[Senate Hearing 107-757]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-757

                      AMTRAK'S FINANCIAL CONDITION

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

                                HEARING

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE


                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                            SPECIAL HEARING

                     JUNE 20, 2002--WASHINGTON, DC

                               __________

        Printed for the use of the Committees on Appropriations




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                      COMMITTEE ON APPROPRIATIONS

                ROBERT C. BYRD, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             TED STEVENS, Alaska
ERNEST F. HOLLINGS, South Carolina   THAD COCHRAN, Mississippi
PATRICK J. LEAHY, Vermont            ARLEN SPECTER, Pennsylvania
TOM HARKIN, Iowa                     PETE V. DOMENICI, New Mexico
BARBARA A. MIKULSKI, Maryland        CHRISTOPHER S. BOND, Missouri
HARRY REID, Nevada                   MITCH McCONNELL, Kentucky
HERB KOHL, Wisconsin                 CONRAD BURNS, Montana
PATTY MURRAY, Washington             RICHARD C. SHELBY, Alabama
BYRON L. DORGAN, North Dakota        JUDD GREGG, New Hampshire
DIANNE FEINSTEIN, California         ROBERT F. BENNETT, Utah
RICHARD J. DURBIN, Illinois          BEN NIGHTHORSE CAMPBELL, Colorado
TIM JOHNSON, South Dakota            LARRY CRAIG, Idaho
MARY L. LANDRIEU, Louisiana          KAY BAILEY HUTCHISON, Texas
JACK REED, Rhode Island              MIKE DeWINE, Ohio
                  Terrence E. Sauvain, Staff Director
                 Charles Kieffer, Deputy Staff Director
               Steven J. Cortese, Minority Staff Director
            Lisa Sutherland, Minority Deputy Staff Director
                                 ------                                

          Subcommittee on Transportation and Related Agencies

                   PATTY MURRAY, Washington, Chairman
ROBERT C. BYRD, West Virginia        RICHARD C. SHELBY, Alabama
BARBARA A. MIKULSKI, Maryland        ARLEN SPECTER, Pennsylvania
HARRY REID, Nevada                   CHRISTOPHER S. BOND, Missouri
HERB KOHL, Wisconsin                 ROBERT F. BENNETT, Utah
RICHARD J. DURBIN, Illinois          BEN NIGHTHORSE CAMPBELL, Colorado
PATRICK J. LEAHY, Vermont            KAY BAILEY HUTCHISON, Texas
                                     TED STEVENS, Alaska
                                       (ex officio)

                           Professional Staff

                              Peter Rogoff
                             Kate Hallahan
                        Paul Doerrer (Minority)

                         Administrative Support

                               Angela Lee


                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening statement of Senator Patty Murray........................     1
Statement of Senator Robert C. Byrd..............................     3
Statement of Senator Kay Bailey Hutchison........................     6
Statement of Senator Richard J. Durbin...........................     7
Statement of Senator Arlen Specter...............................     9
Statement of Hon. Allan Rutter, Administrator, Federal Railroad 
  Administration, Department of Transportation...................    10
Hon. Donna McLean, Chief Financial Officer, Department of 
  Transportation.................................................    10
Amtrak's fiscal difficulties.....................................    10
Guaranteed loan..................................................    11
Business model problems..........................................    11
Prepared statement of Allan Rutter...............................    12
Future of intercity passenger rail...............................    13
Statement of David Gunn, President and Chief Executive Officer, 
  National Railroad Passenger Corporation........................    17
    Prepared statement...........................................    20
Statement of Hon. Kenneth M. Mead, Inspector General, Department 
  of Transportation..............................................    22
    Prepared statement...........................................    23

 
                      AMTRAK'S FINANCIAL CONDITION

                              ----------                              


                        THURSDAY, JUNE 20, 2002

                           U.S. Senate,    
             Subcommittee on Transportation
                              and Related Agencies,
                               Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 1:35 p.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Patty Murray (chairman) presiding.
    Present: Senators Murray, Byrd, Kohl, Durbin, Specter, and 
Hutchison.


