheduled, Amtrak officials 
continued to insist that the delay would not have a negative 
financial impact.
    The bottom line is, the numbers say one thing, Amtrak 
insists on something else. Recently a member of the Amtrak 
Reform Council created by the Amtrak Reform Accountability Act 
resigned on the grounds that Amtrak was making decisions to add 
pork barrel trains to the districts or home towns of 
politically connected officials. Despite a legislative mandate, 
the Amtrak Reform Accountability Act, and commitments to 
Congress that Amtrak would achieve operational self-
sufficiency, Amtrak continues to ignore financial reality and 
play politics with its routes.
    I would just like to emphasize how strongly I feel about 
that point, Mr. Chairman, because there is no question that 
Amtrak is playing politics with these new routes and what it is 
doing with respect to assigning them. Governor Thompson, to his 
credit, in one of our last hearings acknowledged that the route 
in Eastern Oregon should not have been eliminated.
    If you will look at those routes, strictly on the merits, 
that route in Eastern Oregon should not have been eliminated. 
Fortunately Tommy Thompson has got some candor chromosomes in 
there, and he admitted it, and I appreciate that, but Amtrak 
still has not addressed the problem, and this Senator is going 
to stay with it until we start calling these routes on the 
merits.
    This is just no way to run a railroad in this country. We 
ought to start moving to get Amtrak operating in an efficient 
manner before it becomes a financial train wreck and the 
taxpayers are left to pick up the pieces. It is time to make 
decisions at this agency on the merits, and not with respect to 
politics, and I look forward again, Mr. Chairman, to working 
with you on a bipartisan basis in this regard.
    The Chairman. Thank you, Senator Wyden.
    Our panel today is the Hon. Kenneth Mead, Inspector 
General, U.S. Department of Transportation, Governor Tommy 
Thompson, the chairman of the Amtrak Reform Board. He is 
accompanied by George Warrington, who is the president of the 
National Railroad Passenger Corporation. Mrs. Phyllis 
Scheinberg, who is the Associate Director of Transportation 
Issues, U.S. General Accounting Office, Mr. Gilbert Carmichael, 
who is the chairman of the Amtrak Reform Council, Mr. Joseph 
Vranich, and Hon. Timothy M. Kaine, mayor of Richmond, 
Virginia, on behalf of the U.S. Conference of Mayors.
    Welcome before the Committee, Mr. Mead.

  STATEMENT OF HON. KENNETH M. MEAD, INSPECTOR GENERAL, U.S. 
                  DEPARTMENT OF TRANSPORTATION

    Mr. Mead. Thank you, Mr. Chairman. Last week we issued our 
most recent congressionally mandated report on Amtrak. The good 
news is that Amtrak's revenue and ridership showed marked 
improvement in 1999 and continued to do so in 2000. That 
improvement has undoubtedly been moved along by the economy and 
in the Northeast Corridor is certainly facilitated by aviation 
delays and cancellations and aviation system congestion.
    That has not been sufficient to turn the tide, though. 
Essentially, in order for Amtrak to become self-sufficient by 
2003 it will need to aggressively curtail expense growth, which 
is offsetting revenue gains--there is still nearly three 
quarters of a billion dollars in undefined management actions 
in its business plan--launch Acela high-speed rail service, and 
secure sufficient capital to support its basic needs. I will 
take each of these points briefly in turn and then make a few 
observations on S. 1900.
    The Financial Status. This year, passenger revenues 
improved by nearly 9 percent, ridership by about 4 percent. 
Also, nonpassenger revenues showed a strong 9.7 percent growth 
in 1999 and over 15 percent in 2000, and these nonpassenger-
related revenues now account for an amazing--at least it is 
amazing to me--over 40 percent of the total operating revenues. 
Certainly, that area has been improving.
    But at the same time, system expenses have grown 
significantly, nearly 7 percent in 1999 and so far this year an 
additional 7.8 percent over last year. Interest expense on debt 
grew rapidly in the nineties, and it will be over $100 million 
per year in 2001.
    Amtrak's cash loss in 1999 was $579 million, the highest in 
a decade. We project the cash loss will decline in 2000 to $521 
million, which will be the lowest since 1992, but substantially 
greater declines will be necessary under Amtrak's mandate. 
Unless Amtrak can find a way to curtail expense growth, and 
soon, we doubt that Amtrak will be able to reach self-
sufficiency by 2003.
    Mr. Chairman, we examined Amtrak's plans for reducing 
losses, and unless they take major corrective action we see 
them falling about $1.4 billion short of their projections 
between 2000 and 2004. Our biggest concern is that Amtrak's 
business plan projects operating self-sufficiency largely on 
the back of $737 million in undefined business actions. They 
are mostly unspecified reductions on the expense side, and 
actions of the magnitude necessary to fill those gaps do not 
translate into savings overnight. So we see a real urgency 
here.
    We also have some issues about Amtrak's Northeast Corridor 
projections and on mail and express, but these are minor in 
comparison to the three quarters of a billion dollars in 
undefined management actions.
    A word about Acela delays. The delays in starting Acela 
Express will start affecting revenues in 2001, but it will not 
be severe if there are no further expected delays. The Acela 
service should be able to reach its full potential by 2003 if 
there are no further delays.
    A word on this, in fairness to Amtrak. Delays of this 
nature--it is about a year, maybe a little longer depending on 
how you count--are not uncommon in complex programs of this 
type. This Committee has for years overseen the air traffic 
control modernization effort, and we know that a delay of a 
year there would sometimes be refreshing.
    Capital outlook. For years we and others, including my 
colleague Phyllis Scheinberg from GAO, have warned about 
serious capital shortfalls facing this railroad. These 
predictions have come true. In 2001, assuming Amtrak's cash 
losses are no higher than it projects, and that assumes that it 
will close about 20 percent of this three quarters of a billion 
dollar gap, Amtrak will face a minimum capital shortfall of 
over $90 million.
    In 2001, Amtrak is going to have to find an additional $385 
million, or Amtrak is going to have no choice but to ignore 
some of its minimum needs, cancel key projects in progress, 
including ones that are important to its glide path, and defer 
on commitments to states for corridor development. I think this 
underscores how critical it is for Amtrak to close that three 
quarters of a billion dollar gap in its business plan, and 
quickly. It is also important for Amtrak to take care of its 
minimum capital needs first, such as operational reliability, 
before spending scarce capital on growth-related projects 
outside of minimum needs.
    I am not saying the spending on these growth-related 
projects is frivolous, but I am saying that the minimum needs 
ought to be taken care of first, and we have found a number of 
examples where that is not the case.
    Finally, S. 1900. We and the GAO have repeatedly cautioned 
that even if Amtrak attains operational self-sufficiency in 
2003, it is going to require long-term capital funding. The 
Amtrak Reform and Accountability Act, Mr. Chairman, did not say 
whether Amtrak could count on long-term capital assistance from 
the federal government. Clearly, it is Congress' role to 
determine the amount and the vehicle for providing federal 
capital support.
    Another question is when these decisions ought to be made: 
now, before Amtrak shows whether it will meet the requirements 
under the reform act, or at the end of the 5-year glide path, 
when you know one way or the other.
    Under the current version of this bill, Amtrak could sell 
$10 billion in high speed rail bonds over the next 10 years. 
Interest payments are to be made by taxpayers in the form of a 
tax credit to bond holders and repayment of principal is to be 
paid by the States, which will be financed by a 20-percent 
matching contribution by the States that will be placed in 
escrow.
    The House version would limit to 30 percent the amount that 
could go to any one corridor, and the bonding authority would 
be available to any intercity railroad, not just Amtrak.
    Now, I am here to tell you that S. 1900 would partially 
address Amtrak's capital needs, but Amtrak's total capital 
needs extend well beyond high-speed corridors. Even with S. 
1900 the Committee should be aware that Amtrak will continue to 
need annual appropriations, most likely more than the $500 
million or so that it currently receives. Until Amtrak develops 
a detailed 5-year plan for capital, its annual requirements 
cannot be estimated with any degree of precision.
    Also, as introduced, S. 1900 lacks sufficient oversight of 
Amtrak's spending of the bond proceeds. The costs of developing 
high speed corridors are significant, and $1 billion each year 
will not be sufficient for Amtrak to meaningfully invest in 
every corridor seeking a piece of the pie. If funds are 
sprinkled around the country in amounts sufficient to get 
projects underway but insufficient to complete them, the likely 
results will be few of the routes will achieve expectations, to 
say nothing of the fiscal problems, and Mr. Chairman, the 
pressures to do this are going to be extraordinary.
    I have got in my hand a list of endorsements for S. 1900 
from all over the country--people that are seeking corridors. 
Amtrak packaged this up and sent it over, and it really is 
amazing, the expectations from around the country. Everybody 
will not be able to eat part of that pie, and I think it is 
important that if we start projects, that we make sure that we 
have the funds available to complete them.
    The Chairman. How much money, do you think, just off the 
top of your head, is in all those letters?
    Mr. Mead. I think probably twice the $10 billion, and I am 
sure that is conservative. In other words, the $10 billion is 
not going to come close to meeting all the demands from all 
over the country.
    The Chairman. How many promises have been made?
    Mr. Mead. I am not privy to any promises that have been 
made. My point here is that federal oversight is critical, and 
we have been assured that adequate oversight provisions would 
be put in the bill. I think that is a very important point, 
otherwise we will have a lot of projects starting up, cropping 
up around the country, but you want to finish them, too.
    Finally, we have questions about how a 10-year 
authorization for high-speed rail bonds would interface with 
the mandate to achieve operating self-sufficiency by 2003. If 
Congress decides that S. 1900 is the appropriate vehicle for 
addressing certain of Amtrak's capital needs, we think 
continuation of that authority ought to be made explicitly 
contingent on Amtrak meeting its operating self-sufficiency 
mandate as prescribed by law.
    Now, I know there is concern about what happens if they 
miss it by $5 or $10 million, and I think you probably need a 
safety valve in there. If they come close I think the equation 
is much different, and they should be considered as meeting it, 
and so I am not talking about them being off by a few million 
dollars. I am talking about them missing it by magnitudes.
    That concludes my statement, sir.
    [The prepared statement of Mr. Mead follows:]

    Prepared Statement of Hon. Kenneth M. Mead, Inspector General, 
                   U.S. Department of Transportation
    Mr. Chairman and Members of the Committee,
    We appreciate the opportunity to testify on Amtrak's financial 
performance and requirements. Last winter when we testified on this 
subject, we stated that it would be possible for Amtrak to achieve 
operating self-sufficiency by 2003, but that delays in Acela Express 
would pose additional obstacles. Today, the picture is bleaker. Acela 
Express is still not in service and large holes exist in Amtrak's 
business plan that will need to be filled in order for Amtrak to 
achieve operating self-sufficiency. On the plus side, Acela Express 
stands to benefit if aviation delays continue to plague the Northeast. 
However, time is running short, as are Amtrak's available funds to 
invest in its equipment and infrastructure. Amtrak will face a $91 
million minimum capital needs funding shortfall in 2001, or worse, if 
it does not hit its operating targets.
    With 3 years to go in its Congressionally-set mandate, we still 
believe it is possible for Amtrak to reach operating self-sufficiency, 
but this will depend heavily upon Amtrak's ability to curb expense 
growth; in its 2001 business plan, fill the nearly three-quarters of a 
billion dollars in existing ``undefined management actions''\1\; and 
secure sufficient capital funding to support Amtrak's projected 
ridership and revenue growth.
---------------------------------------------------------------------------
    \1\ Placeholders in Amtrak's business plan that represent the 
difference between where Amtrak needs to be to achieve operating self-
sufficiency and where it believes it will be based on the performance 
of already identified actions.
---------------------------------------------------------------------------
    We have just issued a report--the 2000 Assessment of Amtrak's 
Financial Performance and Requirements \2\--that summarizes our 
findings from our most recent Congressionally mandated annual review of 
Amtrak. Today, we would like to discuss the main points in this report 
by presenting our views on Amtrak's financial status through the first 
11 months of Fiscal Year 2000, the likelihood of Amtrak's reaching 
operating self-sufficiency by 2003, the impact of Acela delays, and 
Amtrak's capital funding needs. And as requested, I would also like to 
share some comments on the proposed bond bill, S. 1900, that is 
currently under consideration in the Senate.
---------------------------------------------------------------------------
    \2\ Report No. CR-2000-121, September 19, 2000. 2000 Assessment of 
Amtrak's Financial Performance and Requirements, Office of Inspector 
General, U.S. Department of Transportation.
---------------------------------------------------------------------------
Amtrak's Recent Financial and Performance Results
    Amtrak has shown financial improvement but greater efforts must 
concentrate on curtailing expense growth. The good news is that 
Amtrak's revenue and ridership showed marked improvement in 1999 and 
through the first 11 months of 2000. The bad news is that expense 
growth has kept pace. If Amtrak is to reach operating self-sufficiency 
by 2003, it must aggressively pursue actions that curb the growth in 
expenses.

   Revenue and Ridership results are positive. The revenue 
        growth that began in 1995 has brought Amtrak to the highest 
        passenger revenue levels in its history and Amtrak expects that 
        2000 passenger revenues will exceed those of 1999. Passenger 
        revenue grew by 5.7 percent in 1999 and in the first 11 months 
        of 2000, was up 8.6 percent over the same period in 1999. 
        Overall operating revenues increased in 1999 by 7.4 percent, 
        and were 11.7 percent higher in the first 11 months of 2000 
        than they were for the same period in 1999. Non-passenger 
        revenues showed a strong 9.7 percent growth in 1999 and in the 
        first 11 months of 2000, were almost 16 percent better than the 
        same period last year.\3\ Ridership grew 2 percent over 1998 
        levels and in the first 9 months of 2000, was up by 3.5 
        percent.\4\

    \3\ Non-passenger revenues include mail and express, commuter, 
reimbursable, commercial development, non-transportation, state 
reimbursement, and other transportation revenues.
    \4\ Ridership and on-time performance results were only available 
through June 2000.
---------------------------------------------------------------------------
    Overall operating revenues increased in 1999 by 7.4 percent, from 
$1,708 million to $1,834 million,\5\ with non-passenger revenues 
showing a strong 9.7 percent growth, increasing from $707 million in 
1998 to over $775 million in 1999. Non-passenger revenue constituted an 
increasing share of Amtrak's total revenues between 1990 and 1999. The 
overall increase in non-passenger revenue for the last 10 years has 
been 105 percent, going from $378 million in 1990 to almost $776 
million in 1999. Non-passenger activities now account for over 42 
percent of Amtrak's total operating revenues.
---------------------------------------------------------------------------
    \5\ Amtrak's reported operating revenue in 1999 and 1998 included, 
as required by generally accepted accounting principles, $191 million 
and $542 million, respectively, of federal payments received, including 
TRA funds, and $58 million in interest earnings on temporarily invested 
TRA funds. Because the TRA funds and the interest earnings will be 
spent on capital investment, they have been excluded from our reporting 
of operating revenue.
---------------------------------------------------------------------------
Composition of Amtrak Revenues, 1990 Through 1999 ($ in millions)



   Although revenue and ridership trends are positive, 
        increases in labor costs, depreciation, and train operation 
        expenses have fueled continued growth in operating expenses, 
        increasing by 6.9 percent in 1999 and by 7.3 percent in the 
        first 9 months of 2000. Additionally, Amtrak has funded most of 
        its recent refleeting efforts through external financing, which 
        caused interest expenses to grow rapidly in the 1990's. The 
        interest costs on this financing are adding about $100 million 
        more to cash losses per year between 2000 and 2004 than in the 
        5-year period before these programs. Principal payments on 
        debt, which are considered capital costs, are also projected to 
        grow steadily between 2000 and 2004.

        
        

    This expense growth has kept Amtrak's cash loss from declining. 
Amtrak's cash loss in 1999 of $579 million was Amtrak's highest in 10 
years. Although we project the cash loss in 2000 will be $521 million, 
the lowest since 1992, Amtrak must make significantly more progress 
each year if it is to reach its goal of operating self-sufficiency in 
2003. Amtrak must reduce its cash loss to $266 million in 2003 to meet 
this goal, a required improvement of $255 million over 2000. Reducing 
the cash loss will depend heavily on limiting the growth in Amtrak's 
expenses over the next 3 years.
    The ridership and passenger revenue growth has occurred in the face 
of little change in either Amtrak's Customer Satisfaction Index or its 
on-time performance. In 1999, the Index decreased to 83 from 85 in 
1998, and has rebounded to 85 for the first 9 months of 2000. On-time 
performance was constant at 79 percent in 1998 and 1999, and has risen 
slightly to 80 percent for the first 9 months of 2000. Both on-time 
performance and customer satisfaction have been affected by the service 
problems experienced by the freight railroads over the last 3 years.
    To further bolster ridership, passenger retention, and revenue, 
Amtrak instituted a Customer Service Guarantee on July 4, 2000. The 
guarantee provides passengers who are not satisfied with Amtrak's 
service, for any reason, with vouchers for future travel equal to the 
value of the trip on which they were dissatisfied. Amtrak's goal for 
the Customer Service Guarantee is that no more than 1 passenger in 
1,000 (a 99.9 percent satisfaction rate) will request a voucher. The 
issuance rate for July was about 2.8 per 1,000 passengers (99.7) and 
the estimate for August is about 5 per 1,000 passengers (99.5).
Amtrak's Future Financial Outlook
    Amtrak will need to take major corrective actions if it is to 
achieve operating self-sufficiency in 2003. Despite positive trends in 
revenue and Amtrak's financial results being close to goals over the 
last 2 years, starting next year, the bar will be raised much higher. 
Amtrak's cash losses must drop by an average of $85 million per year to 
reach operating self-sufficiency in 2003.
    Our assessment of Amtrak's business plan identified a number of 
elements that are unlikely to perform as Amtrak expects. If no 
corrective action were taken to compensate for them, Amtrak's cash loss 
would be about $1.4 billion more than it projects over the 5-year 
period, 2000 through 2004. Most critically, we project that in 2003, 
the year of operational self-sufficiency, Amtrak would still require 
$351 million more in operating assistance than it can fund with its 
federal appropriation.
    About 85 percent of the total $1.4 billion at risk of not being 
achieved is concentrated in 3 elements of the Plan: $737 million in 
undefined management actions, $304 million in Northeast Corridor 
passenger revenues, and $179 million in Mail and Express net revenues. 
I would like to say a few words about each of these areas.

   Undefined Management Actions. Amtrak's business plan 
        projects operating self-sufficiency largely on the back of the 
        $737 million in undefined management actions. In essence, these 
        undefined actions represent the gap between the total cash loss 
        improvements Amtrak needs and what it expects to get from 
        actions it has already identified. If Amtrak's 2001 business 
        plan does not fully define these management actions, we 
        strongly doubt that Amtrak will be able to achieve its mandate 
        by 2003. Actions of the magnitude necessary to fill these gaps 
        do not translate into revenues or savings overnight.

   Northeast Corridor Passenger Revenues. We are concerned that 
        Amtrak's projections for Acela Express ridership assume a 
        higher-than-likely diversion of passengers from air and 
        automobile, and an underestimation of ridership on the slightly 
        slower, but significantly less expensive Acela Regional 
        service. However, if Amtrak were to make some fare and service 
        adjustments, and if aviation delays continue to plague the 
        Northeast Corridor, we believe that a significant share of the 
        benefits we have questioned would indeed be forthcoming.

   Mail and Express. In our opinion, the Mail and Express 
        service is not likely to ramp up as quickly as Amtrak projects; 
        however, by 2004, our projections come close to Amtrak's. 
        Agreements with freight railroads for permission to operate 
        trains with consists greater than 30 cars is essential to the 
        growth of Mail and Express capacity. According to Amtrak, most 
        of the freight railroads have expressed a willingness to enter 
        into such negotiations.

    The bottom line is that if our projected losses were to occur, the 
situation would be untenable for Amtrak. In 2001 and 2002, Amtrak would 
have to cover the greater losses through its federal appropriation, 
leaving virtually no funds for capital investment. Amtrak must take 
major corrective actions now.
Acela Delays
    Acela Delays Will Impact Revenue but Delays are Understandable in 
New Technology Investments. The delays in the introduction of Acela 
Express and Acela Regional service will reduce Amtrak's 2001 revenue 
below Amtrak's earlier projections. This will put additional pressure 
on Amtrak to reduce expenses and fortify its efforts to improve 
performance in both its passenger and non-passenger services, including 
Mail and Express. However, the approximately 1-year delay should not be 
surprising for a program of this nature. The testing and introduction 
schedules were ambitious, in part, because of the dire need for Amtrak 
to generate as much new revenue as quickly as possible in order to meet 
its self-sufficiency deadline.
    Amtrak's 2000 Strategic Business Plan incorporated the revenue and 
expense impacts of delays until July 2000, which was the anticipated 
start-up date when the Plan was issued in January. The revised plan for 
starting operations in October 2000 will result in some additional 
revenue loss in 2000 (which is reflected in our assessment) and in 
2001. While delays of this magnitude will pose a financial challenge to 
Amtrak in 2001, if there are no further extended delays, the Acela 
service should be able to reach its full operating and revenue 
potential in 2003.
    Although the Acela delays have affected Amtrak's revenue 
projections and path toward self-sufficiency, delays of this nature are 
not uncommon in programs of this complexity. In fact, in other 
industries projects with delays of this length might actually be 
considered ahead of schedule. The new trainsets represent a significant 
adaptation of existing high-speed designs to meet more stringent safety 
requirements in the United States and to compensate for the unique 
track configurations on the Northeast Corridor. Problems identified in 
testing and design modifications are normal consequences of such new 
technology development programs.
Capital Needs
    Amtrak's capital outlook is grave. In both our prior assessments, 
we projected that Amtrak would face serious capital shortfalls 
beginning in 2001. Our predictions have come true. In 2001, assuming 
Amtrak's cash losses are no higher than it projects, Amtrak will face a 
minimum needs capital funding shortfall of $91 million, and continued 
shortfalls through 2004 totaling $298 million.\6\
---------------------------------------------------------------------------
    \6\ Our definition of minimum needs includes only the capital 
investment necessary to maintain Amtrak's infrastructure and assets in 
a steady state through 2003. Thereafter, the condition of Amtrak's 
infrastructure and assets will begin to steadily decline.
---------------------------------------------------------------------------
Amtrak's Projected Minimum Capital Needs Funding Shortfall, 2000 
        Through 2004 ($ in millions)

        
        

    Amtrak will be faced with some very difficult choices next year 
concerning how to best use its limited capital dollars. After covering 
its mandatory capital costs, Amtrak will have only $179 million left to 
invest in its capital program. Competing for these funds would be 
remaining minimum needs, key projects in progress--including many 
projects that support the self-sufficiency glidepath, and commitments 
to States for corridor development projects. Amtrak would need at least 
an additional $385 million in capital funding in 2001 if it were to 
cover all of these costs.
    If our projections for cash losses in 2001 were to occur, Amtrak's 
capital position would be far more serious. Amtrak would need to use 
$310 million more than planned of its federal appropriation to cover 
the losses, leaving only $29 million available for capital investment, 
which is not even enough to cover Amtrak's debt obligations in 2001. 
This outcome is not inevitable, but it underscores how critical it is 
for Amtrak to fill the gap in its business plan for undefined 
management actions.
    Growth-focused capital spending starves minimum needs and could 
ultimately undermine the benefits of key investments like high-speed 
rail. Despite known minimum-needs shortfalls, Amtrak has pursued a 
growth-focused capital program. In our 1999 assessment, we recommended 
that Amtrak set aside funds to meet minimum needs in 2001 and 2002 by 
revising its spending plans for 2000.
    Although Amtrak agreed with our predictions, its 2000 Plan provided 
for continued investment in projects outside of minimum needs. For 
example, Amtrak invested $25 million in planning efforts for the 
Midwest Regional Rail Initiative, $15 million in infrastructure 
improvements to support the future Las Vegas service, and $9 million 
for the refurbishment of Heritage diner cars. Amtrak's spending 
strategy reflects its belief that these projects are necessary to 
achieve the business plan goals and ultimately self-sufficiency by 
2003. We agree that these projects are important to Amtrak's financial 
growth, but do not believe they should be funded at the expense of the 
minimum investments necessary to maintain the reliable operation of the 
railroad.
    In addition to spending on non-minimum needs, Amtrak also 
underspent on certain minimum needs in 1999 and 2000 to support a 
higher level of growth-related capital spending. This is most true for 
projects that support the operational reliability of Amtrak's services. 
Projects in this category include replacing old tracks, resurfacing 
rails, and replacing worn out electric traction catenary wire and 
insulators. We estimate Amtrak's minimum operational reliability needs 
to be $135 million each year. Amtrak's annual spending on operational 
reliability projects in the past 3 years has averaged only $71 million.
    If Amtrak continues to defer spending on operational reliability, 
service quality will suffer and its goals for revenue growth may not be 
met. In order for high-speed rail to be successful, Amtrak acknowledges 
that it must provide superior service and on-time performance. If it 
cannot maintain that level of service, ridership and revenue will begin 
to erode.
Funding Amtrak's Capital Requirements
    In February of this year, we testified before the Subcommittee on 
Surface Transportation and Merchant Marine on several Amtrak issues, 
including the question of capital funding for Amtrak beyond 2002. 
Although precluding use of federal funds for most operating expenses 
after 2002, the Amtrak Reform and Accountability Act did not say 
whether Amtrak could count on receiving any long-term federal subsidies 
for capital investment.
    At that hearing, we stated that even if Amtrak meets its operating 
self-sufficiency mandate in 2003, it would not make it by much, clearly 
not enough to cover its minimum capital requirements. Our position 
then, as it is now, is that without significant capital funding to 
cover such costs as debt, safety improvements, infrastructure 
reinvestment, and equipment renewal, Amtrak will not be able to 
continue to operate the railroad. We do not see this situation 
changing--it will not be feasible in the foreseeable future for Amtrak 
to progress to a point where it can generate sufficient internal 
revenue to cover its capital costs.
    If Amtrak is to continue operating a national rail passenger 
network, Amtrak will require significant long-term capital funding--in 
amounts well above the annual operating subsidy of which it is supposed 
to be largely free in 2003. At that point, the central questions would 
not be whether Amtrak would receive a capital subsidy, but rather (1) 
what the funding vehicle would be (direct appropriations, contract 
authority, tax subsidy, etc.), (2) in what amounts, and (3) for what 
purposes. Another question is when these decisions should be made--now, 
before Amtrak shows whether it will meet the requirements of the Amtrak 
Reform and Accountability Act, or in 2003, at the end of the 5-year 
glidepath.
    S. 1900. Clearly, it is the Congress' role to determine the need, 
the amount, and the vehicle for providing federal capital support. 
However, at your request, we have several observations on S. 1900, the 
High Speed Rail Investment Act.
    In addition to Amtrak funding policy, S. 1900 is a question of tax 
policy. Under the current version of the bill, the legislation, if 
enacted, would enable Amtrak to sell $10 billion in high-speed rail 
bonds over the next 10 years. Interest payments would be made by 
taxpayers in the form of a tax credit to bondholders and repayment of 
principal would be secured by a 20 percent matching contribution by the 
States that would be placed in escrow. The House version (H.R. 3700) 
would limit to 30 percent the amount of total funding that could go to 
any one corridor and would make the bonding authority available to any 
intercity passenger railroad, not just Amtrak.
    These proposals are clearly attractive to Amtrak. S. 1900 would 
address part of the difficulty in securing additional appropriated 
funds for Amtrak capital investment. However, Amtrak's capital needs 
extend well beyond high-speed corridors and because S. 1900 is limited 
to high-speed corridors, Amtrak will continue to need annual 
appropriations. These appropriations will be necessary to cover capital 
costs such as repayment of debt, information technology projects, 
environmental remediation, and approximately $200 million each year in 
overhauls and rolling stock improvements.
    Until Amtrak develops a detailed, 5-year capital program, the 
annual requirements can not be estimated with precision. We recommended 
that Amtrak develop such a plan in our recent Amtrak financial 
assessment. However, even if S. 1900 or some version of the bill is 
passed, Amtrak is still likely to need more per year than the current 
Amtrak capital funding of $521 million.
    Federal oversight requirements. As introduced, S. 1900 lacked 
sufficient federal oversight of Amtrak's spending of the bond proceeds. 
Essentially, the tax credit vehicle bypasses the oversight that would 
otherwise be in place through the annual appropriation process.
    Costs of developing high-speed corridors are significant and $1 
billion each year will not be sufficient for Amtrak to meaningfully 
invest in every corridor seeking a piece of the pie. Amtrak will need 
to make choices on where and how much to invest in each project. If 
funds are sprinkled around the country in amounts sufficient to get 
projects underway but insufficient to complete them, the likely result 
would be that few of the routes would make positive contributions to 
Amtrak's achieving or maintaining operating self-sufficiency.
    The intent of S. 1900 is to provide Amtrak a vehicle to make 
investments that will not only help it maintain self-sufficiency, but 
potentially begin generating internal funds for capital investment. 
Federal oversight will be critical to ensure that Amtrak's investments 
meet those criteria. Without such oversight, passage of this or any 
similar bill would be tantamount to writing Amtrak a blank check. We 
have been advised that adequate oversight provisions have or will be 
included in the bill language; however, we have not seen the provisions 
of the marked-up bill and cannot comment on their adequacy.
    S. 1900 and Amtrak's Glidepath. Finally, we have questions about 
how a 10-year authorization for high-speed rail bonds would interface 
with the provisions of the Amtrak Reform and Accountability Act, which 
requires Amtrak to reach operating self-sufficiency in 2003. Our most 
recent report finds that without major corrective action to curtail 
expense growth and fill unspecified revenue increases and expense 
savings totaling more than $700 million, Amtrak will not achieve this 
mandate. Although S. 1900 will not change how we measure operating 
self-sufficiency, it also will not fill this gap. If Congress decides 
that S. 1900 is an appropriate vehicle for addressing Amtrak's capital 
requirements in the northeast and other high speed corridors, we 
believe continuation of any such authority be made contingent on Amtrak 
meeting its operating self-sufficiency mandate as prescribed by law.
    This concludes our statement. I would be pleased to answer any 
questions.

    The Chairman. Thank you very much, Mr. Mead. We appreciate 
all you have done.
    Senator Allard, we welcome you. I know you were delayed and 
had requested to make a statement before the Committee.

                STATEMENT OF HON. WAYNE ALLARD, 
                   U.S. SENATOR FROM COLORADO

    Senator Allard. Mr. Chairman, I want to thank you for your 
willingness to accommodate my schedule this morning. I know you 
are under a deadline, too. I had to testify at 9:30 before 
another Committee, and then I have my own hearing at 10:30, and 
we have got votes, I think, at 10:15, and we may have to shut 
these Committees down at 11:30 if the Senate two-hour rule is 
invoked, so I appreciate you allowing me to move in and give 
this testimony.
    Mr. Chairman, again I want to thank you for inviting me 
here today to share my comments with the Commerce Committee 
regarding the Senate Banking Committee's experience with 
Amtrak. I regret that I cannot stay to hear the testimony from 
your other witnesses, but I have to chair a hearing, as I 
mentioned earlier, at 10:30.
    As you are aware, I serve on the Committee on Banking, 
Housing and Urban Affairs as Chairman of the Subcommittee on 
Housing and Transportation. In my capacity as Chairman of the 
Subcommittee with jurisdiction over the federal mass transit 
program which includes certain parts of the commuter rail, I 
have had opportunities to interact with Amtrak management and 
personally follow the business practices employed by Amtrak, 
and it is disappointing to me that although the taxpayers 
provide Amtrak almost $600 million in direct subsidies annually 
it does not operate in the best interest of the American 
people, nor do the subsidies stop at $600 million, as a recent 
hearing before my Subcommittee has demonstrated.
    On April 25 and July 11 of this year the Committee and 
Subcommittee held hearings which exposed questionable 
activities by Amtrak involving a commuter rail contract it 
holds in Boston with the Massachusetts Bay Transportation 
Authority, or what we refer to frequently as MBTA.
    At the urging of the Federal Transit Administration, the 
MBTA put out a request for bids for the provision of commuter 
rail service in accordance with federal procurement law, which 
requires competitive bidding. Four bids were received, and were 
subjected to an objective and thorough cost and work quality 
analysis. Of the bids submitted, Amtrak ranked fourth out of 
the 4 bids, last.
    The winning bidder, Bay State Transit Services, won the 
competitive bidding process in both categories, submitting a 
bid at $116 million less than Amtrak, and I have this chart 
behind me, which shows the analysis of these various contracts, 
and you can see, here is Amtrak's bid, and we have got Bay 
State, Mass Rail, and Bombardier. There are 4 bidders in there. 
This demonstrates these contract and bid prices.
    Amtrak's management and work force, however, prevented 
implementation of the Bay State contract. Current Amtrak 
workers refused to apply for employment which Bay State offered 
as required by federal law. Amtrak management and the unions 
representing the workers created a hostile work environment, 
intimidated Bay State employees, and threatened unfounded 
lawsuits, all to ensure that Amtrak retained the lucrative MBTA 
contract.
    Faced with the potential for what amounted to a strike 
which could have stranded 60,000 Boston commuters, the Federal 
Transit Administration reluctantly approved a 3-year extension 
of the commuter rail contract for Amtrak. Amtrak, the same 
bidder that offered the lowest quality service at the highest 
price. I repeat, Mr. Chairman. Its bid, as analyzed, showed it 
was the lowest quality service at the highest price. Further, 
Amtrak adopted an all-or-nothing position and refused to 
provide service for the MBTA during the transition period of 
the Bay State contract implementation, and unfortunately the 
cost to the taxpayer for Amtrak continuing to provide service 
for the 3-year extension is far greater than the Bay State 
offer.
    Mr. Chairman, I respectfully request that an article from 
the Boston Herald dated July 13, 2000 regarding the Banking 
Committee's hearing on this matter be entered as a part of the 
record.
    The Chairman. Without objection.
    [The information referred to follows:]

The Boston Herald
July 13, 2000
                  Truth about the T told by strangers
    It took U.S. senators from Texas and Colorado to stand up for the 
rights of Bay State taxpayers and rail commuters this week.
    Boy, there's something wrong with that picture!
    Sens. Wayne Allard (R-Colo.) and Phil Gramm (R-Texas) used a 
congressional hearing to give federal officials what-for over approving 
Amtrak's 3-year extension of its maintenance contract for the MBTA 
commuter rail system. The T had put the contract out to competitive bid 
and the winner, Bay State Transit, promised to save the system--and 
that really means taxpayers--$116 million over 5 years.
    But Amtrak's unions would not be moved. Workers refused to apply 
for jobs with the new company. Then the U.S. Department of Labor, at 
the urging of some members of the Massachusetts congressional 
delegation who were themselves taking orders from the unions, decided 
to play hardball with the MBTA.
    Caught between the proverbial rock and a hard place, the Cellucci 
administration and the MBTA caved in and extended the Amtrak contract.
    Gramm had it about right when he noted at the hearing that ``the 
Labor Department is a wholly owned subsidiary of the AFL-CIO.'' He 
added that the costly Amtrak contract extension was ``one of the most 
extraordinary things I have seen.''
    And that it surely is. Bay State taxpayers and commuters have been 
taken for a ride again and the Clinton Labor Department and members of 
our own congressional delegation--including Sen. John Kerry, who 
appeared at the hearing to defend the utterly indefensible deal--share 
in the blame.
    At least a handful of folks in Washington have the guts to point 
out the obvious truth.

    Senator Allard. The result of this contract is double 
jeopardy for Amtrak, the enormous subsidy provided by this 
contract on top of the almost $600 million annually that the 
Congress appropriates, and this is only one example. I have 
received accounts of similar situations where Amtrak has used 
its unique position as a federally subsidized entity and its 
existing political support to exercise an unfair advantage in 
the marketplace.
    I struggle with how I can explain to the taxpayers of 
Colorado why the federal government feels it is acceptable to 
squander their resources by giving Amtrak a free ride at the 
expense of commuters everywhere.
    Both full Committee chairman Phil Gramm and I have serious 
concerns about pending legislation that will give Amtrak yet 
another source of taxpayer resources. Senate bill 1900, the 
High-Speed Rail Investment Act, would allow Amtrak to issue $10 
million in tax-free bonds to fund high-speed rail. This 
legislation proposes giving Amtrak yet another opportunity to 
secure federal subsidies, albeit tax subsidies.
    With your concurrence, Mr. Chairman, I would like to enter 
into the record a copy of the Heritage Foundation's 
Backgrounder on Senate bill 1900, called Senate Boondoggle May 
Outdo All Others. This is not something I would be comfortable 
supporting, since Amtrak seems incapable of operating like a 
real business, or even competing fairly in the free market.
    Mr. Chairman, thank you for holding this important hearing 
and giving me the opportunity to share my views with the 
Committee. I am sorry I will not be able to answer any 
questions. My Subcommittee hearing begins shortly, and we vote 
shortly, too.
    [The information referred to follows:]