               OPENING STATEMENT OF SENATOR PATTY MURRAY


    Senator Murray. This subcommittee will come to order.
    Four months ago, this subcommittee held a hearing to 
examine Amtrak's precarious financial condition. As I said at 
that hearing, I want Amtrak to succeed. I believe that 
intercity passenger rail service plays a critical role in 
easing congestion in our country. I think it is an important 
travel option for the American public.
    Americans hear about Amtrak's financial problems and want 
to know if they are going to be able to get on a train later 
this summer. We in Congress want Amtrak to succeed, but every 
time we offer a dollar more than the White House the President 
threatens a veto.
    At our hearing 4 months ago, our witnesses included: George 
Warrington, then president of Amtrak, Michael Jackson, the 
Administration's Deputy Secretary of Transportation who serves 
on the Amtrak board of directors for Secretary Mineta. Mr. 
Jackson also serves as chairman of Amtrak's Audit Committee of 
the Board of Directors and as a member of the Board's Finance 
Committee.
    At that hearing Mr. Jackson told us three things. First, 
Mr. Jackson said we could expect a clean audit opinion from 
Amtrak's auditors in a very short period of time. Second, he 
told us that we could soon expect the Administration to release 
its master plan for Amtrak, a plan that would embody the 
administration's vision for intercity passenger rail service 
across the Nation.
    Finally, Mr. Jackson addressed funding for Amtrak. He 
admitted that President Bush's budget request for Amtrak of 
$521 million would effectively gut the railroad and put it into 
bankruptcy. Mr. Jackson said the budget request was just a 
placeholder. He suggested that when the Bush Administration 
finally released its master plan the Administration might 
support a different level of funding for Amtrak.
    That was almost 4 months ago. Some things have changed and 
some have not. Some promises have been kept and others have 
not.
    First, despite Mr. Jackson's assurances, Amtrak's auditor 
has not released a clean audit opinion for Amtrak. As a result, 
Amtrak has lost access to the private capital markets. Amtrak's 
new president, David Gunn, now finds himself in a desperate 
struggle to keep the railroad out of bankruptcy. In fact, 
Amtrak is now weeks away from running out of cash entirely and 
perhaps days away from informing the States that rail service 
will be terminated.
    This morning the Administration did release its master plan 
for Amtrak's future. I suspect that my calling this follow-up 
hearing created the necessary pressure on the Administration to 
finally release its plan.
    But on that third issue of funding, the Administration has 
not changed its proposed budget for Amtrak by a single dollar. 
It still stands at $521 million. By contrast, Amtrak maintains 
that it must have $1.2 billion to continue operating next year.
    As part of this hearing, I believe we need to discuss both 
the long-term and short-term prognosis for Amtrak. In the short 
term, we need to know what the Administration plans to do about 
Amtrak's pending financial crisis. Since the Bush 
Administration took office, this Subcommittee has provided 
Amtrak with every dollar the Administration has requested and 
then some. Even so, we are now informed that for the second 
year in a row the railroad is desperately short of cash. We 
hear the Administration may be planning to sign off on yet 
another financial transaction that will boost Amtrak's 
skyrocketing debt so it can crawl along for the duration of the 
fiscal year.
    Last year Secretary Mineta signed off on a $300 million 
financing deal that mortgaged off portions of Penn Station in 
New York City. As far as I can tell, that transaction just 
enabled the Administration to put their head $300 million 
deeper into the sand while Amtrak went $300 million deeper into 
debt.
    This year we are told the Administration may propose that 
Amtrak borrow $200 million against its future appropriation. 
Four months ago, Mr. Jackson told us that Secretary Mineta 
signed off on the Penn Station deal because he had no choice. 
It would not surprise me if the Administration takes the same 
posture with the upcoming proposed financing deal.
    But the fact is the Administration does have a choice. The 
Administration could back off its opposition every time 
Congress tries to fund Amtrak at levels above the White House 
request. Right now we are in conference on an emergency 
supplemental appropriations bill that this Administration is 
complaining is too large. That bill includes $55 million for 
Amtrak, not to bail out the railroad, but to rehabilitate 
damaged rail cars and to improve security. Rather than complain 
that this funding does not belong in this bill, the 
Administration should come forward with a formal request for us 
to add adequate funding in this bill to save Amtrak.
    Unless the Administration changes its tune, Congress alone 
will not be able to save Amtrak because of the President's 
looming veto threat. Four months ago, President Bush's Deputy 
Transportation Secretary told us: ``Secretary Mineta and I and 
the Federal Railroad Administrator all agree that intercity 
passenger rail is an indispensable component of our 
transportation network.'' If the Bush Administration is not 
prepared to ask for sufficient funds to maintain the intercity 
passenger rail service that Secretary Mineta and Mr. Jackson 
say is indispensable, then the Bush Administration needs to be 
prepared to explain to the American people why it will allow 
Amtrak to go bankrupt in the middle of the summer travel 
season. The Administration can explain why it would allow 
intercity passenger rail service to die when many of us in 
Congress are ready and willing to fund it.
    So during this hearing we will focus on the immediate 
crisis, but we will also discuss the Administration's long-term 
plan for Amtrak. Because it was announced just this morning, we 
do not yet have all the details. But certain things are clear 
from what we have heard. For the most part, the Bush 
Administration wants to dump the costs of intercity rail 
service onto the States. The States, however, are struggling to 
close budget shortfalls approaching $40 billion.
    At the same time, the Bush Administration is proposing to 
cut Federal highway funding to the States by $8.6 billion. That 
is the largest reduction of any proposed cut in President 
Bush's budget. My State of Washington ranks second only to 
California in the amount of State subsidy for Amtrak service. 
As I mentioned at our last hearing, I believe there must be 
equity in the way States are treated when it comes to Amtrak. 
There is no reason why States like mine must put up scarce 
funds for service that is barely adequate while the States in 
the Northeast Corridor put up almost nothing and receive the 
best service in the Nation.
    As such, I will be suspect of any policy that treats the 
Northeast Corridor any differently than rail service elsewhere 
in this country. That said, however, it is not realistic to 
expect the States to pick up all of the costs of rail service 
any more than it is realistic to think that the States can pick 
up the costs of Medicare.
    The Administration's proposal calls for a portion of Amtrak 
to be privatized. It is not clear to me who will want to buy a 
company that is carrying over $4 billion in debt. Perhaps the 
Administration knows someone who does. That is one of the many 
questions that we will get into this afternoon.
    But I want to make it clear that unless the Administration 
changes its budget request for Amtrak both for the remainder of 
this year and for next year, there will be nothing to discuss 
other than the costs associated with liquidating the railroad.
    Mr. Chairman, I will turn it over to you for an opening 
statement.