               New Amtrak Boondoggle May Outdo All Others
by Dr. Ronald D. Utt
Backgrounder No. 1392
August 28, 2000
    Legislation now before Congress proposes to dedicate as much as $16 
billion of future budget surpluses to prop up Amtrak, America's 
federally chartered and subsidized passenger rail service. Members of 
Congress should view this new proposal with skepticism given Amtrak's 
record-breaking losses, stagnant ridership, and persistent failure to 
implement high-speed rail service, promised for 1997 and now delayed 
for a third straight year.
    Instead, Congress should exercise its oversight responsibility to 
investigate the system's future viability. It should also weigh the 
value received from the $23 billion in direct federal subsidies--
including $3.6 billion over just the past 3 years\1\--that U.S. 
taxpayers already have poured into the system merely to keep it afloat.
---------------------------------------------------------------------------
    \1\ U.S. General Accounting Office, Intercity Passenger Rail: 
Amtrak Will Continue to Have Difficulty Controlling Its Costs and 
Meeting Capital Needs, GAO/RCED-00-138, May 2000, p. 3.
---------------------------------------------------------------------------
    The High Speed Rail Investment Act (S.1900, H.R. 3700), introduced 
by Senator Frank R. Lautenberg (D-NJ) and Representative Amo Houghton, 
Jr. (R-NY), would allow Amtrak to borrow as much as $10 billion in 
interest-free loans over the next 10 years. Although Amtrak would pay 
no interest, lenders would still earn the equivalent of interest on the 
loans through a federal tax credit equal to the interest paid on long-
term corporate bonds.\2\ Currently, this rate is about 8 percent per 
annum. In effect, the U.S. Treasury would pay the interest to the 
bondholders on behalf of Amtrak.
---------------------------------------------------------------------------
    \2\ The bill calls this the ``credit rate.''
---------------------------------------------------------------------------
    These implicit interest payments by the federal government could 
add up to as much as $16 billion over the life of the bonds. For 
example, at an 8 percent interest rate, an individual investor holding 
a $1,000 Amtrak bond would be entitled to an $80 tax credit each year 
the bond is held. This means that if the investor owed $10,000 in 
federal income taxes in a given year, the $1,000 Amtrak bond would 
reduce his or her tax obligation to $9,920. The bill authorizes the 
issuance of $10 billion worth of these bonds at maturities of up to 20 
years. The loss of tax revenues to the U.S. Treasury would total $16 
billion if interest rates remained unchanged at 8 percent.
    Renewed congressional efforts to bail out Amtrak are a striking 
turnaround from commitments made just a few years ago. In 1994, Amtrak 
promised to improve its operations and performance so that it could 
eliminate the need for federal subsidies by 2002.\3\ In 1997, Congress 
confirmed that commitment when it passed the Amtrak Reform and 
Accountability Act (PL 105-134), which among other provisions 
established the Amtrak Reform Council, whose responsibility was to 
notify Congress and the President in the event Amtrak failed to meet 
its financial goals.
---------------------------------------------------------------------------
    \3\ GAO, Intercity Passenger Rail: Amtrak Will Continue to Have 
Difficulty Controlling Its Costs and Meeting Capital Needs, p. 3.
---------------------------------------------------------------------------
    Currently, however, Amtrak is not meeting its goals; instead, its 
operating losses are escalating from year to year. Doubts about 
Amtrak's ability to meet its financial objectives are shared by the 
Department of Transportation's Inspector General, who observed in a 
recent report to Congress that meeting the goal of self-sufficiency by 
2003 will be ``difficult.'' \4\
---------------------------------------------------------------------------
    \4\ U.S. Department of Transportation, Office of the Inspector 
General, Semi-Annual Report to the Congress, April 1, 1999-September 
31, 1999, p. 21.
---------------------------------------------------------------------------
    Not only is Amtrak failing to meet its promise and statutory 
requirement to break even financially by 2002, but its financial 
situation has worsened. Amtrak's annual operating loss rose from $833 
million in 1994 to a record $930 million in 1998. Its loss for 1999 was 
$916 million,\5\ and losses for the first half of fiscal year (FY) 2000 
are reported to be higher than those during the same period in 1999.\6\
---------------------------------------------------------------------------
    \5\ National Railroad Passenger Corporation, 1999 Annual Report, p. 
41. On an operating basis, 1999's loss was the highest ever because 
1998's loss included one-time costs associated with a labor settlement.
    \6\ Joseph Vranich, ``Resignation from the Amtrak Reform Council,'' 
letter to Senator Trent Lott, July 10, 2000.
---------------------------------------------------------------------------
    Furthermore, these losses have ballooned despite a booming economy 
that has sent Americans traveling in record numbers and caused business 
profits to soar. This suggests that Amtrak's management and strategic 
plan are not up to the task of meeting the FY 2002 financial 
objectives.
Losses Amid Rising Prosperity
    The rising prosperity of the 1990s has led to unprecedented 
mobility and travel opportunities for all Americans, and this in turn 
has benefited almost all segments of the transportation industry. 
Between 1990 and 1999, the number of domestic airline passengers rose 
by 37 percent, from 423 million at the beginning of the decade to 582 
million last year.\7\ Automobile use as measured by passenger-miles 
increased by 25 percent from 1990 to 1998.\8\
---------------------------------------------------------------------------
    \7\ Air Transport Association of America, Inc., ``Traffic Summary 
1960-1999: U.S. Scheduled Airlines,'' at www.air-transport.org/public/
industry/24.asp, August 2000.
    \8\ Eno Transportation Foundation, Transportation in America 1999, 
2000, p. 47.
---------------------------------------------------------------------------
    Even intercity bus service, Amtrak's closest competitor, saw its 
passenger volume rise by 7 percent between 1990 and 1998.\9\ Indeed, 
intercity bus service currently carries 17 times more passengers than 
Amtrak, and Amtrak's share of the intercity passenger market amounts to 
only six-tenths of 1 percent nationwide when measured in passenger-
miles.\10\
---------------------------------------------------------------------------
    \9\ Ibid., p. 48.
    \10\ Ibid., p. 47.
---------------------------------------------------------------------------
    In contrast to its competitors' success, Amtrak was one of the rare 
American businesses that bucked the trend toward increased customers 
and soaring profits in the past decade. According to the railroad's 
most recent annual report, Amtrak's annual passenger level fell from 
22.2 million passengers in 1990 to 21.5 million last year,\11\ and its 
operating loss widened from $704 million to $916 million over the same 
interval.
---------------------------------------------------------------------------
    \11\ National Railroad Passenger Corporation, 1999 Annual Report, 
p. 43.
---------------------------------------------------------------------------
Acela to the Rescue?
    As it has done so many times before, the railroad's management has 
responded to failure by promising to do better next year--if only 
Congress will give Amtrak more money now. Amtrak's 1994 commitment to 
break even by 2002 was the most recent of these promises.
    Recognizing that a history of broken promises is becoming tiresome 
to some in Congress, Amtrak has resorted to a clever new public 
relations tactic. It now proposes to implement a profitable, high-speed 
rail service called the Acela. Amtrak maintains that the Acela will be 
so profitable that it will make Amtrak financially self-sufficient and 
independent of future federal subsidies. The $10 billion loan proposal, 
under this scenario, would be America's down payment on this promise.
    The promise, however, is not likely to be fulfilled. Amtrak has 
never made a real profit on any of its existing lines, and there is no 
reason to expect that this 30-year record of disappointment is about to 
end. For example, one of Amtrak's particularly costly lines is the 
Cardinal route, running between Chicago and Washington, D.C., via West 
Virginia, which incurs $3.29 of cost for every dollar of earned 
revenue. Overall, according to the U.S. General Accounting Office 
(GAO), Amtrak incurs costs of $1.86 for each dollar of revenue it 
receives.\12\
---------------------------------------------------------------------------
    \12\ U.S. General Accounting Office, Intercity Passenger Rail: 
Financial Performance of Amtrak's Routes, GAO/RCED-98-151, May 1998, 
pp. 6-7.
---------------------------------------------------------------------------
    Even Amtrak's contention that it makes a small profit on its 
Metroliner service in the Northeast Corridor is true only under 
Amtrak's less-than-complete accounting standards. To declare the 
Metroliner profitable, Amtrak must neglect the capital costs associated 
with road bed, rolling stock, engines, buildings, and signal systems.
    While the perennial optimist could argue that Amtrak might improve 
its operations, Amtrak's high-speed rail performance to date suggests 
that the Acela program will not be the catalyst. Service was scheduled 
to begin in 1997, but a series of design, mechanical, and testing 
problems have delayed the opening, and a new date has not been set for 
Acela's debut.\13\
---------------------------------------------------------------------------
    \13\ Don Phillips, ``Amtrak Testing of High-Speed Electric Train Is 
Delayed Again,'' The Washington Post, July 22, 2000, p. A11.
---------------------------------------------------------------------------
    Assuming that the high-speed line ultimately does open, its 
anticipated profitability depends upon substantially increased 
ridership. The increased ridership figures, however, may be overly 
optimistic. Taking the Acela rather than the Metroliner on the route 
where it would work best--between New York and Washington--would save a 
traveler only 15 minutes, reducing the trip from 3 hours to 2 hours and 
45 minutes. While this represents some improvement, the change is not 
likely to convince passengers to abandon cars or planes.
    On the Boston to New York run, Amtrak projects the Acela will 
reduce train times from 4 hours and 30 minutes to 3 hours.\14\ This is 
a significant improvement, but it is still substantially longer than 
flying. The same trip on a scheduled airline is currently only one hour 
and 20 minutes.
---------------------------------------------------------------------------
    \14\ National Railroad Passenger Corporation, ``Acela Questions & 
Answers,'' at www.acela.com/questions/index.htm, August 2000. In 
reality, the diminished time for the Boston-New York run is closer to 
an hour, not the 90 minutes claimed. Amtrak has already reduced the 
time on the run by 30 minutes by eliminating the engine change in New 
Haven, Connecticut, now that the line from New Haven to Boston has been 
electrified.
---------------------------------------------------------------------------
The Potential for Blackmail
    Perhaps the most troublesome aspect of the proposed $10 billion 
federally subsidized loan is not its projected taxpayer cost of $16 
billion. While worrisome, the cost is eclipsed by the potential for 
even greater taxpayer costs as a result of the opportunities for fiscal 
blackmail that a debt of that magnitude would create. If the federal 
government decided to end its funding of Amtrak at some point, it might 
feel bound to assume the costs of the loan. If Amtrak were to add the 
cost of the loan to the cost of its liquidation, it would have leverage 
with which to argue against such a liquidation.
    In past efforts to prolong the life of a failing Amtrak, supporters 
argued that the government's liquidation cost if it were to allow 
Amtrak to go bankrupt would vastly exceed the subsidies necessary to 
achieve Amtrak's financial independence. In 1997, for example, Amtrak 
claimed that the costs associated with its liquidation could be as high 
as $10 billion to $14 billion. Congress asked the General Accounting 
Office to confirm this,\15\ but the GAO was unable to estimate Amtrak's 
likely liquidation costs with confidence.
---------------------------------------------------------------------------
    \15\ U.S. General Accounting Office, Intercity Passenger Rail: 
Issues Associated With a Possible Amtrak Liquidation, GAO/RCED-98-60, 
March 1998, p. 2.
---------------------------------------------------------------------------
    However, if Congress passes the High Speed Rail Investment Act, it 
might feel obliged to incur the cost of the $10 billion in federally 
subsidized bonds; this would be in addition to the other costs that it 
could incur if it chose to liquidate Amtrak. Although the legislation 
would not grant the government's full faith and credit to the special 
Amtrak tax credit bonds, the government would have a moral obligation 
to reimburse those who invest in these bonds. Because the government 
created, subsidizes, and directs Amtrak, it would be expected to 
shoulder the responsibility of making good on the loan if Amtrak were 
to fail.
    And Amtrak would make the most of this obligation. If it fails to 
break even in 2002 as it has promised, it no doubt will use the 
obligation as leverage to seek ever more costly bailouts.
Subsidizing the Last Choice in Travel
    Notwithstanding Congress's long-standing obsession with socialized 
rail passenger service and its $23 billion investment in Amtrak, 
intercity travelers continue to shun Amtrak in favor of alternate modes 
of transport. For this reason, the High Speed Rail Act represents an 
exceptionally costly bailout of an enterprise that has failed to 
provide cost-effective service during its 30 years of operation.
    When Congress passed the Amtrak Reform and Accountability Act in 
1997, it gave the Amtrak Reform Council the responsibility to assess 
Amtrak's progress toward financial independence by 2002. If that goal 
is not met, the Council will have to determine whether Amtrak should be 
restructured or liquidated. Congress should make no additional 
financial commitments to Amtrak until the council submits its report 
and recommendations and Congress reviews them.
    In the meantime, Congress should study the growing number of 
privatization reforms that have been applied successfully to 
government-operated passenger rail service in other countries, 
including Great Britain and Japan.\16\ Given Amtrak's long history of 
failed schemes and operating losses, such innovations--not $10 billion 
for an unproven high-speed rail program--are the only way Amtrak will 
improve its own operations.
---------------------------------------------------------------------------
    \16\ For additional details on the success of transit privatization 
worldwide, see Ronald D. Utt, ``Congress Should Accept Industry Offers 
to Buy Amtrak,'' Heritage Foundation Backgrounder No. 1179, May 18, 
1998
---------------------------------------------------------------------------
    --Ronald D. Utt, Ph.D. is Senior Research Fellow in the Thomas A. 
Roe Institute for Economic Policy Studies at The Heritage Foundation.

    The Chairman. Thank you, Senator Allard. Welcome, Governor 
Thompson.

 STATEMENT OF GOVERNOR TOMMY THOMPSON, CHAIRMAN OF THE AMTRAK 
  REFORM BOARD, ACCOMPANIED BY GEORGE WARRINGTON, PRESIDENT, 
            NATIONAL RAILROAD PASSENGER CORPORATION

    Governor Thompson. Thanks, Mr. Chairman. First, to answer 
your question, there have been no commitments at all on any 
money that may be coming in the future.
    Members of the Committee, I want to thank you for inviting 
me to testify today. I believe it is important to keep in mind 
that our goal should be to create a seamless transportation 
network that offers all Americans the widest array of travel 
choices possible. As a Nation, we recognize the importance of 
funding our highways. We spend $32 billion a year, and yet our 
roads are more congested than ever, reducing the quality of 
life for our citizens and costing businesses untold dollars in 
lost productivity.
    The federal government will spend $14 billion this year on 
aviation projects, yet as this Committee well knows airline 
passengers are facing longer delays and are increasingly 
frustrated with the airline industry.
    At the same time the federal government subsidizes mass 
transit by $6 billion it gives $521 million only to Amtrak, 
about one-half of what the authorizers indicated that we should 
have. We spent $23 billion on passenger rail, but that was over 
29 years, averaging about $\1/2\ billion a year.
    However, I believe as you do, Mr. Chairman, that the way 
for Amtrak to succeed is not through more subsidies, but 
through innovation, market-based reforms. I am here to tell you 
that Amtrak will meet its goal of operational self-sufficiency 
by 2003 by doing just that. We are making great strides 
already. Let me give you a few examples.
    On July 4, 2000, Amtrak launched its new service guarantee, 
the only transportation mode that does it. This guarantee and 
the improved service are designed to increase repeat business. 
Amtrak has an unprecedented agreement with Continental Airlines 
to connect their customers to our stations in the Northeast.
    Amtrak's partnership with the freight railroads have 
already helped grow our mail and express business by 30 percent 
over last year, 30 percent, and we are only just beginning to 
explore this profitable relationship. Our network growth 
strategy will expand rail service in 21 States, further grow 
our mail and express business and generate $255 million in 
improvements to our bottom line by 2003.
    While some have criticized Amtrak, saying we expanded 
service for political gain, but the truth be told we are doing 
it to make money, simply, pure and simple. Amtrak's partnership 
with States to build regional high-speed rail corridors will 
have a profound impact on our financial situation, as well as 
on America's transportation system. On January 31, 2000, Amtrak 
launched Acela regional train service between Boston and New 
York, which has increased ridership by 42 percent, and our 
profits by 70 percent.
    Mr. Chairman, the business initiatives I described are 
already producing results. Amtrak continues to break ridership 
and revenue records. A 21-year high of nearly 2.1 million 
passengers rode Amtrak in August, leading to an all-time 
monthly ticket revenue record of $108 million in 1 month, and 
with only a few days left in this fiscal year, Amtrak is on 
course to set a record for annual ticket revenues and to break 
its all-time annual ridership record of 22 million passengers.
    The strong financial performance of our company assures us 
that with continued federal capital support Amtrak will meet 
its business plan target of operating self-sufficiency by 2003. 
To date, Amtrak has met its annual target on the glide path to 
ending federal operating assistance. We will require no more 
than the planned $362 million in federal support for operating 
expenses this year, $122 million less than we did last year.
    Amtrak does face, however, some real challenges if it is 
going to succeed. The first is without a doubt the delay in 
launching the Acela Express, which created revenue shortfall 
for us this year of $150 million, and I want you to know we 
will be receiving our first Acela Express within the next 
several days, but our strong performance this year has served 
to take up more than half of that unanticipated shortfall.
    Second, I know that Ken Mead, the Department of 
Transportation Inspector General, has issued a report stating 
that Amtrak will not achieve operational self-sufficiency by 
2003 if we continue along our business plan of last year. His 
concern is based primarily on a set of undefined actions in 
order to increase revenues and reduce cost. We are addressing 
those concerns as a board. Last week at our board meeting we 
approved a brand-new business plan, Mr. Chairman and members, 
for 2001 that reduces the undefined actions over a 4-year 
period to less than 1 percent of our total expenses annually. I 
can assure you that Amtrak will have no difficulty identifying 
further actions.
    But as a Governor, I am here to tell you that this country 
needs more than just a self-sufficient Amtrak. We do need high-
speed trains in heavily populated areas that take the pressure 
off the overloaded airports and the highways. We need a 
national long-distance train network supporting our rural 
communities and carrying critical express cargos.
    We need to respond to the demands of Governors, 
Congressmen, Senators, and mayors all across this country who 
are clamoring for a high-speed rail system this country can be 
proud of, and that is just part of the kind of pressure we are 
receiving, is what we gave to Ken Mead.
    The High Speed Rail Investment Act will provide the 
necessary capital funds for rail through an innovative 
financing mechanism that requires State participation through a 
match just like in the highway, just like in the transit 
programs. This is a new and, yes, a creative way to get the 
capital funds to get high-speed corridor projects that are 
ready and waiting and demanding to be built.
    Let me be perfectly clear. This is not about a bail-out for 
Amtrak. We do not need a bail-out, Mr. Chairman, and that is 
not why we are supporting this bill. What we do need is 
capital. What we do need is for States around this country to 
have a federal matching program, as with highways, as with 
airports, as with mass transit, a program that assists them in 
making the rail infrastructure investments necessary to support 
our growing system.
    Mr. Chairman, for much of Amtrak's history it was not run 
like a business, did not have an entrepreneurial focus, and did 
lack a serious business plan, but in recent years, Mr. 
Chairman, since the reauthorization, we have made remarkable 
progress in turning Amtrak around, reducing our dependence on 
federal operations support, and we will continue to do so for 
as long as this board is in existence and for as long as 
Congress has given us the support that we deserve.
    Thank you, Mr. Chairman.
    [The prepared statement of Governor Thompson follows:]

 Prepared Statement of Governor Tommy Thompson, Chairman of the Amtrak 
  Reform Board, Accompanied by George Warrington, President, National 
                     Railroad Passenger Corporation
    Mr. Chairman, I thank you and the distinguished Members of this 
Committee for giving me the opportunity to describe how Amtrak is well 
on its way toward achieving operational self-sufficiency by fiscal year 
2003, as required by the Amtrak Reform and Accountability Act of 1997.
    As you well know, the Act was the first significant step in 
relieving us of the burden of being all things to all people, and to 
start acting and performing like a business.
    To that end, one of the Board's first actions in 1998 was the 
adoption of a five-year Strategic Business Plan that is transforming 
Amtrak into a market-based, customer-focused operation. I'll be 
discussing the Business Plan, and the extraordinary results it has 
achieved in just a moment.
    But first, both as a Republican and as the Chairman of Amtrak's 
Board, I'd like to say how very proud I am that 2 of our nation's most 
prominent Republicans--yourself, Mr. Chairman, and Gov. George W. Bush 
of Texas--were our guests this summer aboard Amtrak trains. We feel 
deeply privileged to have hosted you, along with nearly 6.2 million 
other Americans, all of whom took to the rails this summer--a number 
unprecedented in Amtrak's history.
    The record-breaking ridership and revenue figures helped us turn an 
important corner--not only in Amtrak's corporate history, but also in 
America's transportation history. Although hardly anyone predicted it 
29 years ago when Amtrak was created, railroads are experiencing a 
renaissance in America today. There are 2 reasons for this.
    First, travelers are demanding a more personalized way to travel. 
And you can't get much more comfortable than rail travel. In contrast, 
our highways are jammed, and the news from this summer on the airline 
side only gets worse. It's bad enough reading the headlines of hundreds 
of flight cancellations each day, but I have also heard some personal 
horror stories from travelers that underscore a real need for a 
balanced transportation system. I guess the fact that this summer 
O'Hare has had to order more than the normal 1,500 cots reserved for 
snowstorms says it all.
    I believe the second reason for the renaissance is that when 
travelers board the train and go with Amtrak they receive better 
service than the airlines provide and, frankly, better than what we 
have been able to provide in the past. We have worked hard over the 
last year preparing to launch an unprecedented national satisfaction 
guarantee--and on July 4, we did it!
    Our focus is on providing our customers--or guests, as we prefer to 
call them--with an enjoyable travel experience, and that means a new 
level of service in the travel industry for every customer. Faster, 
more efficient service. Consistently professional, highly personalized 
service. Striking new and renovated stations. And, of course, new and 
refurbished trains with a rich package of amenities for our guests' 
pleasure and comfort.
    Under the guarantee, we promise all of our guests a safe, 
comfortable and enjoyable travel experience. If guests are not 
satisfied at any point in their Amtrak travel experience, and if our 
employees can't make it right, they'll get a Service Guarantee 
Certificate, entitling them to equivalent free travel in the future.
    Amtrak launched the Service Guarantee because it makes good 
business sense. The guarantee and the improved service are designed to 
increase passenger satisfaction and cause those who have tried Amtrak 
to return with greater frequency. We estimate that just a one-percent 
increase in our guest retention rate will add $13 million in revenues. 
Moreover, getting customers to tell us about problems in our service is 
a virtually cost-free way of identifying and correcting the things that 
tend to drive people away from Amtrak.
    Mr. Chairman, I believe that it's the convergence of these 2 
factors--on the one hand, travelers searching for an alternative; on 
the other, Amtrak's new, unconditional commitment to passenger 
satisfaction--that is behind the current railroad renaissance.
    There are 3 additional points that I'd like to make about the 
resurgence of passenger rail.
    First of all, it's real. It's not one of those flash-in-the-pan, 
here today, gone tomorrow phenomena. And, the reason railroads are here 
to stay has to do with dollars and cents. As I'm sure Committee Members 
know, the costs of building new highways and airports are soaring. And, 
while we must maintain our highways and airports, 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.
    The second critical point about the current railroad renaissance is 
that, although I have naturally focused on Amtrak, public investment in 
passenger rail can also revitalize the infrastructure of the railroad 
freight industry, and result in increased capacity for freight as well 
as passenger railroads. That's why public investment in Amtrak is a 
classic ``two fer'': By unclogging our highways and airlanes, it helps 
commuters; by unclogging the arteries of our commerce, it helps 
shippers and manufacturers.
    My third point about the national rail renaissance is that it's 
crucial to the success of our entire national transportation system. 
What most people fail to understand about this system is that it's a 
balanced network consisting of highways, airports and railroads. And 
the balance is surprisingly delicate. If you remove passenger railroads 
from the balance, then the other parts of the system just won't work 
right. But if you've got a strong railroad system that takes some of 
the pressure off of our highways and airports, then you enable them to 
fulfill their potential, as well.
    The goal of public policy, Mr. Chairman, should be to create a 
framework within which our highways, our airports and our railroads can 
work together to create a seamless transportation network that provides 
Americans with the widest array of travel choices.
    Today, more and more Americans want to travel, and we all need to 
work together to provide them with seamless travel options. Amtrak 
plays an important role in the mix. For instance, on long-distance 
trips, travelers would fly to major hubs, and then for shorter 
distances, rely on high speed rail services. As I put it in my State of 
the State Address to the Wisconsin legislature last January, ``Soon, 
the business traveler will fly from Washington to Milwaukee, jump on a 
high-speed train to Madison, then catch a bus to drop her at her 
doorstep just in time for dinner with the family, cooked by her 
husband.''
    I am pleased to report that Amtrak has already taken steps to build 
a seamless system with its partners. We have an unprecedented agreement 
with Continental Airlines to connect their customers to our stations in 
the Northeast for portions of their trip and to reroute them on our 
trains in inclement weather. Working with Hertz, we now have rental car 
services available at 56 stations in the country, and the number is 
growing. And we work with Coach USA and Greyhound to take travelers to 
their hotels and destinations once they step off our trains.
    This spirit of entrepreneurial partnership has helped us achieve 
some mighty impressive financial successes in the last year, and it is 
the kind of spirit that will help us fulfill our legal obligations 
under the Amtrak Reform and Accountability Act.
    Amtrak's relentlessly entrepreneurial focus informs every step we 
take. Our partnerships with the freight railroads have already helped 
grow our Mail and Express business by 30 percent over last year--and 
we've only begun to explore the possibilities of what promises to be a 
vastly--and mutually--profitable relationship.
    Our Network Growth Strategy will expand rail service in 21 states, 
further grow our Mail and Express business, and generate $255 million 
in improvements to our bottom line by 2003. This service expansion is 
not about trying to be all things to all people. It's about the basic 
economic principle that in order to cover your fixed costs, you must 
expand your operations and grow revenues. It's about growing to 
prosperity, not cutting services and killing your market just to meet a 
budget.
    Thanks to our strategic investments in state-of-the-art technology, 
our Call Centers--which won the ``Best Call Center'' Award from Call 
Center Magazine in 1998--are doing even better today. Sales per man-
hour are up 11 percent over last year, to $859/hour; ticketed sales are 
up 12 percent, to $487 million; and bookings are up 12 percent, to $1.7 
billion.
    And our partnerships with states to build regional, high-speed rail 
corridors will have a profound impact on our financial situation, as 
well as on America's transportation system.
    Mr. Chairman, Amtrak is absolutely committed to building a market-
based national system whose economic viability derives from both 
passenger revenue and commercial ventures. On January 31, 2000, we took 
a major step in the realization of our vision by launching Acela 
Regional train service between Boston and New York. The new, all-
electric Acela Regional service dramatically reduces travel time within 
New England, making rail attractive for both leisure and business 
travelers. Ridership on the Acela Regional is up 42 percent over the 
trains it replaced, adding millions to the bottom line.
    The Regional service will prime customers for the arrival of the 
Acela Express. When all 20 high-speed trainsets are operating, travel 
time between Boston and New York will be reduced to a little over 3 
hours, and between New York and Washington to as little as 2 hours and 
thirty minutes. We anticipate gaining 3 percentage points in market 
share, from 12 to 15 percent, in the Northeast.
    But high-speed rail is not something just the Northeast wants. 
Across America, interest in high-speed rail is running high. That's why 
36 states are working with Amtrak on passenger rail projects--and 28 of 
those states are investing in high-speed rail projects. California, for 
example, plans to invest $700 million 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 has 
already 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 at least $70 million in high-speed rail projects 
respectively. Virginia recently approved $75 million in new spending 
for the Richmond Washington high-speed rail corridor, and Georgia 
recently approved $200 million for investment in high-speed rail and 
commuter in that state.
    As I said earlier in my testimony, the railroad renaissance is 
real!
    Mr. Chairman, the initiatives I've described are already producing 
spectacular results:
    Amtrak continues to break ridership and revenue records. A 21-year 
high of nearly 2.1 million passengers rode Amtrak in August, leading to 
an all-time monthly ticket revenue record of $108.4 million. The record 
setting August ticket revenues broke July's record ticket revenues of 
$107.2 million, and was the third month in a row that ridership 
surpassed 2 million. With only a few days left in the current fiscal 
year, Amtrak is on course to set a record for annual ticket revenue and 
to break its all-time annual ridership record of 22.2 million 
passengers.
    We expect ridership and ticket revenues to grow even faster in the 
coming year with the introduction of Acela Express. The Federal 
Railroad Administration (FRA) has been working in lockstep with Amtrak 
and the manufacturers during the testing and we have just received a 
favorable review and certification from the FRA. We anticipate that the 
manufacturers will offer the trainset for conditional acceptance by 
Amtrak any day and that we will soon thereafter launch the service.
    Mr. Chairman, the strong financial performance of our company 
assures that, with continued federal capital support, Amtrak will meet 
its business plan target of operating self-sufficiency by 2003. Amtrak 
is successfully continuing along the congressionally-mandated glidepath 
to end federal operating assistance. We will require no more than the 
planned $362 million in federal support for operating expenses this 
year, $122 million less than last year. And, we will meet or improve 
upon the cash plan contained in the Corporation's Business Plan. 
Finally, we have been predicting that we would have a revenue shortfall 
due to the delay in the launch of Acela Express. This remains true, but 
I am pleased to tell you that our strong performance so far this year 
has served to make up more than half the anticipated shortfall, so that 
we will miss our Business Plan goal for bottom-line performance by $60-
$70 million, not $150 million.
    Still, the question remains: How can we sustain Amtrak's successes 
and create a passenger rail system that truly is an integral part of 
our transportation network?
    Well, the answer is no surprise. Like every other mode of 
transportation, passenger rail needs federal capital investment funds. 
The $2.2 billion that Amtrak received from the Taxpayer Relief Act has 
provided critical funding to keep Amtrak on its path to operating self-
sufficiency. But, as a Governor, I'm here to tell you that the country 
needs more than just a self-sufficient Amtrak. We need high-speed 
trains in heavily populated corridors that take the pressure off the 
overloaded airports and highways. We need a national long-distance 
train network supporting our rural communities and carrying critical 
express cargoes. We need the federal government to take a leadership 
role in investing in an interstate railroad system that this country 
can be proud of.
    The High Speed Rail Investment Act would provide the necessary 
funds for rail through an innovative financing mechanism that requires 
state participation through a match--just like in the highway and 
transit programs. This is a new and creative way to get the capital 
funds to high-speed corridor projects that are ready and waiting to be 
built. This is not about a ``bailout `` for Amtrak. We don't need a 
bailout, and that's not why we're supporting this bill. What we do need 
is for states around the country to have a federal matching program, as 
with highways and transit--a program that assists them in making the 
rail infrastructure investments necessary to support our growing 
system.
    Mr. Chairman, I'd like to conclude my statement by acknowledging 
that there was a lot to criticize about the old Amtrak. For much of our 
history, I'm afraid that Amtrak was not run like a business, did not 
have an entrepreneurial focus, and lacked a serious business plan.
    Fortunately, Mr. Chairman, your leadership has helped this 
corporation turn itself around and reduce our dependence on federal 
operating support. You have focused on our shortcomings to help 
strengthen our focus, and to hold us accountable for becoming an 
operationally self-sufficient, market-oriented, moneymaking enterprise. 
That is why, though we have crossed swords in the past, and may well do 
so again today, you should know that I have the deepest admiration and 
respect for you, and for your vision of what Amtrak can be.
    Thank you, Mr. Chairman.

    The Chairman. Thank you, Governor Thompson.
    Ms. Scheinberg, welcome back.

         STATEMENT OF PHYLLIS F. SCHEINBERG, ASSOCIATE 
         DIRECTOR, TRANSPORTATION ISSUES, U.S. GENERAL 
                       ACCOUNTING OFFICE

    Ms. Scheinberg. Thank you, Mr. Chairman and Members of the 
Committee. I appreciate the opportunity to testify today on 
Amtrak's progress toward operating self-sufficiency, its 
capital investment needs, and the future of Amtrak and of 
intercity passenger rail in this country.
    In summary, Amtrak's financial performance has not been 
bright, and the railroad faces substantial capital needs. Also, 
in the next years the Congress will be asked to make important 
decisions about the future of Amtrak and the Nation's intercity 
passenger rail. There are 3 points I would like to make.
    First, Amtrak continues to struggle financially, and must 
overcome major hurdles to reach operational self-sufficiency by 
2003. Specifically, Amtrak has made relatively limited progress 
toward self-sufficiency. In the last 5 years, it has reduced 
its budget gap by only $78 million, and must reduce the gap by 
another $287 million before 2003.
    This financial struggle has continued this year. Amtrak is 
significantly behind its current year goal of closing its 
budget gap by $114 million. In fact, through June of this year 
it was $80 million behind its planned reductions.
    The Chairman. $80 million behind how much?
    Ms. Scheinberg. $114 million is what it was going to 
achieve this current year, and the data we got from Amtrak was 
through the third quarter of this year. It was $80 million 
behind the $114 million goal. It had achieved $33 million of 
the $114 million goal.
    The Chairman. Thank you.
    Ms. Scheinberg. I do not have the latest quarter's results. 
We will have them soon.
    We have heard today and previously from Amtrak that its 
revenues are up. These increases tell only half the story. They 
tell the good news. While revenues are up, so are costs, and 
the cost increases tell the other half of the story, which is 
the bad news. Unfortunately, the cost increases have mostly 
wiped out the impact of the revenue and ridership gains that 
Governor Thompson talked about. Amtrak is largely no better off 
today than it was a year ago.
    Given the limited progress that Amtrak has made toward 
self-sufficiency, it will need to make significantly more 
progress than it planned in the next 2 years. This will be 
extremely difficult, given that Amtrak's costs are expected to 
increase. While Amtrak's business plans have tended to hold 
cost increases to the rate of inflation, Amtrak's operating 
costs increased 12 percent above inflation during the 5 years 
from 1995 to 1999.
    The impact of these cost increases is that while Amtrak 
spent money to make money, it has realized little benefit from 
the expenditures that it has made. During the past year, as in 
each of the previous 5 years, for every operating dollar that 
Amtrak spent, it earned only about 64 cents in total revenue.
    It is going to be extremely difficult for Amtrak to turn 
this trend around because of upcoming events. For example, the 
results of ongoing collective bargaining with its labor unions 
and the expected increased interest expenses from financing the 
new train sets are 2 of the challenges that Amtrak faces.
    My second point today is that Amtrak has substantial short-
term and long-term capital investment needs that will be 
difficult to meet. We have estimated Amtrak capital needs to be 
at least $4 billion just through 2004, and at least $9 billion 
through 2015. Most of these needs are in the Northeast 
Corridor, and include life safety improvements and bringing the 
corridor up to a state of good repair. Amtrak will find it very 
difficult to pay for these needs.
    Between 2001 and 2004, Amtrak's capital needs will exceed 
expected federal capital funds by about $2 billion. Some of 
this amount could be paid by other users of Amtrak facilities. 
However, the federal government could be called upon to cover 
any shortfall. If so, the federal support requested could be 
substantially higher than current appropriation levels.
    Moreover, Amtrak has not identified all of its capital 
needs or their costs. It has not identified even all of its 
needs on the Northeast Corridor, or the needs of its existing 
routes off the Corridor, nor has Amtrak identified its needs 
for new equipment, or for the costs related to the network 
growth strategy, or for the costs of expanding its mail and 
express service, and Amtrak has not yet developed the costs of 
the new high-speed rail corridors across the country.
    The reason Amtrak does not know the costs of all these 
capital investments is that it has not had a comprehensive 
multi-year capital plan since 1997. We have recommended that 
Amtrak develop such a plan, including the related benefits of 
the capital investments, the priorities of the needs, and the 
likely funding sources.
    My final point today is that no matter whether Amtrak 
succeeds or fails in reaching self-sufficiency, important 
decisions will need to be made about the future of Amtrak, the 
scope of intercity passenger rail service in the United States, 
and the levels of federal support. Even if Amtrak does reach 
self-sufficiency, it will need substantially more federal funds 
than it currently receives each year.
    The $9 billion that Amtrak will need just to meet 
identified capital needs are needs that are critical to 
maintain current service levels and will require an average of 
$600 million a year. In addition, Amtrak will require about 
$200 million annually to cover excess railroad retirement 
payments. As a result, the federal government could be called 
upon to provide substantially more annual funding for Amtrak 
than the $521 million it currently provides.
    The Chairman. What range are you talking about?
    Ms. Scheinberg. Potentially twice as much. We would be 
talking $1 billion if Amtrak reaches self-sufficiency. If 
Amtrak fails to reach self-sufficiency, the Congress would be 
called upon to decide the future of Amtrak and the future of 
intercity passenger rail in general. It is not too early for 
the Congress to begin considering what its long-term vision is 
for Amtrak and intercity passenger rail, and how this vision 
should be implemented. This would include determining the scope 
of a national intercity passenger rail network, if any, how 
that network would be operated, and the level of federal 
funding that would be provided to support the network.
    Mr. Chairman, that concludes my statement. I will be happy 
to answer any questions.
    [The prepared statement of Ms. Scheinberg follows:]

   Prepared Statement of Phyllis F. Scheinberg, Associate Director, 
         Transportation Issues, U.S. General Accounting Office
    Mr. Chairman and Members of the Committee:
    We appreciate the opportunity to testify today on the National 
Railroad Passenger Corporation's (Amtrak) progress toward achieving 
operating self-sufficiency; its capital investment needs and how these 
capital needs compare with expected federal funding; and the future of 
Amtrak and intercity passenger rail. The Congress has directed Amtrak 
to be free of federal operating subsidies by the end of fiscal year 
2002. This deadline presents serious implications for the future of 
Amtrak and intercity passenger rail service in this country. This 
statement is based on our recent reports on Amtrak financial issues.\1\
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    \1\ Intercity Passenger Rail: Amtrak Will Continue to Have 
Difficulty Controlling Its Costs and Meeting Capital Needs (GAO/RCED-
00-138, May 31, 2000), Intercity Passenger Rail: Amtrak Needs to 
Improve Its Accountability for Taxpayer Relief Act Funds (GAO/RCED/
AIMD-00-78, Feb. 29, 2000), and Intercity Passenger Rail: Amtrak Faces 
Challenges in Improving Its Financial Condition (GAO/T-RCED-00-30, Oct. 
28, 1999).
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    In summary:

   Amtrak continues to struggle financially and must overcome 
        substantial hurdles to reach operational self-sufficiency. 
        Amtrak has made limited progress in reducing its budget gap--
        the gap that Amtrak needs to close to reach operational self-
        sufficiency. From fiscal years 1995 through 1999, Amtrak was 
        able to reduce its budget gap by only $78 million--from about 
        $554 million to $476 million. From fiscal years 2000 through 
        2002, Amtrak will need to achieve about $287 million in 
        additional savings to reach operational self-sufficiency. Yet 
        Amtrak has made limited progress toward this goal in the first 
        9 months of this fiscal year. Furthermore, Amtrak's costs are 
        expected to increase, and Amtrak has a mixed record in 
        controlling cost growth. In addition, Amtrak's ability to 
        realize substantial revenue increases and productivity 
        improvements is uncertain. Nearly three-quarters of the $1.9 
        billion in net financial benefits that Amtrak expects to 
        achieve between now and 2004 have either not been identified or 
        are based on initiatives that have yet to be fully implemented.

   Amtrak has substantial short- and long-term capital 
        investment needs that will be difficult to meet. From 
        discussions with Amtrak managers and a review of published 
        reports, we estimate Amtrak's identified capital needs to be at 
        least $9 billion through 2015 (in 1999 dollars). In addition, 
        Amtrak will have other capital needs, such as acquiring new 
        equipment, for which the company has not yet developed cost 
        estimates. Amtrak will find it difficult to pay for these 
        needs. Over the 2001 through 2004 period, the identified 
        capital investment needs will exceed expected federal capital 
        funds by nearly $2 billion. Although some of this amount may be 
        paid by other railroads that use Amtrak facilities, the federal 
        government could be called upon to cover any funding shortfall, 
        with capital financial support requested substantially higher 
        than current levels.

   Key decisions will soon have to be made regarding the future 
        of Amtrak, the nation's intercity passenger rail operator. If 
        Amtrak does not reach operational self-sufficiency within the 
        next 2 years, federal law requires that the Amtrak Reform 
        Council submit a plan to the Congress for a restructured 
        intercity passenger rail system and that Amtrak prepare a plan 
        for its own liquidation.\2\ On the other hand, if Amtrak does 
        attain operational self-sufficiency, it could require a 
        substantially higher level of financial support than it 
        receives now to meet its capital needs and for certain railroad 
        retirement expenses. In either case, the future of Amtrak will 
        need to be decided. If that future does not include Amtrak, 
        basic decisions must be made about an intercity passenger rail 
        system. The decisions include the scope of a national intercity 
        passenger rail network, if any; how it would be operated; and 
        the level of federal funding that would be provided to support 
        this network.
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    \2\ The Amtrak Reform Council is an independent oversight body 
created by the Amtrak Reform and Accountability Act of 1997.

Background
    The Rail Passenger Service Act of 1970 created Amtrak to provide 
intercity passenger rail service. Like other major national intercity 
passenger rail systems in the world, Amtrak has received substantial 
government support--over $23 billion through fiscal year 2000. However, 
the Amtrak Reform and Accountability Act of 1997 (Amtrak Reform Act) 
prohibited Amtrak from using federal funds for operating expenses, 
except for an amount equal to excess Railroad Retirement Tax Act 
payments, after 2002.\3\ To help accomplish this goal, the Amtrak 
Reform Act provided Amtrak with flexibility to address certain costs. 
The act eliminated a statutory ban on contracting out work that would 
result in employee layoffs and abolished statutorily required labor 
protection arrangements that provided up to 6 years of compensation for 
employees who lost their job because of the discontinuance of intercity 
passenger rail service on a route or certain other actions. The Amtrak 
Reform Act required negotiations with the unions over new protection 
arrangements. To help achieve its financial goals, Amtrak has developed 
a series of strategic business plans.
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    \3\ Amtrak participates in the railroad retirement system, under 
which each participating railroad pays a portion of the total 
retirement and benefit costs for employees of the industry.
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     Amtrak, like other railroads, is a very capital-intensive 
business. Since its creation, Amtrak has spent about $10.2 billion in 
federal support for capital improvements and equipment overhauls. This 
amount includes about $1.8 billion of the $2.2 billion that Amtrak 
received through the Taxpayer Relief Act of 1997. These funds could be 
used for broadly defined expenses, including (1) acquiring equipment, 
rolling stock (such as passenger cars and locomotives), and other 
capital improvements; (2) upgrading maintenance facilities; (3) 
maintaining existing equipment in intercity passenger rail service; and 
(4) paying of interest and principal on obligations incurred for these 
purposes. Amtrak has also obtained capital funding from state and local 
governments, generally for specific capital investments, and from the 
commercial debt markets. These funds support Amtrak's 22,000-route-mile 
passenger rail system, including 650 miles of track owned by Amtrak. 
Amtrak maintains an active fleet of 2,600 cars and locomotives.
Amtrak Will Have to Overcome Major Hurdles to Become Operationally 
        Self-Sufficient
    Amtrak continues to struggle in its quest to become operationally 
self-sufficient by the end of 2002. Amtrak has made relatively little 
progress over the past 5 years, and the results for the first 9 months 
of the current fiscal year in reducing its budget are not encouraging. 
This means that substantial additional progress will be required over 
the next 2 years to attain operational self-sufficiency. One of 
Amtrak's difficulties in reaching operational self-sufficiency is 
controlling its costs, particularly labor costs. Finally, Amtrak has 
yet to fully implement the various revenue enhancing and productivity 
improvement initiatives that it considers important to operational 
self-sufficiency, including its Acela Express service.\4\
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    \4\ Acela Express is part of Amtrak's high-speed rail program on 
the Northeast Corridor. Acela Express trains are expected to reach 
speeds of up to 150 miles per hour and have trip times of about 3 hours 
between New York City and Boston and about 2\1/2\ hours between New 
York City and Washington, D.C.
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Most Financial Results Needed to Reach Operational Self-Sufficiency Are 
        in the Future
    Amtrak has made limited progress in moving toward operational self-
sufficiency in the last 5 years. According to Amtrak, its budget gap 
\5\ fell by $78 million during fiscal year 1995 and through 1999--from 
about $554 million in fiscal year 1995 to $476 million in fiscal year 
1999.\6\
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    \5\ Amtrak defines budget gap as the corporation's net loss (total 
revenues less total expenses) less capital-related expenses, including 
the depreciation of its physical plant, other noncash expenses, and 
expenses from its program to progressively overhaul railcars (i.e., to 
conduct limited overhauls of cars each year rather than comprehensive 
overhauls every several years).
    \6\ The 1998 budget gap excludes $36 million in retroactive 
payments under recently negotiated labor agreements.
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    Through the first 9 months of the current fiscal year (October-
June), Amtrak's revenue increased by 11 percent over the same period in 
1999. But, expenses increased by 7 percent. Since Amtrak has about $3 
in expenses for every $2 in revenue, the increase in expenses for the 
most part negated revenue gains. As a result, the budget gap was only 
about $33 million lower than it was for the same period in 1999. Amtrak 
officials agreed that additional actions are needed during the final 3 
months of this year to achieve the planned budget gap reduction of $114 
million and that achieving its goal will be difficult. Amtrak 
attributes the problems to the delayed rollout of the Acela Express 
service and a slower-than-expected increase in its mail and express 
business.\7\
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    \7\ ``Express'' is the transportation of higher value, time-
sensitive goods, such as produce.
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    The limited progress that Amtrak has achieved in reducing its 
budget gap makes it essential that Amtrak make substantial strides over 
the next 2 years to achieve operational self-sufficiency. To become 
operationally self-sufficient by 2002--that is, to reduce its budget 
gap to no more than the amount of excess Railroad Retirement Tax Act 
payments--Amtrak will have to reduce its budget gap by an additional 
$287 million \8\ over what it was in fiscal year 1999. This is nearly 4 
times the reduction that Amtrak made in the last 5 years. It is 
therefore critical that Amtrak take those actions necessary to control 
cost growth and achieve the revenue projections contained in its latest 
business plan.\9\
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    \8\ This amount represents the $476 million budget gap in 1999 less 
expected excess Railroad Retirement Tax Act payments in 2002 of $189 
million.
    \9\ In addition, Amtrak's overall financial condition has also not 
improved. Through the first 9 months of this year, Amtrak's net loss 
was about $711 million--about $6 million higher than it was for the 
same period in fiscal year 1999 ($705 million). Amtrak's lower-than-
expected performance appears to be related to higher expenses rather 
than lower revenue.
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Amtrak Will Continue to Have Difficulty Controlling Its Costs
    Amtrak has had and will continue to have difficulty controlling 
cost growth. Amtrak met its expense targets in 1998 and 1999 but missed 
them from 1995 to 1997 and, overall, its expenses have been about $150 
million more than planned over this period. Amtrak's strategic business 
plans have generally tried to hold cost increases to no more than the 
rate of inflation. But, as we recently reported, Amtrak's operating 
costs increased by about 12 percent over the rate of inflation from 
1995 through 1999.\10\ Amtrak's inflation-adjusted costs (1999 dollars) 
were about $2.4 billion in 1995 and about $2.7 billion in 1999. Amtrak 
has attributed increased costs to, among other things, the results of 
labor negotiations, expanded service levels, increased depreciation, 
and the implementation of its progressive overhaul program. While 
Amtrak has ``spent money to make money,'' it has realized little 
benefit from the expenditures it has made. For example, in 1995, for 
every operating dollar that Amtrak spent, it earned $0.65 in total 
revenue. In comparison, Amtrak earned $0.67 in total revenue for every 
dollar spent in 1999. Through the first 9 months of this fiscal year, 
Amtrak has earned about $0.64 in total revenue for every dollar 
expended.
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    \10\ See GAO/RCED-00-138.
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    Labor costs represent Amtrak's single largest operating cost--about 
52 percent of total operating costs in 1999. Amtrak's labor costs have 
increased since 1995--about 10 percent above the rate of inflation 
(from about $1.3 billion to about $1.4 billion). This is a net 
increase, that is, net of the savings achieved through such actions as 
negotiated productivity improvements. In part, this increase reflects 
the fact that the size of Amtrak's workforce has not changed materially 
in recent years. In 1999, Amtrak employed about 22,500 agreement (union 
represented) employees and about 2,700 management employees--about the 
same total as in 1994 when Amtrak started to reduce its workforce. 
Amtrak officials attributed employment increases to such things as 
service expansion and capital investments. In part, increases in labor 
costs may also reflect that Amtrak has no standard measures of labor 
productivity for its different lines of business (e.g., intercity 
passenger rail service and commuter service). Such measures would allow 
Amtrak to determine its efficiency and better manage cost growth.
    Amtrak's cost growth can be expected to continue. Amtrak's 
operating plan for 2000 shows that overall operating costs will 
increase by a net $60 million over the next 5 years.\11\ This is a net 
increase because it includes growth in such costs as labor and interest 
expenses as well as savings from such things as productivity 
improvements. Regarding labor costs, Amtrak has entered into a new 
round of collective bargaining with its union-represented employees. If 
the new round of bargaining follows the pattern of past negotiations, 
substantial cost increases can be expected. As a result of collective 
bargaining for 1998 to 1994, Amtrak estimated that wages increased 
between $120 million and $140 million. As a result of the most recently 
completed round of bargaining (1995 to early 2000), Amtrak estimated 
that wage payments increased by $144 million through 1999.\12\
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    \11\ This includes the costs of progressive overhauls. Amtrak funds 
progressive overhauls through its capital program. However, under 
generally accepted accounting principles, the cost of such overhauls 
are considered an operating expense.
    \12\ Total negotiated wage payments (including general wage 
increases, signing bonuses, and retroactive payments) were $260 
million. Amtrak expects to pay the balance of this amount ($116 
million) in 2000.
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Important Business Plan Initiatives to Increase Revenues and Improve 
        Productivity Have Yet to Be Fully Implemented
    Amtrak's plans to reach operational self-sufficiency emphasize 
business growth, particularly increasing revenues and improving 
productivity. Over the next several years, Amtrak expects substantial 
increases in revenue from such initiatives as implementing its Network 
Growth Strategy (a strategy to increase passenger and mail and express 
business) and new service standards designed to ensure a consistent, 
high-quality product. Amtrak's most recent business plan update 
estimates that initiatives such as these will result in net financial 
improvements of about $1.9 billion through 2004.
    Nearly three-quarters ($1.4 billion) of the net financial benefits 
that Amtrak expects to achieve from 2000 through 2004 have either not 
been identified or are based on initiatives that Amtrak has not yet 
fully implemented. (See table 1.) These include such initiatives as 
expanding the mail and express program, developing actions to improve 
productivity, implementing the market-based route network, and 
implementing service standards. Amtrak officials told us they are in 
the process of defining the specific actions associated with these 
initiatives but agreed they had not yet been fully defined. That Amtrak 
has not fully implemented its most important business plan initiatives 
increases the uncertainty about whether it can meet its financial goals 
over the next 2 years.

                       Table 1: Estimated Financial Impacts of Amtrak's Business Plan Initiatives, Fiscal Years 2000 Through 2004
                                                                   Dollars in millions
--------------------------------------------------------------------------------------------------------------------------------------------------------
     Initiative                          Change in revenues                              Change in expenses                       Net impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
Productivity                                                            $70.3                              -$803.6                               $874.0
 actions to be
 determined
 
Aligning route                                                           30.0                               -205.0                                235.0
 structure to
 customer demand
 
Increasing ticket                                                       175.2                                  5.9                                169.2
 revenue
 
Mail and express                                                        274.3                                181.4                                 92.9
 expansion
Productivity                                                                0                                -54.2                                 54.2
 actions to offset
 inflation a
 
Subtotal                                                               $549.8                              -$875.5                             $1,425.3
 
Implement other                                                         429.5                                -80.7                                510.2
 initiatives
 
Total                                                                  $979.2                              -$956.2                            $1,935.51
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Totals may not add due to rounding. Amtrak's business plan does not contain a separate initiative for its Acela Express service. Rather, Acela
  Express is integrated into the plan as a whole.
a Amtrak officials told us that this initiative is a combination of actions designed to achieve cost savings to offset potential cost increases due to
  inflation. These activities include wage and work rule changes, revenue enhancements, and improved food and beverage management.
Source: GAO's analysis of Amtrak's data

    In addition, Amtrak has encountered difficulties in implementing 
high-speed rail service on the Northeast Corridor. Amtrak's Acela 
program is one of the cornerstones of Amtrak's plans to eliminate the 
need for federal operating subsidies. In January 2000, Amtrak began 
Acela Regional service on a limited basis between Washington, D.C., and 
Boston.\13\ However, the introduction of Acela Express has been delayed 
by mechanical problems since September 1999, and Amtrak has yet to 
announce a start date for this service. Amtrak expected the Acela 
Express to generate about $180 million in net revenues by 2003. Amtrak 
officials agreed that revenues have been lost because of Acela Express 
delays and are still quantifying these losses as the delay continues. 
According to Amtrak, the company is currently identifying actions that 
might be needed to offset lost Acela Express revenues and reduce 
Amtrak's budget gap as a whole. The loss of Acela Express revenue 
increases the pressure on Amtrak to make even more progress in other 
areas over the next 2 years to reach operational self-sufficiency.
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    \13\ Acela Regional is designed to replace Amtrak's current 
NortheastDirect, Empire, and Keystone service and will offer improved 
equipment, trip times, and schedules.
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Amtrak's Capital Needs Could Require an Increase in Federal Support
    Amtrak has substantial capital investment needs that could result 
in requests for increases in federal capital support. As we recently 
reported, these needs total over $9 billion through 2015.\14\ These 
needs include making safety improvements on the Northeast Corridor, 
bringing the Northeast Corridor up to a condition where only routine 
maintenance is required (called ``state of good repair''), and 
overhauling equipment. However, Amtrak will have difficulty funding 
these investments. We estimate that Amtrak's capital investment needs 
will exceed expected federal funding by nearly $2 billion from 2001 
through 2004. The shortfall will likely be higher since it does not 
include capital investment needs for which Amtrak has not developed 
cost estimates.
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    \14\ See GAO/RCED-00-138. All amounts in this section are in 
constant 1999 dollars. Amtrak has not comprehensively identified its 
short- and long-term capital investment needs. Therefore, to identify 
these needs, we asked Amtrak managers to identify capital investments 
they believed are needed to maintain current service levels and improve 
Amtrak's service and reviewed Amtrak and other reports addressing 
capital investment needs. As a result, the needs we identified may not 
be the same as those that might have been identified by Amtrak, had it 
comprehensively identified its capital needs.
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Amtrak Has Significant Short- and Long-Term Capital Investment Needs
    Amtrak has significant capital needs, both in the short-term (2001 
through 2004) and in the long-term (2005 through 2015). Our discussions 
with Amtrak officials and review of reports show Amtrak's capital 
investment requirements over the next 4 years (through 2004) to total 
at least $4 billion. Infrastructure investment needs account for over 
$2.5 billion of the total and are targeted toward addressing deferred 
maintenance and improving the quality of service on the Northeast 
Corridor.\15\ Included in these investment needs is about $316 million 
to continue safety investments at various locations on the Corridor. 
According to an Amtrak analysis, these investments are primarily 
concentrated on the tunnels leading into and out of New York City's 
Pennsylvania Station--a station that serves over 300,000 intercity and 
commuter rail passengers daily. In addition, about $1.2 billion will be 
needed to eliminate deferred maintenance and restore the Corridor's 
infrastructure to a condition where only routine maintenance is 
required. Other short-term capital investment needs include reducing 
equipment maintenance backlogs in the progressive overhaul program (at 
an estimated cost of over $1 billion), repaying debt principal for the 
acquisition of cars and locomotives ($346 million), and upgrading 
maintenance facilities ($42 million).
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    \15\ Amtrak expects to share some portion of this cost with other 
users of the Northeast Corridor.
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    Amtrak's long-term capital investment needs also focus heavily on 
the Northeast Corridor. We estimate that at least $5.1 billion in 
investments may be needed from 2005 to 2015. These capital investment 
requirements include making further safety improvements to tunnels, 
including those leading into and out of Pennsylvania Station, 
continuing to restore the Corridor to a state of good repair, and 
completing the highspeed rail program. Most of the long-term capital 
investments we identified (about $4.5 billion) are concentrated on 
continuing the restoration of the Northeast Corridor's infrastructure 
to a state of good repair. Other long-term capital investment needs 
include replacing bridges and tunnels on the Northeast Corridor and 
replacing and rehabilitating the Corridor's electric power system (a 
system that supplies power to Amtrak's trains and dates from the 1920s 
to the 1940s). These investments would replace aging systems that are 
prone to mechanical failures and allow for growth.
    In addition to the identified short- and long-term capital needs, 
Amtrak will have other capital investment needs for which it has not 
developed cost estimates. These include equipment maintenance needs and 
new capital investment needs, such as station renovations and acquiring 
new equipment. Although Amtrak acquired a large number of passenger 
cars and locomotives during the 1990s, some components of Amtrak's 
fleet are past their useful lives and will need to be replaced. 
Finally, Amtrak will have capital investment needs related to 
implementing its Network Growth Strategy, expanding its express 
program, and developing new ``high-speed'' rail corridors across the 
country.
Potential Funding Shortfalls May Require Additional Federal Support
    Amtrak's identified capital investments will exceed expected levels 
of federal capital funds by nearly $2 billion over the 2001 through 
2004 period. Since Amtrak has never covered the cost of its operations, 
it has relied solely on external funds for capital investments. This 
has included the federal government, state and local governments, and 
the commercial debt market.
    Amtrak should be able to meet its planned investment requirements 
through 2000 from Taxpayer Relief Act funds and the fiscal year 2000 
federal capital grant. However, beginning in 2001, Amtrak's capital 
investment requirements will exceed expected available federal funding. 
The shortfall assumes that Amtrak will receive federal capital grants 
of $521 million annually through 2004.\16\ In reality, Amtrak's funding 
shortfall will be more than $2 billion because our analysis does not 
include investment requirements for which Amtrak has not yet developed 
cost estimates. The potential shortfall in federal capital funds will 
require Amtrak to rely heavily on sources other than federal capital 
grants to meet some its needs. However, the federal government may well 
be called upon to fund these shortfalls in amounts substantially higher 
than current funding levels.
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    \16\ Our analysis is based on Amtrak receiving $521 million in 
capital grants beginning in 2001. Amtrak's most recent business plan 
update also assumes that Amtrak will receive this level of capital 
funding through 2003. No estimate was available for 2004. Recently 
introduced bills, if enacted, could provide capital funds for Amtrak. 
S.1900 and H.R. 3700 allow Amtrak to issue $10 billion in bonds over 10 
years for capital improvements to Amtrak's Northeast Corridor and other 
high-speed rail corridors.
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    Analyzing Amtrak's capital needs and expected funding to meet these 
needs is made more difficult because Amtrak has not prepared a multi-
year capital plan since 1997. Instead, it has developed a series of 
capital plans that cover only a limited horizon--not more than 1 year 
at a time. These plans do not fully describe Amtrak's current and 
future capital investment requirements and how they will be funded, or 
indicate their relative priority. Amtrak has stated that it expects to 
issue a multi-year capital plan later this year.
Time Nears for Decisions on the Future of Amtrak and Intercity 
        Passenger Rail
    Amtrak is under extreme pressure to reach operational self-
sufficiency by the end of 2002. In our opinion, no matter whether 
Amtrak succeeds or fails in this endeavor, important decisions will 
need to be made about the scope of intercity passenger rail service and 
the level of federal support, if any.
    If Amtrak attains operational self-sufficiency, it will likely need 
substantially more funds than it currently receives. As discussed 
earlier, we estimate that Amtrak will need at least $9 billion to meet 
its identified capital needs through 2015. This amount does not include 
needs for which cost estimates have not been made. In addition, Amtrak 
will require substantial funds annually to cover excess Railroad 
Retirement Tax Act payments, an operating expense for which it may 
receive federal funds under the Amtrak Reform Act (e.g., according to 
Amtrak, $190 million in 2003 and $200 million in 2004). The federal 
government could be called upon to provide support for both Amtrak's 
capital needs and excess Railroad Retirement Tax Act payments, which 
could total more than the $521 million that Amtrak currently receives 
in federal support.
    On the other hand, if Amtrak fails to reach operational self-
sufficiency, the Amtrak Reform Act requires that the railroad submit to 
the Congress a liquidation plan, and the Amtrak Reform Council submit a 
plan to the Congress for a restructured national intercity passenger 
rail system. As a result of any congressional action on these plans, 
the nation's intercity passenger rail service could have a considerably 
different look.
    In either situation, the future of Amtrak, and, by extension, the 
future of intercity passenger rail in the United States need to be 
decided. Given that 2002 is just 2 years away, it is not too early to 
begin considering a long-term vision for Amtrak and intercity passenger 
rail and how this vision should be structured. If that future does not 
include Amtrak, basic decisions about an intercity passenger rail 
system need to be made. This would include determining the scope of an 
intercity passenger rail network, if any; how it would be operated; and 
what level of funding would be provided to support this network.
    Mr. Chairman, this concludes our testimony. We would be pleased to 
answer any questions you or Members of the Committee may have.

    The Chairman. Thank you very much. Mr. Carmichael, welcome.

              STATEMENT OF GILBERT E. CARMICHAEL, 
                CHAIRMAN, AMTRAK REFORM COUNCIL

    Mr. Carmichael. Mr. Chairman, thank you for inviting the 
Amtrak Reform Council to address your Committee oversight on 
Amtrak today. I would like to make the point that the Amtrak 
Reform Council is a citizens' group, not paid. I have two of my 
members of the Council here with me today. I would like to 
introduce James Coston, appointed by Senate Minority Leader 
Daschle, and the newest member of our Council, Nancy Rutledge 
Connery, appointed by Senator Trent Lott.
    The Chairman. Welcome.
    Mr. Carmichael. The Council has provided the Committee a 
statement that addresses in detail each of the topics of your 
letter of invitation. It is a thick report. This morning I will 
summarize for you the Council's views on Amtrak's recent 
financial performance, and the proposed High-Speed Rail 
Investment Act bonds. I will try to make it quick.
    The Chairman. Take all the time you need, Mr. Carmichael. 
This is a very important issue.
    Mr. Carmichael. On Thursday, September 21, the Department 
of Transportation's Office of the Inspector General released a 
report entitled, 2000 Assessment of Amtrak's Financial 
Performance and Requirements. The Council believes that this 
report is a highly professional work product that reflects the 
views that are generally held of Amtrak's financial situation. 
Amtrak definitely faces substantial challenges in its effort to 
achieve self-sufficiency, and the Amtrak Reform Council will 
continue its program of developing tough constructive 
recommendations designed to assist Amtrak to reach that goal by 
the end of 2003.
    There is little point, Mr. Chairman, in having the Council 
discuss the details of its report. Our own analysis supports 
its accuracy. The report stands on its own feet real well. 
Thus, I will move on to the question of how the Council 
perceives the proposed legislation to authorize Amtrak to issue 
bonds to finance high-speed rail projects. I think I misspoke a 
minute ago when I said end of 2003. I believe December of 2002 
is the date.
    When the Council was asked by the Senate Commerce Committee 
to testify at this hearing on Amtrak issues, including 
providing the Council's views on the proposed High-Speed Rail 
Investment Act, I directed our staff to send a memorandum to 
all the Council members to determine the views of each Council 
member as to whether the Council should support or oppose the 
passage of this legislation. Having polled its members, I can 
say that the Amtrak Reform Council supports the objective of 
the bonds, which is to help financially develop a national 
system of federally designated high-speed rail corridors, and 
the Council believes that the $10 billion, if managed 
effectively, can be used to start this important process.
    The Council also supports specific legislation authorizing 
the bonds, providing certain changes that have been part of the 
ongoing discussion among Amtrak and others in the last few 
weeks, including our Council staff, that these changes are 
incorporated into the final legislation.
    Having said that, the Council differs in approach on 
several important issues from the Senate Finance Committee's 
concept paper that describes the bonds, assuming that no 
additional changes have been made since last Friday. Certain of 
these issues are policy issues that would affect the bond 
program and how it would operate. There is also a technical 
issue that could well have impact on whether the bond program 
would be able to operate effectively.
    With regards to policy issues on the bond program, let me 
address the key issues that the Council sees in the context of 
the proposed legislation. First, the Reform Council believes 
the States and possibly bona fide high-speed rail authority, as 
well as Amtrak, should be able to issue the bonds.
    Second, it believes that priority should be given to 
providing funding for infrastructure investments, and that the 
bonds should be only used for equipment on the corridors if 
private financing is not available. The Council believes 
passenger equipment can be funded in large part by the private 
sector.
    The Council's third issue is that the States and the U.S. 
Department of Transportation should have a major role in 
selecting and prioritizing the projects.
    From a technical standpoint, the Council also believes 
there is an issue that needs to be addressed as the bill is 
prepared for consideration, or the entire bond program may not 
work as effectively as it should. This issue relates to whether 
the bond proceeds should be deposited in Amtrak's corporate 
treasury prior to a permanent investment in high-speed rail 
projects or otherwise commingled with Amtrak funds.
    The Council believes that if the bond proceeds, as well as 
the escrow fund, are not under the exclusive control of an 
independent trustee, such treatment could have a chilling 
effect on the marketability of the bonds. It could also tie up 
the bond proceeds and the bond escrow account in court, should 
there be creditors' claims against Amtrak.
    Mr. Chairman, this position reflects the views of nine of 
the 11 Council members concerning the proposed legislation. As 
for the remaining 2 members, Mr. Charles Moneypenny, the 
Presidentially designated member representing the views of 
railway labor, he expressed the view that the Council should 
not take a position on the bonds, and the administration, that 
is in the process of determining its position in that. When it 
is determined, the Council would be so advised. We are treating 
the administration's position right now as a temporary 
abstention.
    Mr. Chairman, we are now looking for the first time in many 
decades at a domestic intercity transportation picture that 
actually needs the rail passenger modes in many important 
transportation markets in this Nation. Air and highway 
congestion in critical city pairs and regions have brought us 
to this position.
    The States and the cities, or at least a significant number 
of them, faced with the need to find additional useful 
intercity transportation capacity, are being aggressive in 
pursuit of the opportunities for improved intercity rail 
passenger service, and I think that explains some of the heavy 
endorsements that we have seen about this bond act.
    The reason we are facing these very difficult issues that 
these bonds pose is that, unlike the highways and the airways, 
neither local nor State governments nor the federal government 
have determined an institutional or financial solution for 
adding the track and equipment capacity to our Nation's 
railroad right-of-way system to provide an expanded system of 
intercity passenger rail service.
    The privately owned rail right-of-ways present unique 
issues, compared to the publicly owned and publicly funded 
national systems of highways, airports, and airways. Rail 
rights-of-ways, unlike other modes of transportation, do not 
have a stable funding mechanism for the rail passenger service 
to develop, so we should realize that under our current 
transportation policy we are making or using Amtrak alone to do 
what in other modes is done by 2 separate and separately funded 
types of organization.
    One organization is focusing on infrastructure, and another 
one is focusing on transport operation. The infrastructure 
organization is exemplified by the Federal Highway 
Administration, operating in concert with the State highway 
departments, the Federal Aviation Administration, and the Corps 
of Engineers.
    The role of transport operation in all of these modes is 
carried out by operating companies that carry passengers, mail 
and express, the airlines, the bus lines, and the truck lines, 
or companies in modes other than rail, are not entangled in the 
huge infrastructure funding burdens. They pay a user fee for 
the infrastructure and focus their attention on serving the 
traveling public.
    My personal comment, this is a huge burden on Amtrak 
management and probably is causing the confusion we have as we 
try to analyze how Amtrak should be operating.
    Mr. Chairman, should these bonds not pass in this session 
of Congress, it is likely other ways could be found to finance 
improvements in intercity rail passenger service, and the 
federally designated high-speed rail corridors that are 
evolving such proposals might best be developed, I believe, 
from a well-considered effort by experts in transportation 
policy and finance to determine a modern, intermodal surface 
transportation policy, and an accompanying array of financing 
mechanisms needed to fund improvements in intercity passenger 
rail infrastructure and equipment.
    The Council will be ready to participate in any such 
discussion and debate about how to do the job, and it is my 
hope that our January report that we are required by law to 
make will offer some solutions in this area to help us fund the 
intercity rail system and to solve some of these problems.
    Thank you very much.
    [The prepared statement of Mr. Carmichael follows:]

             Prepared Statement of Gilbert E. Carmichael, 
                    Chairman, Amtrak Reform Council
    Mr. Chairman, thank you for inviting the Amtrak Reform Council to 
address your Committee's oversight hearing on Amtrak. While I am alone 
at the witness table, I would like to introduce other members of the 
Reform Council who are here today for this important hearing. These 
members include James Coston, appointed by Senate Minority Leader 
Daschle, and the newest member of the Council, Nancy Rutledge Connery, 
appointed by Senate Majority Leader Lott. Also present is a 
representative of the Federal Railroad Administration, representing the 
Secretary of Transportation's ex officio position on the Council.
    Mr. Chairman, one of my key objectives as the Council's Chairman is 
to focus the substantial experience and insight of the Council's 
members on solid analyses and initiatives designed to improve intercity 
rail passenger service. Through the earnest efforts of the Council's 
members, supported by our staff, I believe we have forged a pragmatic 
bipartisan majority that brings a practical and realistic perspective 
to the issues the Congress has charged the Council to address.
    As you requested, the Council has provided to the Committee a 
statement that addresses in detail each of the topics that you raised 
in your letter of invitation. This morning I will summarize for you the 
Council's view on Amtrak's recent performance and the Council's views 
on the proposed High-Speed Rail Investment Act bonds, designed to 
continue and expand the task of developing the federally-designated 
high-speed rail corridors throughout this country. My summary will 
include:

   Results of Amtrak's use of new authorities provided by the 
        Reform Act;

   Comments on financial performance and Amtrak's progress 
        toward self-sufficiency;

   A brief overview of the Council's perspective on where 
        things stand, as context for the Council's views; and

   The Council's view of the proposed High-Speed Rail 
        Investment bonds.

How Amtrak Has Used its New Authorities Provided under the Act and What 
        Cost Savings the Legislative Reforms Have Actually Generated
    The reforms set forth in the Amtrak Reform and Accountability Act 
of 1997 (``the Reform Act'' or ``ARAA''), among other objectives, were 
intended to eliminate statutory obstacles to essential Amtrak 
operational, financial and productivity improvements and to provide 
Amtrak with additional authority to operate more like a private, for-
profit business. To this end, the Act, in its major provisions: (1) 
repealed Amtrak's obligation to provide rail passenger service within 
the ``basic system'' defined by statute and provided Amtrak with 
complete authority to determine its national system of routes and 
services in response to the marketplace [ARAA Sec.101]; (2) repealed 
the specific statutory requirements for labor protection payments for 
route closures and work transfers and placed the disposition of this 
issue on the labor-management collective bargaining table [ARAA Secs. 
141, 142]; and (3) repealed the statutory prohibition against 
contracting out work and required that this issue be placed on the 
collective bargaining table commencing no later than November 1, 1999 
[ARAA Sec.121].
    The Act also encouraged Amtrak to achieve management efficiencies 
and revenue enhancements. In this regard, it charged the Council with 
monitoring Amtrak's efforts to achieve labor productivity improvements 
and required Amtrak, if it entered into an agreement with its union 
employees after January 1, 1997 involving work-rules intended to 
achieve savings, to report quarterly to the Council both the savings 
realized as a result of the agreement and how the savings are 
allocated. The Act requires the Council to submit an annual report to 
Congress that includes an assessment of Amtrak's progress on the 
resolution of productivity issues or the status of those issues [ARAA 
Sec. 203].
    Based on information furnished by Amtrak, it is the Council's 
understanding that Amtrak has utilized its new flexibility under the 
Act as follows.
A. Modifications to the National Route System
    To assist Amtrak in identifying economically attractive route 
closures and realignments, as well as to assist in overall business 
planning, Amtrak has developed a new strategic planning methodology 
called the Market Based Network Analysis (MBNA). The MBNA has an 
associated Financial Model that estimates, for alternative packages of 
rail passenger services and revenues, the expected costs and 
profitability of a proposed route or system of routes. Using the MBNA 
to assess its route system, Amtrak developed a plan for realignments 
and extensions of its route system, which it called the Network Growth 
Strategy (NGS). Amtrak announced the NGS in late winter of this fiscal 
year. The Council has not yet had an opportunity to fully analyze it 
since it was not reflected in Amtrak's FY2000 Strategic Business Plan 
and since many of the NGS actions have not been fully implemented.
    Based on its NGS analysis, Amtrak has proposed to add additional 
routes and frequencies to its current service. Accordingly, no cost 
savings have yet resulted from the additional flexibility provided 
Amtrak to determine its national service network free from statutory 
restrictions. After the Council completes its analysis of the NGS, it 
will examine Amtrak's specific route and service proposals. Under the 
ARAA, the Council is charged with making recommendations for changes in 
Amtrak's route structure based on Amtrak's criteria.
B. Labor Protection Payments
    Amtrak and its unions chose to address the issue of labor 
protection as required under the Act through binding arbitration. In a 
November 1999 decision, the arbitration board modified the pre-existing 
employee protective provisions (as regards major aspects) as follows:

    (a) LUnder pre-existing law, any affected Amtrak employee was 
entitled to wage and benefit protection for a period equal to the 
amount of service, not to exceed 6 years; under the arbitration award, 
an Amtrak employee must have 2 years of service to be awarded 
protection.

    (b) LThe maximum duration of employee protective benefits was 
reduced from 6 years to 5 years, and employees must have more years of 
service than previously, on a sliding scale, to reach maximum benefits. 
For example, an employee with 3-5 years of service would receive 12 
months' benefits; an employee with 20-25 years of service would receive 
48 months' benefits. (According to Amtrak, approximately 20 percent of 
current Amtrak employees eligible for labor protection have more than 
20 years of service and would be entitled to 4-5 years of income 
protection for a ``trigger occurrence'' if unable to exercise 
seniority.)

    (c) LThe arbitration panel agreed that no employee protection would 
be required for the first 2 years of any new service commenced after 
the arbitration.

    (d) LThe issue of whether labor protection would apply to the 
termination of non-commuter contracts for local or state service was 
remanded for further negotiation and re-submission to arbitration if 
there is no agreement. (The arbitration panel found that Amtrak had no 
obligation for labor protection with respect to commuter contracts.) 
According to Amtrak, the issue remanded is still under negotiation and 
there are open issues that may be resubmitted to the arbitration panel.

    (e) LThe ``triggers'' for the imposition of employee protective 
benefits remained the same: (1) closure of a route or reduction in 
frequency below 3 round trips per week; or, as affects shop employees, 
(2) closure of a maintenance shop facility or transfer of work from the 
facility to another facility more than 30 miles away.

    (f) LThe arbitration award provided that it may be further amended 
by the parties through negotiation after January 1, 2000.

    Despite the improvements achieved by Amtrak through the arbitration 
award, Amtrak's new labor protection obligations to employees, 
particularly those with many years of service, remain significantly 
higher than those of non-railroad corporations in the United States. No 
widespread ``trigger occurrence'' has taken place on Amtrak as yet that 
would give rise to labor protection payments. Should such an occurrence 
take place, there would be cost savings generated by the arbitration 
award modifying Amtrak's labor protection obligations.
C. Contracting Out
    As of the date of the Council's first annual report to Congress 
(January 2000), Amtrak had not undertaken studies to determine whether 
contracting out any of its operations would improve its financial 
performance. Amtrak also had not served Section 6 notices under the 
Railway Labor Act placing the contracting out issue on the bargaining 
table, which the ARAA required Amtrak to do by November 1, 1999.
    The Council is informed by Amtrak that it served Section 6 notices 
on June 12, 2000 placing the contracting out issue on the bargaining 
table. Amtrak, accordingly, considers the contracting out issue to be 
currently under active negotiation with unions representing Amtrak 
employees. Amtrak considers the specific contracting out issues it 
placed on the bargaining table to be confidential.
    Because Amtrak has not yet contracted out work under the new 
authority provided in the ARAA, there are no cost savings as yet to be 
reported. The Act, moreover, puts no deadline on the collective 
bargaining process with respect to the issue of contracting out, nor 
does it require Amtrak and union representatives to reach agreement on 
the issue of contracting out.
D. Productivity Improvements
    Amtrak has achieved some changes in work rules in its recent 
agreements that have the potential to result in labor cost savings. 
Some of the more important changes include: contracting out Amtrak's 
entire Commissary operations to an outside contractor, eliminating 
approximately 244 positions through employee buy-outs (Amtrak has had 
statutory authority to contract out its food service operations since 
1981); extension of the period from 4 hours to 6 hours before a second 
engineer must be added to an engine consist (Amtrak estimates that this 
will permit the elimination of over 50 positions in the short term, and 
another 30 positions in FY1999 and FY2000); and providing Amtrak 
management with additional flexibility to assign work with respect to 
the implementation of high speed service on the NEC (no specific 
savings calculations provided).
    Under the ARAA, Amtrak is required to report quarterly to the 
Council regarding work rules savings resulting from recent agreements, 
including how the savings are allocated. Under recent agreements, 
Amtrak's labor costs have grown by approximately 10 percent above the 
rate of inflation since 1995. (See May 2000 GAO Report ``Amtrak Will 
Continue to Have Difficulty Controlling Its Costs and Meeting Capital 
Needs'' (``GAO Report'') at 8.) Amtrak's stated goal is to partially 
(20 percent) offset recent wage increases through labor productivity 
improvements.
    Amtrak submitted to the Council a set of numbers on a quarter-by-
quarter basis stating a ``final'' total of $21.3 million in 
``productivity improvements and work rules and cash savings'' for 
FY1999. The report did not show how the savings were allocated and 
provided no analysis of how the numbers were calculated. For the first 
three quarters of FY2000, Amtrak submitted a comparable report stating 
a preliminary total of $19.5 million in ``productivity improvements, 
work rule and cash savings from post-January 1, 1997 labor 
agreements.'' Similarly, the report did not show how the savings were 
allocated nor how the numbers were calculated.
    As found by both the Council (in its January 2000 report) and the 
General Accounting Office (in its May 2000 report), there is no way to 
confirm Amtrak's productivity calculations nor to distinguish how much 
the stated savings are instead attributable to internal Amtrak 
departmental budget cuts. Amtrak has no methodology in place by which 
it can measure work rule savings nor does it maintain an audit trail of 
the information necessary to measure such changes. (See Council Report 
at 20; GAO Report at 27, n.14).
    Moreover, as further noted by the Council and GAO reports, Amtrak 
currently ``does not have standard measures of labor productivity for 
its different lines of business (e.g., intercity passenger service, 
commuter service).''GAO Report at 26; Council report at 20. Both the 
Council and the GAO believe that the development of standard measures 
of productivity is critical if Amtrak is to control its labor costs 
(which constitute over 50 percent of operating costs).\1\ Amtrak has 
stated in response to the GAO Report that it intends to develop such 
measures (GAO Report at 5).
---------------------------------------------------------------------------
    \1\ Indeed, the Council has not been able to find management or 
benchmarking systems in place at Amtrak to measure the productivity of 
any of Amtrak's endeavors, not just the management of its work force.
---------------------------------------------------------------------------
    Under subsection 203(f) of the ARAA, Amtrak is required to make 
available to the Council all information that the Council needs to 
carry out its duties. The Council, in turn, must adopt procedures to 
protect against public disclosure of confidential information. Although 
the Council staff has negotiated a confidentiality agreement with 
Amtrak, Amtrak has to-date declined to provide Council staff with 
information (particularly relating to labor productivity) that it deems 
confidential. The Council is working with Amtrak to secure additional 
productivity data and to agree on acceptable methodologies for 
measuring labor cost savings and monitoring general labor productivity.
Progress Toward Self-sufficiency
    While there is a general understanding among people knowledgeable 
about Amtrak that Amtrak has made some improvements in its financial 
and operating performance, and that Amtrak has achieved many of the 
objectives of its strategic business plan through the first half of 
FY2000, Amtrak needs to achieve significantly greater improvements 
beginning in FY2001 for Amtrak to achieve operating self-sufficiency by 
FY2003 as required by the ARAA.
A. Key Points From Recent Audits and Reports by the DOT/IG and the GAO.
    This hearing will undoubtedly hear in detail from Kenneth Mead, the 
Inspector General of the Department of Transportation, about his 
office's September 19, 2000, report, ``2000 Assessment of Amtrak's 
Financial Performance and Requirements.'' According to an article in 
last Friday's Washington Post, Amtrak largely agrees with Mr. Mead's 
assessment, as does the Council. We would just like to highlight a few 
of the points that report made, from the perspective of the Council.
    Starting from the DOT IG's point that Amtrak has indeed increased 
its ridership and revenue in 1999 and 2000, but that it must curtail 
its expense growth to achieve operating self-sufficiency in 2003, we 
would move on to quote 2 points:

   ``Without major corrective action, Amtrak will not achieve 
        operating self-sufficiency in 2003.'' Specifically, Amtrak 
        needs to achieve $737 million in savings from undefined 
        management actions, and it needs to achieve its revenue 
        forecasts for Acela Express and other Northeast Corridor 
        service despite a revenue risk identified by the Inspector 
        General's report of $304 million.

   ``Amtrak's capital outlook is grave.'' Amtrak will face 
        serious capital shortfalls beginning in FY2001. Even assuming 
        Amtrak's cash losses are no higher than Amtrak projects, Amtrak 
        will face a minimum funding shortfall of $91 million, and 
        continued shortfalls through 2004 will total $298 million. The 
        Council thinks it is important to note that this capital 
        shortfall reflects, in part, a less than optimal use by Amtrak 
        of its TRA funds.

    You also asked the Council, Mr. Chairman, to comment on the May 
2000 report of the United States General Accounting Office, ``Intercity 
Passenger Rail, Amtrak Will Continue To Have Difficulty Controlling Its 
Costs And Meeting Capital Needs.'' This report made a number of 
findings consistent with the Inspector General's report and findings of 
the Amtrak Reform Council.

   While its performance has improved in recent years, from 
        1995 to 1999, Amtrak's operating costs were, in total, about 
        $150 million more than planned.

   Amtrak has no measures of labor productivity for its lines 
        of business (e.g., intercity passenger service, commuter 
        service) that could help it better manage its labor costs.\2\
---------------------------------------------------------------------------
    \2\ See Footnote 1

   Because future cost increases can be expected, it will be 
        critical for Amtrak to achieve the revenue projections for such 
        things as its high-speed rail program on the Northeast 
---------------------------------------------------------------------------
        Corridor.

   GAO estimates Amtrak has short- and long-term capital 
        investment needs totaling about $9.1 billion through 2015 plus 
        additional capital investment needs for which costs estimates 
        have not yet been developed.

   GAO recommended that Amtrak develop measures of labor 
        productivity for its different lines of business and a multi-
        year capital plan. Amtrak agreed to these recommendations.
B. Amtrak's Recent Financial Performance
    Although Amtrak's actual financial performance as measured by its 
``Budget Result'' was slightly ahead of its Strategic Business Plan 
projections through the second quarter of its fiscal year (March 31, 
2000), Amtrak was $9.5 million below its Budget Result after the third 
quarter (June 30, 2000), and its financial performance for the balance 
of FY2000 is likely to be increasingly unfavorable relative to its 
FY2000 Budget due primarily to shortfalls in passenger and mail/express 
revenues attributable to delays in the introduction of Acela Express 
service and lower growth of mail/express revenues.
    Amtrak's system revenues increased 7 percent from FY1998 to FY1999, 
and system revenues were up 11 percent in the first nine months of 
FY2000 relative to FY1999, which was essentially consistent with 
projected revenue levels in the FY2000 Strategic Business Plan. After 
increasing 2 percent in FY1999 over FY1998, ridership was up 3.5 
percent during the first nine months of FY2000, but 1.2 percent below 
the Strategic Business Plan projection. Amtrak achieved its Business 
Plan revenue projections while falling short of its ridership levels 
due to higher average ticket prices than projected.
    Total system expenses increased 7 percent from FY1998 to FY1999, 
and they were up 7 percent in the first nine months of FY2000 relative 
to FY1999, which was approximately 1 percent (or $14 million) worse 
than projected in the FY2000 Strategic Business Plan. It is important 
to note, however, in comparing changes in revenues and changes in 
expenses, that since Amtrak's expenses exceed its revenues by a large 
amount, operating losses were approximately $16 million greater than 
projected in the Strategic Business Plan for the first 9 months of 
FY2000 even though FY2000 revenues were essentially on Plan.
    Amtrak's cash losses were $54 million greater in FY1999 than 
FY1998. Amtrak's cash losses were $27 million (6 percent) lower in the 
first 9 months of FY2000 than FY1999, but they are $22 million (5 
percent) behind its Strategic Business Plan projection.
    We believe, together with the Office of the DOT Inspector General 
and the GAO, that while Amtrak arguably has achieved many of its Plan 
objectives during the past 2 years, most the ``heavy lifting'' in terms 
of improving the Corporation's bottom line lies ahead, with even 
greater need for annual improvements starting in FY2001.
    Although the general trend of Amtrak's financial performance has 
been improving in recent months because of increased ridership--due in 
part to new services and to historic levels of congestion in the 
aviation system, particularly in the Northeast Corridor--the delay of 
Acela has meant that Amtrak is going to end this year significantly 
(approximately $75 million) below Plan.
Where Does the Council Stand and What Does it See?
    Mr. Chairman, in a recent conversation, Senator Lott told me that 
he wants the Council, as part of its statutory duties of making 
recommendations for improvements, to give the Congress a plan for a new 
modern national rail passenger system and to make sure we include 
recommendations about how to fund it. In the broader context, Mr. 
Chairman, I think Senator Lott's request captures the essence of what 
the Congress in the Reform Act asked the Council to do--regardless of 
whether there is ever a need for a finding as to Amtrak's self-
sufficiency.
    After about 18 months of full operations, Mr. Chairman, I feel that 
this Council has come together quite well and that it has developed a 
solid perspective on the situation of intercity rail passenger rail 
service in America today.
A. The Situation Today
    Mr. Chairman, we are now looking at a domestic intercity 
transportation picture that for the first time in many years, actually 
needs the rail passenger mode in many important transportation markets 
in this nation. Air and road congestion in critical city pairs and 
regions have brought us to this position.
    The States, or at least a significant number of them that are faced 
with the need to find additional useful intercity transportation 
capacity, are being aggressive in their pursuit of opportunities for 
improved intercity rail passenger service.
    The Council also sees a federal government--both executive and 
legislative--that has:

   Provided Amtrak, which by law is now a private, federally-
        chartered District of Columbia corporation, as the sole 
        national instrument for operating and improving intercity rail 
        passenger service in this nation today; and

   Designated 11 emerging high-speed rail corridors--to go with 
        2 already-established corridors (the Northeast Corridor and New 
        York's Empire Corridor).
B. Amtrak Today, as Analyzed and Reported by the Council
    Amtrak is a conglomerate, trying to carry out many major functions 
in addition to its core mission. That mission is to operate a national 
system of intercity rail passenger, mail and express services, which is 
what Amtrak was established to do.
    In the Acela delay, which it now seems may be coming to an end, 
Amtrak is facing a critical obstacle to self-sufficiency. But it is 
important to note that Acela--even if it achieves the results that 
Amtrak forecasts--will provide significantly less than half of the 
financial performance improvements that the DOT IG's report says that 
Amtrak needs to achieve.
    Its Northeast Corridor infrastructure is also a problem. The 
Council has recommended that Amtrak keep separate financial statements 
on it. If it were a separate corporate division of Amtrak, it might be 
able to raise its own funds in capital markets.
    Amtrak has had, and continues to have, major problems achieving 
improvements in all areas of productivity, including its use of 
capital, labor, and materials. That said, the Council does not regard 
labor as the problem at Amtrak. The real problem is the overall 
structure of the corporation's management, exacerbated by inadequate 
information systems, and a lack of accountability--division by division 
and function by function--for bottom line results. Amtrak is also 
subject to substantial and continuing political interference, which 
seriously hampers its ability to operate like a business.
    Amtrak operates a fleet of passenger cars that is too old and too 
small. It needs new equipment to provide better service that will 
attract new riders and haul more mail and express traffic. The Council 
believes that much, if not all, of this equipment should be able to be 
financed by private capital markets.
    It needs better infrastructure on which to operate, both in the NEC 
and throughout the other 12 corridors. But this is far from just 
Amtrak's problem.
    To do all this, our nation needs a new system of financing for rail 
passenger service, which means that the government should put on its 
policy hat and design one for it, looking both at infrastructure and 
equipment and the roles of government financing and private capital 
markets.
    This brings me to the question as to how the proposed bonds fit 
into all of this.
The Proposal to Authorize Special Bonds to Finance High-speed Rail 
        Investments
    When the Council was asked by the Senate Commerce Committee to 
testify at this hearing on Amtrak issues, including providing the 
Council's views on the proposed ``High Speed Rail Investment Act'' 
(S.1900 and H.R. 3700), I directed the staff to send a memorandum to 
all Council members to determine the views of each Council member as to 
whether the Council should support or oppose the passage of this 
legislation. The results of the poll are as follows. Nine of the eleven 
Council members supported the proposed legislation with certain 
modifications: (1) the Bonds can be issued by ``an intercity passenger 
rail carrier,'' which would include state high speed rail authorities, 
not just by Amtrak; (2) priority should be given to use the Bond 
funding for infrastructure only, and should only be used for equipment 
if private financing is not available \3\; and (3) Bond funds be 
segregated from the operating bank accounts of Amtrak and other 
intercity passenger rail carriers' that might issue Bonds, and not be 
treated as fungible assets of these corporations. (This would be a 
change from the way that Amtrak dealt with the Taxpayer Relief Act 
funds in terms of interim use and investment.) Several Council members 
believe that the Council has no business taking a position on certain 
tax-related issues that are more appropriately issues for others to 
determine. An example of such issues are the Department of the 
Treasury's current limitations on private activity tax-exempt bonds and 
requirements that proceeds from tax-exempt bonds be expended within 3 
years of the time that tax exempt bonds are issued by the States. [A 
summary of the specific issues proposed to the Council members as part 
of their ``vote'' is found at Attachment I].
---------------------------------------------------------------------------
    \3\ The Council believes passenger equipment can be funded in large 
part by the private sector.
---------------------------------------------------------------------------
    The 2 remaining members had different positions. Mr. Moneypenny, 
the Presidentially-designated member representing the views of rail 
labor, expressed the view that the Council should not take a position 
on the bonds. The Administration indicated that it was in the process 
of determining its position and that, when its position was determined, 
it would so advise the Council. As of the time of the submission of 
this testimony to the Committee, the Council had not received notice of 
the Administration's position. We are treating that as a temporary 
abstention.
    Mr. Chairman, should these bonds not pass in this session of the 
Congress, it is likely that other ways could be found to finance high-
speed rail, including the federally-designated high-speed rail 
corridors. Such proposals might best be developed, I believe, from a 
well-considered effort by experts in transportation policy and finance 
to determine a modern Intermodal Surface Transportation Policy and an 
accompanying array of financing mechanisms needed to fund improvements 
in intercity passenger rail infrastructure and equipment. The Council 
will be ready to participate in any such discussion and debate about 
how to best do the job. This effort would have to start with a 
comprehensive capital needs plan, which Amtrak has not provided, aside 
from its 25-year estimate of capital needs for the south end of the 
Northeast Corridor.
    Is $10 billion needed? Without a doubt. And considerably more, in 
fact, if we are serious about improving and expanding intercity rail 
passenger service. The Reform Act charges the Council with a positive 
mission--to recommend improvements in Amtrak and, if Amtrak cannot 
improve to the extent the Congress requires, to design an improved 
national intercity rail passenger system. The Council was established 
to determine the best way to improve our national rail passenger 
system, and we see the need for a major investment in passenger rail 
service over the coming years. Assuming that, in some form and at some 
time, $1 billion per year for Corridor Development is provided, that 
amount could easily be matched by as much as $1 billion per year for 
other needs. These other needs include additional funding for the NEC 
and the emerging corridors, enhancements to the current national rail 
passenger system and to Amtrak's mail and express operations, and 
implementation of the Network Growth Strategy.
    Let me preface all this by saying that--on behalf of the Council--I 
think we would not be doing our duty as an independent oversight agency 
if we did not point one thing out. The reason we are we are all facing 
the very difficult issues that these bonds pose--and here I quote from 
the Council's first annual report--is that:

    L``Unlike roads and air, however, neither local or state 
governments nor the federal government have determined an institutional 
and financial solution for adding the track and equipment capacity to 
provide an expanded system of intercity rail passenger service. The 
privately-owned rail freight rights-of-way present unique issues 
compared to the publicly-owned and publicly-funded national systems of 
highways, airports, and airways. Rail rights-of-way, unlike other modes 
of transportation, do not have a stable funding mechanism for rail 
passenger corridor development.'' (Amtrak Reform Council, First Annual 
Report, January 2000, p.1)

    So we should realize that--under our current transportation 
policy--we are using Amtrak to do what in other modes is done by 2 
separate and separately funded types of organizations, one focusing on 
infrastructure, and one focusing on transport operations. The first is 
exemplified by the roles of the Federal Highway Administration 
operating in concert with the state highway departments, the Federal 
Aviation Administration, and the Corps of Engineers. The role of 
transport operations is--in all of these other modes--carried out by 
operating companies that carry passengers, mail, and express. Companies 
in modes other than rail are not entangled with huge infrastructure 
funding burdens; they pay a user fee for the infrastructure and focus 
their attention on serving the traveling public.
    I know Mr. Chairman that this Committee is much concerned with the 
problems of the aviation system today, and we each have our own stories 
about the stress of contemporary airline travel. But the problems of 
the airlines and the aviation system are the problems of success. Each 
year for the past 3 years the airlines have been adding more intercity 
passengers than Amtrak carries annually in total. And they have been 
adding each year as many or more employees than Amtrak's total 
complement of agreement employees.
    The question the Council is asking is ``What is the best way to get 
rail passenger service to begin to share in the economic bonanza that 
is causing problems for air and highway travel?''
    Against this backdrop, the Council's concern with this legislation 
has 2 dimensions--policy and practicality.
    From an overall policy standpoint, has this approach really been 
thought through thoroughly? Is the mechanism of these bonds, aside from 
the matter of who issues them, the best way to finance passenger rail 
capital needs? I would think that it depends on what part of those 
needs you are looking at. It is almost certainly not a sound way to 
fund the capital needs of Amtrak the corporation. But it might well be 
a reasonable way to fund long-term infrastructure improvements to the 
FDHSRCs. That raises these specific policy issues:

    1. LIs Amtrak the corporation, from all standpoints the best 
vehicle for issuing these bonds?

     LIt does have about $5 billion in Net Operating Loss 
        Carryovers (NOLs), but these exist because historical 
        government subsidies were made in the form of preferred stock 
        investments in Amtrak by the government, which arguably should 
        have been characterized as operating grants rather than capital 
        investments.