                  STATEMENT OF SENATOR ROBERT C. BYRD


    Senator Byrd. Thank you, Madam Chairman. I commend you for 
holding this hearing this afternoon on Amtrak's financial 
condition. I commend you for your statement.
    Amtrak is facing desperate financial times both in the 
short term and in the long term. As a Senator who arrived here 
long before the time we formed Amtrak in 1971, I can say that 
we have never done an adequate job of financing a first-rate 
National Passenger Railroad.
    I am glad to see Amtrak's new president, David Gunn, here 
this afternoon. He is an old railroad man from way back. I hope 
that he and the Administration will remember what trains like 
the Cardinal mean to the rural communities they serve. Amtrak 
must not and should not be just about moving passengers between 
and among our largest cities.
    I agree with you, Madam Chairman, that the Administration's 
posture regarding Amtrak has been most unfortunate. It reminds 
me of an experience that we had just this past Monday when 
Secretary Mineta announced the distribution of some $93 million 
in grants for Seaport Security. When announcing these grants, 
Secretary Mineta stated: ``Protecting seaports and port 
facilities against the threat of terrorism is imperative. 
Terrorist attacks have resulted in a renewed focus on security 
of our transportation systems and we at DOT are aggressively 
meeting these challenges on several fronts.''
    What Secretary Mineta failed to point out is that the Bush 
Administration did not request one single thin dime, not one 
thin dime, of the $93 million in Port Security Grants. 
Secretary Mineta failed to point out that the Bush 
Administration is vigorously opposing the Senate-passed 
Supplemental Appropriations bill. That is where the money is, 
but the Administration vigorously opposes the Senate-passed 
Supplemental Appropriations bill. It includes additional 
Homeland Defense funds that the President did not request.
    Now, do we live in a monarchy or do we live in a Republic? 
We live in a Republic, not a monarchy. We don't have to just 
pay attention to what the President proposes. The White House 
is not the seat of all wisdom in this country.
    So when it is said, ``well, the President did not request 
this,'' that falls on deaf ears so far as this West Virginia 
Senator is concerned. This is an equal branch here. This is not 
a subordinate branch to the Executive Branch. I have to keep 
reminding some of the people in the Executive Branch of that 
fact. This is not a subordinate branch.
    Look in your Constitution. See what branch is provided 
first. I hold this Constitution in my hands. I do not sleep 
with it under my pillow like Alexander did with the Iliad. He 
slept with the Iliad under his pillow. I do not sleep with it 
under my pillow, but I carry it over my heart, right here. That 
tells me that this is an equal branch.
    The Executive Branch, I do not care where you come from. 
You may come from Texas or California or West Virginia or 
Georgia or wherever. This Constitution still rules. Thank God 
for this Constitution. The Legislative Branch is an equal 
branch.
    No President sends me here. No President can send me home. 
But the Senate can send a President home. That is what this 
Constitution says.
    I note with great interest, the Supreme Court, all the 
judges, defend the prerogatives of the court, and they should. 
The President defends the prerogatives of the Executive Branch, 
and he should. The only branch that does not fully defend its 
own prerogatives is the Legislative Branch. Half the people in 
the Legislative Branch side with the President if he is a 
Republican President or if he is a Democratic President they 
side with him.
    I say we do not live under a monarchy. I will side with the 
President when I support him and I will not side with him when 
I do not. It does not make any difference about his politics. I 
have opposed Democratic Presidents as well as Republican 
Presidents.
    But this Administration apparently believes that it is the 
big dog and that the Legislative Branch is subordinate. I do 
not believe that.
    So Mr. Mineta failed to point out that the Bush 
Administration is opposing this Supplemental Appropriations 
bill. It added $3 billion in additional homeland defense money. 
That is for your defense, Mr. Gunn. That is for your defense, 
Mr. Rutter. Homeland defense, that is right here at home. The 
terrorists are among us. The enemy is among us.
    So this Committee took the bull by the horns. When it could 
not get the Administration to take the muzzle off Mr. Ridge, we 
just went ahead without him. So we added $3 billion for 
homeland defense. That is for your school children.
    So Mr. Mineta failed to point out that $200 million of 
these additional homeland defense funds are for the Port 
Security program, the Port Security grant program, the very 
grant that he announced so proudly on Monday.
    When we look at Amtrak, we see much of the same pattern. I 
attended this Subcommittee's hearing on Amtrak back on March 7. 
I heard the Bush Administration officials make statements 
regarding the vital role of Amtrak in our national 
transportation system. I understand that Secretary Mineta 
reiterated those statements to the press, this morning.
    But at the same time, the Bush Administration does not 
appear to be facing head-on the financial crisis that Amtrak 
now finds itself in. Moreover, the Bush Administration freely 
admits that it has requested a level of funding in 2003 that 
will put the railroad into certain bankruptcy.
    This morning Secretary Mineta announced the Bush 
Administration's new long-range plan for Amtrak. Central to his 
plan is his desire to turn over to the States the costs of 
operating trains like the Cardinal, one of the Amtrak trains 
that presently serves my State. I think this proposal is deeply 
flawed and irresponsible. It comes at the same time the Bush 
Administration is proposing to cut highway funds also to the 
States, by almost $8.6 billion or 27 percent. These are short-
sighted proposals and they undermine the network of 
transportation that moves people and products throughout this 
country.
    One of the responsibilities of the Federal Government is to 
provide those resources and services that individual citizens 
and individual States cannot provide for themselves. You say, 
well now, if West Virginia wants Amtrak Service; let West 
Virginia pay for it. Well, what about Virginia? Suppose 
Virginia decides not to pay for it and West Virginia does. Does 
our train stop at the border? What happens?
    The Bush Administration walks away from National Passenger 
Rail Service. This is a responsibility that Congress addresses 
every year. The Administration's plan would take the word 
``National'' out of ``National Passenger Rail Service.'' It 
would jeopardize service to remote rural regions of the 
country.
    My State is a good bit like Afghanistan. We do not have 
high-speed trains. We have mountains. So the Administration's 
plan would jeopardize service to remote rural regions. It is, 
as Benjamin Franklin would say, penny-wise but pound-foolish.
    Mr. Gunn, I hope you are listening.
    Madam Chairman, I am pleased that we will have the 
opportunity to press the Administration on precisely what their 
plans are for Amtrak. I hope we will have the opportunity to 
discuss what our rural communities can expect in terms of 
future rail service. My people mine the coal from the bowels of 
the Earth. We need trains. We do not have big airports. We 
cannot have big airports, so we have to depend upon train 
service.
    For many of these communities in West Virginia and in other 
States, Amtrak represents the only public transportation 
connection to the rest of the Nation.
    Thank you, Madam Chairman. I have some questions, but I 
will submit them for the record. I am also trying to get the 
House of Representatives to call a meeting of the Conference on 
that Supplemental Appropriations bill that you are talking 
about. We have not had a meeting yet. So thank you very much.
    Thank you, Mr. Gunn. Thank you, may I say to the other 
distinguished witnesses.
    Senator Murray. Thank you, Mr. Chairman.
    Senator Hutchison, do you have an opening statement?