     LWhat about Amtrak's balance sheet? Should it be burdened 
        with $10 billion in debt (or contingent liability debt) for 
        improvements to the infrastructure, most of which it does not 
        own? What will this do to Amtrak's ability to borrow in private 
        markets?

     LShould we be loading major program and financing 
        responsibilities on a corporation which is clearly having 
        difficulties getting its core business to run well, and which 
        is facing the need to achieve self-sufficiency by December 2, 
        2002?

    2. LHas there been a clear assessment of the best potential roles 
of public financing and private capital markets?

    3. LAnd finally, has there been any solid attempt to determine the 
best possible way for money to be put into the infrastructure 
improvements of America's private railroads in order to provide the 
capacity and speed improvements needed to implement the Federally-
Designated High-Speed Rail Corridors? [Attachment II shows that, under 
the most favorable assumptions, over 30 years the taxpayers (federal 
and state) will pay at least $15 billion (and possibly as much as $18 
billion) for $10 billion of high speed rail projects].

    The proposed bond mechanism in effect uses Amtrak as a sort of 
Fannie Mae for the infrastructure of the railroad industry. One reason 
for the choice is clear--the $5 billion in NOLs that the corporation 
holds because of the subsidies it received previously from the 
government. These NOLs shelter the escrow Fund's taxable interest 
income needed to grow on a compounded basis and be available in 20 
years to repay the bonds.
    This is where issues of practicality come in. In the event that the 
Congress decides to pass the bond bill in this session, the Council 
believes that it should be done with the following amendments:

        (a) LThe funds primarily should be used for infrastructure 
improvements, with 90 percent for the FDHSRCs and 10 percent for non-
FDHSRCs (the 10 percent should be allocated to non-Corridor states by 
DOT) and should only be used for equipment expenditures if private-
sector financing of equipment is not available;

        (b) LThere should be adequate criteria for evaluating and 
assigning priority to the candidate projects, with DOT and the states 
playing the major role in the initial selection of projects. Amtrak 
should not be in the business of choosing projects outside the NEC. 
Assets outside the NEC are not Amtrak's assets, nor does Amtrak have a 
monopoly to provide rail passenger transportation in those areas;

        (c) LEffective oversight arrangements need to be in place for 
the projects to be funded by the bonds;

        (d) LAll funds, including both state contributions and bond 
proceeds, should be under the control of the Independent Trustee and 
should not be able to be borrowed by Amtrak (or any other issuer), or 
otherwise be entangled with its internal finances. To do so would be to 
create a risk of having the proceeds entangled in the internal finances 
of the issuer in a way that could put the bond proceeds and the bond 
escrow account at risk in the event of creditors' claims (in Amtrak's 
case, this would include the risk of default on its commercial debt 
obligations that Amtrak, in Appropriations testimony, has stated that 
it could indeed face). Moreover, discussions the Council's staff has 
had with financial experts experienced in bonds indicate that, when the 
prospectuses for these Bonds are issued, if Bond proceeds are to be 
mixed with Amtrak's internal funds, it could raise the perceived 
financial risks of the Bonds.

    Mr. Chairman, thank you again for your invitation to the Council. 
The issues you and the Committee are addressing are critical to the 
future of rail passenger service in this country, which we all want 
responsibly and effectively to promote.
                                 ______
                                 
    Attachment I
Background Paper on Proposed Changes Accepted and Under Discussion to 
        S. 1900 and H.R. 3700
I. Issues Discussed With Amtrak and FRA, Annotated by Later Changes 
        from the Senate Budget Committee Meeting
    The Council staff met with Sandra Brown (Vice President, Government 
Affairs) and Bill Erkelenz (legal counsel) of Amtrak and Mark Yachmetz 
(Associate Administrator for Railroad Development, Federal Railroad 
Administration). Ken Kolson followed up by telephone on August 24 with 
Bill Erkelenz. On September 8th, the Council staff met with Mitch 
Warren of the Senate Committee on the Budget (SCOB).
    A. Update on the Status of the Legislation. Amtrak indicated that 
ongoing legislative discussions surrounding the High Speed Rail 
Investment Act are now based on the text of H.R. 3700, not S. 1900; 
that Senator Lautenberg has agreed to the more restrictive provisions 
of H.R.3700 \1\; and that Amtrak has agreed to support certain 
amendments and clarifications to H.R.3700, which are summarized below:
---------------------------------------------------------------------------
    \1\ Amtrak has indicated that it is willing to be bound by the 
additional restrictions of H.R. 3700 (no more than 30 percent of funds 
invested in any corridor; explicit statement that there is no federal 
guaranty of the bonds; and any ``intercity passenger rail carrier'' can 
issue the Bonds, not just Amtrak).

        1. LAmtrak would support the House language that (a) would 
        allow rail passenger carriers other than Amtrak (including 
        specially-established State entities) to issue Bonds and (b) 
        would place a 30 percent cap on proceeds that could be used for 
        any corridor, including the NEC. Amtrak noted its 
        interpretation that the Alaska Railroad was qualified to issue 
        bonds.\2\ In the Budget Committee meeting, Mr. Warren indicated 
        that the issue of additional potential issuers of the bonds had 
        been augmented by a proposal from railway labor that Davis-
        Bacon provisions apply to all projects, regardless of the 
        issuer.
---------------------------------------------------------------------------
    \2\ Although only 10 percent of the proceeds of an issue each year 
can be used to improve non-designated high-speed corridors under the 
language of the bills, Amtrak interprets the language as allowing the 
Alaska Railroad to issue bonds for 10 percent of the maximum allowable 
$1 billion cap each year. Senator Stevens reads it this way too.

        2. LAmtrak would support statutory criteria for Amtrak and DOT 
        to apply in selecting projects (criteria similar to those used 
        by the Federal Transit Administration in approving transit 
        grants). Amtrak also would support oversight and greater 
        participation by the Secretary of Transportation or the DOT 
        Inspector General in the process of selecting projects to 
        receive Bond funding. Mr. Warren of the Budget Committee 
---------------------------------------------------------------------------
        indicated that work was underway to develop criteria.

        3. LAmtrak would support adoption of provisions providing for 
        federal and state oversight of the projects funded and amounts 
        expended by Amtrak under the Bond program, possibly using as 
        guidance the project management oversight process from the 
        transit industry with a private PMO (``Project Management 
        Oversight'') contractor making sure that the funds are expended 
        according to the applications and grant agreements executed 
        between Amtrak and the States.

        4. LAmtrak would support legislation clarifying that States 
        could use tax-exempt project revenue bonds to fund the States' 
        20 percent matching contributions in whole or in part.\3\ This 
        provision could encounter U.S. Treasury Department opposition 
        since it may open the door for others also to get implicit 
        federal subsidies by getting authority to issue more tax-exempt 
        project financing bonds.
---------------------------------------------------------------------------
    \3\ Amtrak noted that states can put up their 20 percent shares of 
funding by issuing general obligation tax-exempt bonds (but the states 
presumably would prefer to issue project financing bonds since such 
bonds are not full faith and credit obligations of the states). Amtrak 
also noted that the current IRS Code allows States to issue tax-exempt 
project financing bonds for high-speed train facilities as long as such 
trains can travel at speeds of 150 mph or faster for appropriate 
portions of their trips.

        5. LAmtrak agreed to have a capital plan in place before any 
        bonds are issued. Although Amtrak did not provide the 
        specifications of the promised capital plan, Amtrak seemed to 
        suggest that it would provide a five-year capital plan rather 
        than a longer-term plan. It is expected that Amtrak's capital 
---------------------------------------------------------------------------
        plan would be issued before the end of September.

        6. LAmtrak believes the 36-month period to make qualified 
        expenditures may not be sufficient because it will take time 
        before projects can get underway (particularly with a 
        requirement for DOT approval of project plans, and possible 
        requirements for Environmental Impact Statements). Chairman 
        Shuster informed Amtrak that he thinks the 36-month period is 
        too short. FRA noted that its experience with the Northeast 
        Corridor Improvement Project supports the need for a longer 
        spend-out period.\4\ Amtrak anticipates that approximately 20 
        percent of each years' bond funds will be invested in the years 
        that the bonds are issued. In the Budget Committee meeting the 
        issue was raised that Treasury regulations do not permit longer 
        than 3 years between issuance and expenditure for the project 
        to be financed.
---------------------------------------------------------------------------
    \4\ Mark Yachmetz noted during the meeting that in the 
approximately 19 years that funds were administered by the Northeast 
Corridor Improvement Project, first year funds expended never exceeded 
15 percent, and only twice did first year funds expended exceed 10 
percent.

        7. LAmtrak reads the language of the bills as requiring a State 
        to put up its 20 percent match in cash (not just to make a 
---------------------------------------------------------------------------
        written commitment) prior to the issuance of any Bonds.

        8. LAmtrak noted that the issue of who will manage a project 
        must be resolved in each case. The entity that would manage the 
        project would be specified in agreements among Amtrak, the 
        states, and any freight railroad that might be involved.

        9. LAmtrak will take legal measures, to the extent possible, to 
        insulate the funds held by the independent trustee (in what 
        Amtrak calls an Escrow Fund) from Amtrak's creditors; Amtrak 
        does not envision that a separate taxable entity will be 
        created; Amtrak will pick the independent trustee using a 
        competitive process similar to the one used to select the 
        advisor to invest the TRA funds; and Amtrak expects that the 
        bonds will be paid off through Guaranteed Investment Contracts 
        (GICs) purchased by the trustee. Amtrak's legal counsel said 
        that, if necessary, perhaps the Escrow Fund could be placed in 
        a Grantor Trust to isolate it from Amtrak's general creditors, 
        while allowing Amtrak's tax attributes to be used to shelter 
        taxable income otherwise earned by the Escrow Fund.\5\
---------------------------------------------------------------------------
    \5\ Legal structures can isolate the Escrow Fund from Amtrak, but 
in an Amtrak bankruptcy proceeding, creditors of Amtrak could argue 
that the Escrow Fund should repay Amtrak (a) for the value of any 
principal payments made with Amtrak funds pursuant to Amtrak's guaranty 
of Bond principal within 3 years of an Amtrak bankruptcy, and (b) for 
the value of Amtrak tax losses used by the Escrow Fund to shelter 
interest income from federal and state income tax liability within 3 
years of an Amtrak Bankruptcy.

    10.  LWhen asked about how income taxes on Escrow Fund interest 
earnings would be paid (which Amtrak anticipates will be taxable for 
income tax purposes), Amtrak offered its remaining approximately $5 
billion of Net Operating Loss Carryovers \6\ as well as future losses 
(due to depreciation, etc.) to be available to shelter any taxable 
interest income. Presumably, the same Amtrak losses would be available 
to shelter any taxable interest earnings resulting from temporary 
investments of the Bond principal of $1 billion per year until the 
funds are expended for qualified, approved projects.
---------------------------------------------------------------------------
    \6\ Amtrak's audited financial statements report a NOL carryover 
balance of $8.4 billion as of December 31, 1998, less a $3.3 billion 
reduction in fiscal year 1999 due to the funding received under 
Taxpayer Relief Act of 1997. Since the Net Operating Loss (NOL) 
Carryovers represent losses funded by federal investment in Amtrak, 
primarily through the purchase of preferred stock, this approximately 
$5 billion of NOL Carryovers may not be available in the future if 
there is a financial recapitalization of Amtrak. Furthermore, depending 
upon the income tax treatments appropriate for future federal and state 
funding mechanisms, Amtrak may not generate sufficient taxable losses 
in the future to fully offset the interest income earned by the Escrow 
Fund.

    11.  LThe 5 percent of the proceeds that can be used for non-
qualified project expenditures is expected by Amtrak to be used for 
``soft costs'' (e.g., transaction costs; funds for oversight of 
projects [Project Management Oversight similar to that used for 
projects funded with transit grants, as proposed by OMB and DOT/IG] and 
other set-asides to ensure that no issue arises regarding the 
qualification of the Bonds).\7\
---------------------------------------------------------------------------
    \7\ The 5 percent could also allow the bonds to be sold at a small 
discount to their par value and still satisfy the statutory requirement 
that at least 95 percent of the proceeds are used for qualified 
investments.

    B. Other Issues Discussed. In addition to the above issues, which 
Amtrak represented as likely legislative amendments, other issues 
---------------------------------------------------------------------------
related to the Bonds were discussed, as indicated below:

        1. LWhen asked if certain types of project expenditures such as 
        progressive overhauls could be funded with Bond proceeds, 
        Amtrak indicated that they theoretically could. Amtrak, 
        however, did not anticipate that the States would agree to use 
        Bond funds for progressive overhauls. The FRA concurred, 
        stating that although the States may approve using Bond funds 
        and may provide matching State funds for capital expenditures 
        on a Generally Accepted Accounting Principal (GAAP) basis 
        (i.e., new, long-term assets or expenditures which rebuild or 
        significantly increase the useful lives of assets), approving 
        Bond funds for progressive overhauls was not likely.

        2. LAmtrak anticipated that the DOT or some other federal 
        agency would have to approve project applications before Bond 
        funds would be made available. As a result, both Amtrak and 
        Mark Yachmetz did not think that Bond funds, unlike TRA funds, 
        would be used for purposes that did not advance high-speed rail 
        passenger service.

        3. LFreight railroads and other entities that benefit from the 
        Bond funding would have to agree to certain requirements and 
        restrictions pertaining to use and maintenance of the assets 
        funded throughout the life cycle of the assets (FRA noted that 
        there needs to be an agreement with the freight railroads in 
        place prior to approval of the project and issuance of the 
        Bonds).

        4. LThe bills do not spell out how the Bond fund proceeds can 
        be invested by Amtrak for the 36-month (or greater) temporary 
        period before they are used to pay for qualified project 
        expenditures. Amtrak intends to invest the money in high-yield 
        investments, the earnings from which would go into the Escrow 
        Fund to pay off the bonds. Amtrak estimates that the Escrow 
        Fund will have to earn a rate of return of approximately 6.25 
        percent (rather than the 8.38 percent rate calculated by the 
        Council staff, which assumed that Bond principal would be 
        immediately spent on qualified project expenditures). This is 
        because Amtrak assumes that a maximum of 20 percent of the bond 
        funds will be expended in the first year, not more than 40 
        percent in the next year, with the balance presumably being 
        spent in the third and following years. Before the funds are 
        used for project expenditures, the interest earnings on the 
        invested Bond principal will go into the Escrow Fund, allowing 
        a lower rate of return to be required on the 20 percent State 
        matching funds in the Escrow Fund.\8\
---------------------------------------------------------------------------
    \8\ Attached to this memorandum are analyses which show the amounts 
that need to be earned to repay Bond principal in 20 years with Bond 
funds (1) immediately spent on qualified project expenditures, and (2) 
invested for a period of time before being spent on qualified project 
expenditures. These attachments, showing both after income tax and 
before income tax cases, confirm Amtrak's assertion that an after-tax 
(or tax exempt) interest rate of approximately 6.25 percent for 20 
years will be sufficient for the Escrow Fund to repay the loan 
principal in 20 years.

        5. LWhen asked, Amtrak agreed that, under the language of the 
        current bills, it could borrow the money for all or part of the 
        36-month ``temporary investment'' period at a stated rate of 
        interest and deposit the interest payments in the Escrow Fund. 
        Amtrak indicated that, prior to this question, no one in the 
        Corporation had given any thought to Amtrak's borrowing the 
---------------------------------------------------------------------------
        funds temporarily.

        6. LAmtrak interprets the bills as allowing a freight railroad 
        to reimburse a state for all or part of the 20 percent match. 
        Amtrak (and DOT) believe that any benefit to a freight railroad 
        in improving its infrastructure in a high-speed corridor would 
        also benefit Amtrak and intercity passenger service, even if 
        only indirectly.

        7. LMark Yachmetz noted that DOT was in discussions with Amtrak 
        about the bills, but, as of August 23, DOT had taken no 
        position yet. DOT may endorse the bills (with certain 
        amendments), or it may not. After the meeting, he noted to the 
        ARC staff that H.R.3700 was likely to be the last legislative 
        opportunity to fund high-speed rail development projects until 
        FY2003.

II. Staff Suggestions for Improvements to Amendments Proposed and 
        Description of Further Amendments Believed to be Needed
    After reviewing the improvements in the proposed legislation as 
discussed with Amtrak and DOT, the Council staff believes that some of 
the proposed amendments need strengthening and additional conditions 
should be imposed.
A. Suggested Improvements to Proposed Amendments.
    1. There should be clear investment criteria for the Secretary of 
Transportation to use in prioritizing and approving projects, and 
Amtrak should be made subject to DOT reporting requirements regarding 
project expenditures. It would be preferable for the Secretary of 
Transportation to make decisions that will shape the Nation's future 
passenger rail infrastructure. In addition:

     LThere should be incentives for the states to increase the 
        percentage of matching funds contributed to financing projects 
        funded with the Bonds; this should be one of the criteria used 
        by the Secretary in reviewing and assigning priorities to 
        projects submitted for approval (Amtrak and DOT noted that this 
        issue was currently under discussion, and this issue is a high 
        priority for the Senate Budget Committee);

     LThere should be incentives in place to obtain 
        contributions from freight railroads that are beneficiaries of 
        bond-financed projects (DOT and the Senate Budget Committee are 
        also working on this issue).

    2. Capital improvements should meet the standards of Generally 
Accepted Accounting Principles. The bond proceeds would therefore be 
used only for capital expenditures for projects funding infrastructure 
improvements or equipment. Amtrak operating expenses, such as 
progressive overhauls or preventive maintenance, would not be eligible.

    3. Amtrak should be required, on a permanent basis, to incorporate 
a rolling five-year capital investment expenditure plan into its 
Strategic Business Planning process (``rolling'' means that the 
investment expenditure plan would be updated each year for the next 5 
years as part of Amtrak's normal business planning process).

    4. In addition to the language of H.R. 3700, which permits Amtrak 
and other intercity rail passenger carriers to issue Bonds, bona fide 
high-speed rail authorities should also be permitted to issue the 
Bonds. Rail labor has proposed that Davis-Bacon provisions should apply 
to projects financed by any issuer of the bonds.
B. Additional Conditions That Should Be Considered
    1. DOT should be required to maintain annual oversight of the state 
of good repair of the assets improved with investment funds:

     LFreight railroads should be required to issue reports 
        concerning how the funds were expended and demonstrating that 
        they have performed normalized maintenance on the segments 
        improved with Bond funds.

     LAmtrak should be required to provide annual reports on 
        the financial and physical state of good repair of the NEC 
        infrastructure, including improvements made with bond funds.

    2. To ensure that Bond proceeds are not mixed with Amtrak's 
operating funds in any way that could entangle the proceeds with any 
future creditors' claims, all Bond proceeds and state contributions 
should be placed in separate accounts within the Escrow Fund controlled 
and managed by the independent trustee. The temporary investment of the 
Bond funds should be limited to AAA investment grade securities, 
possibly limited to federal government obligations.

    3. The statute should require that, within the $3 billion allocated 
to the NEC, the highest priority is to correct the remaining fire and 
life safety problems in Penn Station New York and its associated 
complex of tunnels. At a minimum, safety should be a principal 
criterion for the DOT to use in assigning priority to and selecting 
projects.

    4. States should have the right to inspect Amtrak's financial 
records for Bond-funded projects.
III. Impact of Changes Accepted by Amtrak and Those Yet to Be 
        Considered in the Bills
    In looking at the process that has occurred during the past few 
weeks since the hearing by the House Ways and Means Subcommittee on 
Oversight, it seems that:

    1. If, indeed, the bonds are intended to fund only the 
infrastructure improvements of the federally-designated high-speed rail 
corridors (the FDHSRCs, which, includes the Northeast Corridor, the 
Empire Corridor, and the 11 emerging high-speed rail corridors 
designated under ISTEA and TEA-21), there is probably a better way to 
structure an infrastructure improvement program (e.g., a federal-state 
variant of the NECIP program in which FRA, with assistance from FHWA, 
would work with the state DOTs and the freight railroads to upgrade 
infrastructure).

    2. If this were the only vehicle that would ever be possible for 
funding the corridors, additional amendments should be considered (as 
discussed in Section II) that would ensure:

      (a) LFunds could only be used for infrastructure improvements to 
the NEC and the FDHSRCs (plus the 10 percent for non-FDHSRCs, which 
should be allocated by DOT);

      (b) LAdequate criteria be in place for evaluating and assigning 
priority to the projects, with DOT playing a direct role in initially 
choosing projects. Amtrak should not be in the business of choosing 
projects outside the NEC. Assets outside the NEC are not Amtrak's 
assets, nor does Amtrak have a monopoly to provide rail passenger 
transportation;

      (c) LAmtrak should not be eligible to manage projects, except in 
the NEC, and only there with the agreement of the participating states;

      (d) LEffective oversight arrangements be in place; and

      (e) LAll funds, including both state contributions and bond 
proceeds, be under the control of the Independent Trustee and cannot be 
borrowed by Amtrak or otherwise be entangled with Amtrak's internal 
finances.

    The overall impact of these changes would be to convert the 
original bills, which appeared to be very simple instruments for 
providing blanket authority without a well-defined program objective or 
adequate restrictions for Amtrak to issue Bonds (based on Amtrak's 
exclusive comparative advantage of having about $5 billion in NOL tax 
carryforwards), to a bill designed to ensure that the Bonds would be 
used to fund the infrastructure improvements necessary to develop the 
FDHSRCs. The Council staff believes that a better approach would be to 
start with a programmatic bill designed effectively to fund the 
infrastructure improvements needed for the FDHSRCs and then to meld 
onto it any tax provisions that might be best-suited to finance the 
corridor development program.
    The Council clearly stated in its First Annual Report that it 
believed that Amtrak was trying to perform too many functions to the 
detriment of its ability to operate a truly effective intercity 
passenger train operating company, and that, accordingly, major 
responsibilities in such areas as infrastructure improvement should be 
left to others. This view undergirds our assessment of the proposed 
Bond legislation.
                                 ______
                                 
                                 
                                 

    The Chairman. Thank you, Mr. Chairman. We have a vote on. I 
suggest we take a brief recess and go vote and come right back.
    [Recess.]
    The Chairman. The Committee will reconvene. I thank the 
witnesses for their patience while we went over and had a vote.
    Our next witness, and our next-to-last witness, is Mr. 
Joseph Vranich. Welcome, Mr. Vranich.

            STATEMENT OF JOSEPH VRANICH, IRVINE, CA

    Mr. Vranich. Thank you, Mr. Chairman. Good morning to you 
and your colleagues. I appreciate the opportunity to testify 
before you today.
    I am accompanied here by Mr. Anthony Haswell, who is seated 
in the audience. He founded the National Association of 
Railroad Passengers in 1967. In 1970 he hired me to be its 
executive director, and Mr. Haswell is an attorney who is 
occasionally referred to as the father of Amtrak. He is here, 
and he agrees with the overall thrust of my testimony.
    Although this marks the 31st year that I have been a 
proponent for rail service, I am now embarrassed to admit that 
I worked to create Amtrak. I served as a member of the 
congressionally chartered independent Amtrak Reform Council, a 
post I was appointed to by the Senate Majority Leader on 
February 24, 1998.
    Amtrak has made performing the oversight functions unduly 
difficult, if not impossible for the Amtrak Reform Council. As 
such, I believe the Council is unable to effectively fulfill 
the oversight role that Congress intended for it, and that 
there is no realistic prospect it will be able to do so in the 
foreseeable future. Thus, I resigned my position effective July 
10 of this year.
    Amtrak has obstructed the Council regarding several very 
important issues. How is Amtrak spending its $2.2 billion 
Taxpayer Relief Act funding? The Council is required to turn a 
report in to the Congress about that. What is the revenue and 
cost picture for Amtrak's freight program? They call it 
express. I call it freight, because it slows the trains down.
    Another issue is what steps Amtrak is taking to improve 
productivity? Again, the Council is required to present a 
report to Congress on that. These issues are covered in detail 
in my prepared testimony, which includes a chronology of when 
we asked Amtrak questions and the questions Amtrak either 
inadequately responded to or did not respond at all.
    I would like to say something about procedures. In the 
Council, we understand the sensitivity of delving into Amtrak's 
affairs. The Council established procedures to ensure against 
the public disclosure of information that is a trade secret, or 
commercial or financial information that is privileged or 
confidential. Council members voluntarily signed ARC-developed 
confidentiality agreements. Amtrak declined to accept those and 
demanded that members sign an Amtrak-written confidentiality 
agreement.
    All Council members signed the second agreement. Despite 
the Council's good faith demonstration that proper safeguards 
were in place, Amtrak nevertheless declined to provide germane 
or timely information in many cases.
    Incidentally, one of the questions I was dealing with is, 
what is your rate of return on these capital projects that you 
have that you are financing out of the Taxpayer Relief Act? 
Amtrak basically told me, we do not calculate that for most of 
our projects.
    I want to volunteer that when I worked in Amtrak's public 
affairs department, which admittedly was some time back, it was 
back in the 1970's, I was a member of what was called the 
Passenger Service Committee. We reviewed capital projects based 
on estimated rates of return, and we recommended projects to 
the board of directors for approval. It is beyond belief that 
Amtrak's large bureaucracy in the 1990's and now 2000, one that 
relies extensively on computer accounting systems, is unable to 
produce data that Amtrak's much-smaller staff without computers 
compiled in the 1970's.
    I have been a high-speed rail proponent for many, many 
years. Regarding the High-Speed Rail Investment Act, Amtrak is 
torturing the English language to redefine what constitutes a 
high-speed train. This is most pronounced for trains in the 
Southeast, Midwest, and West, where after money is spent most 
of the trains will still run at rather ordinary speeds. Hence, 
the legislation will do virtually nothing to bring about true 
high-speed trains, demonstrating once again that Amtrak's 
management and organizational culture are poorly suited to 
develop truly advanced train systems.
    One of the arguments for high-speed rail is that we can 
divert passengers from air travel to trains, thereby freeing up 
slots at congested airports. But after upgrading, Amtrak trains 
will still be insufficient to the task of competing with air 
travel. This is outside of the Northeast Corridor.
    Also, Amtrak may spend funds on routes that are excessively 
long, such as Washington, DC, to Jacksonville, Florida, where 
there is no way, no way, not now and not ever, that even the 
fastest high-speed trains could compete with air travel. No 
executive I have ever met on a single high-speed rail operation 
overseas, and I have met many, many of them, not one of them 
has ever proposed a route that long at 753 miles, where high-
speed rail's effectiveness basically falls after a distance of 
300 miles.
    For these reasons, Amtrak's claim that this bill will help 
ease aviation congestion is unscrupulous. I doubt that the 
program will result in the elimination of a single flight from 
our busy air system, and incidentally I noticed an earlier 
comment about a number of organizations supporting this bill, 
and Amtrak's long listing.
    One place is the city of Grand Forks, North Dakota. With 
all due respect to the people of that fine community, it 
boggles my mind that they would endorse a high-speed rail bill, 
because North Dakota does not have the population density of a 
route like Tokyo-Osaka, or Berlin-Hamburg, or any of these 
places where high-speed rail plays a role. So I can only wonder 
and imagine what kind of representations were made to the city 
of Grand Forks to get them to sign on as an endorser to this 
legislation.
    Cost estimates are virtually nonexistent for these 
upgrades. I have been involved in private proposals for high-
speed rail. We hold private companies up to excruciatingly 
painful standards when they develop high-speed rail proposals, 
but we are creating a standard here for Amtrak that is 
excessively loose. We have no cost estimates. We have no rate 
of return calculations. We have no credible estimates of 
ridership or revenue that will result from this bill. The 
conclusion I have reached is that the bill should not pass.
    I would like to conclude by saying that I think Congress 
should take a closer look at Amtrak and demand real 
accountability on a number of scores, and while I offer a 
number of legislative recommendations which are outlined in my 
full testimony, I would highlight one here.
    One recommendation is that I think Congress, in amending 
the ARAA the next time, should establish penalties for Amtrak's 
failure to cooperative with the Amtrak Reform Council.
    Mr. Chairman, that concludes my testimony. I will be happy 
to answer your questions. Thank you.
    [The prepared statement of Mr. Vranich follows:]

            Prepared Statement of Joseph Vranich, Irvine, CA
    Good morning, Mr. Chairman and distinguished Members of this 
Committee. My name is Joseph Vranich and I appreciate the opportunity 
to testify before you regarding Amtrak. Because of time limitations, I 
will summarize my prepared testimony.
    I have no employer or client involved in transportation today. 
Thus, I speak as an independent voice. I am accompanied here by Mr. 
Anthony Haswell, who is seated in the audience. He founded the National 
Association of Railroad Passengers in 1967. In 1970, he hired me to be 
its executive director. Mr. Haswell is an attorney who for many 
significant reasons is referred to as the ``father of Amtrak.'' He 
agrees with the overall thrust of my testimony.
    Although this marks the 31st year that I have been a proponent for 
rail service, I am now embarrassed to admit that I worked to create 
Amtrak.

   The Amtrak I and others envisioned would design a flexible 
        system attuned to contemporary need and demand, adjusting and 
        fine-tuning its services to carry people where they are willing 
        to travel by train. But we do not have that with today's 
        Amtrak.

   The Amtrak we envisioned would be demonstrating leadership 
        in bringing about true high-speed trains to America. But we do 
        not have that with today's Amtrak.

   The Amtrak we worked to create would be one that would give 
        passengers priority over freight. But we do not have that, 
        either.

    Instead, what we have is an underperforming Amtrak that remains a 
candidate for liquidation.
    My most recent relevant position was as a member of the Amtrak 
Reform Council, a post I was appointed to by the Senate Majority Leader 
on February 24, 1998. When I was appointed, Senator Trent Lott said, 
``The ARC will ensure that Amtrak spends the taxpayers' money wisely. 
The Council's first loyalty will be to the American taxpayer.'' Note 
the responsibilities under the Amtrak Reform and Accountability Act of 
1997 (ARAA), subsection 203,

    Amtrak shall make available to the Council all information that the 
Council requires to carry out its duties . . . . The Council shall (A) 
evaluate Amtrak's performance; and (B) make recommendations to Amtrak 
for achieving further cost containment and productivity improvements, 
and financial reforms . . . . In making its evaluations and 
recommendations . . . the Council shall consider all relevant 
performance factors, including . . . management efficiencies and 
revenue enhancements, including savings achieved through labor and 
contracting negotiations . . . . Amtrak shall report quarterly to the 
Council (A) the savings realized as a result of the [new labor work-
rules] agreement and (B) how the savings are allocated.

    Amtrak has made performing such tasks unduly difficult if not 
impossible for the Amtrak Reform Council. As such, I believe that the 
Council is unable to effectively fulfill the oversight role that 
Congress intended for it, and that there is no realistic prospect that 
it will be able to do so in the foreseeable future. Thus, I resigned my 
position effective July 10th of this year.
    I will summarize the facts regarding Amtrak obstructionism on 
several major issues--its so-called income tax refund, its freight 
program, and Amtrak productivity.

   Amtrak's ``Income Tax Refund'': Congress in the Taxpayer 
        Relief Act ordered the IRS to provide Amtrak with a $2.2 
        billion ``tax refund''--even though Amtrak has never paid 
        federal income taxes. The ARAA, Section 209 states, ``The 
        Amtrak Reform Council shall report quarterly to the Congress on 
        the use of amounts received by Amtrak under section 977 of the 
        Taxpayer Relief Act of 1997.'' I was appointed by former 
        Council Chair Christine Todd Whitman to assemble information 
        for such reports. While Amtrak provided lists of capital 
        projects, Amtrak routinely failed to provide rates-of-return 
        for such projects despite repeated requests. I was not 
        surprised by GAO's February report that stated Amtrak reports 
        to the ARC are ``less useful than they could be in helping the 
        Council comply with its responsibility to monitor Amtrak's use 
        of Taxpayer Relief Act funds.''

   Freight: To accommodate freight (which Amtrak refers to as 
        ``express'') shipments, Amtrak has added time to its schedules, 
        making trips longer for passengers. The ARC has asked Amtrak to 
        provide the costs of its freight program, not just its 
        revenues, and Amtrak Chairman Tommy Thompson assured me on 
        September 24, 1998--2 years ago--that Amtrak would cooperate. 
        Also since then Amtrak has asserted to the media that freight 
        is ``contributing to the bottom line.'' This is a worthy goal, 
        but unfortunately, freight profit-loss information has not been 
        provided, so the truth of Amtrak's claim cannot be verified. 
        Amtrak has not been forthcoming on this issue in any respect. 
        Absent evidence to the contrary, its highly probable taxpayers 
        are subsidizing shippers who move freight on Amtrak, including 
        major corporations like Campbell's Soup and United Parcel 
        Service. If true, that is an outcome never envisioned by people 
        who worked to create a rail system for passengers.

   Productivity: Amtrak has misled the Senate by stating that 
        it has improved workforce productivity. Up until my July 
        departure, Amtrak had provided no factual support for 
        assertions that the 20 percent increase in wages after new 
        labor agreements were signed in 1997 will be offset by work-
        rules savings. Moreover, despite ARC reporting requirements, 
        Amtrak failed to answer many questions about the subject. Based 
        on information that can be gleaned from public reports, it 
        appears that Amtrak's productivity dropped in 1999 compared to 
        prior years on 2 key measurements--passengers per employee and 
        passenger-miles per employee. In that last measurement, 
        productivity was lower than every year of the previous ten 
        years.

    These examples regarding Amtrak's stonewalling of the ARC are more 
fully explained in my complete testimony, including a chronology of 
when we asked Amtrak questions to which Amtrak was non-responsive. 
(Attachment 1.)
    No one really knows the full public cost of running Amtrak today. 
Senator Wayne Allard was justified to say recently in floor debate: ``I 
have grown increasingly skeptical about what is going on with Amtrak. 
It seems they found a way to pick up government subsidies all over the 
place.'' He is correct. Known federal subsidies to Amtrak will soon 
exceed $24.3 billion. But excluded from Amtrak reports are the costs of 
numerous public programs that help finance Amtrak or shift Amtrak 
expenses to the books of other agencies such as the Federal Railroad 
Administration, the Federal Transit Administration and the Treasury 
Department. The most notable of these is the federal bailout of more 
than $1 billion in Amtrak government-guaranteed loans, the cost of 
which is carried on the Treasury Departments books. (Attachment 2.)
    Amtrak's pride in its new ridership record is not cause for 
celebration but cause for alarm. I say that because during this all-
time record year of travel, Amtrak will be breaking a level set in 
1988--twelve years ago. This means Amtrak's ridership growth is anemic 
during the biggest travel boom in the history of our country. Indeed, 
its ridership figures are an indictment of Amtrak's non-responsiveness 
to the changing travel marketplace. As food for thought, on Memorial 
Day weekend, U.S. commercial aviation carried well over 12 million 
passengers--which means in just one holiday weekend airlines carry more 
than half the number of people who board Amtrak during the entire year. 
Amtrak's market share routinely drops, and today, according to the Eno 
Transportation Foundation, Amtrak holds only six-tenths of one percent 
of the travel market. (Attachment 3.)
    Amtrak is violating the law that requires it to run modern rail 
passenger service when it adds trains that are slower than trains were 
decades ago. On April 15, Amtrak began running the Lake Country 
Limited, which takes 3 hours and 20 minutes to travel from Janesville, 
Wisconsin, to Chicago. The old Chicago & North Western Railroad 
connected Janesville with Chicago an hour-and-a-half faster when Harry 
Truman was President in 1952. The press reports traffic on the train 
has averaged 11 people per day in each direction. In Indiana, Amtrak 
added a train whose schedule is 3 hours slower than a pre-Amtrak train 
was on the same route when Calvin Coolidge was President in 1926. 
Meanwhile, I know this Committee has spent considerable time lately on 
airline performance, and I believe Amtrak on-time performance deserves 
the same attention. In this testimony I am revealing for the first time 
the completed results of my review of Amtrak scheduling practices. 
Amtrak may boast that it's enjoying its ``best on-time performance in 
13 years,'' but the facts show Amtrak performance outside of the 
Northeast is in shambles. Amtrak now inserts very long periods of time 
just before checkpoints where on-time performance is calculated. If 
Amtrak performance were measured at the stop before an official 
checkpoint, Amtrak's on-time statistics would be far worse than 
official reports indicate. Amtrak employs this practice to a degree 
unprecedented in the railroad business. Amtrak's method goes way beyond 
anything found in aviation today, so it's possible that the airlines--
even with terrible airport delays this summer--had a better on-time 
record than Amtrak did outside of the Northeast. (See Attachment 4.)
    As one who has testified before Congress in support of the Acela 
Express program, I am pleased that the Acela Express will soon begin 
operations. The train is a needed improvement that I welcome because it 
will offer many amenities and quicker train travel. Im disappointed, 
however, with management of the project. The Acela Express is 3 years 
behind schedule. It is clear from Amtrak promises that the first Acela 
Express was to have been delivered in April 1996 and begin carrying 
passengers after a year of testing. My complete testimony quotes 
Amtrak's words verbatim about the delivery schedule to begin in 1996. 
Moreover, I'm dissatisfied with the Acela Express schedules. For 
perspective, the New Haven Railroads Merchants Limited connected New 
York with Boston in 4 hours flat in 1950. They did that without the 
benefits of today's electrification east of New Haven, tilt-train 
technology and advanced signaling systems. I also question the degree 
of liability facing the U.S. Government as a result of a $1 billion 
loan for the Acela Express from the Canadian government, the details of 
which remain secret. To my knowledge, the ARC was never informed of the 
loan, the uses to which it was put, principal amount owed, interest 
rate, repayment schedule, or other terms and conditions. I must ask--
are the Acela Express trains serving as collateral? We don't know. 
There is much we don't know about this financial arrangement. (See 
Attachment 5.)
    Regarding the High Speed Rail Investment Act (S.1900/H.R.3700)--
Amtrak has become zealous in torturing the English language to ``re-
define'' what constitutes a ``high-speed'' train. This is most 
pronounced for proposed trains in the Southeast, Midwest and West where 
after money is spent the trains will still operate at rather ordinary 
speeds. Hence, the legislation will do virtually nothing to bring about 
high-speed trains. The bill simply turns over more responsibility to 
Amtrak, whose management and organizational culture are poorly suited 
to develop truly advanced train systems. Amtrak has taken seven years 
to design, build and test the Acela Express while other countries have 
completed such projects in only 4 years. One of the arguments for high-
speed rail is that we can divert passengers from air travel to trains, 
thereby freeing up slots at congested airports. But the funds in this 
bill, once spent, will result in trains insufficient to the task of 
competing with air travel. The resulting passenger diversion rate from 
air would be so small that I doubt a single flight would be removed 
anywhere in our aviation system. Also, Amtrak may spend a portion of 
the funds on routes that are excessively long, such as Washington, D.C. 
to Jacksonville, Florida, where there is no way--not now, not ever--
that even the fastest high-speed trains could compete with air travel. 
No executive I've ever met on a single high-speed rail operation 
overseas has ever proposed a route that long, at 753 miles, when high-
speed rails effectiveness falls after a distance of 300 miles. For 
these reasons, Amtrak's claim that this bill will help ease aviation 
congestion is unscrupulous. Moreover, my understanding is the cost of 
the legislation will be more than what Amtrak claims. I note that the 
Heritage Foundation issued a report on August 28 describing the federal 
government's implicit interest payments, concluding that ``The loss of 
tax revenues to the U.S. Treasury would total $16 billion if interest 
rates remain unchanged at 8 percent.'' With Amtrak's financial record, 
it's doubtful that Amtrak will ever repay those bonds. I view the bill 
as a way to create another method to bury subsidies to Amtrak in the 
ledgers within the Treasury Department, similar to what was done in the 
1980s when Amtrak defaulted on more than $1 billion in government-
guaranteed loans. Finally, by reinforcing Amtrak's de facto monopoly, 
the bill is harmful to those imaginative folks in the private-sector 
who have expressed interest in developing high-speed rail in the United 
States. To effectively plan market-sensitive high-speed train systems, 
a new direction is needed to include participation by regional 
agencies, private businesses and joint ventures in innovative, 
imaginative public-private partnerships. Finally, I ask you to consider 
that the Amtrak Reform Council, the GAO, and the DOT Inspector General 
have all faulted Amtrak for not having the proper capital planning in 
place. It is unreasonable to fund Amtrak-style high-speed rail when we 
don't even know what Amtrak's project costs will be. (See Attachment 
6.)
    In conclusion, Amtrak will likely require billions of additional 
tax dollars to stay alive. Congress should take a closer look at Amtrak 
and demand real accountability. Congress should consider investigating 
inappropriate Amtrak actions and establish penalties for Amtrak's 
failure to cooperate with the Amtrak Reform Council. Congress should 
amend the ARAA to tighten reporting requirements on Amtrak financial 
issues. In the interests of passengers, Congress should pass a ``Truth 
in Scheduling'' provision to require Amtrak trains to be on time more 
often in more cities it serves, not just at the cities that serve as 
``checkpoints'' for the purposes of calculating on-time performance. 
Finally, Congress should refuse to pass the so-called High Speed Rail 
Investment Act because it will not bring about high-speed trains. The 
bill will help bail out Amtrak during another financial crisis, a 
reasonable conclusion considering that Amtrak is awash in red ink now 
and remains a candidate for liquidation. (Attachment 7.)
    Mr. Chairman, that concludes my testimony. I will be happy to 
answer your questions. Thank you.
                                 ______
                                 
Attachment 1: Amtrak's Lack of Cooperation with the ARC
    I believe that the Amtrak Reform Council is unable to effectively 
fulfill the oversight role that Congress intended for it, and that 
there is no realistic prospect that it will be able to do so in the 
foreseeable future. I say this because Amtrak has resisted providing 
information in significant areas--impairing the Council as it attempted 
to carry out its statutory duties.
    The Council's right to information is unconditional as to nature 
and time frame, subject only to the requirement that trade secrets, 
etc. be kept confidential. Understanding the sensitivity of delving 
into Amtrak's affairs, the Council established procedures to ensure 
against the public disclosure of information that is a trade secret or 
commercial or financial information that is privileged or confidential. 
Council members voluntarily signed ARC-developed confidentiality 
agreements. Amtrak declined to accept those confidentiality agreements 
and demanded that members sign an Amtrak-written confidentiality 
agreement. All Council members signed the second agreement. Despite the 
Council's good-faith demonstration that proper safeguards were in 
place, Amtrak nevertheless declined to provide germane or timely 
information.
Amtrak's IRS ``Income Tax Refund'' Expenditures Were Unexplained
    The Council has a statutory responsibility to monitor Amtrak 
expenditures from its tax return of $2.2 billion authorized by Section 
977 of the Taxpayer Relief Act of 1997 (TRA). The legislative intention 
of Section 977 was to make significant amounts of funding available so 
that Amtrak could make investments in high-priority, high-return 
capital projects that would facilitate Amtrak's ability to operate 
without federal operating subsidies.
    Amtrak first resisted providing information to the Council after 
the ARC's first chair, New Jersey Governor Christine Todd Whitman, 
directed the start of an evaluation as to how Amtrak was spending the 
unique and unprecedented subsidy.
    The question was whether Amtrak was using TRA funds for the kinds 
of high-priority, high-return investments that will help its bottom 
line. The ARC asked Amtrak what the projected rates of return are per 
project financed. This is a common practice on freight railroads, where 
officials rank which capital improvements--track and signal work, new 
yards or closing of old ones, bridge replacement, curve straightening, 
congestion elimination, and so forth should receive funding from the 
current year's budget allocation based on rate of return. In general, 
it could be assumed that Amtrak's financing of high rates-of-return 
projects would be a healthy practice, but investment in low rates-of-
return projects would indicate a poor practice.
    Obtaining such useful information from Amtrak about its TRA 
disbursements was an odyssey that failed. The following chronology 
represents my personal interactions on this issue:
    May 26, 1998: The Amtrak Reform Council holds its first meeting.
    July 6, 1998: At an ARC meeting, Amtrak indicated that the first 
TRA quarterly report was being prepared for submission to the Council. 
The ARC Chairman appointed me and one other member to review the 
upcoming Amtrak report and prepare a draft ARC report to Congress for 
consideration by the full Council.
    July 31, 1998: Amtrak submitted ``Making Investments in America's 
Passenger Rail System: Amtrak's Quarterly Report on TRA Funding.'' The 
report is replete with phraseology stating that Amtrak is making a 
``wise investment'' of its resources and that funds are being committed 
for ``high rate-of-return'' projects that were selected after 
``rigorous evaluation.''
    Date Uncertain: Shortly thereafter I asked Amtrak to substantiate 
its assertions by providing rates-of-return for TRA-funded capital 
projects. Amtrak asserted that it doesn't compile such data. Which 
statement is the ARC to believe? This statement or the one on July 31? 
I again requested Amtrak to provide TRA rates-of-return.
    August 31, 1998: Recognizing that rates-of-return would not be 
forthcoming, I decided to look at the ``bigger picture'' by requesting 
a route-by-route summary of the extent to which operating losses are 
expected to drop because of TRA-financed projects. My question was: On 
which routes will TRA funding induce reduced costs and increased 
revenue? Amtrak's reply was non-responsive.
    September 17, 1998: At an ARC meeting, I reported that Amtrak 
failed to provide appropriate responses to requests for information and 
said I believed that ARC was in no position to issue a report to 
Congress that could be responsive to the statute. The ARC had no staff 
during this period, and it was difficult for the Councils citizen-
volunteers to proceed. I said that I would continue, time permitting, 
to try to obtain data for a later report to Congress.
    September 24, 1998: In a meeting between the ARC and several 
members of the Amtrak Reform Board, I indicated to Amtrak Chairman 
Tommy Thompson, Vice Chairman Michael Dukakis and CEO George Warrington 
that Amtrak's responses thus far have been inadequate. I also 
introduced the subject of concern over possible financial losses in 
Amtrak's new freight program and asked Amtrak to provide the Council 
with a profit-loss statement. Governor Thompson promised that proper 
answers will be provided, a promise that was never kept.
    October 1, 1998: In a telephone call, several Amtrak 
representatives agree to provide data on these topics in a follow-up 
letter.
    October 21, 1998: A representative of the Federal Railroad 
Administration provides added perspective regarding the TRA issue, but 
admits that he also is unable to quantify rates-of-return on TRA-
financed capital items.
    Late 1998: I concluded that Amtrak either does not have or will not 
provide key pieces of measurement regarding TRA expenditures. Missing 
was the degree to which performance of each route is enhanced by TRA 
expenditures, an important consideration because, for Amtrak to reach 
operational self-sufficiency, routes in addition to Boston-Washington 
must become profitable to offset routes that will continue to lose 
millions of dollars annually. I've asked Amtrak to identify any route 
that TRA expenditures will help move into the black and illustrate with 
a timeline when each such route will reach the break-even point. Amtrak 
failed to respond.
    Because of Amtrak's non-responsiveness, I lay squarely at Amtrak's 
doorstep the resulting inability of the Council to meet its statutory 
obligation to file reports to Congress on TRA funding. The limited 
documentation Amtrak did provide fails to demonstrate the economic 
benefits of its capital projects or how they will help Amtrak reach 
self-sufficiency.
    Continuing a search for adequate information, by early 1999 I 
voluntarily reviewed (or re-reviewed) numerous Amtrak documents, 
namely:

   Strategic Business Plan, FY1998-FY2000, dated September 23, 
        1997

   FY 1998 Capital Budget, November 5, 1997

   FY 1998 Proposed Addendum to the Capital Budget, February 3, 
        1998

   FY 1999 Amtrak Legislative Report and Federal Grant Request, 
        February 13, 1998

   Capital Plan Summary Presented to ARC, April 24, 1998

   Amtrak's presentation to ARC, May 26, 1998

   FY 1998 Third Quarter Business and Financial Performance 
        Report, July 31, 1998

   FY98 Capital Projects Funded by Federal Funds, submitted to 
        ARC on Sept. 16, 1998

   Capital Investment Summary submitted to ARC on October 7, 
        1998

   Strategic Business Plan, FY1999-2002, submitted to ARC on 
        October 19, 1998

    In doing so I discovered a few hints of capital-related data. For 
example, route-specific ``internal rates of return'' can rank from a 
high of 121 percent (for rerouting Florida trains) to a low of 5 
percent for acquiring a parking facility (which adjoins the Providence 
station). But such limited information was gleaned from my voluntary 
effort, not because Amtrak was forthcoming. Moreover, if Amtrak doesn't 
calculate rates-of-return, as it asserted to the ARC, how could some of 
these reports contain estimated rates-of-return?
    Indicators are absent in the above-listed reports regarding which 
investments will help convert money-losing routes into profitable ones 
or at least vastly improve their financial performance. This is a 
significant concern. In Fiscal Year 1997, Amtrak operated 18 routes 
that endured fully allocated losses exceeding $20 million per route. 
Moreover, if upcoming labor negotiations cause costs to increase, a 
logical question is the wisdom of spending capital on low rate-of-
return projects where cost increases outstrip the savings attributable 
to the capital projects.
    Amtrak's roadblocks and issuance of conflicting information was 
telling. I concluded that Amtrak lacks diligence in funding high rate-
of-return projects and high market-growth opportunities and wants to 
avoid scrutiny on the method by which it does select projects. It 
seemed to me that Amtrak doesn't want its current practices to be well 
known or understood.
    Skepticism abounds regarding Amtrak's financial decision-making. 
Consider the independent assessment of Amtrak conducted in 1997 by the 
Working Group on Inter-City Rail. It found among other deficiencies 
that Amtrak's subsidies ``are not directed to activities of maximum 
benefit.'' That statement could easily be applied to how Amtrak commits 
TRA funding and possibly explains why Amtrak stonewalled ARC requests 
for information.
    When the ARC was finally able to hire a small staff to review 
Amtrak's capital spending, the staff concluded, and the Council 
approved for publication in its January 24, 2000, report ``A 
Preliminary Assessment of Amtrak'' this statement:

    LBased on preliminary information, significant amounts of the TRA 
funds are being borrowed temporarily for maintenance expenditures 
rather than being immediately invested by Amtrak in high priority, high 
return capital projects necessary to achieve the improvements in 
financial performance initially anticipated when Section 977 of the TRA 
was enacted. If these temporary loans are not repaid, such expenditures 
for maintenance (which are permitted under the TRA) will likely result 
in the need for increased capital investment funding by the federal 
government and others in the future. In addition, Amtrak has not 
produced a long-term capital expenditure plan for several years. The 
Council, the Congress, and other governmental agencies need Amtrak's 
long-term capital expenditure plan to carry out their statutory 
obligations.

    On February 29, 2000, the GAO in its report ``Amtrak Needs to 
Improve Its Accountability for Taxpayer Relief Act Funds'' examined TRA 
funding with different objectives and reported:

    LAmtrak's quarterly reports to the Amtrak Reform Council on its use 
of Taxpayer Relief Act funds do not fully disclose the extent to which 
Amtrak has used these funds for equipment maintenance. As a result, 
these reports are less useful than they could be in helping the Council 
comply with its responsibility to monitor Amtrak's use of Taxpayer 
Relief Act funds. . . the reports do not fully disclose how TRA funds 
are actually used once they are deposited into Amtrak's general cash 
account . . . . Amtrak reviews and approves capital improvement 
projects to determine that the projects qualify under TRA. However, it 
does not determine whether individual expenses incurred and paid are 
allowable under the act. We find Amtrak's lack of review of 
expenditures troubling because, without such a review, Amtrak does not 
have reasonable assurance that TRA funds are spent in accordance with 
the law.

    Incidentally, when I was in Amtrak's Public Affairs Department in 
the 1970s and served on the Passenger Service Committee, we reviewed 
capital projects based on estimated rates-of-return and recommended 
projects to the Board for approval. It is beyond belief that Amtrak's 
large bureaucracy in the 1990s, one that relies extensively on computer 
accounting systems, is unable to produce data that Amtrak's smaller 
staff without computers compiled in the 1970s.
    Amtrak estimates that it will need in excess of $4 billion in 
federally provided capital over the next 5years. Amtrak identifies the 
$2 billion in TRA funding as a ``first step'' toward obtaining $4 
billion through the appropriations process. But Amtrak does not deserve 
an additional $4 billion in subsidies when Amtrak has failed to justify 
how it is spending the $2.2 billion ``income tax-refund'' it has 
already received.
For Two Years Amtrak Has Failed to Provide Costs of its Freight Service
    Since starting freight operations Amtrak has claimed ``success''--
but always citing only the program's revenues, not startup costs or 
operating costs. Freight income/expense is a major issue because Amtrak 
claims freight can help make it profitable. The ARC has urged a 
transparent accounting of the revenues and expenses so that the claim 
can be substantiated, a request Amtrak has ignored. Amtrak asserts to 
the ARC it cannot as yet separate freight expenses from mail expenses 
and create a freight profit-loss statement. (Who remains in a line of 
business for more than 2 years without knowing its financial 
performance?) Yet Amtrak claims to the news media that freight is 
making a ``positive contribution'' to the bottom line. How can this 
information exist for media purposes but not the Amtrak Reform Council?
    If the ARC is to meet its mandate to evaluate Amtrak's performance 
and make recommendations to Amtrak for achieving further cost 
containment, productivity improvements, and financial reforms, then the 
ARC must understand the extent of profit or loss incurred in this 
service. In a meeting on September 24, 1998, I asked Amtrak Chairman 
Tommy Thompson to insure Amtrak provides the ARC with information to 
help determine the effect of carrying freight on Amtrak's bottom line. 
Gov. Thompson promised that Amtrak would cooperate, yet these questions 
were not answered--at least not prior to my resignation in July, 2000.
    A recent report indicates that Washington State apple growers are 
considering shipping via Amtrak. If Amtrak's program is making a 
``positive contribution,'' why it is necessary to ask legislators in 
Olympia to spend $500,000 in state funds and seek up to $10 million in 
federal funds to buy refrigerated cars to ship apples on Amtrak? This 
is evidence suggesting that Amtrak's freight program is unprofitable 
and is subsidized by federal and state taxpayers.
    Amtrak's new Kentucky Cardinal exists primarily to carry United 
Parcel Service (UPS) package freight from Louisville to Chicago. It is 
possible that this train is losing money, which would mean that public 
funds intended for passenger travel are subsidizing UPS. When rail 
advocates worked to create Amtrak, none of us intended to create 
subsidies for private shippers.
Questions About Productivity Were Unanswered
    It appears that Amtrak has misled Congress about improvements in 
workforce productivity. According to press accounts, Amtrak said in a 
hearing on November 7, 1997, that pay raises negotiated that year would 
be paid for by more efficient operations. But no data has been 
submitted to the ARC to substantiate Amtrak's claim. In fact, in 1999 
Amtrak productivity worsened on 2 measures that were available to the 
Council--Riders Per Employee, which at 854.2 was lower than in six of 
the previous ten years, and Passenger Miles Per Employee, which at 
211,681 was lower than every year of the previous ten years.
    It should not be assumed that productivity refers only to employees 
represented by labor unions. Anecdotal evidence suggests that Amtrak's 
management is overstaffed and contributes to Amtrak's lack of 
efficiency gains. Such observations gained credibility when the GAO 
reported in a May 2000 report:

    LAmtrak attempted to reduce its management staff in 1994 and 1995 
by offering management employees early retirement and buyouts to leave 
the company. As a result of these buyouts and early retirements, 
Amtrak's management staff declined by a total of about 15 percent 
between 1994 and 1995. But, by 1999, the number of management employees 
was almost the same as it was in 1994.

    The Council is charged with evaluating Amtrak's efficiency and its 
progress in achieving productivity improvements. Section 203(g)(2)(C) 
of the ARAA provides that in making its evaluation and recommendations, 
``the Council shall consider all relevant performance factors, 
including . . . management efficiencies and revenue enhancements, 
including savings achieved through labor and contracting 
negotiations.''
    The Council must monitor Amtrak work-rule savings and include an 
assessment of such savings in its annual report to Congress. Note how 
specific the requirement is under Section 203(g)(3): ``If after January 
1, 1997, Amtrak enters into an agreement involving work-rules intended 
to achieve savings with an organization representing Amtrak employees, 
then Amtrak shall report quarterly to the Council--(A) the savings 
realized as a result of the agreement; and (B) how the savings are 
allocated.''
    Note also the specificity of Section 203(h): ``Each year . . . the 
Council shall submit to the Congress a report that includes as 
assessment of (1) Amtrak's progress on the resolution of productivity 
issues; or (2) the status of those productivity issues, and makes 
recommendations for improvements and for any changes in law it believes 
to be necessary or appropriate.''
    The Council's duties are clear, yet Amtrak failed to provide needed 
and relevant information to ARC'S questions. According to the Council's 
January report to Congress:
    Amtrak's responses to the Council's request to date essentially 
consist of copies of:

   recently negotiated labor agreements;

   management summaries of various work-rule changes in the 
        agreements;

   Lrecent examples of productivity analyses regarding: (i) the 
        Amtrak Reservations Centers (1995), (ii) benchmarking Amtrak 
        maintenance-of-way productivity against the rail transit 
        industries (1998), and (iii) determining Amtrak's maintenance 
        cost for diesel locomotives (1997) (for which the outside 
        contractor needed to restate Amtrak's financial accounting 
        system reports with its own estimates); and

   Lstatements regarding certain identified savings from 
        various work-rule changes in recent agreements; and various 
        factual data regarding the Amtrak labor force.

    Amtrak also submitted to the Council a ``FY 1999 Report on 
Productivity Improvements and Work Rule and Cash Savings,'' which 
provided a set of numbers on a quarter-by-quarter basis for FY1999 . . 
. . The report stated a total of $19.5 million in ``productivity 
improvements and work rules and cash savings'' for FY1999 [but the 
data] arguably may not satisfy the statutory criteria of ARAA Section 
203(g)(3). The current format of Amtrak's report does not clearly show 
how the savings are allocated and provides no analysis of how the 
numbers were calculated.
    That was a non-confrontational way of saying that Amtrak failed to 
document its claim that 20 percent of recent wage increases will be 
offset by work-rules savings; failed to substantiate that it has a 
methodology in place to measure productivity; failed to provide any 
productivity analyses that Amtrak or a consultant for Amtrak has 
conducted; and failed to clarify whether Amtrak has performed any 
studies regarding cost savings in the area of contracting out.
    On a positive note, as reported in the ARC's January report, Amtrak 
has achieved some work-rules changes in recent agreements that have the 
potential to bring cost savings. Such changes include contracting out 
of Amtrak's entire Commissary operations, extension from 4 hours to six 
hours of the period before a second engineer must be added to a 
locomotive, flexibility in establishing district gangs in the Bridge & 
Building and Electric Traction sub-departments, and increased 
management flexibility to establish Construction Gangs working outside 
normal starting times on the Northeast Corridor.
    The ARC has been stymied in its attempt to review the facts 
regarding these issues. I note with interest this passage from the 
GAO's May 2000 report: ``Amtrak does not have measures of labor 
productivity for its lines of business (e.g., intercity passenger 
service, commuter service) that would allow it to better manage its 
labor costs.''
                                 ______
                                 
Attachment 2: Full Public Cost of Amtrak Is Unknown
Federal Amtrak Subsidies Soon to Exceed $24.3 Billion
    No one really knows the full public cost of running Amtrak. 
Amtrak's financial reporting system does not fairly represent to 
government officials or taxpayers its condition or level of subsidies. 
Meanwhile, Amtrak's financial losses continue. For the first three 
quarters of fiscal year 2000, its operating loss grew to $710.9 million 
from the prior year's figure of $705.1 million. Although not Amtrak's 
worst performance, it is nonetheless an increase over the prior year 
and a far cry from Amtrak's glowing picture of its finances.
    Consider the methods employed that artificially reduce Amtrak's 
self-reported subsidy totals and mask the extent of its financial 
condition:

   Amtrak benefits from a taxpayer-sponsored windfall. Although 
        Amtrak has never paid a penny in income taxes, Congress ordered 
        the IRS to give Amtrak a $2.2 billion ``tax refund.'' Amtrak 
        has been using the funds in part to repay a portion of what 
        I've been told was $1.6 billion in debt to the private capital 
        markets, and in part as an investment in high-yield, interest-
        bearing accounts. Thus, the ``income tax refund''--money Amtrak 
        did not ``earn'' in the true business sense--is reducing Amtrak 
        debt costs and increasing interest income, a balance-sheet 
        sweetener of monumental proportions that has nothing to do with 
        its commercial activity as a passenger railroad.

   Amtrak now inflates income by counting many public subsidies 
        as ``revenue'' in its annual report, something it hasn't done 
        through most of its history. For example, the GAO testified 
        before a House Committee on October 28, 1999, that Amtrak 
        records a portion of its unearned ``income-tax refund'' made 
        available by the Taxpayer Relief Act as revenues.

   Amtrak has created the appearance of lower operating losses 
        by shifting almost a half a billion dollars in maintenance 
        costs to its capital account, according to the GAO.

    The GAO report issued in May 2000 entitled ``Amtrak Will Continue 
to Have Difficulty Controlling Its Costs and Meeting Capital Needs'' 
stated that ``Amtrak's losses have remained high: In 1999, its net 
loss--revenues minus expenses--was about $900 million.'' The DOT 
Inspector General has estimated that Amtrak will incur more in cash 
losses than Amtrak suggests. The DOT Inspector General and the GAO have 
found that Amtrak is unlikely to meet a legal requirement of zero 
operating subsidies by the end of fiscal year 2002.
Dispute About How to Monitor Amtrak's Performance
    Section 203(g)(2)(B) of the ARAA prescribes that the Amtrak Reform 
Council shall consider all relevant factors in evaluating Amtrak's 
performance, including ``appropriate methods for adoption of uniform 
cost and accounting procedures throughout the Amtrak system based on 
generally accepted accounting principles.'' [Emphasis added.] According 
to the Legal Counsel to the ARC, the statute provides for no other 
standard than generally accepted accounting principles. The GAAP 
principles comprise the criteria normally used to measure the financial 
performance of for-profit corporations, which Amtrak--under the law--
was established to be.
    Amtrak, however, wants to exclude depreciation and certain other 
costs as operating expenses for purposes of measuring operating self-
sufficiency. Amtrak wants to treat progressive equipment overhauls as a 
capital instead of an operating expenditure. If Amtrak's contentions 
are accepted, there would be no standard in place to ensure that Amtrak 
becomes operationally self-sufficient by Fiscal year 2003 and that 
taxpayers no longer subsidize Amtrak operations after that date.
    This issue has concerned several oversight bodies:

   The ARC stated in its January report that ``The accounting 
        standard specifically referred to in the Council's statutory 
        mandate, GAAP, is, both logically and under current law, the 
        method by which Amtrak's performance is measured.'' An opinion 
        by the ARC's Legal Counsel concluded that ``Both GAO and DOT/IG 
        have publicly noted their view that under the ARAA, Amtrak 
        operating expenses as defined under GAAP, such as progressive 
        overhauls, cannot be federally funded after Fiscal year 2002 
        regardless of how such operating expenses were funded in the 
        past.''

   The DOT Inspector General stated before a House Committee on 
        March 4, 1999: ``Regardless of the type of federal grants 
        Amtrak receives or how Amtrak is permitted to spend them, 
        Amtrak will have to cover all of its operating expenses (except 
        for excess payments for RRTA) in Fiscal year 2003 from non-
        federal sources. In other words, maintenance of equipment and 
        maintenance of way expenses would, under current law, no longer 
        be eligible for federal funding in 2003. That is the mandate 
        from ARAA, and it is the standard we are using to gauge 
        Amtrak's financial viability in our assessments.''

   The GAO report to this Committee in July 1999 entitled 
        ``Amtrak's Progress in Improving Its Financial Condition Has 
        Been Mixed'' said Amtrak ``disagreed with our inclusion of 
        expenses for progressive overhauls in our discussion of 
        Amtrak's progress in achieving operational self-sufficiency . . 
        . . As discussed in our report, generally accepted accounting 
        principles consider progressive overhaul expenses to be 
        operating expenses [and] we conducted our review from January 
        1999 through June 1999 in accordance with generally accepted 
        government auditing standards.''

    My view is that if Amtrak's financial performance were truly 
positive, Amtrak would have no need to redefine operating expenses as a 
device to lower its perceived losses; would have no need to request 
treatment that is prohibited in corporations throughout America; and 
would have no need to further impair the public's understanding of 
Amtrak's true costs and subsidies.
Backdoor Subsidies Increasing
    In July, Senator Wayne Allard said in a floor debate: ``I have 
grown increasingly skeptical about what is going on with Amtrak. It 
seems they found a way to pick up government subsidies all over the 
place.'' His doubts are justified as Washington has been masterful in 
masking the depth of Amtrak subsidies.
    I'm unable to recall when an independent oversight body or public 
agency last tabulated and presented for public scrutiny the full public 
cost of running Amtrak, but it may have been a GAO report in the early 
1980s or late 1970s. That report was prior to the start of numerous 
programs that finance Amtrak or artificially lower Amtrak's costs by 
shifting expenses to the books of other agencies such as the Federal 
Railroad Administration (FRA), the Federal Transit Administration (FTA) 
or the Treasury Department.
    Excluded from Amtrak's annual reports, and congressional testimony 
is a sum of the costs of numerous publicly funded programs that assist 
in financing Amtrak, as follows:
Federal Funding Not Included in Amtrak Subsidy Totals
   FRA Grants--Amtrak benefits from grants for train stations, 
        historic building restorations, grade crossing improvements, 
        studies and technology development.

   FTA Grants--2 examples are a grant of $18.7 million to 
        Pennsylvania to purchase coaches for Amtrak and $3.5 million to 
        Vermont to start a train to Rutland. FTA grants also help pay 
        to build or improve Amtrak stations.

   TIFIA Federal Credit Assistance (a new program): Amtrak is 
        seeking a $29 million direct loan in 2001 to finance a $120 
        million plan to rehabilitate existing locomotives for its Acela 
        Regional service in the Northeast Corridor. This is under the 
        2-year-old Transportation Infrastructure Financing and 
        Innovation Act program administered by the DOT.

   Other federal funds--some states like California rely on 
        Congestion Mitigation & Air Quality funds to support Amtrak.

   Federal job-training funds have benefitted Amtrak in several 
        locations, such as a $500,000 grant to Amtrak to retain a 
        reservations office in Philadelphia.

   Unknown Risk Loan--In 1996, an agency of the Canadian 
        government issued a loan to help finance the Acela Express, the 
        principal of which remains outstanding. Without knowledge of 
        the details of this loan, the degree to which American 
        taxpayers hold liabilities to repay the loan's principal, 
        interest or penalties in a default is unknown.

   For many years Amtrak failed to list funds received through 
        guaranteed loans. Amtrak never repaid $880 million in loans 
        received between 1971 and 1975, and that obligation, plus more 
        than a quarter of a billion dollars in interest, was paid by 
        the FRA on Amtrak's behalf. For evidence of this continuing 
        taxpayer obligation, the 1983 Amtrak annual report contains 
        this disclosure: ``On September 30, 1983, Amtrak had borrowed 
        under notes payable to the Federal Financing Bank up to its 
        maximum federal guaranteed loan authority of $880,000,000. On 
        October 5, 1983, this obligation, plus $239,635,000 in accrued 
        interest, was paid on Amtrak's behalf by the Federal Railroad 
        Administration, and a new note in the amount of $1,119,635,000 
        was executed as of that date between Amtrak and the U.S. 
        Government. The note matures on November 1, 2082, and will be 
        renewed for successive 99-year terms. Interest is payable only 
        in the event of prepayment or acceleration of the principal.''

    It is generally understood that since 1970 Congress has 
appropriated more than $23.2 billion to Amtrak. But if the $1.1 billion 
note to cover Amtrak's loan default is added (which is rarely done 
because it wasn't an ``appropriation''), the federal government's 
expenditures total at least $24.3 billion. (State operating and capital 
subsidies total at least $2 billion for a total of at least $26 billion 
in public funding.) But the true cost of subsidizing Amtrak if we 
include all programs is unknown.


                                 ______
                                 
Attachment 3: Amtrak's Growth Is Anemic Despite a Travel Boom
    As one who has promoted train travel for many years, Im pleased 
that more people are riding trains today. However, Amtrak is greatly 
exaggerating its success in building ridership. The Amtrak Reform 
Council's January report stated: ``During a decade when the American 
economy and most of its transportation system have expanded in an 
unprecedented manner, Amtrak's ridership has remained virtually 
unchanged.''
Amtrak Traffic Level Is a Sad Tale
    Amtrak's new ridership record is hollow because during this all-
time record year of travel Amtrak will only be breaking a level set in 
1988--twelve years ago. In 1999, which Amtrak also boasts of being 
``highly successful,'' Amtrak carried 21.5 million passengers, a 
million passengers lower than it projected in a report to Congress, 
only 400,000 above the previous year, and the same number it carried in 
1988. Also in 1999, Amtrak usage totaled 5.3 billion passenger-miles, 
500 million passenger-miles lower than it projected in a report to 
Congress and a number equal to or lower than that in 8 of the last 10 
years.
    In testimony before a House Committee on October 28, 1999, the GAO 
observed that ``in fiscal year 1997, fewer than 100 passengers, on 
average, boarded Amtrak intercity trains and connecting buses per day 
in 13 states.'' Although Amtrak will set a record in fiscal year 2000, 
it is still true that usage remains very light at many points on 
Amtrak's route system.
Amtrak Ridership Growth Is Vastly Inferior to That of Aviation
    On Memorial Day weekend, U.S. commercial aviation carried well over 
12 million passengers--which means in just one holiday weekend airlines 
carry more than half the number of people who board Amtrak during the 
entire year. The gap continues to worsen for Amtrak despite serious 
airline and FAA problems. In Amtrak's first full year of operation, 
1972, Amtrak carried an average of 45,500 passengers a day. In 1999, 
more than a quarter-century later, it stood at only 58,900 daily. 
Meanwhile, the number of U.S. airline passengers has more than tripled, 
from 524,100 daily in 1972 to 1,740,800 daily in 1999. (If airline 
traffic reaches a projected 670 million this year, the daily air travel 
count will total 1,835,600.)
Population Rises But Amtrak's Usefulness Falls
    The U.S. population in 1972, Amtrak's first full year of operation, 
was 209.9 million. The Census Bureau population estimate as of 
September 18, 2000, is 275.8 million--up 65.9 million. The vast 
majority of these additional 65.9 million people aren't riding Amtrak. 
Amtrak's insensitivity to marketplace messages is why Amtrak's share of 
the intercity travel market is lower than ever--six-tenths of one 
percent and still falling.
Projections Doubtful
    Amtrak representations to this Committee about future ridership 
should be evaluated in the light of history. In 1998 Amtrak told 
Congress its fiscal year 1999 ridership would reach 22.5 million--but 
it turned out that its traffic was a million passengers lower. This is 
a long-running problem. A GAO study in 1979 looked at earlier Amtrak 
reports to examine ridership estimates. GAO found that in 1974 Amtrak 
filed with Congress a projection that ridership in 1979 would be a 
stunning 37 million (it turned out to be 18.7 million passengers). In 
1975 Amtrak downgraded the estimate to 29.2 million passengers (it 
turned out to be 17.4 million passengers). Amtrak's estimates about 
future ridership deserve great skepticism.
    When ridership estimates are off, so are revenue estimates, and 
this inaccuracy is a continuing problem. In 1995 testimony to Congress, 
the GAO stated that Amtrak's financial problems have accelerated, and 
one reason is that ``Amtrak overestimated passenger revenues by $600 
million from 1991 through 1994.''
    On this very day we are hearing from the DOT Inspector General who 
has found in his latest assessment that under certain circumstances 
Amtrak's cash loss would be about $1.4 billion more than it projects 
over the 5-year period, 2000 through 2004.


                                 ______
                                 
Attachment 4: Amtrak Expands Network of Poor, Slow Trains
New Amtrak Trains Are Slower than 1926, 1952 pre-Amtrak Trains
    Prospects for success on new and proposed Amtrak routes in most of 
the nation are bleak. For example, Amtrak's new Kentucky Cardinal is 
inferior to the equivalent service provided by the Pennsylvania 
Railroad 70 years ago. Amtrak's 12-hour Chicago-Jeffersonville, Ind., 
(near Louisville) schedule is 3 hours longer than it took our great-
grandparents to ride a 1926 ``milk run'' on the same route, which was 
pulled by a steam locomotive and served nearly every village along the 
way. This is why I have called this Amtrak train--one of the slowest in 
the world--a ``Conestoga Wagon With Lights.'' This train is driven by 
Amtrak's desire to carry UPS parcel freight, and the passenger 
accommodations are but a fig leaf to provide Amtrak with legal cover 
behind which it expands freight operations.
    On April 15, Amtrak began running the Lake Country Limited, which 
takes 3 hours and 20 minutes to travel from Janesville, Wisconsin, to 
Chicago. The Chicago & North Western train in 1952 connecting 
Janesville with Chicago was an hour-and-a-half faster. The media 
reports traffic on the train has averaged 11 people per day in each 
direction. Amtrak plans to add a train from Fond du Lac, Wisconsin, to 
Chicago on a 3 hour, 39 minute schedule. Its 1952 predecessor was an 
hour faster.
New Slow Trains Violate Amtrak Law
    Amtrak's assertion that millions of new travelers will climb aboard 
such slow trains is bogus. I believe that the Kentucky Cardinal, Lake 
Country Limited and the proposed Fond du Lac services are illegal 
because they violate Amtrak's statutory mandate to provide modern rail 
passenger service, 49 USC Sec. 24101 (a)(1)(b). What is ``modern'' 
about trains that are slower than trains on the same routes were in the 
1950s, 1940s, and earlier?
Amtrak Priority Should Be to Fix System of Late-Running Trains
    While Amtrak employs resources to start new trains, its existing 
services outside of the Northeast Corridor have terrible on-time 
performance records. As a member of the Council facing significant 
policy issues, I was little inclined to pursue Amtrak's poor operating 
practices.
    My inclination changed, however, when Amtrak Chairman Tommy 
Thompson sent a letter to the Council in 1999 asserting that on-time 
performance was 80 percent and ``still ahead'' of airline performance. 
The claim was false as many long-distance trains in the Midwest and 
West were routinely running 2 or more hours behind schedule.
    Next came a press statement that Amtrak has ``the best on-time 
performance in 13 years.'' I knew the statement was untrue because of 
information coming in from around the nation about late-running Amtrak 
trains. As a former consumer-group leader, I was motivated to conduct 
my own review of Amtrak scheduling practices.
    I determined that Amtrak reports its trains as being far more 
punctual than they really are on virtually every route outside of the 
Northeast Corridor. Amtrak abuses what used to be a modest railroad 
practice to put extra minutes (``fat'') into its timetables for 
``scheduling cushion.'' Amtrak inserts very long periods of time just 
before ``checkpoints'' where on-time performance is calculated. If 
Amtrak on-time performance were measured at the stop before an official 
checkpoint, Amtrak's record would be much worse than official reports 
indicate. In fact, the performance figures would be devastating. Amtrak 
employs this dishonest practice on a sweeping basis.
    It is highly likely that the airline industry--despite very serious 
delays--had an on-time performance record this summer that was superior 
to that of Amtrak outside of the Northeast. One reason is that the time 
added near the end of a flight schedule is nowhere near the time 
inserted by Amtrak. Also, an aircraft doesn't serve 20 communities a 
day, arrive an hour or more late at 19 of them as Amtrak does, and be 
considered punctual because it eased through ``fat'' in the end of the 
schedule and was on-time only at the checkpoint. (Amtrak generally 
defines on-time for short-distance trains as arriving within 10 minutes 
of schedule and for long-distance trains as arriving within 30 minutes 
of schedule.)
    In an August 31, 1999, ARC meeting, I provided a preliminary 
analysis of Amtrak's misleading performance figures to the Council with 
Amtrak representatives in attendance. I had 3 purposes in introducing 
the subject--to alert the ARC of the extent to which Amtrak presents 
misleading figures to the Council; to possibly discuss the revenue loss 
that Amtrak suffers as a result of misleading travelers; and to 
question whether Amtrak has undue overtime expenses if employees work 
hours conform to scheduled train times instead of their actual late 
arrivals. It turns out that concerns about such expenses are justified 
considering these findings in GAO's May 2000 report:

    Amtrak incurs a fairly high amount of overtime to provide its 
services, which may suggest some level of inefficiency in its 
utilization of its labor force. From 1995 to 1999, overtime 
represented, on average, about 11 percent of Amtrak's total employee 
hours worked. The amount of overtime hours also increased steadily 
during this period--from about 4.2 million hours in 1995 to about 6.3 
million hours in 1999 . . . . Amtrak did not know specifically why 
overtime had increased.

    The ARC took no action, but I was hopeful that exposing the issue 
would dampen Amtrak's enthusiasm for this deceptive practice. 
Unfortunately, it did not as excessive ``fat'' remains in schedules and 
Amtrak continues to issue statements regarding on-time performance that 
lack credibility.
    Please refer to the table below. I will reference the first train 
listed to illustrate the point. Amtrak's eastbound Sunset Limited 
routinely takes 45 honest minutes when running over the 32-mile stretch 
of track from Los Angeles to Pomona, California. No on-time performance 
calculations are made on this train at this point. In recent years, 
however, Amtrak has added extra time to the westbound schedule from 
Pomona to the Los Angeles ``checkpoint'' so that it now takes 1 hour 
and 57 minutes for the run--more than twice as long as the eastbound 
counterpart. Hence, passengers suffer the inconvenience of waiting for 
late westbound Sunset Limited trains in one community after another but 
official reports will show their train listed as ``on time.''
    Amtrak's long-distance on-time record of 61 percent for Fiscal year 
1999 (a poor enough figure in itself) is simply not credible. The 
figure represents performance at about 32 checkpoints across the 
country, yet Amtrak served 510 stations. If we subtract these and other 
checkpoints we have about 470 non-checkpoint stations where trains 
could run an hour or more late yet be reported by Amtrak as being ``on 
time.''
    Traditionally the pre-Amtrak railroads did allow a modest amount of 
additional time for trains at the end of their runs to allow a little 
bit of cushion to make up time. In 1952, to cite just one example, the 
Santa Fe's westbound Grand Canyon took 54 minutes between Chicago and 
Joliet, but eastbound took only 4 minutes longer. The minor schedule 
difference on the private railroad system was typical for that time. 
But over the years Amtrak has added prior-to-checkpoint ``fat'' to 
schedules to a degree unprecedented in the railroad business.
    Virtually every European and Japanese railroad schedules trains as 
expeditiously on final ``checkpoint'' segments of routes as they do on 
originating legs.




                                 ______
                                 
Attachment 5: Acela Express Now 3 Years Behind Schedule
    I'm in a difficult position in speaking about the Acela Express 
because I've worked for high-speed rail in America since my first 
report on the subject was published in 1969, I've testified in favor of 
appropriations to Amtrak for the Acela Express and the train is a 
welcome and needed improvement. Yet I am disappointed by this train's 
many delays and remain unconvinced by Amtrak's explanations.
    Amtrak's decision to develop the Acela Express was a mistake. 
Amtrak should have purchased off-the-shelf technology, like the 
Swedish-Swiss X2000, which Amtrak had successfully tested in the early 
1990s. The specifications could have been altered to meet U.S. rail 
safety standards, the trains would have been built in this country, and 
Americans could have been riding high-speed trains for several years 
now.
    When The Washington Post exposed Acela's design flaws last year, 
Amtrak announced a ``six-month delay'' in service. In fact, the Acela 
Express has experienced delays that are far more significant. Perhaps 
the extent of delays are unrecognized because the facts are difficult 
to locate in information databases--the name of this train has been 
changed from Metroliner to American Flyer and now Acela Express.
    Following are Amtrak's own words regarding delivery dates for the 
Acela Express.
Chronology of Delivery Delays Since Projected April 1996 Date
    May 19, 1993: Amtrak initiates procurement of high-speed trainsets, 
stating in news release number ATK-93-24, ``To pre-qualify, a firm must 
demonstrate that it . . . possesses the necessary resources to deliver 
2 complete trainsets by April 1996 and the remainder of the trainsets 
within 2 years thereafter . . . . With completion of the New York-
Boston improvement program in 1997, Amtrak plans to operate 16 high-
speed Metroliners each business day between Boston, New York and 
Washington, with trip time between Boston and New York in less than 3 
hours.''
    November 3, 1993: New train slips a bit to middle of 1996. Amtrak 
stated in news release number ATK-93-57 that ``Amtrak plans to award a 
contract by the middle of 1994 with the first trains being delivered 2 
years later.''
    March 17, 1994: The program slips to early 1997. Amtrak testifies 
before a House Committee that ``Two advance versions of the trainsets 
are expected in early 1997 for testing. The remaining 24 trainsets will 
then go into production, with the final trainset arriving in 1999.''
    October 6, 1994: Amtrak reiterates 1997 for first train. Amtrak 
announced in news release number ATK-94-83 that ``The 26 high-speed 
trains will attain top speeds of 150 miles per hour and serve become 
[sic] Amtrak's Northeast Corridor Metroliner Service fleet of the 2lst 
century . . . . The procurement award is expected in early 1995 with 
delivery of 2 test trains in 1997 and the remainder during 1998 and 
1999 . . . . It is expected by the year 2000 that more than 3 million 
additional passengers will be attracted to the service.'' This document 
also reiterates promises made by Amtrak many times that New York-Boston 
travel time will be reduced to ``under 3 hours.'' But the latest Acela 
Express Boston-New York travel time estimates are between 3 hours and 
10 minutes and 3 hours and 20 minutes, depending on the frequency of 
stops.
    November 21, 1995: Associated Press, reports on Acela Express 
delays: ``The race to build America a new generation of fast passenger 
trains is running late . . . . Two years ago, Amtrak said it hoped to 
award the contracts in early 1994.''
    March 15, 1996: Associated Press reports that Amtrak selected the 
consortium to build the trains, which will ``go into service by 1999.'' 
The report of the 1999 delivery date fails to reference prior delays 
and the mistake goes unnoticed. Newspapers across the country run a 
photo of a model of the American Flyer.
    March 11, 1998: Amtrak reiterates the 1999 date but refers to 2000 
for completion of delivery. Amtrak CEO George Warrington testifies 
before a House Committee that ``Five trainsets will be delivered in 
late 1999, with the remaining 13 by July 2000.''
    March 10, 1999: Amtrak Chairman Tommy Thompson, in testimony before 
a Senate committee, reiterates the 1999 date, saying, ``Amtrak will 
phase in the Northeast Corridor's high-speed rail program late this 
year.''
    September 2000: Amtrak indicates that the Acela Express launch is 
``late October'' after a year of announcing ``early Summer,'' then 
``mid-August,'' then ``sometime in September.''
The Unknown Cost of Acela Express Delays
    Amtrak has repeatedly said that Acela Express revenues will enhance 
its bottom line but by what amount is unclear. Amtrak gave an estimate 
of $125 million to the Council as the expected annual revenue. Next, 
Amtrak CEO George Warrington said before a House Committee on March 11, 
1998: ``This new service will add, at a minimum, $150 million in 
revenues when fully deployed.'' Further confusing are reports in a 
November 1999 Trains magazine and subsequent Washington Post and 
Associated Press stories stating that Amtrak expects the trains to 
contribute another $180 million in income.
    Which Amtrak number should we believe--$125 million, $150 million 
or $180 million? Whatever the figure, when I served on the Council we 
questioned Amtrak as to how it will make up the revenue shortfall. 
Amtrak stated that it would implement a combination of cost avoidance 
and revenue enhancements that will offset the expected loss in Acela 
Express revenue in fiscal year 2000. No details were forthcoming as to 
how Amtrak will accomplish that.
    Prior to the latest delays, the DOT Inspector General's 1999 and 
2000 assessments of Amtrak examined the reasonableness of Amtrak 5-year 
projections for the Northeast Corridor and estimated passenger revenues 
to be significantly lower than Amtrak's estimate. The differences are, 
in part, because the IG calculates the diversion of passengers from air 
and automobile travel to the Acela Express trains at a lower rate than 
does Amtrak.
    For the record, a 3 hour and 10-to-20 minute Boston-New York Acela 
Express schedule, while good, isn't the ``grand leap'' needed for high-
speed rail to be truly air-competitive. To put Amtrak's best train in 
historical perspective:

   The Acela Express can operate at 150 miles per hour between 
        New York-Boston, but will run that fast on only 52 of the 
        route's 231 miles.

   Japan's first Bullet Trains, which are now in museums, 
        offered faster trip times in the 1960s than Amtrak's Acela 
        Express will offer in 2001.