               STATEMENT OF SENATOR KAY BAILEY HUTCHISON


    Senator Hutchison. Thank you, Madam Chairman.
    I want to say that I support Amtrak. I have since I came to 
the United States Senate, because I feel that rail is an 
important mode of transportation that should be active and 
vital in our country. We have aviation, we have highways, we 
have buses, and I think rail is a very important part of our 
multi-modal system to give all the options to our traveling 
public.
    I also believe that the people who have opposed Amtrak say 
that we are continuing to subsidize Amtrak, as if this were 
something new in the transportation world. In fact, every rail 
system in the world is subsidized by government. In fact, our 
Government, our taxpayers, subsidize aviation and subsidize 
highways. But we have starved Amtrak. We have starved our rail 
system.
    I am concerned that there has been a discrepancy in 
Amtrak's thinking since I have been in the United States 
Senate, that there is a Northeast Corridor and there is the 
rest of the system. I will continue to support Amtrak when we 
consider it a system, a National Passenger Rail System.
    I have always been assured verbally that everyone at Amtrak 
believes that it is a system. But then every time we get in a 
crunch there is the announcement that the long haul routes are 
going to be eliminated. To me that is not a system, and I want 
it to be one system. I will support it if it is one system. I 
will not support it if it is two systems.
    I hope that we can hash out the problems with Amtrak. Mr. 
Gunn, you certainly have taken on a major challenge at a point 
where you could have said no, I am not going to do it. I hope 
that the things that you have said that I have read in the 
paper are the way you intend to try to save our system as one 
system, because I think it is vital for our country to have 
rail as a component. We have no more recent experience than 9-
11 to see that people are looking for that alternative.
    I think it can be a dynamite system. I also think we can 
make the States partners. I think it is a fair request on the 
part of the chairwoman that we have the States work with Amtrak 
in an equitable way. I also believe, however, that we have got 
to have a system that is worthy of all of our taxpayers' 
support.
    So you have a daunting task, and if we have language that 
assures that we have one system that will rise or fall as a 
system equitable treatment of States working with the Federal 
Government and subsidies that are in line with subsidies that 
we give to other modes of transportation, and if we have the 
capability to save this track, then I want to be one of those 
that helps you do it. I hope that Mr. Rutter will do that as 
will all of the people that are working on this issue.
    I do not think we can make it a State system. I do not 
think we can make it a private system. I think this is a 
national part of the transportation sufficiency of our country, 
and I want to support it if it can be done with language that 
protects all of the routes, not just the Northeast Corridor.
    I do hope we can work in a positive and constructive way to 
make this a part of our system, accept it as that, make it 
equitable, and put it on good solid footing. It is going to be 
a long process, but one in which I think we can do some good 
for the future of our country if we work together in a way that 
says we are once and for all declaring Amtrak a national 
system.
    Thank you.
    Senator Murray. Senator Durbin.


                 STATEMENT OF SENATOR RICHARD J. DURBIN


    Senator Durbin. Thank you, Madam Chairman.
    In the 1950's President Eisenhower had the vision and 
determination to build the Interstate Highway System and 
America has benefited greatly from that determination. Had 
President Eisenhower announced that he was going to leave it up 
to the individual States to decide their pieces of that system 
and whether they would fund them, does anyone in this room 
doubt that America would look a lot different today?
    We know as we built that interstate highway system there 
were parts of it that were being utilized at far greater 
capacity than other parts. We said for the good of the Nation 
we are going to serve the entire Nation from one coast to the 
other. Is there anyone in this room that doubts that we are a 
better Nation because of that decision?
    President Eisenhower had the vision and determination to 
say to America, ``We are one people coast to coast, coming 
together to meet a national need.''
    I have the highest respect for our Transportation Secretary 
Norm Mineta, served with him in the House and have worked 
closely with him as a member first of the Clinton and now the 
Bush Cabinet. But I am saddened by the decision that he made 
today. This decision by the Administration to virtually abandon 
passenger rail service in America is disastrous. It in fact has 
invited a train wreck which will unfortunately challenge our 
national goals of energy security, making certain that we have 
clean air and reduced highway congestion.
    Make no mistake, the reason we are in this conversation is 
that 8 or 9 years ago the enemies of Amtrak, the critics of 
Amtrak, established a standard they knew could never be met. 
That standard as announced by the Secretary this morning was 
``operational self-sufficiency by the deadline of December 
2002.'' They knew it could not be done. We knew it could not be 
done. It is not done in any country in the world.
    We do not demand that standard of those who use our 
highways nor our airports. We generously subsidize them to the 
tune of $30 billion a year for highways, so the trucking 
companies and families and individuals can have the benefit of 
our intercity and national highway system. We pay that money 
because we know it is critical for the economy of America.
    And airports--what airlines could afford to come forward 
and pay for all of the money required to maintain our aviation 
system? They could not do it. They could not succeed. They 
depend on a Federal subsidy to the tune of about $12 billion a 
year.
    Yet when it comes to passenger rail the critics establish 
an impossible standard here of operational self-sufficiency and 
watch as passenger rail service diminishes, declines, and 
starts to die. Then they stand back and say: Well, we told you 
they could not make it. Well, of course they cannot make it 
without Federal assistance. There is no way to establish a 
national interstate system of passenger rail service without 
this kind of commitment from the Federal Government.
    Now, this may be a good budgetary decision. Maybe it will 
save a couple hundred million dollars here and a couple hundred 
million dollars there. But make no mistake: Once Amtrak is gone 
as a passenger rail service system, it is not going to be 
duplicated or recreated in the future. It is gone and the 
capital investment that we have put into it is lost forever. It 
is the end of the line.
    To think at this moment in time we passed an energy bill 
that was afraid to even address the question of fuel economy in 
vehicles--no new standards, no new requirements--and now we are 
eliminating Amtrak service across this country, while at the 
same time we are saying, you know, we should lessen our 
dependence on that Mideastern oil.
    Well, I think we have to step back and be honest about 
this. We are making decisions here in Washington that will 
continue our dependence on Mideast oil, that will lessen the 
chances of energy security, and we are doing it in the name of 
balancing the budget. Well, when we face a national crisis we 
respond with the money necessary. We certainly did after 
September 11. But we will not have Amtrak to turn to.
    A few days after September 11, I was stranded in Chicago, 
needing to get home to Springfield. Planes were not flying. 
Where did I go? I went to Union Station. I got on the Amtrak 
train. It was packed, packed with people just like myself, who 
knew where to go when you could not get to the airport and 
there were no planes to use. Where will those people go the 
next time there is a crisis, the next time the airline system 
is threatened? They will have no place to turn. That is not 
what America is all about. It should not be what this Congress 
is all about.
    I really stand here in full accord with my colleague from 
West Virginia. It is time for Members of Congress in both 
political parties to step forward. My colleague from Texas, my 
colleague from Pennsylvania, we all understand this. Amtrak is 
critical for the average people in our State, for the college 
students, the casual travelers, the people who just cannot 
afford to buy a car and drive and park it all afternoon and all 
weekend in Chicago. This is critical for their economic 
survival.
    This argument is not about the railroads, steam engines, 
and nostalgia. This is about a vision, a vision of a country 
that sees high-speed passenger rail service as the key to 
energy security, affordable travel, and environmental 
improvement.
    I hope that this committee will lead the way, Madam Chair, 
to reverse this bad decision.
    Senator Murray. Senator Specter.