   In 1950 the New Haven Railroad's Merchants Limited linked 
        New York-Boston in 4 hours without the benefits of full 
        electrification, tilt-train technology and advanced signaling 
        systems. For Amtrak's Acela Express to run only about 45 
        minutes faster after Amtrak has spent billions of dollars on 
        the project is an example of Amtrak's inability to bring truly 
        air-competitive high-speed rail service to America.
Terms & Liabilities of Acela Express $1 Billion Loan Remain Secret
    Questions arise as to the degree to which Amtrak has publicly 
disclosed Acela Express costs to oversight bodies and taxpayers. It 
appears that Amtrak may have been unduly induced by an agency of the 
Canadian government to select Acela Express equipment manufactured by 
the Canadian-based Bombardier Corporation in preference to more proven 
technologies such as the X2000, which Amtrak had tested with great 
success in the early 1 990s. According to an Ottawa Citizen story on 
March 18, 2000, ``The federal Export Development Corp. (EDC) secretly 
loaned $1-billion to the deficit-plagued U.S. railroad agency Amtrak 
while the Chretien government sharply cut passenger rail funding in 
Canada. The money allowed the U.S. government-owned Amtrak to side-step 
a congressional cap on capital grants . . . The loan package has been a 
closely guarded secret. As of the end of 1998, the $1-billion was still 
owing. Officials from Bombardier and Amtrak declined to disclose 
details about the deal. Details of the EDC-Amtrak loans are not 
disclosed in EDC annual reports or financial statements . . . .''
    While there is nothing inherently improper with a Canadian 
government loan, the secrecy has induced the sense that Amtrak has 
something to hide. I question whether this transaction has potentially 
handed U.S. taxpayers a $1 billion liability.
    To my knowledge, the ARC was never informed of a loan from the 
Canadian government, the uses to which it was put, the principal amount 
owed, the interest rate, the repayment schedule, other terms and 
conditions, or its effect on Amtrak's financial condition. Are the 
Acela Express trains serving as collateral? We don't know. There is 
much we don't know about this loan.
    Congress should insist upon greater transparency regarding this 
loan and the liabilities it imposes upon the public treasury in a 
liquidation proceeding. This issue of transferability of Amtrak 
liabilities to taxpayers is a serious one, especially as Amtrak would 
become a candidate for a ``complete liquidation'' should the Council 
find that Amtrak will fail to meet its goal of operating self-
sufficiency by the end of fiscal year 2002 (i.e., after September 30, 
2002).
    In 1997, prior to the Acela Express loan, Amtrak claimed that 
liquidation costs could range between $10 and $14 billion. A GAO March 
1998 study entitled ``Issues Associated With a Possible Amtrak 
Liquidation'' pointed to uncertainties in estimating Amtrak's potential 
liquidation costs, saying, ``Should Amtrak's financial condition force 
it to file for bankruptcy, it must do so under chapter 11 of the 
Bankruptcy Code.'' The GAO was unable to confidently estimate Amtrak's 
likely liquidation costs but did state: ``In our opinion, the United 
States would not be legally liable for secured or unsecured creditor' 
claims in the event of an Amtrak liquidation. Therefore, any losses 
experienced by Amtrak's secured and unsecured creditors would be borne 
in full by the creditors themselves or their insurers. Nevertheless, we 
recognize that creditors could attempt to recover losses from the 
United States.''
    As far back as March 18, 1985, the GAO issued an opinion that 
``legitimate differences of opinion exist with respect to questions 
about the rights and obligations of the United States in the event of 
an Amtrak bankruptcy.''
                                 ______
                                 
Attachment 6: High-speed Bond Bill Is Seriously Deficient
Acela Express Delays Warrant Bringing Private Sector Into High Speed 
        Rail
    Amtrak has taken seven years to design, build and test the Acela 
Express while passenger railroads in other countries have completed 
such projects in only 4 years. Amtrak has taken seven years to upgrade 
existing infrastructure, while other nations build all-new high-speed 
tracks and put them into operation in 4 years. (Japan, France and Spain 
have performed such feats in that time.)
    The Acela Express symbolizes Amtrak's inability to launch truly 
modem railroad passenger service in a timely fashion. Amtrak's 
management and organizational culture are poorly suited to building and 
operating truly advanced train systems. This bill reinforces Amtrak's 
de facto monopoly in intercity rail, which is sure to have a chilling 
effect on new entrants that would otherwise emerge. Should our country 
ever build advanced-technology, high-speed trains on other routes, we 
should give priority to regional agencies, public-private partnerships 
and joint ventures over Amtrak participation.
Amtrak's Claim That It Will Ease Aviation Congestion Is Unscrupulous
    Amtrak is overselling its high-speed rail program to lead the 
public to think its future trains will be as speedy as the spectacular 
high-speed lines found overseas. The German railroad's objective for 
high-speed trains is that they provide travel ``twice as fast as the 
automobile, half as fast as the airplane.'' Amtrak won't come close.
    One of the arguments for high-speed rail is that we can divert 
passengers from air travel to trains, thereby freeing up slots at 
congested airports. But that's doubtful on Amtrak's best line. While 
the Acela Express will be faster than current train service, and indeed 
the train will lure air travelers, the number who will shift to rail 
remains a question. The DOT Inspector General's 1999 assessment took 
issue with Amtrak revenue forecasts, stating that $154 million in 
Northeast Corridor passenger revenues through 2002 is ``at risk of not 
materializing because of lower-than-forecasted diversion of passengers 
from air and automobile travel to the new Acela Express service.''
    Amtrak's zeal to torture the English language to ``re-define'' what 
constitutes a ``high-speed'' train is most pronounced for its trains in 
the Southeast, Midwest and West. Amtrak ``high-speed'' trains in many 
cases will offer travel times that will be no faster than passengers 
found in the 1950s and earlier. Such trains won't be able to compete 
with the speed of air travel. Thus, after billions are spent from the 
High Speed Rail Investment Act, I believe that the resulting passenger 
diversion rate from air would be very small. I doubt a single flight 
would be removed anywhere in our aviation system.
    Amtrak may also spend a portion of the finds on routes that are 
excessively long (e.g., Washington, D.C. to Jacksonville, Florida) 
where there is no way--not now, not ever--that even the fastest high-
speed trains could compete with air travel. No executive I've ever met 
on a single high-speed rail operation overseas has ever proposed a 
route that long, at 753 miles, when high-speed mail's effectiveness 
falls after a distance of 300 miles. The bill is a major step backward 
because it seriously misleads the American people, will 
institutionalize Amtrak's second-rate planning, and will inhibit 
development of the kind of fast corridor train service America needs on 
selected high-population-density corridors.
Objectionable Features Regarding Goals, Finances
    Passage of the bill is unjustified because the bill is deceptive in 
its promise to Americans and contains objectionable features. I say 
this because the funds will not necessarily go to build high-speed rail 
systems, the costs will be higher than Amtrak claims, taxpayers will be 
left liable for another Amtrak bailout, and the bill establishes a 
conflict-of interest regarding the Secretary of Transportation. 
Addressing these issues:

   Cost estimates are virtually nonexistent for the projects 
        this bill would find. Appropriate estimates need to be in place 
        to permit proper consideration of granting Amtrak access to 
        billions of dollars through still one more federal support 
        mechanism. The legislation does not deserve passage on this 
        point alone. Consider what the Amtrak Reform Council, GAO and 
        DOT Inspector General have stated:

    GAO, in the report issued in May of this year entitled ``Amtrak 
        Will Continue to Have Difficulty Controlling Its Costs and 
        Meeting Capital Needs,'' stated that Amtrak has not prepared a 
        multi-year capital plan since 1997 and Amtrak has not yet 
        developed cost estimates for developing high-speed rail 
        corridors outside the Northeast.

    ARC, in its ``Preliminary Assessment of Amtrak'' issued in January, 
        stated: ``Amtrak has not produced a proposed long-term capital 
        expenditure plan for several years . . . A corporation such as 
        Amtrak, however, should have prepared and updated a long-term 
        capital expenditure plan on an annual basis as part of its 
        strategic business planning process and overall corporate 
        management. The GAO and the DOT IG have repeatedly identified 
        in reports and in Congressional testimony the need for Amtrak 
        to prepare a long term capital expenditure plan for management 
        purposes that will allow appropriate federal officials to make 
        informed decisions concerning Amtrak. The Council also needs a 
        long-term capital expenditure plan for Amtrak (updated at least 
        annually as part of Amtrak's strategic business planning 
        process) to carry out its statutory obligations

    DOT IG Office, it its report ``2000 Assessment of Amtrak's 
Financial Performance and Requirements,'' issued on September 19, 2000, 
stated: ``Amtrak must develop a realistic plan for addressing long-term 
capital needs. Amtrak has historically prepared a 1-year capital plan 
that reflects a level of spending commensurate with its expected annual 
appropriation. Amtrak needs a well-developed long-term plan that 
identifies all capital needs, their costs, their timing, and 
priority.''

   The financial package is premature because Amtrak is under a 
        congressional mandate to prove it can operate without federal 
        subsidies by September 30, 2002, and the Amtrak Reform Council 
        is far from completing its evaluation of Amtrak's performance. 
        Considering that Amtrak was a candidate for bankruptcy merely 3 
        years ago, concerns about Amtrak's financial stability should 
        not be taken lightly.

   Proponents claim that the cost of the bill in the form of 
        tax credits in lieu of interest payments will total $2.3 
        billion. My understanding is that's misleading because 20-year 
        bonds are permissible. It's likely that as late as 2010 Amtrak 
        will issue bonds that will expire in 2030. The cost of the 
        legislation will probably be more than double what Amtrak 
        claims, or more than $4.6 billion if Amtrak is ``successful.'' 
        I note that the Heritage Foundation issued a report on August 
        28 describing the federal government's implicit interest 
        payments, concluding that ``The loss of tax revenues to the 
        U.S. Treasury would total $16 billion if interest rates remain 
        unchanged at 8 percent.''

   By transferring tax-credit costs from Amtrak's books to 
        Treasury Department ledgers, the bill creates massive subsidies 
        to Amtrak that again will be ``off-book'' for Amtrak. Such 
        deception frees Amtrak to again claim financial ``success'' 
        despite the continuing drain on taxpayers.

   Amtrak claims that the proposal is sound because finding 
        will be managed by an independent trustee and repayment will be 
        assured by a guaranteed investment contract. But it appears 
        that these measures apply only to the 20 percent state share, 
        not the 80 percent federal share. Thus, the preponderance of 
        the funds would remain at risk. Is that a prudent process 
        considering Amtrak's dismal fiscal history and flirtations with 
        bankruptcy?

   The bill grants the Transportation Secretary authority to 
        prescribe regulations about how certain financial transactions 
        are reported to the public even though the Secretary sits on 
        the Amtrak Board of Directors and holds Amtrak fiduciary 
        responsibilities. This is an obvious conflict of interest.

    The inescapable conclusion is that the bill is a stage-setter for 
another multi-billion-dollar federal bailout of Amtrak in future years. 
With hindsight as a guide, it is virtually impossible that Amtrak will 
be able to pay off bond principal and interest. The GAO has observed 
several times that Amtrak has a history of not meeting its financial 
goals. Bailouts have occurred with Amtrak's government-guaranteed 
loans, as explained previously. The $2.2 billion IRA-sponsored ``income 
tax refund'' is a partial bailout, because a portion of the funds is 
being used to pay off Amtrak debt incurred before the TRA was passed. 
No justification exists to pass the High Speed Rail Investment Act in 
its present form.
                                 ______
                                 
Attachment 7: Proposed Congressional Actions
    Congress is justified in undertaking the following:
Initiate Investigations
   Investigate Amtrak's misleading comments to Congress on 
        labor/management productivity. The best method to accomplish 
        this is probably through a GAO study. This is extremely 
        important considering that employee costs are the largest 
        single element in Amtrak's operating costs, according to 
        various studies.

   Investigate Canada's $1 billion Acela Express loan by 
        requiring Amtrak to supply the still-secret details of the loan 
        to this Committee. Congress should know the uses to which the 
        funds were put, the amount of principal and interest, the 
        potential liability to the U.S. government in a default, 
        whether the Acela Express trains serve as collateral for the 
        loan, and other terms and conditions that may be germane.

   Determine for public view the true extent of Amtrak's 
        continuing costs to the public. Accomplish this through a GAO 
        study to quantify all direct and indirect, past and current 
        federal subsidies. The review should include all liabilities 
        buried in U.S. Treasury accounts for past taxpayer-financed 
        bailouts of Amtrak.
Establish Penalties for Failure to Cooperate With Amtrak Reform Council
   Direct Amtrak to supply timely, accurate and germane 
        responses to inquires from the Amtrak Reform Council and 
        establish penalties for failure to do so.
Amend ARAA to Tighten Reporting Requirements
   Require Amtrak to annually submit to Congress the source for 
        all new loans, the purpose of the loans, the terms and 
        conditions of such loans, the collateral for such loans, and 
        the interest and principal obligations incurred, repayment 
        schedule, and amount paid during the year. The objective is not 
        to dampen Amtrak loan activity but to increase transparency and 
        knowledge of real and potential liabilities regarding Amtrak-
        incurred debt.

   Require Amtrak annual reports to clearly identify current 
        subsidies as subsidies and identify the source of all 
        subsidies. The objective should be issuance of reports that 
        forthrightly explain the true extent of Amtrak's revenues, 
        costs, losses and subsidies.

   Require Amtrak to publish monthly on-time performance 
        figures on a route-by-route basis. This would restore a 
        statutory Amtrak requirement in place in the 1970s (in the Rail 
        Passenger Service Act, Amtrak's enabling legislation) and is 
        commensurate with government practice today regarding the 
        commercial airline industry.
Amend ARAA to Require Truth in Scheduling by Amtrak
   Require Amtrak to establish consumer-friendly train arrivals 
        and departures by readjusting schedules so that non-checkpoint 
        communities are as likely to be served by punctual trains as 
        official checkpoint communities where on-time performance is 
        calculated.
Decline to Pass High-Speed Rail Investment Act

   Decline to pass the High Speed Rail Investment Act, a bill 
        that will not bring about high-speed trains in the Southeast, 
        Midwest and West and will open taxpayers to future liabilities 
        totaling billions of dollars. To effectively plan market-
        sensitive high-speed train systems, a new direction is needed 
        to include participation by regional agencies, private 
        businesses and joint ventures in innovative, imaginative 
        public-private partnerships.

    The Chairman. Thank you. Mayor Kaine, I would ask your 
indulgence for a couple of minutes. Senator Kerry would like to 
respond to the testimony of Senator Allard concerning an issue 
that affects his State, and if you would indulge Senator Kerry 
just for a few minutes while he responds, I would like to 
recognize Senator Kerry, and I thank you for your indulgence, 
mayor.

                 STATEMENT OF HON. JOHN KERRY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Kerry. Mr. Chairman, thank you, and I apologize, 
Mr. Mayor. I thank you, also. I had not intended, frankly, to 
stay here this long because of other conflicts, and I have to 
get on a plane and leave the city momentarily, and so I 
appreciate the intervention, and I appreciate my Chairman and 
his characteristic courtesy.
    I want to comment on 2 things, if I may, but let me first 
say something, and I kind of hesitate to say this but I am 
going to say it, because I think that many of us in the Senate 
are increasingly frustrated by the way it sometimes works 
around here.
    I am the Ranking Member of the Subcommittee which Chairman 
Allard testified about today, and I regret to say that I had no 
notice or awareness whatsoever that this testimony would take 
place today. We learned only of the potential that it might by 
seeing the witness list, and I do not believe that is the way 
the U.S. Senate is supposed to work, number 1. It certainly is 
not the way I operated as Chairman of the Subcommittee when I 
was Chairman, nor will it be the way I will operate in the 
future, should that happen again.
    Second, it is really a kind of one-sided representation 
that just has no relationship to the facts that were presented 
to our Committee in the context of our hearings, and I would 
ask unanimous consent, Mr. Chairman, that the text of the 
exchange with Bay State between myself and a person 
representing the company that the graph showed had 116 million 
differential be made a part of the record.
    The Chairman. Without objection.
    Senator Kerry. I would ask unanimous consent that a letter 
from Bay State to the employees of the MBTA also be made a part 
of the record.
    I would ask unanimous consent that a letter to me regarding 
the eleventh-hour invitation to the one person who was allowed 
to testify to the contrary regarding the MBTA contract problems 
also be made a part of the record.
    [The information referred to follows:]

    Senator Kerry. Thank you, Mr. Chairman.
    I have a copy of one of those letters that was sent and would ask 
that it be put in the record.
    The Chairman. It will be put in the record.
    Senator Kerry. In this letter, outside of the negotiating process, 
knowing that there is a union there, let me just clarify. Mr. Stoetzel, 
you did run the commuter rail system at the B&M for a period of time. 
Correct?
    Mr. Stoetzel. Yes, back in the mid-1980s. I was the general manager 
when it was operated by the Boston & Main Railroad prior to Amtrak 
taking it over in 1987.
    Senator Kerry. And I gather in fact that one of the prime people 
with the MBTA who was in charge of this contracting process used to 
work for you. Is that right?
    Mr. Stoetzel. There are actually several who were with me in 
Amtrak.
    Senator Kerry. So you've had a relationship with those people at 
the MBTA who have been part of this process.
    Mr. Stoetzel. Several years ago.
    Senator Kerry. Moreover, you have had a knowledge of the existence 
of 13 (c). This is not a surprise to you, is it?
    Mr. Stoetzel. No.
    Senator Kerry. And in fact, Bay State Transit--I've heard 
somebody--I think the Chairman said this company applied for a 
contract.
    What is the company? Is this a company that has employees today?
    Mr. Stoetzel. It has about ten employees today.
    Senator Kerry. At the time of the contract, I gather it had about 2 
employees.
    Is that correct?
    Mr. Stoetzel. Yes, roughly.
    Senator Kerry. So you have 2 employees and you're bidding $116 
million below anybody else to do something that you have no work force 
to do.
    Mr. Stoetzel. But you're bidding that on the basis of experience 
and on the basis of several other contracts, and on the basis of a very 
defined scope of work with the intent of hiring the work force.
    Senator Kerry. Sure, if the work force you're going to hire is the 
existing work force, if they want to work for you.
    Mr. Stoetzel. It's very similar to the situation that Amtrak was in 
when they took it over from B&M in `87. And they had no work force and 
they hired from the existing work force.
    Senator Kerry. It had a name then. It's called union-busting, and 
it has a name today. It's called union-busting. That's fundamentally--
the program here is that you're going to come in and change the 
contract and get out from under. That's essentially how you lower the 
costs. Most of these employees understood that. They saw that--when we 
talk about better benefits and better wages, et cetera, it's my 
understanding that that offer was only made last month. Is that 
accurate?
    Mr. Stoetzel. No. The first offers were made in September.
    Senator Kerry. Were the first offers better?
    Mr. Stoetzel. The first offers--the difference between the first 
and second offers was slight and between the second and third, they've 
changed.
    Senator Kerry. I don't believe the first offers had specific 
numbers, did they?
    Mr. Stoetzel. They had a wage range for the different positions. 
They didn't have specific----
    Senator Kerry. Mr. Moneypenny, did they have specific offers?
    Mr. Moneypenny. It said comparable. I can give you the package. It 
said comparable.
    Senator Kerry. Comparable. But were there any--what was the 
understanding of the workers with respect to that offer?
    Mr. Moneypenny. That you would have to give up your--you would have 
to go in alone, you would have no one to negotiate on your behalf.
    You would have to accept whatever this offer was, which was not 
explained to you. That you would have to have--and this really enraged 
our people--you would have to have a background investigation conducted 
upon you by this company with 2 employees.
    If you worked 25 years at that job, and if you have, you worked for 
several different railroads. You worked for the Penn Central. You 
worked for the B&M. You worked for Amtrak.
    You would have to have these 2 individuals, whoever they were, do a 
background investigation to see if you were fit for the job that you 
already had.
    That's what our people saw.
    And let me just correct one thing that Mr. Stoetzel said. There's a 
big difference between when Amtrak took over in `87 and what these 
folks tried to do.
    Amtrak negotiated collective bargaining agreements with each and 
every one of the unions before they took over. And that's what these 
folks could have done.
    The difference is that they probably couldn't have done it for $175 
million.
    Senator Kerry. That's really the bottom-line issue here. What was 
the real cost of trying to run the transit system, recognizing that you 
had in existence since 1964 a relationship where the federal government 
said that if federal dollars are expended on this system, there's a 
certain expectation as to the relationship between the corporate entity 
and the people who work there.
    Now, listen. I understand. We're all looking for cost savings. And 
none of us--I'm not sitting here suggesting that any kind of 
featherbedding practice or inappropriate numbers ought to be protected.
    That's not what I'm suggesting. And I don't think you are, Mr. 
Moneypenny.
    I think the question is, is there going to be a legitimate 
bargaining process that is respected so that people don't feel that 
their rights are being trampled.
    Am I correct?
    Mr. Moneypenny. And there's a practical reason for this, Mr. 
Chairman.
    The only place you get to be a railroad worker is on the railroad. 
It's not like we're going to get rid of your widget-makers and bring 
our widget-makers in.
    Mr. Stoetzel and the people he represents know darn right well, if 
it's not our folks, there aren't any other folks to do this work.
    It's not like you have hundreds of railway workers around the 
country waiting to go to work.
    And I hear what you said, Mr. Chairman. Some of them are cleaners. 
I cleaned cars for 5\1/2\ years myself. It's a good way to make a 
living. And these people, they don't break the bank on what they make.
    But there are also hundreds of highly skilled people who are very 
good at what they do. And to try and bring in a work force of hundreds 
of strangers and say, go ahead and run the commuter rail service, is an 
invitation to disaster.
    Senator Kerry. Mr. Stoetzel, let me ask you--and I don't want to be 
unfair to either side here.
    Why has there not been the sort of direct kind of negotiation that 
Mr. Moneypenny is talking about?
    Mr. Stoetzel. Again, Bay State was attempting to hire a work 
force--
    Senator Kerry. But one by one, by picking them off. Not with the 
union.
    Mr. Stoetzel. We had made elaborate plans to interview every single 
member of the existing work force, offer positions. And however they 
chose to organize, that would be the entity with whom we would deal.
    Bay State has been very consistent in that approach throughout.
    Senator Kerry. That's outside of the law. The law required a 
different process.
    Let me read from your letter. Your letter says--here's an 
individual letter received by a worker who knows he or she is 
represented by somebody to bargain for them. You've sent letters to 
their family.
    Here's what it says.
    I am writing to you the third time to invite you to apply for a 
position with Bay State Transit Services to perform mechanical services 
for the MBTA.
    And then you go through a brief summary of these events.
    On October 28th, the rail unions met with the MBTA to begin the 
negotiation.
    Then you come down--what does all this mean to you?
    First, the rail unions and the MBTA have agreed to a process that 
will protect your rights under the 13(c) agreement.
    But if it really were protecting their rights under the 13(c) 
agreement, you'd be negotiating with the union, not writing them 
individually.
    Second, you say to them, applying for employment with Bay State 
will not affect your rights.
    In fact, the contrary may be true. Failure to apply for employment 
with Bay State could negatively impact your rights to 13(c) benefits.
    Now that's a threat.
    Mr. Stoetzel. That was our understanding from the MBTA. And there 
was later an MBTA letter to the employees saying the same thing.
    Remember, we're not a party to this 13(c) agreement. That's what we 
were told.
                                 Bay State Transit Services
                                                   November 8, 1999
    I am writing to you for the third time to invite you to apply for a 
position with Bay State Transit Services to perform mechanical services 
for the MBTA. Bay Suite Transit Services recognizes that the change in 
contractors for mechanical services at the MBTA may be causing 
uncertainty for you and your families. Several recent events have 
clarified the situation to your benefit and may assist you in your 
decision to consider employment with Bay State Transit Services. Below 
is a brief summary of these events:

   On October 28, the rail unions met with the MBTA to begin 
        negotiation of an implementing agreement that may be required 
        by the 13(c) agreement. This started a defined process that the 
        MBTA and the rail unions will follow to resolve any 13(c) 
        issues.

   On November 3, a 3-judge panel of the Suffolk Superior Court 
        heard arguments from your rail unions, MBTA and Bay State 
        regarding an injunction to prohibit Bay State and the MBTA from 
        soliciting or hiring current employees involved in the 
        mechanical services. On November 4, the 3-judge panel 
        unanimously denied the rail unions' request for a preliminary 
        injunction because, among other things, the rail unions failed 
        to establish a likelihood of success on the merits of their 
        claims. Bay State is now free to continue its recruitment 
        efforts.

   During the hearings, the MBTA stipulated in court that 
        current employees involved in the mechanical services would nor 
        forfeit or waive any of their 13(c) rights by applying for or 
        accepting employment with Bay State. MBTA and the rail unions 
        also agreed to expeditiously submit certain 13(c) issues to 
        arbitration, if necessary.

    What does all this mean to you? First, the rail unions and the MBTA 
have agreed to a process that will protect your rights under the 13(c) 
agreement. Applying for employment with Bay State will not affect your 
rights. In fact, the contrary may be true--failure to apply for 
employment with Bay State could negatively impact your rights to 13(c) 
benefits.
    Second, Bay State's contract with the MBTA requires us to give 
priority consideration of employment to the current employees. More 
importantly, there is a sincere desire on the part of Bay State to hire 
as many of the current employees as possible. We have established an 
employment process that will ensure fair consideration and treatment 
for all applicants.
    We understand that you may still have many unanswered questions. We 
have included an information package that briefly describes positions 
available and wages and benefits. Other questions can be addressed 
during your interview.
    We understand that there were concerns that our previous offers to 
apply and be interviewed did not provide sufficient time for you to 
respond. Therefore, we are extending the deadline for receipt of 
applications until November 30, 1999. The acceptance of an employment 
offer from Bay State now will not affect your current employment. You 
will continue in your present position until Bay State begins providing 
services on March 1, 2000.
    Bay State Transit Services recognizes that you are an integral part 
of the past and future success of the MBTA commuter rail service. 
Please give us the opportunity to convince you that employment with Bay 
State can be a rewarding long-term experience. We look forward to the 
receipt of your completed application (additional copy enclosed) so 
that we may schedule your interview.
        Sincerely,
                                         Raymond V. Lanman,
                                                         President.
                                 ______
                                 
                       O'Donnell, Schwartz & Anderson, P.C.
                                                     April 24, 2000
Hon. John Kerry,
U.S. Senate,
Washington, DC.

Dear Senator Kerry:

    I was asked by my Rail Labor clients to provide you with background 
information in connection with a hearing regarding the Section 13(c) 
transit employee protection program being held tomorrow by the 
Committee on Banking, Housing and Urban Affairs. Although the hearing 
will address 13(c) protections in the context of the overall Federal 
Transit grant program, the Committee was prepared to receive testimony 
from witnesses who will present only one side of a dispute between the 
Rail Unions and the Massachusetts Bay Transportation Authority 
(``MBTA'') concerning MBTA's plan to change the contractor for its 
maintenance of equipment work from Amtrak to Bay State Transit 
Services, Inc. Unfortunately, a formal attempt (see attached) by the 
Transportation Trades Department, AFL-CIO (TTD), to include, in 
addition to the Amalgamated Transit Union, both TTD and a Rail Labor 
representative among the witnesses scheduled to appear, was denied. But 
then today, at the eleventh hour, an invitation was issued to Charlie 
Moneypenny, International Representative of the Transport Workers 
Union.
    It is most unfortunate and, frankly, unfair that my clients were 
not given the opportunity to properly prepare for tomorrow's hearing to 
present their side of the story and to respond to whatever charges or 
complaints are levied against the Rail Unions and their members by the 
MBTA and its contractor, Bay State Transit Service. The Rail Unions are 
not sure of the nature and scope of the Committee's concerns, but they 
have some familiarity with questions that have been raised regarding 
this dispute. As such, on short notice I am providing you with this 
quick letter that briefly addresses certain questions that have been 
raised and that may resurface tomorrow.
    Question 1. On what basis could the Department of Labor and 
Department of Transportation find MBTA ineligible for federal funds?
    Answer. Every grant agreement between MBTA and FTA since May 29, 
1997 was subject to a condition that META bind its contractors to its 
``13(c) Agreement'' with the Rail Unions. The Department of Labor 
imposed that requirement for eligibility for FTA funds in what became 
``Attachment A'' to its certifications pursuant to former Section 13(c) 
(now Section 5333(b)) after full opportunity for briefing by MBTA and 
the transportation unions. MBTA opposed the requirement but the 
Department of Labor rejected MBTA's arguments. After May 27, 1997, MBTA 
applied for and received a number of FTA grants all subject to the 
Attachment A requirement that provided:

    LThe MBTA will ensure that any person, enterprise, body, or agency, 
whether publicly or privately owned, which shall undertake the 
management and/or operation of the system and/or provision of services, 
or any part or portion thereof, under contractual arrangements of any 
form with the MBTA, its successors or assigns, shall agree to be bound 
by the terms of the December 10, 1974 Section 13(c) Agreement, as 
supplemented, and accept responsibility with the MBTA for full 
performance of those conditions, and as a condition precedent to such 
contractual arrangements, the MBTA, its successors or assigns, shall 
require such person, enterprise, body or agency to so agree.

    Again, it must be noted that this requirement was added to DOL 
certifications after a proceeding in which MBTA had the opportunity to 
submit argument to the DOL. Its arguments were rejected in the letter 
that promulgated Attachment A. The requirement was then imposed in 
every FTA grant after May of 1997. MBTA continued to apply for and 
receive federal funds while committing that it would comply with the 
DOL certifications, including Attachment A, even though MBTA opposed 
imposition of the requirement.
    However, MBTA did not bind its proposed new mechanical service 
contractor, Bay State Transit Services, Inc., to the 13(c) Agreement. 
In litigation before the Massachusetts courts, MBTA and Bay State both 
argued that Bay State was not a party to the 13(c) Agreement, was not 
bound by the 13(c) Agreement and had no contractual obligations to the 
Rail Unions and their members pursuant to the 13(c) Agreement. The 
Massachusetts courts made findings of fact consistent with those 
assertions. Indeed, those findings were a significant part of the 
reasoning behind the courts' refusal to grant injunctive relief sought 
by the Rail Unions under the 13(c) Agreement.
    In short, the FTA grant agreement expressly and unequivocally 
required that MBTA bind its contractors to the 13(c) Agreement as a 
condition precedent to that agreement, and MBTA clearly violated that 
agreement and indeed admitted that it did not comply with that 
requirement after committing to it in order to receive millions of 
dollars in FTA grants.
    Question 2. Did MBTA have an opportunity to provide information 
regarding this dispute to the Departments of Labor and Transportation 
before any decision was made?
    Answer. After the Rail Unions wrote to the Departments of Labor and 
Transportation, the Departments wrote to MBTA on December 17 and 20, 
1999, stating that it appeared MBTA had not complied with the 
Attachment A requirement based on the State Court decision; and they 
requested an explanation from MBTA.
    MBTA preemptively addressed issues raised by the Rail Unions with a 
letter to the Secretary of Transportation on December 17, 1999, 3 days 
before the December 20 letter was actually sent by the DOT. Then, MBTA 
responded with a 5 page letter dated December 30, 1999. MBTA responded 
to the Department of Labor's inquiry with a 5page letter dated December 
30, 1999.
    Thus, it is clear that MBTA had ample opportunity to provide 
information as well as argument on the issues before any conclusion was 
reached by the Departments.
    Question 3. Was the MBTA procurement process a legitimate 
competitive procurement process?
    Answer. There are substantial issues as to whether there even was a 
truly fair, competitive and legitimate procurement procedure in this 
case. It appears that MBTA did not factor in to the weighing of bids 
the likely costs of employee protections if the Bay State bid was 
accepted as opposed to the Amtrak bid. Since this is essentially a 
labor services contract, any savings that might flow from a lower bid 
would necessarily come from reduced labor costs, thus implicating 
employee protection payments. Indeed, MBTA and Bay State acknowledged 
that Bay State plans to reduce the current work force by 130 or more 
employees. However, it does not appear that MBTA gave any consideration 
to those costs when it concluded that the Bay State bid would result in 
net savings of $116 million. A formal request to MBTA under FTA 
Circulars 4220,1B, IC and 1D for disclosure of information pertaining 
to the procurement process and the weighing of bids was never answered 
by MBTA.
    Additionally, from the time that Bay State was selected, the Rail 
Unions, members of the Massachusetts Legislature and others have 
asserted that the Bay State bid was unrealistically low and that MBTA 
would be required to pay more than what Bay State originally bid in 
order to provide the same level of service now provided by Amtrak. MBTA 
never provided any information that would demonstrate Bay State's 
ability to provide the same level of service at the price of the bid. 
It appears that Bay State based its figures on the employee to rail car 
ratios on other commuter railroads and not on actual staffing 
projections for the MBTA shops. Among other things, such an analysis 
ignores the fact that MBTA has no central yard for the storage of its 
entire car fleet. This means that certain economies of scale available 
to other commuter rail operations are not available to the MBTA 
operation. This also means that MBTA must disperse its cars to outlying 
locations and keep workers at those locations to service and maintain 
the equipment. An example of the mechanical staffing implications of 
the MBTA system is that because local noise and air pollution concerns 
the cars stored at outlying points may not ``idle'' at night, but 
instead must be turned off; this requires that workers be available at 
these locations the next morning to perform necessary tests before 
trains go into service. In any event it is clear that Bay State's 
staffing numbers were not based on actual plans for staffing particular 
locations with certain numbers of employees for certain shifts at 
specific locations. Efforts by the State legislature and the Unions to 
ascertain the basis for Bay State's staffing plans were rebuffed.
    Recent events have only amplified the concerns of those who 
questioned the validity of the Bay State bid. It has been reported that 
many of the cost overruns on the Big Dig and Transitway projects have 
been due to un-budgeted payments to contractors who were awarded 
contracts based on low bids, but later sought supplements after 
beginning work.
    Question 4. Is there federal authority regarding the manner in 
which a workforce is hired or which union represents them?
    Answer. Among the employee protections guaranteed by Section 13(c), 
current Section 5333(b)(2) are (A) ``the preservation of rights, 
privileges and benefits (including continuation of pension rights and 
benefits) under existing collective bargaining agreements or 
otherwise'' ; (B) ``the continuation of collective bargaining rights'', 
and (E) ``assurances of priority of reemployment of employees whose 
employment is ended or who are laid off''. These protections are 
implemented by the Department of Labor and negotiated agreements such 
as the 13(c) Agreement between the Rail Unions and MBTA. The 13(c) 
Agreement requires an implementing agreement concerning the selection 
forces and assignment of employees. And Attachment A to the recent DOL 
certification requires that Bay State be bound to the 13(c) Agreement.
    Morever, the Department of Labor's letter promulgating Attachment A 
actually stated that one reason why it was necessary that contractors 
be bound by the 13(c) Agreement was that ``if the applicant is not the 
direct provider of services, it cannot directly ensure continuation of 
collective bargaining rights, preservation of existing collective 
bargaining agreements, or priority of reemployment. Thus, in order to 
carry out these statutory requirements, the MBTA must require that any 
entity which undertakes the management and/or operation of the system 
and/or provision of services be bound by the protective arrangements.''
    Question 5. Did the Department of Labor inform MBTA that it would 
withhold FTA certifications because MBTA and Bay State had not 
guaranteed that Bay State would not change existing collective 
bargaining agreements, hire all existing workers or recognize existing 
unions?
    Answer. The Department of Labor merely said that unless MBTA bound 
Bay State to the 13(c) Agreement as required by Attachment A, MBTA 
would be ineligible for future certifications. The DOL action dealt 
only with the refusal of MBTA to bind Bay State.
    Question 6. Why did negotiations between MBTA and the Rail Unions 
break down?
    Answer. The Unions told MBTA that a pre-condition of any agreement 
would be that MBTA bind Bay State to the 13(c) Agreement as required by 
Attachment A. The Unions raised the Attachment A issue continually and 
at the outset of negotiations with MBTA. The Unions had serious 
problems with a number of positions taken by MBTA but they said that 
they would be willing to negotiate to attempt to resolve those issues; 
however they said they would not negotiate about something that MBTA 
was legally required to do, and that was fundamental to the entire 
process of negotiating an agreement involving a change in contractor.
    Question 7. Were there legitimate questions regarding the 
``technical capacity'' of Bay State?
    Answer. There were substantial questions as to the ability of MBTA 
and Bay State to provide safe and adequate service. Bay State has no 
experience whatsoever in providing mechanical services for a commuter 
rail operation, and its parent corporations have no experience in 
providing such services for a major commuter rail operation. While the 
parent corporations have experience in providing services to freight 
railroads, they do not have experience with a major passenger 
operation. One of Bay State's parent corporations has experience with a 
small commuter rail operation, and that operation was cited as 
deficient in a number of areas in a FRA study several years ago. 
Additionally, as is noted above, the Bay State staffing plan on its 
face raises serious questions about its technical capacity. 
Furthermore, MBTA and Bay State so alienated the existing work force 
that there are substantial questions as to whether Bay State would have 
been be able to put together a work force with the requisite skills, 
experience and FRA certifications.
    Question 8. Did the Rail Unions attempt to communicate with Bay 
State regarding their concerns?
    Answer. On May 18, 1999 the Rail Unions wrote to Bay State's parent 
corporations advising them of the 13(c) Agreement, the history of their 
dealings with MBTA and the Unions' position regarding the applicability 
of the 13(c) Agreement and its requirements to a change from Amtrak to 
Bay State. On June 3, 2000 the Rail Unions wrote to MBTA regarding the 
13(c) Agreement and the obligation of MBTA and Bay State to continue 
employee benefits such as Railroad Retirement (a copy of that letter 
was sent to Bay State). On September 8, 2000 the Rail Unions wrote to 
MBTA noting that MBTA had for over 2 months failed to provide promised 
information regarding Bay State's planned operations, the content of 
Bay State jobs, Bay State's intended plans for selection for employment 
and wages and terms of employment, and MBTA and Bay State views as to 
employee rights under the 13(C) Agreement; a copy of that letter was 
sent to Bay State.
    Question 9. Did MBTA and Bay State make job offers to the Amtrak 
workers?
    Answer. No. Bay State sent Amtrak shop employees solicitations for 
them to apply for consideration for employment with Bay State. The 
letters did not offer any jobs, indicate that the recipients would have 
any right to jobs, describe jobs that would be available, describe 
procedures by which employees would be considered for jobs, describe 
how Bay State would determine whether an Amtrak employee was qualified 
for a job, or describe an appeal process over denial of a job. 
Essentially, Bay State would pick and choose among the Amtrak employees 
in accordance with criteria established by Bay State. MBTA sent a 
letter to the Rail Unions, saying that, under a ``priority of 
employment'' all current Amtrak employees who ``apply in a timely 
manner'' would be ``interviewed and considered for employment before 
Bay State hires any potential employees from the general public.'' 
Flowever, Bay State would make the sole determination of applicant 
qualifications and there would be no appeal from any determination it 
makes. MBTA said Bay State believed that it would not be covered by the 
Railroad Retirement Act, would not deal with the Rail Unions, and would 
not assume any current collective bargaining agreement covering 
maintenance of equipment workers.
    Many Amtrak workers responded to Bay State by noting that Bay State 
had not actually made job offers, that they had rights under the 13(c) 
Agreement and that their unions would represent them. MBTA sent letters 
to Amtrak employees urging them to apply for consideration for 
employment with Bay State, but also threatening them that if they did 
not apply, they could lose both job opportunities and entitlement to 
any financial benefits under the 13(c) Agreement in connection with a 
change from Amtrak to Bay State.
    Question 10. What did MBTA and Bay State actually offer in the form 
of priority of employment to the Amtrak workers?
    Answer. In July of 1999 MBTA said it meant only a right to be 
interviewed, but then said it meant a right of hiring for ``qualified'' 
employees''. When the Unions asked about who would decide whether 
current workers are ``qualified'', how that determination would be 
made, and what rights employees would have to appeal 
``disquaiifications'', MBTA could not answer. Nor could MBTA answer the 
most basic questions about the number ofjobs that would be available 
with Bay State, the type of shop jobs Bay State would have, or whether 
operating employees who move the trains in the yard and track, signal 
and building maintenance employees would be included in a Bay State 
operation.
    At the end of October, 1999, MBTA said that Bay State jobs would 
all be called ``maintainer'' jobs in which all employees could be 
assigned all shop functions, and that Bay State would contract-out 
coach cleaning work. Under the so-called ``priority of employment'', 
all current Amtrak employees who ``apply in a timely manner'' would be 
``interviewed and considered for employment before Bay State hires any 
potential employees from the general public''. Bay State would make the 
sole determination of applicant qualifications and there would be no 
appeal from any determination it makes. MBTA and Bay State never told 
the Unions how prior experience and seniority in a craft would be 
considered in evaluating applicants. For example they could not explain 
how a twenty year machinist, a fifteen year electrical worker and a 22 
year sheet metal worker would be evaluated for the same job. The 
employment applications sent out by Bay State made it clear that actual 
job offers would be complete on standards and terms dictated by Bay 
State. Ultimately, it became clear that there were no objective 
standards, no set processes and no appeal mechanisms in the employment 
mechanism envisioned by MBTA and Bay State. There also would be no 
Union and employee negotiations about, or even input into that 
mechanism; there would be only unilateral discretion vested in Bay 
State.
    Question 11. Was there reason for MBTA and Bay State to feel 
surprised by the Attachment A requirement?
    Answer. MBTA had litigated the Attachment A issue and should have 
been fully familiar with its terms. All post-May 1997 FTA grants to 
MBTA were subject to this requirement. Additionally the Rail Unions 
brought the Attachment's requirements to MBTA's attention by letter 
dated July 13,1999. This letter was sent to MBTA in connection with 
negotiations with the Unions the planned change in contractor and was 
in part a request for information about Bay State's plans Since MBTA 
was conveying information about employment with Bay State to the 
Unions, Bay State should have seen this letter even if a copy was not 
sent directly to Bay State.
    The Rail Unions feel that any inquiry into the issues that have 
arisen in their dispute with MBTA and Bay State should have allowed the 
Unions ample opportunity to prepare remarks arid to respond to 
questions and to claims made by MBTA and Bay State Since they were not 
given a meaningful opportunity to present their side of the story, the 
Rail Unions appreciate the opportunity that you have provided us to 
briefly address some of the key issues involving this matter.
        Sincerely,
                                        Richard S. Edelman,
                                       Counsel for the Rail Unions.

    Senator Kerry. If I might also say for the record here, Bay 
State was a nonexistent entity. Bay State Transportation 
Services did not exist in Massachusetts, or Bay State Transit 
Services, prior to its bid on this particular occasion, and it 
bid, indeed, a differential between it and Amtrak, but may I 
point out to my colleagues there were only 2 employees.
    Two employees bid to undertake to provide commuter rail 
services, and they had no experience in doing that in our 
State. In fact, there were substantial questions as to the 
ability of the MBTA and Bay State to provide safe and adequate 
service to the 60,000 people who use our rail every single day.
    Bay State had no experience whatsoever in providing 
mechanical services for a commuter rail operation. Its parent 
corporation had no experience whatsoever in providing services 
for any major commuter rail operation, and while the parent 
corporation had experience in providing services to freight 
railroads, they had no experience with a major passenger 
operation.
    One of Bay State's parent corporations had experience with 
a small commuter rail operation, and that operation was cited 
as deficient in a number of areas in an FRA study a number of 
years ago.
    Bay State's staffing plan, on its face, raised serious 
questions about its technical capacity, and let me simply share 
with my colleagues what they did. They planned basically to 
break the union, and to violate section 13(c) and other 
standards by which negotiations take place.
    Now, you may not like negotiating with a union. You may not 
like some of the outcomes, but the law is the law, and they 
basically tried to circumvent the law, and in a letter that I 
have now placed in the record they actually wrote directly to 
employees, and this is their third letter.
    They say, ``I am writing to you for the third time to 
invite you to apply for a position with Bay State Transit 
Services to perform mechanical services for the MBTA,'' and 
then in a subsequent paragraph they say, ``what does all this 
mean to you,'' and then they define what the rail union's 
position is, which is not an appropriate negotiating procedure, 
and they say, ``Applying for employment with Bay State will not 
affect your rights. In fact, the contrary may be true--failure 
to apply for employment with Bay State could negatively impact 
your rights to 13(c) benefits.'' That is a direct threat to the 
employees about what their status might be.
    This was a complete violation of negotiating standards of 
federal law. The court upheld the position of Amtrak, and I 
resent the notion that we are going to have some drive-by 
shooting in a hearing of the U.S. Senate to try to attack a 
contract when the facts are completely different from what we 
know here today, not to mention of what it has done in the 
context of senatorial courtesy. Mr. Chairman, I am frustrated 
and angry at this kind of approach, which has no place in the 
workings of an institution like this.
    A second point I want to make, this debate over Amtrak is 
also increasingly becoming more and more frustrating. You know, 
I have been here 16 years now, and most of those years on this 
Committee, not all of them, but I have heard people come in 
here and attack and attack and attack Amtrak and, indeed, there 
are reforms necessary. I have never sat here and been resistant 
to the notion that we cannot improve, and that there are not 
some bad practices, and that there has not been some 
mismanagement here and there.
    But to suggest that a governor with the qualities of 
Governor Thompson, who I think is the longest, now, elected 
governor in his state, and has had a remarkable record for 
efficiency, and other governors like Michael Dukakis and others 
who have a reputation for competency and concern, are not 
moving this thing toward a responsible status, is, I think, 
number 1 unfair, and number 2, discourteous.
    Second, when you analyze----
    The Chairman. Senator Kerry, I recognized you to respond to 
Senator Allard. I would be glad to debate you, particularly 
when you are casting some aspersions on the people that as 
Chairman of this Committee I rely on more than anybody else, 
and that is the General Accounting Office and the Inspector 
General, so I would be glad to debate this with you, but I 
thought you asked to be recognized in order to respond to 
Senator Allard.
    Senator Kerry. I also said, Mr. Chairman, if I could just 
say, I did not have the opportunity to have an opening----
    The Chairman. We have to go with the regular order of the 
appearance of Senators and Senator Wyden was here before you 
were.
    Senator Kerry. Are we going to have openings, Mr. Chairman?
    The Chairman. No. I have deviated from the normal procedure 
so that you could respond to Senator Allard. I am glad to hear 
that. If you would like to then wait your turn and have an 
opening statement----
    Senator Kerry. Unfortunately I cannot be here.
    The Chairman. Unfortunately I cannot account for your 
personal schedule, but we have to go with the rules of the 
Committee.
    Senator Kerry. Mr. Chairman, fine, I will abide by the 
rules of the Committee and submit a statement for the record.
    [The prepared statement of Senator Kerry follows:]

 Prepared Statement of Hon. John Kerry, U.S. Senator from Massachusetts
    Mr. Chairman, thank you for holding this hearing today. I think we 
have a good opportunity to learn that Amtrak is doing well, and remains 
firmly on its glide path toward operating self-sufficiency. As you well 
know, in 1997, we negotiated, we reached a compromise, and every member 
of the United States Senate agreed, by unanimous consent, to provide 
Amtrak with certain legislative relief and certain amounts of capital 
funding. In turn, we demanded that Amtrak become operationally self 
sufficient by the end of fiscal year 2002.
    Amtrak will testify that for FY 2000, it will require no more than 
the planned $362 million in federal support for operating expenses, 
which is $122 million less than last year. Now, I want to make sure 
something is very clear. Amtrak will fall short of the revenue it 
estimated in its strategic business plan. Amtrak is like any other 
business that will occasionally fall short of the estimated revenue. If 
we expect Amtrak to run like a private company, we have to expect that 
occasionally they will suffer setbacks. Mr. Chairman, one of the most 
respected high technology companies in the country, Intel, just 
announced that it would not achieve the revenue it predicted earlier in 
the year. These are normal setbacks that occur in any business, and in 
this case, such setbacks in no way suggest that Amtrak is not going to 
satisfy its target date for operational self-sufficiency.
    More importantly, Amtrak will also testify that it just had its 
best summer ever, breaking revenue records and showing steady increases 
in ridership. It's also seen good results from its new satisfaction 
guarantee--with 995 customers out of 1000 satisfied with Amtrak's 
service. Mr. Chairman, I think it is very safe to say that none of our 
domestic air carriers have a 99.5 percent rate of customer 
satisfaction. We should be very satisfied with these results.
    Nevertheless, while I feel confident that Amtrak will be able to 
achieve operational self-sufficiency, we still need to do more to 
ensure that Amtrak has the capital it needs to provide the services its 
customers demand. I was proud to be an original cosponsor of an 
outstanding piece of legislation my friend Senator Lautenberg 
introduced, the High Speed Rail Investment Act, which addresses those 
needs. There is no shortage of supporters for this bill. In addition to 
the 54 cosponsors in the Senate, we have endorsements from state 
governments across the country, editorial boards from California, to 
Pennsylvania to Texas, and organizations from the Sierra Club to Morgan 
Stanley.
    I hope this bill becomes law this year, because this country needs 
to develop a comprehensive national transportation policy for the 2lst 
Century. So far, Congress has failed to address this vital issue. What 
we have is an ad hoc, disjointed policy that focuses on roads and air 
to the detriment of rail. The minuscule amount we spend on rail 
compared to other countries is unconscionable. In 1995, only 4 
countries, Tunisia, Hungary, Saudi Arabia and Bulgaria spent less than 
the US on rail. The amount of federal money spent on aviation in Fiscal 
Year 2000 is almost ten times what was spent on passenger rail, and the 
amounts spent on highways almost thirty times as much. Mr. Chairman, if 
we want one answer as to why our highways are so crowded and our 
skyways have become just as grid-locked, I think we can turn to the 
appallingly low level of attention the United States Congress has given 
to passenger rail. Because of our neglect, people simply cannot use 
rail to the extent they want to, or should be able to, and are 
therefore flying or driving on short trips that could and should be 
taken by train.
    Mr. Chairman, I want to address an additional issue which I believe 
the witnesses may raise today. There has been some attention given to 
Amtrak's contract with the Massachusetts Bay Transportation Authority 
for commuter rail maintenance services. Amtrak has been criticized for 
entering a 3-year contract, and has even been encouraged by members of 
the United States Senate to shorten the length of the contract. I find 
it ironic that some individuals who want Amtrak to run more like a 
business would tell them to enter a contract that would be bad for 
Amtrak's bottom line.
    The extended contract between the MBTA and Amtrak was necessary 
because the MBTA and Bay State Transit Services were unsuccessful in 
their attempts to avoid federal labor responsibilities, break the 
unions that represent the maintenance workers and threaten individual 
maintenance workers into wage and benefit cuts. Because of these 
actions, Bay State Transit Services could not find any qualified 
workers to perform the maintenance work to comply with their MBTA 
contract. Because Bay State was unable to fulfill its contract, the 
MBTA asked Amtrak to accept an extension. Only Amtrak was in a position 
to provide commuter rail maintenance services after that date.
    The problems that the MBTA has endured in their attempts to 
contract out the commuter rail maintenance contract were simply due to 
their own attempts to avoid compliance with existing federal labor 
responsibilities. The framework that the federal government, transit 
agencies and unions have successfully used over the past generation, 
called ``Section 13 C,'' has preserved transit workers' collective 
bargaining rights, established sensible rules for negotiations between 
unions and management, and has preserved the rights of employees who 
have been adversely affected by changes in the industry. The results of 
this partnership are clear. Americans now travel more than 38 billion 
miles on mass transit each year. More than 10 million Americans use 
mass transit for their daily commute. This growth in mass transit would 
not have been possible without stable relationship between the unions, 
transit agencies and the federal government. Future growth in mass 
transit would be imperiled without this framework--and I am personally 
committed to preserving the fairness in the transit marketplace that 
has made that growth possible.
    Mr. Chairman, Amtrak is making great strides in moving toward 
operational self-sufficiency and running more like a business. Congress 
should not undercut the progress that has been made so far and should 
give Amtrak the tools it needs to continue moving in the right 
direction.
    I look forward to hearing from the witnesses.

    The Chairman. Thank you very much.
    Mayor Kaine.

         STATEMENT OF HON. TIMOTHY M. KAINE, MAYOR OF 
   RICHMOND, VA, ON BEHALF OF THE U.S. CONFERENCE OF MAYORS, 
                           BOISE, ID

    Mr. Kaine. Thank you, Mr. Chairman. My name is Tim Kaine. I 
am the mayor of Richmond, Virginia. I am pleased to be here 
today on behalf of the United States Conference of Mayors, 
which is the bipartisan organization representing 1,100 cities 
and the mayors of those cities whose populations exceed 30,000.
    I also speak on behalf of Mayor Pat Owens of Grand Forks, 
North Dakota. There was a reference earlier to why would Grand 
Forks, North Dakota, support this bill, they must have been 
promised something. They initiated their support of this bill 
because they are on a feeder passenger rail line to Chicago. 
They were not arm-twisted to do so.
    I would like to tell you briefly why passenger rail matters 
greatly to America's cities, and why America's mayors strongly 
support Senate bill 1900. All of you, I know, recognize the 
growing problem that the country faces as a result of gridlock 
on our highways and winglock in the air. My 100-mile drive from 
Richmond this morning took me more than 3 hours.
    We have all experienced delays and frustrations that 
travelers experience in today's overstressed transportation 
systems, but I would like you to know that we mayors, in 
addition to experiencing it personally, also have a really 
critical stake in this transportation issue. It is one of our 
major preoccupations. That is because we own and operate, 
together with our county counterparts, nearly all of the 
airports in the United States, with our county partners we own 
and operate about 80 percent of the road system in the United 
States, and either with county counterparts or in regional 
agencies we own and operate more than 90 percent of the 
Nation's transit systems, buses, subways, light rails and 
trolleys.
    With this stake in the ownership of these critical 
transportation venues, mayors from across the Nation and also 
including a vocal public believe that our future transportation 
investment decisions must increasingly emphasize passenger 
rail, and particular intercity passenger rail service. It is an 
undeniable fact that voters are also coming to this conclusion.
    This is why mayors are now saying it is time to take the 
next step in national transportation policy and restore a 
balance to our system. We believe this is accomplished by 
building a third leg to accompany the federal investments in 
airports and highways to promote this national rail service 
that can connect in a high-speed fashion between our 
metropolitan economies.
    At the Mayors Conference we have begun to focus on 
identifying the critical elements of a rail policy for the 
Nation for this new century, and we are trying to look at ways 
the Nation can reverse a couple of generations of neglect and 
inattention to the rail infrastructure both for passenger and 
for freight needs.
    Just 10 days ago in Boise, I joined with more than 50 of my 
colleagues from around the Nation at the conference's fall 
leadership meeting. The conference's president, Brent Coles of 
Boise, Idaho, dedicated a significant portion of this mayors 
leadership agenda to the issue of rail in America, and the need 
for additional investment in our infrastructure.
    In preparing for these sessions, we looked at what is 
happening throughout the United States. For example, today in 
47 of the 50 largest metropolitan economies there is either 
plans or construction of new rail projects, be they 
regionalized or localized. These projects are most commonly 
light rail or commuter rail projects.
    To put these in perspective, I would note that these 50 
metro economies account for over 53 percent of the Nation's 
total economic output, and around the country totally the 
number of rail starts for projects is astounding, with more 
than 200 projects underway and another 200 contemplated in more 
than 30 States.
    Local areas are now committing billions of local dollars to 
rail projects, which makes us all the more concerned about the 
vitality and strength of the intercity passenger rail linkage. 
These local rail projects with local bus and intercity bus 
connections will link passengers to a national rail network and 
vice versa to form a more seamless transportation system.
    Again, what is noteworthy about these programs is the 
extent of the local investment, which exceeds 50 percent in 
many of the projects, and shows the level of local commitment. 
Clearly--we talked about at the mayors' conference this 
``railvolution'' that is now underway in America's cities, and 
it is largely being driven on a local level. Increasingly, 
there is an emerging consensus among the mayors that this 
investment in intercity linkage between these local systems can 
help us achieve important social objectives, not only economic 
development, but improve mobility and choice, cleaner air, and 
smarter growth.
    Mr. Chairman, the Nation's mayors have no choice but to 
focus most of our efforts on the local problems and issues, but 
we see a powerful linkage between a strong Amtrak, a growing 
national intercity passenger system, and the long-term 
viability of our local economies. That is why America's mayors 
have made this rail system restoration in Senate bill 1900 a 
top priority.
    To put it simply, we are enthusiastic about high-speed 
rail. We believe that, when fully funded, high-speed rail 
partnerships that have been formed between Amtrak and some 28 
State already will spark a revolution in the 21st Century 
transportation. High-speed rail will boost the economy's 
productivity, increase safety, create jobs, and enable our 
highways and airports to fulfill their potential better, and by 
connecting downtown business centers served by rail it will 
help local officials to use high-speed rail and other 
investments to grow smarter in their regions.
    In conversations with our European counterparts, we have 
been impressed by their accounts of how high-speed rail has 
helped revitalize their metropolitan economies. We are 
convinced that high-speed rail will make a big difference to 
America's cities as well.
    I cannot let the occasion pass, in conclusion, without 
commenting briefly on the strong partnerships between the 
cities and Amtrak. Today, Amtrak serves 45 of our Nation's 50 
largest metropolitan economies, and we see real efforts by 
Amtrak to work in partnership with local areas. In Richmond, 
for example, Amtrak has committed to restoring train service to 
downtown Richmond, a train service that had moved into the 
suburbs 20 years ago. That is being done in concert not only 
with our city, but also with our Commonwealth of Virginia.
    We see positive trends on revenue and ridership. We are 
excited about the Acela service which is promised for Richmond 
and points immediately south of Washington. Thank goodness 
North America is finally joining the rest of the industrialized 
world in deploying high-speed trains.
    As I know you have gathered from my comments, I believe 
that the future is bright for rail passenger service in 
America, but it will take more energy, more commitment, and 
more investment to deliver the services that the public 
expects. Most importantly, a balanced transportation system 
requires you and your colleagues support Senate bill 1900.
    Mr. Chairman, again I would like to thank you and the 
Members of the Committee for allowing me to appear today. I 
know reference has been made earlier to the endorsements that 
have been received by Amtrak for Senate bill 1900, and if they 
have not been offered, I would like the permission of the chair 
to go ahead and offer these to the Committee.
    The Chairman. Without objection, they will be included in 
the record if you like, Mayor Kaine.
    Mr. Kaine. Thank you. I appreciate that.
    [The prepared statement of Mr. Kaine follows:]

Prepared Statement of Hon. Timothy M. Kaine, Mayor of Richmond, VA, on 
           Behalf of the U.S. Conference of Mayors, Boise, ID
    Mr. Chairman and Members of the Committee.
    I am Timothy Kaine, Mayor of Richmond, Virginia.
    I am pleased to appear here today on behalf of The United States 
Conference of Mayors, a national bipartisan organization representing 
mayors of the more than 1,100 cities with a population of 30,000 or 
more.
    I'd like to tell you, very briefly, why passenger rail matters 
greatly to our cities, and why America's mayors strongly support 
passage of the High Speed Rail Investment Act, S. 1900.
    All of you, I'm sure, recognize the growing problems our country 
faces as a result of gridlock on our highways and ``winglock'' at our 
airports.
    All of us have experienced the delays and frustrations associated 
with our nation's overstressed transportation systems.
    But I'd like all the distinguished Members of this Committee to 
know that we mayors don't just read about these transportation 
challenges in the newspapers--and we don't just experience it 
occasionally. We live it every single day. It's one of our major 
preoccupations.
    That's because we own and operate many of the nation's airports--
and with counties, nearly all of them.
    With our county partners, we own and operate more than 80 percent 
of America's highways and streets.
    And, locally or in regional agencies, we own and operate more than 
90 percent of the nation's transit systems--buses, subways, light rail 
and trolleys.
    Because we're on the front lines of America's transportation 
systems, we can't just sit around and wait for others to solve our 
problems. We have to take the initiative, and must confront these 
challenges.
    Yet, we know that to be successful, we must have partnerships to 
help move resources to where they are needed.
    Mayors from all across the nation, and many others, including a 
growing and more vocal public, believe that our future transportation 
investment decisions must increasingly emphasize passenger rail. It is 
an undeniable fact that the voter is becoming more frustrated with 
their transportation options.
    And, Mr. Chairman and Members of this Committee, I am sure that you 
would agree that the mayors are particularly attuned to this 
disenchantment.
    This is why mayors are saying that now is the time to take the next 
step in national transportation policy and restore balance and vigor to 
our national system. We believe this can be accomplished by building 
the third leg of the stool: a national rail system that connects 
between and within our metropolitan economies.
    At the mayors' Conference, we have begun to focus on identifying 
some of the critical elements of a rail policy for the nation as we 
enter this new century. And, to look at ways this nation can reverse a 
couple of generations of neglect and inattention to our nation's rail 
infrastructure, both for passenger and freight needs.
    Earlier this month in Boise, I joined with more than 50 of my 
colleagues from all across the country at the Conference's Leadership 
Meeting. The Conference's President, H. Brent Coles, the Mayor of 
Boise, dedicated a significant portion of our agenda to the issue of 
rail in America and the need for additional investment in this 
infrastructure.
    In preparing for these sessions, we looked at what is happening in 
throughout the U.S. For example, today, 47 of the 50 largest 
metropolitan economies are either planning or constructing new rail 
projects, be it regionwide or more localized systems. These projects 
are most commonly light rail or commuter rail projects.
    To put these areas in perspective, I would note that these 50 metro 
economies account for more than 53 percent of our nation's total 
economic output.
    And around the country, the total number of rail starts is 
astounding, with more than 200 projects--and potentially up to 400--in 
more than 30 states.
    Local areas are now committing billions of dollars to local rail 
projects, which makes us all the more concerned about the vitality and 
strength of the nation's intercity passenger rail system. These local 
rail projects, with their local bus and intercity bus connections, will 
link passengers to a national rail network, and vice versa, to form a 
more seamless transportation system.
    And what's most noteworthy about these investments is the local 
share of the ``new start'' projects--which, on average, now exceeds 50 
percent, showing the level of local commitment to rail investment.
    Clearly, there is what we call a ``railvolution'' that is now 
underway in America's cities--and it's locally, not federally, driven.
    All across America, our voters are demanding more choice and more 
balance in their transportation systems. More voices--and not just 
mayors and transit backers--are calling for an expanded national 
commitment to rail investment.
    And, increasingly, there is an emerging consensus that such 
investment can also help us achieve important social objectives. These 
include improved mobility and choice, cleaner air and smarter growth.
    Mr. Chairman, the nation's mayors have no choice but to focus most 
of their efforts on local problems and issues. But we also realize that 
our urban transportation systems are part of a larger network. What the 
poet John Donne said--``No man is an island, entire of itself''--
definitely holds true of our cities and their transportation systems, 
as well.
    We see a powerful linkage between a strong Amtrak, a growing 
national inter-city passenger rail system, and the long-term viability 
of our local and metropolitan economies.
    That's why America's mayors have made ``rail system restoration'' a 
top priority, and strongly support the High Speed Rail Investment Act, 
S. 1900.
    To put it simply, we mayors are enthusiastic about high-speed rail. 
We believe that, when fully-funded, the high-speed rail partnerships 
that have been formed between Amtrak and some 28 states will spark a 
revolution in 21st century transportation.
    High-speed rail will boost our economy's productivity, increase 
safety, create jobs, and enable our highways and airports to fulfill 
their potential.
    And by connecting downtown business centers served by rail, it will 
help local officials to use high-speed rail and other investments to 
grow smarter in their regions.
    In conversations with our European counterparts, we have been 
impressed by their accounts of how high speed rail has helped 
revitalize their communities. We're convinced that high-speed rail will 
make a big difference to America's cities, as well.
    Mr. Chairman, I cannot let this occasion pass without commenting on 
the strong partnerships between our cities and Amtrak.
    Today, Amtrak already serves 45 of our nation's 50 largest 
metropolitan economies. And, we see real efforts by Amtrak to work in 
partnership with local areas.
    We see positive trends on revenue and ridership. And frankly, we're 
excited--very excited--about the Acela service. Thank goodness North 
America is finally joining the rest of the industrialized world in 
deploying high-speed trains!
    Mr. Chairman, as I'm sure you've already gathered from my remarks, 
I believe the future is bright for passenger rail in America. But it 
will take more energy, more commitment and more investment to deliver 
the services that the public expects.
    And, most importantly, a balanced transportation system will 
require that you and your distinguished colleagues support S. 1900.
    Mr. Chairman, once again I'd like to thank you, and the Members of 
this Committee, for the opportunity to appear before you today.

    The Chairman. Thank you for being here, and thank you for 
your stewardship of what is one of the most beautiful cities of 
America. I enjoyed very much visiting there.
    Mr. Kaine. We would love to have you any time.
    The Chairman. Thank you, mayor.
    Before I begin my questioning, I would like to put this in 
the context of the concerns of some Members of this Committee. 
Amtrak was established in 1971. Within 2 years it was going to 
be self-sufficient. We have spent $23 billion, and again we 
enacted legislation a short time ago that was again going to 
free it of all federal subsistence.
    There is an argument that can be made that was alluded to 
by Governor Thompson and other witnesses that perhaps we should 
have a federally subsidized railroad system in America. I think 
that debate should be held, but we have the 2 most respected 
arms of government, at least from this Chairman's point of 
view, the Inspector General of the Department of Transportation 
and the General Accounting Office who cast serious, serious 
doubts on our ability, on Amtrak's ability to achieve the 
independence that we were assured of when we passed the last 
bill out, and now another $10 billion is going to be requested 
to continue what I view as continued subsidization of Amtrak.
    I think we should decide either that we will have a 
federally supported, federal tax dollars even if Amtrak does 
not run through Arizona any more, or it certainly does not stop 
there, and for the good of the country my taxpayers should 
continue to spend their dollars and guarantee billions of 
dollars worth of bonds, or we should face up to the fact that 
it is unlikely, at least in the view of the General Accounting 
Office and the Department of Transportation Inspector General 
and me that it is very unlikely that financial, true financial 
independence can be achieved in the timeframe which we were 
guaranteed just a couple of short years ago in return for 
another bail-out.
    I have forgotten what number bail-out this is since 1971, 
but it totals to $23 billion since the Congress and the 
American people were assured in 1971 that there would be 
financial independence. All these years later, nearly 30 years 
later, and $23 billion later, it is understandable why some 
members might be a little cynical about the latest rounds of 
assurances.
    Mr. Carmichael, Governor Thompson, Mr. Warrington, you 
should be free to weigh in. Do you intend to take any action on 
the Inspector General's recommendations?
    Governor Thompson. Mr. Chairman, if I might, first if I 
could respond to your proposition, we have only been in 
existence 18 months, the new Amtrak Reform Board. Granted, it 
has been in existence for 29 years. Granted, we have got $23 
billion at the same time that highways are getting $33 billion 
a year, airports are getting $14 billion a year.
    The Chairman. In all due respect, Governor Thompson, I 
tried to frame this discussion that there can be an argument, 
which you are making, for federal subsidization.
    Governor Thompson. I am not making an argument. I would 
just like to finish if I might, Mr. Chairman--and $6 billion 
for mass transit.
    When the Reform Board was set up, we were supposed to be 
authorized about $925 million a year. We have been receiving 
about $521 million, a little over half of what the authorizers 
said we should have in order to be self-sufficient. We still 
developed a glide path, Mr. Chairman, and every year we are 
going down.
    When we started we had a fiscal year infusion of $484, this 
year $362 million. Next year it is $242 million, the following 
year it is $189 million, and thereafter we will be, except for 
the excess retirement aid, which is an obligation that Congress 
has put upon us and said it would not be included in the 
operation, we are on that glide path. We are going to make that 
glide path.
    Mr. Mead made some arguments about our previous business 
plan. We went over those, and we have submitted a new business 
plan, and the problem we had this year, we have been on that 
business plan. The first year we made $500,000, the second year 
it was $8 million, this year we are going to be under that. The 
reason, we had assumed $150 million of high-speed Acela 
express. We did not get them. We will be having the first train 
sets shortly, within the next couple of weeks, and once we put 
that system in we will make up what we lost this year, and I 
can assure you we will be on self-sufficiency by the year 2003, 
fiscal year 2003.
    Now, saying that, without the capital, we never--I do not 
know, I was not involved in the original thing, but capital is 
something else. We do not have the capital to sustain a growth 
industry in railroads.
    The Chairman. Governor, I really appreciate your comments. 
It is the custom in this Committee to answer the questions 
posed by the Committee. I will repeat my question. What action 
does the board intend to take on the IG's recommendations?
    Governor Thompson. We took action last week at our board 
meeting. We came in with a new business plan. We will submit 
that business plan to Mr. Mead and to you. In fact, it has been 
submitted to Mr. Mead, and that business plan takes care of the 
suggestions he made.
    The Chairman. I thank you. I thank you very much.
    Mr. Carmichael, would you like to comment, or Mr. 
Warrington, either one, in response to the question?
    Mr. Warrington. Let me just say this, Senator. I personally 
have tremendous respect for Phyllis and Ken in particular, and 
I will tell you that Amtrak and our staff have worked very hard 
to work very cooperatively with Ken and Phyllis to get all of 
the facts out on the table, and during the first several years 
of our existing business plan I will tell you that we met or 
exceeded----
    The Chairman. Again I would like to have an answer to the 
question posed by the Chairman, quote, what action does the 
board intend to take on the Inspector General's 
recommendations? We have got to have the answers to the 
questions by the witnesses here. Please, I ask all the 
witnesses what action does the board intend to take on the 
Inspector General's recommendations?
    Mr. Warrington. Management made specific recommendations to 
our board of directors, and the board of directors has adopted 
significant updates and improvements and changes to last year's 
plan, which is what Ken was working off of, to significantly, 
reduce the number of undefined plan actions over the next 3 
years that we need to achieve. Many have to do with expense. 
Some have to do with revenue enhancements.
    The Chairman. Thank you. Could you submit in writing for 
the benefit of the Committee some of the actions that you have 
taken in response?
    Mr. Warrington. We will give you all the details, Mr. 
Chairman.
    The Chairman. Mr. Carmichael, would you like to respond?
    Mr. Carmichael. I will try to, Mr. Chairman.
    Ken's report, and in all of these 20-odd years of trying to 
put together a national rail passenger system the report card 
is pretty much in that we organized it wrong to start with and 
it has not been able to accomplish many of the things Congress 
wanted and that the public wants, and so I cannot help but feel 
that we can sit here and talk about what to do with these 
recommendations, but we have got to reorganize Amtrak so that 
we know what it needs for a national operating system and we 
also know what it needs for its infrastructure business.
    I cannot see any of this information being relevant until 
we reorganize the business itself, and you instructed us in the 
creation of this Council that we were supposed to make 
recommendations to help them be self-sufficient and if they 
were not, then we were supposed to give you a reorganized plan 
for the new national system. I just say right now, I do not 
think they can cut $737 million worth of expenses that Ken was 
talking about, not without doing some radical reorganization of 
the corporation right now and coming back to Congress with 2 
different requests for funds, one for the infrastructure and 
one for the operating company, so I do not see any solution 
right now until they do something like that.
    The Chairman. That is very different from the way the 
proposal was made to Congress when we passed the last 
legislation, Mr. Carmichael, a very interesting departure.
    Mr. Warrington, how many money-losing routes have been 
cancelled since Amtrak received the authority to make its own 
routing decisions?
    Mr. Warrington. I do not recall that any significant route 
reductions have occurred over the past 3 years.
    The Chairman. Have any routes been canceled?
    Mr. Warrington. I know routes have been canceled, although 
our network growth strategy plan, which we unveiled on February 
1, did include a significant number of modifications and 
reroutes to tap into new markets both for passenger business as 
well as mail and express business.
    The Chairman. As part of the Taxpayer Relief Act of 1997, 
Amtrak received $2.2 billion to make capital improvements and 
maintain Amtrak's equipment in intercity passenger rail 
service. I remember the language very well.
    A February report by the GAO said the Amtrak had spent 
substantial amounts of this funding to cover its cash-flow 
needs. These funds were actually spent on operating expenses, 
but Amtrak contends it will repay these expenses. What is the 
legal authority to borrow from the TRA funds, Mr. Warrington?
    Mr. Warrington. We do have legal authority to borrow from 
the TRA, and over the course of the past, I guess, 2\1/2\ or 3 
years it has been very clearly articulated in our annual 
business plan and our 5-year plan, and we have repaid the TRA 
on schedule as intended in the plan.
    The Chairman. Mr. Mead, do you believe they have the legal 
authority to borrow?
    Mr. Mead. Yes, I do.
    The Chairman. When does Amtrak expect to stop using TRA 
funds, Mr. Warrington?
    Mr. Warrington. The board of directors last week approved 
not only our business plan, which deals with many of the issues 
that Ken has raised, but also our capital plan as a piece of 
that, and we would expect by the end of this next upcoming 
fiscal year that all of the TRA funds, the large majority of 
those funds will have been programmed or expended.
    The Chairman. How much money did Amtrak spend in support of 
the recent political conventions?
    Mr. Warrington. I do not recall spending any money directly 
in support of the recent conventions. What we did do, which we 
do with many conventions across the country, is work with 
visitor and convention bureaus around discounts and promotions 
related to convention users accessing the sites by train. We 
did that in both Los Angeles and Philadelphia, but that is a 
common practice with all conventions in large cities across 
America, and it is a major revenue-raiser for us.
    The Chairman. A recent Wall Street Journal article written 
by Mr. Jeffrey Krassner writes that he tried to verify Amtrak's 
claims about its on-time performance in the Boston-New York 
market. He said when he asked Amtrak for this data, Amtrak 
spokesmen told him the data was proprietary. How in the world 
could on-time performance be proprietary?
    Mr. Warrington. It is not. I have no idea what that means, 
and we are very public and very open about the on-time 
performance of every one of our trains.
    The Chairman. I thank you.
    Governor Thompson and Mr. Carmichael, the House companion 
bill to S. 1900 includes a provision that reaffirms that any 
Amtrak-issued bonds are backed by Amtrak only, not the U.S. 
Treasury. Such a provision would uphold current law, which 
according to 2 rulings by the Comptroller-General, the federal 
government is not liable for any of Amtrak's corporate 
obligations. Does the proposal you are working on with the 
Finance Committee include a similar provision?
    Governor Thompson. We are all in favor of it, Mr. Chairman. 
We have no opposition to that.
    The Chairman. Mr. Carmichael.
    Mr. Carmichael. I would like to ask Mr. Mates, our 
economist, to comment on that.
    Mr. Mates. The majority of the Members of the Amtrak Reform 
Council support the freedom of other institutions to also issue 
bonds.
    The Chairman. Thank you.
    Ms. Scheinberg, Mr. Mead argues that it would require about 
double the $10 billion in bonding that may be achieved through 
S. 1900 if these requests that Mayor Kaine, or these proposals 
that Mayor Kaine wanted included in the record, is that a fair 
estimate, $20 billion as opposed to the $10 billion they are 
seeking now?
    Ms. Scheinberg. The problem, Mr. Chairman, is that nobody 
knows what the number is. We asked Amtrak that specific 
question, how much would it cost to develop these high-speed 
corridors around the country, and Amtrak could not give us an 
answer. I think $20 billion is a low number. It could be any 
number. Until people have an estimate, it is pretty hard to say 
what S. 1900 is going to accomplish.
    The Chairman. Go ahead, Mr. Carmichael.
    Mr. Carmichael. I produced a table called Interstate II. We 
have one interstate system out here that is about 50 miles an 
hour, and in this country it has an opportunity for a second 
interstate system.
    I was involved back in 1989 to 1992 in the creation of 
these new 5 high-speed corridors that were introduced in 1991. 
We have a 43,000 mile interstate system across the country. It 
is very possible we could have a 20-something thousand miles 
intercity corridor system across the country. I would say to 
build a 20-something thousand miles interstate II high speed 
trains is going to cost several hundred billion dollars, and it 
is the type of thing, do we want it? These mayors seem to be 
saying they do want it.
    We are so hung-up on Amtrak's failure to achieve what it 
has done that we are missing the point of what may be evolving 
here. There may be an opportunity now for a new surface 
transportation high-speed system across this country, and the 
corridors are emerging pretty fast. This $10-billion bond is 
maybe a step in the right direction, but we hope to give you 
some recommendations in January of how to fund a national rail 
passenger system, and also how to fund the emerging interstate 
high-speed systems.
    It is evolving. Amtrak is excited about it and trying to do 
it, but it needs to be approached in a different way.
    The Chairman. And your estimate is several hundred billion 
dollars?
    Mr. Carmichael. That is right, for interstate II, high-
speed intercity rail network. The corridors are sitting out 
there, beautiful corridors going right through the center of 
all of our cities. The freight railroads are beginning to say, 
we will work with you. They are doing it right here in Virginia 
between Norfolk Southern and the State of Virginia, so the 
stage is being set for this new interstate II system, and for 
this new high-speed corridor system.
    The question is, who is going to help build it? The State 
DOT's are getting excited about it, and they want to build it. 
They built the old interstate system, and they are beginning to 
see the opportunity for building this other one. We have got to 
figure out how to fund it, and I think the American people want 
it and Congress is beginning to look at it.
    The Chairman. Well, I believe the taxpayers should have a 
better estimate than several hundred billion dollars, Mr. 
Carmichael.
    Mr. Carmichael. I agree with that. It is as big as the 
interstate system.
    The Chairman. Mr. Mead.
    Mr. Mead. My point in saying $20 billion, that is a low-
ball, no doubt about it, was to put in context what is going on 
here. S. 1900 is a $10-billion revenue bond package that goes 
over a 10-year period, and it does not come close to covering 
the demands that are going to be made.
    With regard to that I would like to make 2 points. First, 
there are roughly 10 corridors, high-speed corridors, already 
designated in this country. There are another 8, which will 
bring the total to 18 high-speed rail corridors in this 
country. All those 18 will be competing for roughly that $1 
billion per year. That is point 1.
    Point 2 is Amtrak itself has extraordinary needs that are 
not classifiable as high-speed rail. So what if S. 1900 is 
passed, you should count on annual appropriations for Amtrak in 
addition to the $1 billion in bonding authority per year, and 
that number I would say would be in the neighborhood of $500 
million to $700 million per year in annual appropriations. That 
includes the excess retirement money that Governor Thompson was 
speaking about.
    The Chairman. Governor Thompson.
    Governor Thompson. Thank you, Mr. Chairman. Three quick 
points. First, I would like to introduce Governor Linwood 
Holton, who is on the Amtrak board. He got here a little bit 
late because he missed the on-time performance of our train. He 
got to the train depot a few minutes late, and it had already 
left, and I am happy that he is here.
    The Chairman. Welcome, Governor.
    Governor Thompson. First off, we are in the exercise right 
now, Mr. Chairman and members, of putting together a 5-year 
capital plan. We have been working on that for well over a 
year. We should have that completely developed, I would say, in 
the next 3 to 4 months. Second, the $1 billion in S. 1900 is 
for high-speed corridors, the 4 high-speed corridors. Ken Mead 
is absolutely correct, if there are more high-speed corridors 
it is going to take more money, but we think we can do what is 
necessary to get the 4 high-speed corridors up with $1 billion 
a year.
    On top of that, we need other capital needs, there is no 
question about that, and $500 million to $700 million is an 
appropriate figure by Ken Mead. We are going to get most of 
that money from the high-speed things, but we are hoping that 
Congress will also recognize the need, if we want to develop 
the kind of railroad, national railroad system that is going to 
be profitable and is going to be successful we need to infuse 
capital.
    Our biggest problem has been the old equipment and trackage 
that does not warrant the kind of speeds that we would like to 
be able to put on them, and so we are improving our equipment, 
we are using all business techniques in order to do that, and 
we are doing a much better job than ever before of improving 
the equipment and the trackage, but capital is badly needed.
    The Chairman. I appreciate very much the job you are doing, 
and the job Mr. Carmichael is doing, and the job Mr. Warrington 
is doing. The problem that I have again is--and maybe it is a 
problem with being here too long--You keep coming back; and 
every time, this is it, it is over, this is all we need. The 
last legislation we passed, by 2002, it is over. You are 
finished. That was the promise in 1971. Here we are, 29 years 
later. That is the problem.
    I do not know if we would have passed the legislation last 
time if we had had the same testimony that we have today, 
several hundred billion dollars, at least $500 million, or $700 
million for the next X number of years.
    I just think that Americans--and you make a strong 
argument, Mr. Carmichael, for high-speed rail corridors to 
relieve congestion--anybody who has tried to get on an airplane 
or has been stuck in traffic lately, recognizes, particularly 
out in the West Coast, as well as the East Coast, we need to 
have some kind of finite, definitive answer as to what is going 
to be needed, and then we can make an informed decision.
    No one expected, 2 years after passage, or 3 years after 
passage of the legislation, another $10 billion in bonding. I 
certainly did not expect it. Certainly it was never mentioned 
in testimony before this Committee when we did the bill. Please 
respond, and then I would like to go to Senator Wyden, or if 
both of you would like to respond, go ahead, Governor.
    Governor Thompson. Mr. Chairman, I was not here when it 
passed.
    The Chairman. I understand, but I was.
    Governor Thompson. I understand, and I accept your premise. 
All of the people that I have talked to on previous boards and 
previous management said there was never any indication that 
this was going to be for all the capital. Capital was separate. 
This is operationally self-sufficient.
    Now, we can argue about that, and I do not want to argue 
about it, but that is basically the position taken by Amtrak. 
We need capital.
    The second point is, is the authorizer said we were going 
to get about $984 million. We have been getting about $521 
million. We are getting about half of what we expected under 
reauthorization.
    The Chairman. I would just like to mention real quick I am 
told the administration proposed that and Amtrak said that is 
fine.
    Governor Thompson. Well, that was fine operationally, but 
not with capital, and that was the difference. We have always 
been, and we are so close. We are on the cusp of making it 
operationally, but we never said we could make it without 
infusion of capital. We will be able to make 2003 if 1900 does 
not pass. We are going to make it, but we are not going to have 
much left over after that. We are not going to have a new 
railroad. We are not going to be able to have the high speeds. 
We need the capital in order to grow and be able to deliver to 
you, Mr. Chairman, the kind of railroad you want and America 
wants.
    The Chairman. I thank you. I have got to go to Senator 
Wyden. Can I ask Mr. Carmichael to respond briefly, and then I 
will go to Senator Wyden.
    Mr. Carmichael. Senator, I apologize, but I believe it fits 
in here correctly. We have got 2 things that are confusing 
this. One, Amtrak's core business, its core business now is 
running passenger trains with mail and express on a national 
system from Boston to San Diego. That is its core business.
    The Council would like to know how much capital and money 
does Amtrak need for its core business. Now, we are confusing 
something else with this, this infrastructure development. 
These other corridors that are evolving, they need capital from 
a different direction and different source, and who is going to 
build them, and who is going to be in charge of them and have 
responsibility?
    So in my mind, as chairman of the Amtrak Reform Council, I 
want Amtrak to concentrate on its core business, and I hope my 
Council will recommend in January a different funding mechanism 
for these corridors. The corridors are not capital they need. 
They need capital for the system.
    The Chairman. We will have another hearing in January as 
soon as you all finish your reports, and perhaps we can get a 
better handle on the situation then.
    Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman, and Mr. Warrington 
I want to walk through with you the situation in Eastern 
Oregon, because it illustrates in my view how you continue to 
play politics with the way these routes are determined, and I 
want to go very carefully through it, because I find this very 
troubling, as somebody who has supported Amtrak for 20 years in 
both the House and the Senate, and sits here this morning, 
frankly, and finds himself agreeing with much of what the 
Chairman has said, so I am going to go through this very 
carefully with you.
    In May 1998 the GAO issued a report on the financial 
performance of the Amtrak routes. What this report essentially 
showed is that the decision to end the Pioneer in Eastern 
Oregon in May 1997 was not a decision based solely on financial 
performance. Governor Thompson sat at that witness table at the 
last hearing and he agreed with that. He said the GAO was 
correct, that that was not a decision based on the merits.
    Mr. Chairman, I would ask the statement of Mr. Coston be 
made a part of the record.
    The Chairman. Without objection.
    [The information referred to follows:]

      Prepared Statement of James E. Coston, Attorney, Chicago, IL
Federal Infrastructure Funding: the Key to Success for Railroad 
        Passenger Service
    Mr. Chairman, my name is James E. Coston. I am a former Amtrak 
employee, and between 1980 and 1986 I was the manager of an excursion-
train and rail-travel business that was Amtrak's biggest customer. At 
this time I am an attorney residing and practicing in Chicago, 
Illinois. On April 4 of this year I was appointed by Senator Daschle to 
the Amtrak Reform Council. My testimony today represents my personal 
views as a passenger-rail advocate and should not be construed as 
reflecting the thinking of the Council, its staff or any of its 
individual members.
    I would like to comment briefly--and, I hope, constructively--on 
the Inspector General's report that we have been discussing this 
morning.
    The Inspector General has disclosed publicly what most fair-minded 
and informed passenger-rail advocates have been discussing privately 
for some time: that Amtrak's capitalization, cash flow and expenses 
make it extremely difficult for this company to achieve the financial 
break-even which the 1997 Amtrak Reform and Accountability Act mandates 
must occur by FY 2003. Amtrak does not have, and never has had, the 
resources a business requires to perform such a feat. The 1997 Act's 
insistence on break-even by 2003 amounted to an unfunded mandate: It 
made stringent demands upon Amtrak, but it did not provide Amtrak--or 
any other entity--with the resources that had to be there if those 
demands were to be met.
    Why did Congress hand Amtrak this ``Mission: impossible?''
    I see two reasons:
    First, in the closing days of 1997, many members of Congress were 
angry at Amtrak's management for an ill-advised cost-control program 
that needlessly eliminated train service in several parts of the 
country and threatened losses of service in a number of others. The 
Chicago-to-Portland Pioneer, which enabled tourists to view the Blue 
Mountains of Oregon close up, was discontinued, even though Amtrak 
managers knew that adding a single car of mail to each departure would 
add enough revenue to keep the service operating. The Chicago-to-Los 
Angeles Desert Wind was dropped at the same time, ending all Amtrak 
service to Las Vegas and to the ski-resort country of southwestern 
Utah.
    As a Midwesterner I know that in early 1995 the states of 
Wisconsin, Michigan and Illinois were forced to turn to their 
legislatures for millions of dollars in additional subsidies just to 
keep a token Amtrak corridor service running. Even with those subsidies 
in place, fares had to be raised, causing ridership levels to plunge 
after several years of healthy growth.
    The effect on Amtrak's relations with Congress was close to 
poisonous. In the closing days of 1997 Amtrak's board brought in a new 
management which began to reverse course, but the damage was done: 
Congress's understandable but unrealistic demands for reform were 
embodied in law. Only in compliance with that law could Amtrak get on 
with business.
    Second, in 1997 the ``Contract with America'' was very much in the 
air in Congress. There was a strong belief among many members that 
railroad passenger service, along with other programs historically 
provided by government, could be either privatized or forced into a 
private-sector model under government ownership. Many members 
apparently believed that of the 4 basic U.S. transportation modes--
highway, inland-waterway, air and rail--one, the rail mode, could 
operate successfully by the rules of private-sector business while the 
other three continued to enjoy seven decades of abundant infrastructure 
funding from the federal government.
    In forcing that private-sector model on Amtrak, the 105th Congress 
compounded an error made by the 91st Congress when it created Amtrak 
under the Rail Passenger Service Act of 1970.
    The big mistake of the 1970 Act was to pretend that railroad 
passenger service--uniquely in the transportation industry--could 
survive and grow under the rules of private business. Congress never 
made this demand on the nation's other transportation modes. Our 
highways, inland waterways and civil aviation network all were 
established and funded by government and continue to be supported by 
massive government investment in their fixed infrastructure and their 
traffic-control systems. In those modes, only the operation of the 
common carriers is in the private sector. Government not only supplies 
and owns the infrastructure, but makes sure as well that the 
infrastructure is technologically state-of-the art so that the carriers 
using it operate at the highest possible degree of efficiency and 
financial performance. This is the meaning of the 3-year, $40-billion 
funding package that Congress voted in March to enable the Federal 
Aviation Administration to upgrade its air-traffic control system.
    When it comes to intercity rail passenger service, however, 
government is almost totally absent from funding of infrastructure and 
is making only the faintest attempts to catch up. So while America 
enjoys a 21st century highway system and a 21st century civil-aviation 
network, its railroad tracks cannot support even a 1950s-level of 
passenger service. In fact, in the state of Illinois we are just now 
undertaking a set of state-sponsored track-and-signal improvements that 
in 2 years will enable Amtrak's Chicago-St. Louis trains to reach 110 
miles per hour. Yet the fact is that in 1936 passenger trains between 
Chicago and the Twin Cities were streaking along at speeds as high as 
115 miles per hour--behind steam locomotives!
    Such are the absurdities that develop when government spends seven 
decades funding three types of transportation infrastructure while 
ignoring a fourth--and then attends to the fourth with too little too 
late. Let me remind you that as of this date, Congress still has not 
provided a funding mechanism that explicitly allocates a reliable 
supply of dollars to the construction and improvement of intercity 
railroad tracks and their command-and-control systems.
    This is a scandalous omission in a nation obsessed with personal 
mobility. All of the other modes of transportation have enjoyed 
dedicated infrastructure funding for many decades:

   Federal dollars for highways have been flowing since the 
        1921, when Congress made its first commitment to connecting up 
        the nation's cities with hard-surfaced roads .