                   STATEMENT OF SENATOR ARLEN SPECTER


    Senator Specter. Thank you, Madam Chairwoman.
    When I picked up the morning paper I saw the story about 
the change in Amtrak. It had been my hope that Secretary Mineta 
and the Administration would come to Congress with a proposal 
as to what he wished to accomplish legislatively in this 
respect. The media accounts so far are very skeletal--a lot of 
questions, obviously, which are unanswered, and there could be 
a lot of angst, if not panic, in many places in this country 
about the future of Amtrak.
    The reports talk about separating off the Northeast 
Corridor line. They talk about having States pay part of the 
expenses. They talk about the States making some 
determinations. But these are issues which seem to me might 
have been much better addressed, not in a speech to the U.S. 
Chamber of Commerce, but in the legislative proposal that was 
brought to the Congress, which has the authority and 
responsibility for making these decisions.
    I recall 21 years ago when President Reagan's 
Administration came in and the first budget was submitted, 
which zeroed out Amtrak. It was nothing. Senator Baker, who was 
the Majority Leader, brought in Office of Management and Budget 
Director Stockman to a meeting with Senators from the Northeast 
Corridor. All of them told him what would happen if we did not 
have Amtrak.
    The comment that I made was, ``You would not be able to get 
through the Baltimore tunnel, you would not be able to land at 
National Airport.'' David Stockman said, ``Well, that will be 
spun off; there will not be any problem.'' I said, ``Have you 
ever seen a trusteeship proceeding? All the wheels will be 
rusted closed, before the trustee acts to spin off the 
Northeast Corridor. It's going to be absolute catastrophe.''
    Year by year, Amtrak has been sustained by a skin of the 
teeth proposition. We tried last year to get through a proposal 
on the High-Speed Rail Investment Act to raise $12 billion over 
10 years on a fancy bond arrangement, which I think would have 
provided for fiscal stability for Amtrak. That was turned down.
    My colleagues have already made references to the subsidies 
which other modes of transportation have. All of that is well 
known. I believe that we have to do more to expand, not detract 
from, this service.
    For many years I have advocated MAGLEV, the high-speed line 
which would run 300 miles an hour and travel from Philadelphia 
to Pittsburgh in 2 hours and 7 minutes, with intermediate stops 
in Lancaster, Harrisburg, Altoona, Johnstown, and Greensburg. 
There is competition now between Greensburg, Pennsylvania, and 
the Pittsburgh International Airport for $950 million with 
Baltimore to Washington.
    When my colleagues from Maryland have come and talked about 
the competition, I said we both ought to be doing that. The 
westerners come and complain: Why is there not a western 
project? I agree with them; there ought to be a line from 
Orange County to Las Vegas.
    For MAGLEV to succeed, there has to be a national 
constituency. If America had the timidity in the nineteenth 
century which we have now, we never would have built the 
transcontinental rail system.
    I believe you are going to find Congress determined to 
solve this problem by retaining rail service. We had a big to-
do not long ago over the Cardinal. I am sorry that Senator Byrd 
has departed. The Cardinal goes through West Virginia, so we 
still have the Cardinal. I am not sure what is going to happen 
to the Cardinal, but we are going to consider West Virginia's 
needs as well as the needs of Dallas, Texas, or Pittsburgh and 
Philadelphia or Chicago.
    But we want to work with the Administration and find an 
answer here, but we're going to have to know more about the 
proposal. I think we would have gotten off to a better start if 
we had seen the proposal come from the Department of 
Transportation instead of reading about the Secretary's speech.
    Thank you, Madam Chairman.
    Senator Murray. Thank you.
    We have three witnesses who will be testifying before the 
committee this morning: the Honorable Allan Rutter, 
Administrator of the Federal Railroad Administration; Mr. David 
Gunn, President and Chief Executive Officer of the National 
Railroad Passenger Corporation; and finally, the Honorable 
Kenneth Mead, Inspector General, United States Department of 
Transportation.
    Mr. Rutter, we will begin with you.

STATEMENT OF HON. ALLAN RUTTER, ADMINISTRATOR, FEDERAL 
            RAILROAD ADMINISTRATION, DEPARTMENT OF 
            TRANSPORTATION
ACCOMPANIED BY HON. DONNA McLEAN, CHIEF FINANCIAL OFFICER, DEPARTMENT 
            OF TRANSPORTATION

    Mr. Rutter. Thank you, Chairman Murray and other members of 
the Subcommittee.


                      AMTRAK'S FISCAL DIFFICULTIES


    Intercity passenger rail service is facing its most 
significant financial challenge since the passage of the Rail 
Passenger Service Act in 1970 created the National Railroad 
Passenger Corporation, better known as Amtrak. Many in this 
room today face decisions that will have significant bearing 
over the short-term prospects of this form of transportation.
    At the beginning of the fiscal year Amtrak's management 
projected that 2002 would be another in a series of fiscally 
challenging years. In response to that assessment, the board of 
directors directed management to cut sufficient costs from the 
company to assure that the corporation could operate through 
fiscal year 2002 with available financial resources.
    As we all now know, that effort has not been successful. 
Just recently, Amtrak's new president affirmed the need for 
Amtrak to borrow some $200 million from a private line of 
credit by the end of June to meet current year operating 
expenses or begin a process of shutting down operations for the 
remainder of the fiscal year. While drawing on this line of 
credit has been part of Amtrak's 2002 business plan, Amtrak is 
facing significant financial difficulties in the private market 
to secure this facility.


                            GUARANTEED LOAN


    Amtrak has asked the administration to review options that 
can help the company solidify access to this line of credit. 
The administration has not completed review of Amtrak's 
application for a loan guarantee under the Railroad 
Rehabilitation and Improvement Financing Program to determine 
if Amtrak's application qualifies for assistance. However, we 
will work with Congress to review available options that can 
help put Amtrak on a more sound financial footing.
    In reviewing this application, we are motivated by the goal 
of preserving Amtrak as a functioning entity for the near-term 
future while Congress and the Administration work to make 
improvements to Amtrak in particular and passenger rail in 
general.
    This is the second time in just over 1 year that Amtrak has 
asked Secretary Mineta and the Department of Transportation to 
save it from falling into a financial abyss. However, expending 
significant effort by the Congress and the administration on an 
annual basis just in hope of assuring Amtrak's survival for 
another year is no way to run a railroad and reform, we 
believe, is necessary.
    In my testimony to this subcommittee on March 7 of this 
year, I discussed the financial challenges facing Amtrak. The 
gap between Amtrak's expenses and revenues persists in the face 
of all manner of Amtrak initiatives to expand its business. 
Nationwide, market pressures from other modes impose a ceiling 
on Amtrak fares, which cover only about half of the 
corporation's costs. Exacerbating Amtrak's financial picture is 
its increasing debt load, with debt service both of principal 
and interest requiring about $250 million this year and even 
greater amounts in the future.


                        BUSINESS MODEL PROBLEMS


    Madam Chairman, Secretary Mineta and I believe that 
intercity passenger rail service is an important part of the 
Nation's transportation system, but it needs to be 
appropriately managed. However, the current business model for 
providing that service is unproductive, unsustainable, and 
needs to be changed. The Subcommittee knows as well as the 
Department that positioning intercity passenger rail service 
for a successful future cannot be accomplished by merely 
authorizing funding at levels that far exceed the discretionary 
funding, financial resources available for transportation and 
which will never be appropriated.
    Even if these funds were available, success could not be 
found by merely throwing billions of dollars at Amtrak as 
currently configured with just the hope that intercity 
passenger rail's problems will go away. Thirty years of 
experience should have taught us that a systematic rethinking 
of Amtrak's structure and public policy mandate is needed.
    Positioning intercity passenger rail service for a 
successful future will require difficult choices and a 
commitment to develop a fiscally sound workable model. This 
morning Secretary Mineta outlined the Bush Administration's 
view of the reform needed to move intercity passenger rail to 
such a model. I have included the full statement in my written 
testimony for the record.
    I will be pleased to answer any questions you have today 
about the vision we have outlined, as well as committing my 
availability to each member of this committee and to your staff 
to discuss at greater length some of the issues we have raised. 
Thank you very much.
    [The statement follows:]

                   Prepared Statement of Allan Rutter

    Chairman Murray and members of the Subcommittee; intercity 
passenger rail service is facing its most significant financial 
challenge since the passage of the Rail Passenger Service Act in 1970 
created the National Railroad Passenger Corporation--better known as 
Amtrak. Many in this room today face decisions that will have 
significant bearing on the short-term prospects of this form of 
transportation.
    At the beginning of this fiscal year, Amtrak's management projected 
that 2002 would be another in a series of fiscally challenging years. 
In response to that assessment the Board of Directors directed 
management to cut sufficient costs from the company to assure that the 
Corporation could operate through fiscal year 2002 with available 
financial resources.
    As we all now know, that effort has not been successful. Just 
recently, Amtrak's new President affirmed the need for Amtrak to borrow 
some $200 million from a private line of credit by the end of June to 
meet current-year operating expenses or begin a process of shutting 
down operations for the remainder of the fiscal year. While drawing on 
this line of credit has been a part of Amtrak's 2002 business plan, 
Amtrak is facing significant difficulties in the private market to 
secure this facility. Amtrak has asked the Administration to review 
options that can help the company solidify access to this line of 
credit. The Administration has not completed review of Amtrak's recent 
application under the Railroad Rehabilitation and Improvement Financing 
Program for a loan guarantee to determine if Amtrak qualifies for 
assistance. However, we will work with Congress to review available 
options that can help put Amtrak on a more sound financial footing.
    This is the second time in just over 1 year that Amtrak has asked 
Secretary Mineta and the Department of Transportation to save Amtrak 
from falling into a financial abyss. However, expending significant 
effort by the Congress and the Administration on an annual basis just 
in hope of assuring Amtrak's survival for another year is no way to run 
a railroad and reform is necessary.
    In my testimony to this Subcommittee on March 7 of this year, I 
discussed the financial challenges facing Amtrak. The gap between 
Amtrak's expenses and revenues persists in the face of all manner of 
Amtrak initiatives to expand its business. Nationwide, market pressures 
from other modes impose a ceiling on Amtrak fares which cover only 
about half the Corporation's costs. Exacerbating Amtrak's financial 
picture is its increasing debt load with debt service, both principal 
and interest requiring about $250 million this year and even greater 
amounts in the future.
    Madam Chairman, Secretary Mineta and the Department of 
Transportation believe that intercity rail passenger service can be an 
essential part of the Nation's transportation system if appropriately 
managed. However, the current business model for providing that service 
is unproductive, unsustainable and needs to be changed. This 
Subcommittee knows as well as the Department that positioning intercity 
passenger rail service for a successful future cannot be accomplished 
by merely authorizing funding at levels that far exceed the 
discretionary Federal financial resources available for transportation 
and will never be appropriated. Even if these funds were available, 
success could not be found by merely throwing billions of dollars at 
Amtrak as presently configured with just the hope that intercity 
passenger rail's problems will go away. Thirty years of experience 
should have taught us that a systematic rethinking of Amtrak's 
structure and public policy mandate is required. Positioning intercity 
passenger rail service for a successful future will require difficult 
choices and a commitment to develop a fiscally-sound workable model.
    This morning, Secretary Mineta outlined the Bush Administration's 
view of the reform needed to move intercity passenger rail to such a 
mode. Rather than try to summarize the Secretary's remarks and risk 
leaving some important piece of information out of this testimony, I 
wish to insert in this testimony the Secretary's speech verbatim:

                 THE FUTURE OF INTERCITY PASSENGER RAIL

    Purpose.--I am here today to discuss the present state of intercity 
passenger rail and to outline a plan for creating a viable intercity 
passenger rail system in the United States.
    Amtrak's Crisis.--Today Amtrak faces a profound financial crisis. 
While this is not news, it is a relatively newfound consensus at Amtrak 
itself, and among its supporters in Congress. Some recent history and a 
few facts provide useful context.
    Just over a year ago, as a newly confirmed Secretary of 
Transportation, I reluctantly approved Amtrak's request to mortgage its 
key access rights to New York's Penn Station. That transaction was 
urgently required to meet Amtrak's payroll, a precondition for survival 
to the end of the fiscal year. In retrospect, that transaction was the 
last-gasp breath of a fiction--the fiction that Amtrak could achieve 
operational self-sufficiency by its statutory deadline of December 
2002. By December of 2001, the Amtrak Reform Council had rendered a 
similar judgment, which upon publication had the unavoidable 
consequence of making Amtrak's financial condition even more 
challenging.
    Congress created Amtrak in 1970 as a for-profit corporation. From 
this inception, policymakers have had an expectation that has proved 
elusive--the hope of operating a national passenger rail system with 
modest Federal support. Congress has made successive attempts at re-
establishing this original premise, but the last 3 decades have proved 
that the Amtrak's model of a national network of passenger rail is just 
not sustainable without massive, continued Federal support.
    To maintain the fiction that it could be self-sufficient and 
without making fundamental reform, over the past five years Amtrak 
sold, leased and mortgaged valuable assets to meet operating expenses. 
During the same period, it lacked adequate funds to maintain its 
capital infrastructure. A capital backlog of over $6 billion is the 
result. Just recently, Amtrak's new President affirmed the need for 
Amtrak to borrow some $200 million from a private line of credit by the 
end of June to meet current year operating expenses or begin a process 
of shutting down operations for the remainder of the fiscal year. The 
Administration is reviewing the viability of options for how Amtrak can 
solidify access to this line of credit, and Federal Railroad 
Administrator Allan Rutter will be testifying this afternoon before the 
Senate Appropriations Committee to report on those deliberations more 
fully at the conclusion of today's testimony. We are reviewing ways to 
preserve the opportunities for Congress and the Administration to adopt 
significant reforms to our national passenger rail policy, principles 
of which will be outlined in these remarks.
    Unfortunately, Amtrak management have compounded problems for the 
railroad. Until recent months, Amtrak lacked fundamental financial 
controls even to determine the extent of route cross-subsidizations. 
Amtrak's performance was insufficiently transparent to the Congress, 
the Department of Transportation and the public. It has embraced 
numerous business plans--including some that have set it in competition 
with the freight railroads, upon whose tracks Amtrak operates on all 
routes outside the Northeast corridor. These plans have in large part 
been unsuccessful, and in the end, proved incapable of stemming a tide 
of red ink.
    De-linking Passenger Rail and High Speed Rail.--At the same time, 
Amtrak's supporters in the Congress and the States have forged an ad 
hoc alliance with advocates for numerous high speed rail projects that 
could easily cost over $200 billion over the next 20 years. Amtrak has 
enjoyed monopoly access to the freight rail tracks upon which most high 
speed rail projects would presumably run. Supporters of Amtrak and of 
high speed rail have thus sought common cause. Legislation creating 
various means of bond financing, now under Congressional consideration, 
reflects this strategy--to intertwine inextricably the needs of Amtrak 
and high speed rail.
    The first recommendation I make today is that we must have the 
clarity of mind and discipline to decide how and where to fund and 
operate intercity passenger rail while separately deciding whether to 
fund and operate high speed rail. It would be a great disservice to 
perpetuate the assumption that Amtrak's future and that of high speed 
rail are necessarily intertwined.
    Importance of Intercity Rail.--I want to make sure that my remarks 
about Amtrak's failed business model and its financial crisis are not 
misunderstood. In a long career in Congress and now as Secretary of 
Transportation, I have not wavered from an important conviction: 
intercity passenger rail service is an important part of the Nation's 
transportation system.
    The terrible events of last September 11 dramatically reaffirmed 
that fact, as passengers of grounded airlines surged to Amtrak. Amtrak 
is now carrying more passengers in the New York to Washington market 
than the air shuttles combined. I am encouraged by recent decisions of 
the Board of Directors of Amtrak to improve financial controls and to 
streamline the Amtrak management structure. These are welcome reforms. 
But there is so much more needed.
    Systematic Reform.--Some who share my conviction about the 
potential of intercity passenger rail have made a further, unwarranted 
assertion--that Amtrak's problems can be fixed simply by a massive 
infusion of Federal dollars. The Bush Administration rejects that 
assertion. The country can ill afford to throw billions of Federal 
dollars at Amtrak and just hope its problems disappear. Thirty years' 
experience should teach us that merely hoping for better performance is 
a doomed approach. Systematic, root-and-branch rethinking of the 
Amtrak's structure and its public policy mandate is needed.
    We offer our ideas as a contribution to the current public debate 
about Amtrak funding and reauthorization. We hope to broaden the 
debate, while providing a benchmark for gauging the acceptability of 
various prescriptions now being offered by Congress for an ailing 
intercity passenger rail system.
    Five Principles for Reform.--The Administration's five principles 
for reform are:
    Create a system driven by sound economics.
    Require that Amtrak transition to a pure operating company.
    Introduce carefully managed competition to provide higher quality 
rail services at reasonable prices.
    Establish a long-term partnership between States and the Federal 
Government to support intercity passenger rail service.
    Create an effective public partnership, after a reasonable 
transition, to manage the capital assets of the Northeast Corridor.
    I will say a few words about each.
Create a system driven by sound economics
    First, we believe that our intercity passenger rail network must 
transition to a system dictated by fundamental economics without 
Federal operating support. Prices and passengers--and not politics--
should drive service. Amtrak's current route network provides too many 
services with limited market appeal at high operating costs to the 
Federal Government. These operating subsidies are almost universal 
among all routes, and are marked by escalating operating costs that 
absorb Federal support. While some in Congress are suggesting that 
Federal operating subsidies must be a fundamental precept of intercity 
passenger rail, we do not agree. At the same time, we recognize that it 
is unlikely that Amtrak could sustain a complete suspension of 
operating subsidies in 2003, so a phased reduction to zero operating 
subsidies is necessary.
Require that Amtrak transition to a pure operating company
    Second, Amtrak should transition into a pure operating company. We 
believe a gradual separation of train operations from infrastructure 
ownership would shed better light on the true economics of passenger 
rail and help the public sector make better educated decisions about 
the future of intercity passenger rail, choices which more accurately 
reflect challenges and market opportunities. What I am talking about 
today is an Amtrak dedicated to operating passenger rail services for 
profit, but not responsible for investment in and maintenance of the 
passenger rail infrastructure.
    Only in the Northeast Corridor does Amtrak combine an operating 
mission with a track infrastructure maintenance function. Yet since its 
trains account for only about 20 percent of corridor traffic, Amtrak's 
main operational focus in the corridor is on controlling and 
maintaining that infrastructure. Throughout the remainder of the Amtrak 
system, the freight rails are responsible for all track infrastructure 
investment.