   Dedicated federal funding for barge canals, locks, dams and 
        navigation aids has been in place since 1917, when President 
        Wilson, using his wartime powers, seized the nation's tiny 
        barge and towboat fleet, established a government-owned barge 
        line and provided the first federal money for a long-term 
        program of waterway improvements.

   Federal dollars for airports and air traffic-control systems 
        have been flowing since 1926, when President Coolidge 
        authorized the Commerce Department to erect beacons so pilots 
        could fly air mail safely at night.

   There are federal dollars for urban and suburban mass-
        transit systems, and those dollars have been flowing--some 
        might say trickling--since 1964, when President Johnson 
        realized that four decades of cheap federal capital for streets 
        and highways had left the privately owned transit systems and 
        commuter railroads with no means of modernizing or expanding 
        their services.

    Yet intercity passenger rail technology, which holds the power to 
free our nation from its airway and highway gridlock, still has no 
dedicated infrastructure-funding mechanism of its own. Amtrak has a 
small budget to operate and market its small fleet of trains and 
receives periodic capital grants to upgrade the roughly 500 miles of 
track it owns--most of it in the Northeast Corridor--but the 
overwhelming majority of the trackage it uses is privately owned 
freight infrastructure that is not built to passenger-train standards 
and is in large part inadequate to handle even the freight traffic 
thrust upon it.
    Since the Congress has seen fit to impose a set of private-sector 
business rules on passenger rail while lifting its competitors on the 
strong arms of government, let me just share with you a couple of harsh 
lessons that all private businesses understand.
    Lesson number one: If a business is denied access to the capital 
required to update its technology and make its product competitive, the 
customers will not come. That has happened to Amtrak. Its trains are 
too slow so its customers are too few. Its share of the travel market 
is less than one per cent and dropping. Ridership growth is not strong 
enough to replenish market share.
    Lesson number two: Old technology costs more to operate than new 
technology, so businesses forced to keep using old technology have 
higher expenses than their state-of-the-art competitors. They spend 
more and more to accomplish less and less. This too has happened to 
Amtrak. This is why the Inspector General has pointed out that even 
though Amtrak's revenues are rising, its costs are rising faster. 
Amtrak's ``revenue gap'' is a direct result of its ``infrastructure 
gap.''
    One can only speculate how much more effective, efficient, busy and 
profitable Amtrak would be if its Northeast Corridor infrastructure had 
access to only a twentieth of the federal funding that has been 
lavished since the 1930s on its Northeastern competitors: Reagan 
National Airport, Baltimore-Washington International, Philadelphia 
International, LaGuardia, Theodore H. Green and Logan airports, to say 
nothing of the four decades of funding expended on Interstate 95 with 
all of its incredibly expensive bridges, tunnels, interchanges and 
feeder highways. Those facilities became efficient people movers 
because those facilities were funded.
    As long ago as 1992, Professor Paul Steven Dempsey of the 
University of Denver estimated that our civil-aviation and highway 
infrastructures each represented more than $1 trillion worth of 
government investment at then current prices. The railroad 
infrastructure of our country is worth nowhere near that sum. Thanks to 
103 years of federal railroad regulation and 83 years of federal 
capital investment in new infrastructures that compete with rail, the 
U.S. railroad industry has been conducting a century-long going-out-of-
business sale. Double track has been converted to single track, high-
speed signal systems designed for passenger trains have been removed, 
yards have been closed, stations demolished, platforms pulled up and 
superelevated track that once permitted passenger trains to pass 
through curves at 80 miles per hour has been leveled to accommodate 
freight trains traveling at 40 miles per hour. Particularly in the 55 
years since the end of World War II, the American railroad industry has 
been managing for decline by downsizing its physical plant.
    Today, the nation's eight-year economic boom has overwhelmed that 
antiquated plant with freight traffic the railroads cannot handle. 
Congested main lines and yards are blocking the progress of Amtrak 
trains and freight trains alike. Even the nation's best railroad track, 
Amtrak's Northeast Corridor, is basically an adaptation of an 1850s 
steam-railroad alignment that was upgraded during the 1920s with grade 
separations, in the 1930s with a partial electrification, and in the 
late 1990s with electrification of the remaining 150 non-electrified 
miles. Capital investment in the NEC has been inadequate, intermittent 
and subject to interminable debate, while capital investment in the 
parallel highway and civil-aviation systems has been lavish, Continuous 
and unquestioned.
    I know that some Members of this Committee may be under the 
impression that Amtrak too has benefitted from federal infrastructure 
investment and will benefit further if Senator Lautenberg's High Speed 
Rail Investment Act is signed into law.
    That is true as far as it goes, but it simply doesn't go far 
enough. The fact is, the passenger-railroad infrastructure in this 
country, like the freight-railroad infrastructure on which most of 
Amtrak's passenger trains run, has been capital-starved for the better 
part of a century now and is desperately trying to play catch-up 
against competitors that were given a huge head-start. Senator 
Lautenberg's bill, while well intentioned, is a drop in the bucket--a 
pathetic $10 billion stretched over 10 years. It barely acknowledges 
that the railroad infrastructure problem exists--and Senator Lautenberg 
is supposed to be one of Amtrak's biggest supporters!
    I don't want to sound like a Pollyanna, but it almost looks as if 
Amtrak's best supporter now is the Inspector General: He's the only one 
who's had the intestinal fortitude to get up in front of Congress and 
tell the truth: You can't run efficient, effective, popular, profitable 
trains on an obsolete, inadequate infrastructure. You can't sell from 
an empty wagon.
    Let me close with this thought: If today's airlines tried to move 
today's passenger volume using the airports and control towers and 
radar systems of 1955, the Inspector General would be writing about 
that industry the way he has just written about Amtrak.
    And if today's motor carriers tried to move their 48-foot and 53-
foot trailers of merchandise at 80 miles per hour down the 2-lane 
highways of 1955, that industry too would be the subject of a 
blistering IG report and some very embarrassing congressional hearings.
    Knowing that, should we really pretend to be astonished that our 
1955-style passenger rail system is delivering inadequate financial 
performance?
    I challenge the ladies and gentlemen of this distinguished 
Committee to revisit the subject of America's railroad passenger 
service not just in a critical light, but in a historical light.
    I challenge Congress to trace the problem back to its origins--a 
70-year failure to capitalize an effective passenger railroad 
infrastructure while highways, waterways and airways held a toga party 
with the federal budget.
    And I challenge Congress and the administration not just to trace 
the problem, but to face the problem, by bringing rail passenger 
service into the big tent of federal infrastructure financing along 
with the highways, the waterways and the airways. Our passenger rail 
system has to look more like America. It has to look more like a 
federal transportation program and less like a 19th century railroad 
trying vainly to finance its infrastructure out of its own earnings.
    Rail passenger service will not survive, will not grow, will not 
exploit the full potential of its technology, and will not make its 
full contribution to the national mobility until it is financed by the 
federal government at the infrastructure level--as its competitors have 
been for 70 years.
    Mr. Chairman, as a resident of Chicago who flies more than 50,000 
miles a year on business, I am acutely aware of the anguish experienced 
by the hundreds of thousands of travelers who were stranded at O'Hare 
this summer. As a frequent visitor to Washington, New York and the West 
Coast, I have frequently found myself cooling my heels in their airline 
terminals or stuck in traffic trying to reach those terminals. Like 
millions of other Americans, 1 have learned that our nation is 
suffering a mobility emergency. And like an increasing number of 
Americans, including the one who wrote this editorial called ``Speedier 
Trains'' in last Thursday's New York Times, I know that a well planned, 
well financed and well managed intercity passenger rail system can 
alleviate our travel distress. No other industrialized nation is 
suffering a mobility crisis like the one we are experiencing in the 
United States. And the reason is that no other industrialized nation 
has staked its citizens' mobility on air and highway travel alone. Rail 
is the critical third component, and we have to stop neglecting it.
    What we have to do now, Mr. Chairman, is identify the role 
passenger rail should play in our national mobility system, and then 
plan, fund and build the kind of passenger-rail infrastructure that 
will enable our trains to play that role. Our passenger-train system 
has to look more like America. It has to become a federal 
transportation program with a predictable and dedicated federal funding 
source.
    Amtrak can be a successful common carrier, but not until it 
achieves what the other common carriers have enjoyed for most of this 
century: an up-to-date infrastructure financed by a dedicated federal 
transportation infrastructure program.
    It is time--way past time--for our railroad passenger service to 
share fully in the federal infrastructure funding that has made the 
other modes so successful. I hope that the members of the Senate 
Commerce Committee will attend to that agenda in the next Session.
    Thank you.

    Senator Wyden. James Coston states, and I quote, ``the 
Eastern Oregon train was needlessly eliminated.'' Those were 
his words, and he goes on to say that it could have been 
possible, by adding a single mail car, a single mail car, to 
have turned this into one that would have been a cost-effective 
run.
    Now, a baggage car costs, according to my staff, $300,000. 
I am not up on the exact cost of a mail car, but do you 
disagree with what Mr. Coston has said, (a) that the train was 
needlessly eliminated, which by the way was in line with what 
Governor Thompson said, and that (b) this could have been 
effective if a single mail car had been added? Do you disagree 
with Mr. Coston?
    Mr. Warrington. I frankly am not well-enough acquainted 
with the facts about the economics of one express or mail car 
on that train and the kind of difference it would make, and I 
can confirm that subsequent to this, Senator, but my gut tells 
me that one express car, whether it be a road, rail, or mail 
car, probably would not make up the difference around the loss 
that we would be talking about, around a reactivated service. 
That is what my gut tells me, but I commit to you I will 
certainly take a look at that, but that does not sound right to 
me.
    Senator Wyden. Well, I guess I find your answer troubling 
as well because we have got a proven track record that your 
agency has played politics with this train. The General 
Accounting Office said it, Governor Thompson said it, the 
Amtrak Reform Council said it and you come here and you say, 
well, I will have to get back to you.
    My constituents in Eastern Oregon pay a lot of tax dollars 
for a national rail system, and you folks are basically saying 
that if they want rail service in Eastern Oregon they ought to 
go out and have a bunch of bake sales and see if they can put 
it together.
    I have got those little towns actually levying per-head 
assessments in order to do their share to be part of the 
reinvented Amtrak, and I guess my question to you is, when are 
you going to stop playing politics with my constituents?
    Mr. Warrington. I will be as straight as I can, Senator. 
First of all, I do not play politics with trains. The 
elimination of the Pioneer preceded me as the president of 
Amtrak, and I cannot speak to what the basis was for that 
decision.
    I will tell you, though, that generally, in retrospect, all 
of those eliminations back in 1995 and 1996 ended up costing 
the company more in lost revenue than we were able to take out 
in the way of expenses, given the fixed cost nature of the 
operation. I can tell you that I have committed and we have 
committed to look at all variations on a restored Pioneer, and 
as a matter of fact we have concluded that the most promising 
opportunity, as I think you know, is the Portland to Boise 
section, which would have about a $6 million loss with 
depreciation, about $4\1/2\ million a year loss without 
depreciation, and we are very anxious to work with the States 
of Oregon and Idaho to see if we can bring that service back, 
but it will require contributions.
    I will tell you, over the past 2 years this is a zero sum 
game for Amtrak. We are under the gun. We have had a discussion 
here all morning about achieving operating self-sufficiency, 
and the pressure is on, and as a practical matter, given the 
fact that it is a zero sum game, in the end we have to have 
participation by more actors than just Amtrak and the U.S. 
Congress.
    Along those lines, frankly, over the past 3 years we have 
doubled the level of support from States for the operation of 
trains across this country from about $50 million a year to 
almost $110 million a year. I am confident that if we continue 
to work with the State of Oregon and the State of Idaho--I was 
out at the U.S. Conference of Mayors meeting a week and a half 
ago in Boise. There is incredible enthusiasm for that kind of a 
service, and not unlike elsewhere around this country, there 
are opportunities to do that.
    I see Senator Hutchison here this morning. We had a similar 
situation, back when the Pioneer was proposed for elimination, 
on the Texas Eagle, and the State of Texas stepped up and 
loaned Amtrak $5.1 or $5.2 million, and the service has really 
turned around, and the contribution level from that service has 
been extraordinarily positive, and looking forward, given mail 
and express opportunities not only to Laredo but conceivably to 
Monterey, it can be an extraordinary winner, but that was jump-
started in a time of crisis by Senator Hutchison and the State 
of Texas.
    Senator Wyden. Well, Mr. Chairman, I would like to get an 
answer to the question. The GAO said you played politics. 
Governor Thompson said the train should not have been 
eliminated. The Amtrak Reform Council said it should not be 
eliminated. Now you are saying that the only way the people of 
Oregon are going to get a train is if they, the city and the 
State legislature, come back with all the money. That is not 
acceptable if this is to be a national rail system.
    I am willing to make all these calls on the merits, and I 
have told folks in Eastern Oregon that if a train does not 
compute, if it does not compute, then that is the way it is, 
and they have met you more than half-way by levying these per-
head assessments. We are going to go to the State legislature, 
but I for one am not going to accept an approach that says, 
essentially, after the train should not have been eliminated 
and it was eliminated for political reasons, they should do all 
the heavy lifting and the federal government should do nothing.
    So I guess, you are on your way, and I guess maybe you all 
are not very interested if you turn somebody who has been a 
supporter of this agency for 20 years into somebody who is 
going to continually, at every single opportunity, say it is 
time to drain the politics out of the way you make these 
routes.
    I think it is very unfortunate, the way you are doing 
business, and it is on your watch. It is one thing to talk 
about what was done in the past, but it continues on your 
watch.
    Governor Thompson, did you want to add anything?
    Governor Thompson. I do not know if I really want to get 
involved in this. Senator Wyden, I think I said that I was not 
here, and that may be true, and you may be more correct in 
saying it. I do not know, I was not here. George Warrington was 
not there.
    I do know that we put in, I think, $600,000 in the study, 
or 4 or 5 or $600,000 into a study with your office in Oregon 
and Idaho. Our back is to the wall. We have to be able to be 
cost-sufficient and all the experts tell us we are going to 
lose $6 million with depreciation, $4\1/2\ million without, and 
we are trying to figure out a way to come up with a solution, 
Senator Wyden, for you and for your constituents in Eastern 
Oregon.
    Senator Wyden. Mr. Chairman, I want to finish with just one 
point again. You were here saying that you agreed with the GAO 
when the GAO said it should not have been eliminated, so that 
is something you said, so now this is your watch, and to tell 
my constituents again that they should do everything, that as 
part of a national rail system people in Eastern Oregon send 
dollars to Washington, D.C. and get nothing in return is 
unacceptable, particularly absent some evidence that this does 
not compute.
    This area, as you know, Mr. Warrington, is being featured 
in the New York Times constantly as one of the travel meccas of 
the United States, and yet we have not been able to get you all 
to even incorporate that into your analysis.
    I know the light is on. Thank you, Mr. Chairman.
    The Chairman. As usual, Senator Wyden, in your mild and 
reticent manner you have made your point, I think very 
forcefully.
    [Laughter.]
    The Chairman. Senator Hutchison.
    Senator Hutchison. Well, Mr. Chairman, I feel like the 
Texans at the Alamo at this hearing this morning. I just hope 
the result is not the same.
    Mr. Chairman, there is a lot of discussion about the past 
with Amtrak and what was the thought in 1971 when it was 
created, and what was the thought in 1997 when we had the 
reform act that was passed, but let me say, in relationship to 
what Governor Thompson has said, that operational self-
sufficiency is what we intended with the 1997 act. It would be 
unrealistic to say, looking at any transportation system, that 
capital is not going to be part of the starting up of a truly 
Nation-wide transportation mode.
    There is no question that multimodal transportation options 
are good for all Americans. The citizens of Arizona are paying 
for capital expenditures in the transit systems of New York and 
Philadelphia and San Francisco, and we do not question----
    The Chairman. And Phoenix and Tucson.
    Senator Hutchison. But we do not question that more goes to 
New York and San Francisco than Phoenix and Tucson. We do not 
question that.
    The Chairman. Yes, we do. We indeed do, all the time. In 
fact, that is the reason I voted against the last 
transportation bill was exactly that.
    Senator Hutchison. And I hope, Mr. Chairman, in the future 
that we will look at the potential for a national rail 
passenger system that is part of the multimodal option 
available to the people of this country, because I hope it will 
stop in Phoenix.
    The Chairman. Let me show you the proposal. It goes a lot 
through Texas, but there is a large portion of America that it 
does not go through.
    Senator Hutchison. And the reason, Mr. Chairman, is because 
we continue to have people who will not let it have the chance, 
with the right capital expenditures. I think Mr. Wyden----
    The Chairman. These are the proposed ones, Senator 
Hutchison, not just existing.
    Senator Hutchison. Mr. Chairman, the Pioneer and the Texas 
Eagle both got official notice on the same day that they were 
going to be eliminated. They had the official notice given. I 
went to bat to get the loan from the Texas legislature. It was 
not easy. It takes time to get things done. We got it. He 
tried, they did not get it, and that was the difference.
    Now they are further down the line because you have certain 
requirements for the number of cars that have to be gotten in 
order to provide the operation into Oregon, and those cars are 
now servicing the areas that did step up to the plate, but Mr. 
Chairman, when you look at our aviation system and our highway 
system you know that to keep up with the growth, and the 
economic growth in this country, we are going to have to have 
another mode of transportation.
    I would hope that we would have the vision to say yes, we 
are going to step up to the plate for the capital expenditures. 
We are starving Amtrak right now. We have an authorization of 
$1.058 billion for 1999. The appropriation was $600 million. 
You have heard it now several times that the appropriations 
have been about half of the authorized level.
    You cannot starve the operations and expect to have 
operations and capital growing. We cannot expect them to 
succeed with the mandate of the 2003 operational self-
sufficiency if we do not give them the chance. This has the 
potential for a future that is every bit as important as our 
mass transit system, as our aviation system, and almost as 
important as our highway systems.
    The highway systems are the base, there is no question 
about it, but when you look at the federal funding by mode of 
our transportation systems, here is Amtrak since 1982, here is 
aviation, and here is highways.
    Now, I believe it is in our traveling public's interest 
that we would have another mode of transportation. Right now, 
it is not truly national. It is not even half what I think it 
can be, but you know, it takes time. The transit systems are 
just now coming into being that are feeding into Amtrak, and 
that is going to add to the convention business.
    I applaud what Mr. Warrington is doing in conventions, and 
I see it in other cities where they go out with convention 
packages and they say, for two people traveling one person goes 
free. We can duplicate that for conventions, for sporting 
events, for tourists, and that is a marketing technique.
    Second, the States are beginning to step up to the line, 
but this takes time. Most State legislators meet biennially. It 
is going to take time to bring our States into the thinking 
that rail is a basic mode of transportation that will be a 
contributor to the system if we do not starve it to death 
before its time.
    So if I could just ask the question of Mr. Warrington, do 
you see, with these subsidies that are you getting, and I think 
very creatively with package and express delivery, do you see 
the time that we will be able to start clearly from not a truly 
national system today, but if we continue getting those kinds 
of subsidies from the package delivery and the mail delivery, 
will we be able to solidify the base we have in place today and 
go into some of these other places like Oregon, where it would 
be warranted to have a system put forward if the State 
legislature will work with Amtrak to do it?
    Mr. Warrington. Senator, I am very confident that in 2003 
we will be at or very close to achieving our goal of operating 
self-sufficiency. It is purely a timing matter, the combination 
of getting our high-speed program launched and, as Governor 
Thompson said, we expect to take down the first Acela train set 
next week and put it into service within a month, and then 19 
more after that.
    The combination of Acela high-speed service in the 
Northeast and exploding mail and express business across the 
system in partnership with the freight railroads, continuing to 
focus on service quality and consistency, which is a big 
revenue generator for us, and you have seen that over the past 
summer, and continuing to focus, as Ken and Phyllis have said, 
on cost structure--which we are religious about entirely, and 
it is not about trains, it is about back office systems and 
costs associated with the invisible stuff.
    You do not see behind the operation, and there is lots of 
opportunity that we have clearly identified. We will put all 
that together, and we will be at or very close to where we need 
to be by 2003, and the problem will be, we will get there and 
unless this capital problem is solved between now and then, 
frankly, it will all be for naught, and we will be wringing our 
hands about what a disaster we have wrought then over 34 years, 
or 35 years.
    And the prospect of that occurring within the context of 
extraordinary political pressure and economic pressure all over 
this country--I travel all over the place, and the thirst for 
this kind of service and success--and this is about choice and 
alternatives, practical choices and practical alternatives, 
across America. There is an incredible thirst for it out all 
across this country.
    The irony will be if we do not solve it as a matter of 
national public policy, investing in intercity and high-speed 
rail service in America--we will get at or close to where we 
need to get to. We will deal with a lot of Ken's issues, but if 
we do not solve the capital problem it will all be for naught, 
and we will frankly be spinning our wheels over the next couple 
of years.
    The Chairman. Senator Hutchison, I have been informed the 
other side has objected to this hearing, and we were supposed 
to have stopped about 10 minutes ago. I apologize, but we have 
to adhere to the rules of the Senate. I was just informed of 
that. I am sorry about that. We will have another hearing in 
January, and I would ask the indulgence of my colleagues to 
allow Senator Cleland at least to make a comment, since he has 
been here.
    Senator Hutchison. Absolutely, Mr. Chairman, and I do hope 
that when we have the future hearings that you will be as 
relaxed as possible so we can have back-and-forth, because this 
is obviously a very important issue to you and to many of us, 
and we need to have all the facts out there on the table.
    Thank you.
    The Chairman. Absolutely. Senator Cleland, I apologize. I 
want to mention, it was over here that the hearing was objected 
to.

                STATEMENT OF HON. MAX CLELAND, 
                   U.S. SENATOR FROM GEORGIA

    Mr. Chairman, today's hearing has been called in response 
to the just-released report by the DOT Inspector General on the 
state of Amtrak's financial performance. The report states, and 
I quote, ``Without major corrective action Amtrak will not 
achieve operating self-sufficiency in 2003.'' Today we will 
have the opportunity to hear more on the report's findings and 
to hear Amtrak's response.
    Let me just say that in poll after poll, Americans support 
a nationwide passenger rail system and further, they support 
government contributions to keep that system running. I am 
amazed over estimates that show that Congress has provided just 
enough support to keep Amtrak operating at the level of service 
it has offered for the past 29 years. Since its creation in 
1971, Amtrak has received just $23 billion from the Congress, 
for an average contribution of $790 million a year. By 
contrast, Western European governments, in just 9 years, from 
1980 to 1989, provided $101 billion to their railways. This is 
more than 4 times what Amtrak has received in the entire 29 
years of its history.
    In a House hearing this spring, it was pointed out that 
several States across this country are appropriating funds to 
make improvements in their passenger rail service, even in the 
absence of federal matching funds. And no wonder: High speed 
rail is a viable alternative to 2 of the 21st century's most 
challenging and frustrating problems, sprawl and traffic 
congestion.
    Mr. Chairman, the promise of high speed rail is critical in 
my state of Georgia. Why? Because our highways and skyways are 
approaching gridlock. Today Metro Atlanta has the very worst 
traffic congestion of any Southern city, and Metro Atlantans 
drive more miles than drivers in any other part of the country. 
Hartsfield International Airport, with 78 million passengers, 
is both the world's busiest airport and the world's most delay-
impacted airport. Last year Hartsfield's passengers 
collectively experienced over 4500 days in lost time. High-
speed trains offer another option--and Georgia's commitment to 
rail is shown in its bottom line: a state budget investment of 
$45 million next year for passenger rail! And there's more: 
Georgia is prepared to flex over $300 million from highway 
funds to passenger rail over the next 4 years.
    In closing let me say that we should look hard at providing 
Amtrak enough money to achieve the goals mandated by Congress: 
to provide national service and operate at a profit. One of the 
best ways to do this is to enact the High Speed Rail Investment 
Act. An investment in high-speed, high-quality rail will 
benefit commuters across this land by helping our nation change 
its focus from moving cars to moving people, from promoting 
sprawl to promoting smart growth. The future of our 
transportation system, and therefore of our economy, depends on 
far-sighted national statesmanship. Thank you, Mr. Chairman, 
and I look forward to hearing from our witnesses.
    Senator Cleland. If I find out who on my side canceled this 
hearing I am going to wring their neck.
    [Laughter.]
    Senator Cleland. Let me just say, I think Amtrak has been 
caught for the last 29 years in that conundrum, kind of catch-
22, that meetings will continue until morale improves.
    [Laughter.]
    Senator Cleland. In so many ways we have been starving you 
and then expecting you to perform, and I think you know the 
Yogi Berra comment, that is that when you get to a fork in the 
road, take it, is true, too.
    We are at a fork in the road, there is no question about 
it, and I think we are, Mr. Carmichael, confusing operations, 
quote, ``subsidies,'' with legitimate investment and 
infrastructure. Senator Hutchison is right. What company, what 
business, private or nonprofit, what entity, what organization 
would expect to grow, meet new market demand and so forth, 
without an infusion of capital? Let us face it, that has got to 
happen.
    I just came back from Japan. I was medivacced there 32 
years ago, and did not get a chance to spend much time there 
then, but recently I just got back from Japan. I spent a few 
days there, talked to Ambassador Tom Foley. We all know that 
Japan was leveled in 1945, literally. I talked to one 
serviceman whose father said that he went into Tokyo September 
2, 1945, after the signing of the surrender, and nothing was 
standing in Tokyo but the safes, just the safes.
    Now, 55 years later, after the Japanese have made a 
concerted effort to invest dramatically in their economy, and 
the things that boost their economy, a tremendous educational 
system and a massive infrastructure development program, 
particularly in terms of rail--Ambassador Tom Foley mentioned 
to me he was invited to a recent test of a magnetic levitation 
train in Japan that will go 320 miles an hour. Now, they lost 
the war.
    In 1945 we had the finest rail system in the world, in the 
known universe. Japan lost the war, yet they have a world-class 
system. We won the war and we are sucking air between Richmond 
and Washington. I mean, that really does not make sense.
    So I think we are at a fork in the road. Most Americans 
support a nation-wide passenger rail system. They support 
government contributions, and we have been stingy in many ways 
to give you enough just to survive.
    I want to say Western European Governments have poured 4 
times the amount of money into their rail systems that we have. 
My State is willing to put in well over $30 million a year, and 
if we bring this plan to fruition here where we bring Amtrak 
in, the fast trains, 140 miles an hour down through the 
Carolinas to Macon, Georgia is willing to flex some $300 
million in transportation funds your way.
    So my State is ready for you to come south. We welcome it, 
and especially all of those 78 million passengers who sit out 
on Hartsfield's tarmac for an hour and a half. We are looking 
for options to ride somewhere on time. At Hartsfield, 
passengers clocked some 4,500 days in lost time last year, just 
at the Atlanta airport alone, the busiest airport in the world 
and yet the most delay-impacted airport in the world.
    So I think that we are at a fork in the road. It is time we 
invested in high-speed, high quality rail, which benefits the 
commuters across our Nation, that works on the problems of 
urban sprawl, and is part of our smart growth strategy.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much. I want to thank the 
witnesses, and I apologize that here at the end of the session 
sometimes these things happen. Hearings are objected to for 
reasons that have nothing to do with the hearing.
    This is a very important hearing. I would emphasize again, 
after you are prepared to come back before the Congress in 
January or February and you will notify us we will have another 
hearing, and Senator Hutchison, it has been the practice of 
this Committee to have free give-and-take, and I will continue 
it in this hearing as well, and we would have continued, I am 
sure, for a long time. It is probably a relief to the witnesses 
that we are not, but if we not had this hearing objected to----
    Senator Hutchison. Well, thank you, Mr. Chairman, because I 
had a number of followup questions, because if you look at the 
timing of this hearing, I do not feel like we did have a chance 
to make our case, and it is no fault of yours that the last 
half did not get the equal time, but at some point we cannot 
have a legitimate debate on this issue if we do not have both 
sides.
    And I hope that we will be able to settle in your mind and 
everyone else's the issue of capital needs in order to give 
them the fighting chance to make that 2003 deadline, and I hope 
that we do set the base so that we will be able to spread out 
and have the truly national system that stops in Phoenix, too.
    The Chairman. It will be a cold day in Gila Bend.

              STATEMENT OF HON. OLYMPIA J. SNOWE, 
                    U.S. SENATOR FROM MAINE

    Thank you. I would like to express my appreciation to the 
Chair for scheduling this hearing today. I hope it will give us 
an opportunity to highlight Amtrak's successes as well as focus 
on the challenges Amtrak faces for the future. This Committee, 
we should remember, gave Amtrak 5 years to achieve operating 
self-sufficiency under the Amtrak Reform and Accountability Act 
of 1997, which was enacted December 2, 1997. The Act contains 
provisions designed to help Amtrak not require federal 
operating funds after the end of FY2002.
    For many years, I have been a supporter of Amtrak and would 
like to express my strong support for a national passenger rail 
system and the need to maintain a passenger rail system which 
is flexible and possesses the incentives necessary to become 
self-sufficient.
    Today, my home State of Maine is one of only a handful of 
states in the continental United States that is not served by 
passenger rail service. I am proud and excited that after a 
decade of hard work, negotiations, and a bit of heartache, 
Maine will find itself finally a member of the Amtrak family 
this spring. I thank Amtrak for working with me over the years 
to make this service a reality, and I very much look forward to 
riding the new Boston-Portland train. The State of Maine is 
also working on plans to upgrade the Boston-Portland line to a 
high-speed rail service in the future, and also may extend the 
line even further north to Lewiston-Auburn, Maine and 
elsewhere.
    More than 25 years ago, Congress created Amtrak to 
consolidate and strengthen our national passenger rail system. 
Watching the success with which new and higher-speed rail 
service swept through Europe and the Pacific Rim, we recognized 
the opportunities that rail service could provide as a part of 
our overall transportation system.
    But today, the Amtrak system remains incomplete and the 
system faces many challenges. While Amtrak provides rail 
service throughout this nation, a variety of factors--including 
lack of investment in the future of rail, and the failure of 
Amtrak to operate like a business--have combined to keep our 
national rail system from attracting the type of widespread and 
popular usage that has marked service in most other modern, 
industrialized democracies in Europe and Asia.
    I believe that if we are to confront our great 
transportation challenges--including air traffic delays and 
highway gridlock--an enhanced nation-wide rail network must be 
part of the solution. And yet, investment in our national 
passenger rail system has traditionally lagged far behind 
investment in highways and air travel.
    A 1993 CRS analysis of per capita federal spending on 
transportation noted that while we spend $79 per person for 
highways and $44 per person on the Essential Air Service 
subsidy program (under which certain air travel markets are 
subsidized by the federal government), Amtrak received only $27 
per person.
    Federal spending on other modes literally dwarfs our 
investment in rail, and spending on other modes has been 
increasing over the last 20 years, while spending on passenger 
rail has remained flat or declined. Meanwhile, the U.S. ranks 
among the bottom of all major industrialized nations in terms 
of support for rail travel.
    Nonetheless, I do believe that Amtrak must be able to meet 
the next century as a financially efficient and independent 
entity. On this, I think we can all agree. And Amtrak has 
committed to achieving this goal. In this day and age when not 
just every dollar counts, but every cent, I believe we are 
rightly placing the burden of proof on Amtrak. Amtrak certainly 
faces enormous challenges. The GAO and the DOT IG have both 
identified challenges that I believe Amtrak must overcome in 
order to become self-sufficient. We must address these issues 
forthrightly.
    But there are some positive signs as well. Moody's Investor 
Service has issued a high credit rating to Amtrak, based on the 
expectation that the service would become self-sufficient. 
Standard and Poors issued a positive report about Amtrak's 
performance as well. In addition, Amtrak has developed an 
impressive service guarantee, under which passengers who are 
not satisfied may receive vouchers for free travel. And Amtrak 
recently reported that August 2000 capped its best summer ever! 
Nearly 2.1 million passengers rode Amtrak in August, a 21-year 
high. As a result, Amtrak set a record for ticket revenue last 
month.
    Amtrak will testify here today that it will indeed achieve 
operating self-sufficiency by 2003. There are critics who will 
question the numbers and Amtrak's financial assumptions, and I 
believe that Amtrak must convince us. After all, as I have 
said, this Committee put Amtrak on this track in 1997.
    This is certainly no time to turn our back on national 
passenger rail.
    So I look forward to working as a Member of this Committee, 
Amtrak, and others to confront these challenges. Once again, I 
would like to express my appreciation to the Chair and my 
thanks to the witnesses for sharing their insights on the 
current standing and the future of Amtrak.
    Thank you.
    I thank the witnesses. This hearing is adjourned.
    [Whereupon, at 11:50 a.m., the Committee adjourned.]
                                APPENDIX

                       United Rail Passenger Alliance, Inc.
                                                    August 24, 2000
Hon. John McCain,
Chairperson,
Senate Committee on Commerce,
Science and Transportation,
Washington, DC.
                                                 Re: Amtrak

Dear Senator McCain:

    Thank you for this opportunity to present the views of the United 
Rail Passenger Alliance on reorganizing how the United States provides 
intercity rail passenger service.
    The current scheme involves use of a single, monopoly provider, the 
National Railroad Passenger Corporation, known as Amtrak. Amtrak was 
formed in 1970 to federalize passenger rail service as part of a 
successful federal effort to revitalize our railroad industry. Nowhere 
else, however, does America embrace a monopoly service provider, and 
Amtrak rail passenger service suffers the same shortcomings as any 
monopoly: very high costs, limited output, little or no meaningful 
innovation, and no growth.
    Amtrak's output is lower and its service network smaller, and its 
costs and operating losses are higher, than they were 10 years ago. 
Amtrak takes in, on average, more than three-quarters of a billion 
dollars a year in state and federal subsidies and will continue to do 
so into the indefinite future. Without that subsidy, it would 
immediately collapse and all of its operations in every market would 
cease. The rate of subsidization will not change, even if Amtrak 
reclassifies its losses from one nomenclature to another. The GAO 
recently reported Amtrak has over $9 billion in immediate, unfunded 
capital needs. Amtrak's subsidies already total nearly $25 billion over 
the last 29 years.
    For this, we have underutilized but saturation levels of service in 
the Northeast. where load factors average just 35 percent, and a 
woefully deficient service in 90 percent of the U.S. Amtrak does not 
even serve Phoenix or Las Vegas at all. Many huge city pair travel 
markets have no rail service between them, such as Dallas and Denver, 
Minneapolis and St. Louis, or Atlanta and Chicago.
    This does not have to be.
    URPA is convinced we could enjoy steady growth in our national 
system--on the scale of tripling or quadrupling output in a much larger 
service matrix--allowing our interregional passenger train network to 
become--like Conrail--a successful private sector taxpaying business 
over a five-year transitional period. We can also allow Amtrak to 
continue to pursue its high speed rail dream in high density corridors, 
free of the distraction of national markets it clearly does not 
appreciate or understand.
    But we cannot reasonably expect those results from the current 
organization, which has experienced only 29 years of unrelenting 
financial failure, and a shrinking national service.
    URPA recommends that the National Railroad Passenger Corporation be 
divided up, on the model of the highly successful breakup in 1984 of 
AT&T Corp., into a half dozen autonomous rail service providers, spun 
off from Amtrak as the ``Baby Bells'' were spun off from AT&T. These 
would include separate entities to own and operate each of our discrete 
regional corridor networks, one to take over interregional services, 
and leaving the Northeast corridor and its Acela program with the 
current Amtrak company and its management. Each entity could then focus 
all of its attention on a single business that it understands and 
values.
    Our detailed analysis of Amtrak and our plan for its reorganization 
are attached.* It shows how the regional corridors will operate as 
autonomous bodies, how the long distance operation must--and can--grow 
by a factor of 3 to 5 times today's scale, and how these organizations 
will be empowered to compete with one another for business. Competition 
will drive innovation, efficiency and growth in rail passenger service, 
just as it does elsewhere in our economy. After the brief transitional 
period, the entity operating the long distance interregional trains 
like any successful airline will be completely free of any federal 
operating subsidy of any kind.
---------------------------------------------------------------------------
    * The information referred to has been retained in the Committee 
files.
---------------------------------------------------------------------------
    We would be pleased to provide additional information if you wish. 
United Rail Passenger Alliance is an independent public policy research 
organization focusing on surface passenger transportation systems.
        Respectfully Submitted,
                                          Andrew C. Selden,
                                    Vice President--Law and Policy.
                                 ______
                                 
   Prepared Statement of Ross B. Capon, Executive Director, National 
                   Association of Railroad Passengers
    Thank you for the opportunity to present these views. Our non-
partisan Association--whose members are individuals--has worked since 
1967 towards development of a modern rail passenger network in the U.S.
    Recent Amtrak Performance: We are encouraged by ridership and 
revenue trends of recent years. We are particularly encouraged by the 
public's warm response to the two Acela Regional Boston-New York-
Washington round-trips inaugurated January 31, which include 4-hour 
Boston-New York running times. This suggests to us that response to the 
faster new trains, and to more frequent Regional services, will be at 
the high end of projections. We remain painfully aware that overall 
ridership would be much higher except for stiff fare increases in 1995-
96 to cover budget shortfalls. There is a conflict between the goals of 
maximizing Amtrak's ability to ease highway and aviation congestion and 
of reaching operational self-sufficiency.
    High Speed Rail Investment Act: We strongly support the High Speed 
Rail Investment Act (HSRIA) and believe that, far from being 
inconsistent with the Amtrak Reform and Accountability Act, HSRIA 
supports the ARAA. The main goal of the HSRIA is to upgrade 
infrastructure that Amtrak already uses, increasing speeds, reliability 
and frequency of Amtrak trains and thus improving: their usefulness to 
the traveling public, their economic performance, and Amtrak's bottom 
line. The benefits are not limited to short-distance corridor trains, 
since Amtrak's long-distance trains also use most of the lines to be 
upgraded.
    By virtue of the requirement of a 20 percent state match, states 
will have considerable control over what investment takes place. We 
believe that the process through which states determine their 
willingness to make investments will be a major force to insure that 
the best projects get priority. This is the exact antithesis of the 
Amtrak economic nightmares of the 1970s when, for example, a high-speed 
turbotrain was effectively ordered to the low-speed, low-ridership-
potential Washington-Parkersburg, West Virginia, route, and no state 
contribution was required. (Amtrak service to Parkersburg ended in 
1981.)
    Although the HSRIA was introduced in November, 1999, just during 
the late summer of 2000 there has been a flurry of suggestions about 
ways to ``improve'' the bill. We do not have strong views on many of 
these details, only a concern that the revision process not kill the 
bill as Congress struggles to end its session quickly. It is hard to 
get 55 senators and 159 representatives to sign onto roughly the same 
piece of pro-intercity-passenger-rail legislation. If the process must 
be restarted next year with a substantially different piece of 
legislation, and with some of the strongest supporters of passenger 
rail no longer on Capitol Hill, it may be a long time indeed before 
tangible results are achieved. This delay could mean that any success 
or near-success Amtrak might have in reaching its ``operational self-
sufficiency'' goal in FY 2003 could be short-lived. Attaining that goal 
is meaningless if Amtrak ``crashes and burns'' within a few years for 
lack of ongoing capital investment.
    Alternate Funding Methods: If ``substantially different'' means a 
funding source other than bonds, success would be even harder to 
imagine. Congress has effectively ``fire-walled'' the regular 
transportation appropriations process, so that 85 percent of funds are 
earmarked for highways, aviation and--to a lesser extent--mass transit. 
The remaining 15 percent is barely enough to accommodate the Coast 
Guard, the continued use of general funds for portions of the aviation 
and mass transit budgets, and ``basic'' Amtrak funding.
    Mode-specific trust funds, combined with the firewalls, bias 
federal transportation spending towards spending still more on highways 
and aviation, even in situations where rail could do the job better. It 
smacks of saying that highway and aviation trust fund dollars belong to 
the road and aviation lobbies rather than to the people--or that people 
are ``drivers'' or ``airplane customers'' when they are really 
travelers who use all forms of transportation and, in many cases, wish 
that good rail service was available in their own country the way it is 
in many foreign countries they visit.
    Obviously, we don't agree with the firewalls, but that doesn't 
change the reality that they exist. Indeed, efforts to maintain 
intercity passenger rail as the sole surface mode not eligible for 
Highway Trust Fund spending continue. A 10-year postponement of any 
opportunity to change that may be the price that passenger rail pays 
for enactment of HSRIA.
    Alternate Organization: The Amtrak Reform Council issued ``a staff 
working paper'' on August 22. This paper makes the case for placing 
Amtrak-owned infrastructure in a separate organization. We doubt the 
practicality of this, or the benefits of creating a new infrastructure 
organization with an even greater Northeast bias than Amtrak already 
has.
    Moreover, even in the Northeast, Amtrak does not own the entire 
corridor. It is unlikely that Metro North would relinquish ownership of 
its New Haven-New York line any more than Amtrak would want to lose 
ownership of Amtrak-owned lines. (The Corridor within Massachusetts is 
owned by that state.)
    Outside the Northeast, corridor ownership has begun to move away 
from the freight railroads. For example, the ex-Santa Fe Fullerton-San 
Diego line now is owned by the counties. Again, it seems unlikely that 
present owners would eagerly relinquish ownership to a new national 
organization of any kind, much less a Northeast-dominated one.
    Fundamental financing needs would remain no matter how the industry 
is organized.
    Finally, the suggestion that Amtrak could do fewer jobs better 
(i.e., be relieved of, for example, infrastructure ownership) seems to 
be sheer speculation. If there are problems in how Amtrak is managing 
activities in Chicago or on the West Coast, it does not follow that 
relieving Amtrak of Northeast infrastructure ownership means these 
other issues will be handled better.
    Thank you for the opportunity to present these views.

                                
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