Introduce carefully managed competition to provide higher quality rail 
        services at reasonable prices
    Third, we must introduce market principles into intercity passenger 
rail services. The Transportation Department has provided extensive 
details about the fact that high unit costs undermine Amtrak's 
competitive position relative to other passenger modes. Indeed, 
currently less than one percent of all U.S. trips over 100 miles is by 
rail. We firmly believe that marketplace discipline could deliver 
higher quality service at competitive prices. This would entail 
competition for provision of certain routes, through a process that 
would assign passenger rail operating rights to a single operator in a 
corridor after a careful process overseen by the Federal Railroad 
Administration. We also see possibilities for alternative sourcing of 
system-wide support services such as reservations, food service and 
equipment maintenance, much as other transportation companies have 
done.
    Some proposals not only fail to make progress in this direction, 
they actually make competition more difficult to achieve. A sustainable 
intercity passenger rail system must behave more like other private-
sector transportation firms that move fixed costs into variable ones.
    States outside the Northeast Corridor--where Amtrak currently runs 
on freight rail tracks--would be the first to transition to a system 
where intercity passenger rail services involve more competition under 
strict Federal supervision to maintain high safety standards and 
prevent capacity problems. The Northeast Corridor, with its unique 
issues and historic role of the Federal Government as the owner of the 
right-of-way, would make the transition to reform at a slower but still 
certain pace.

Establish a long-term partnership between States and the Federal 
        Government to support intercity passenger rail service
    Fourth, we believe a new intercity passenger rail policy should be 
based on a strong foundation of State and Federal planning that clearly 
identifies costs, benefits and funding approaches of passenger rail, 
designs services that complement and connect to other passenger modes, 
and thinks through practical implementation problems--such as 
environmental and operational issues--before launching projects.
    We need to build our passenger rail network on a foundation of a 
partnership with the States. Today, many States are investing in 
intercity passenger rail, supporting operating costs of routes, funding 
new rolling stock, or assisting in the expansion of rail capacity to 
permit increased passenger operations. Several regions would like to 
consider upgrading their networks to accommodate high-speed intercity 
passenger rail.
    The initiative for developing and operating any such new intercity 
passenger rail services should rest with the States or combinations of 
States. In planning and establishing such regional services, the States 
should be able to work with the Federal Government in a long-term 
partnership to invest in passenger rail infrastructure. We support the 
need for an ongoing Federal role in capital funding in partnership with 
States.
    We also note that many high-speed rail plans lack the comprehensive 
justification that marks current State/Federal transportation planning 
at the metropolitan and statewide level. Congressional efforts to 
increase Federal capital funding--do not pay sufficient attention to 
the critical importance of planning and entrusting State and local 
transportation agencies with the management of these programs.
    We believe that clear-eyed, comprehensive, financially responsible 
transportation planning, which is mandated for other surface 
transportation modes, is crucial to the future of new forms of 
passenger rail. Unless States are real partners in these endeavors, 
passenger rail advocates may champion services and facilities that may 
not fit within overall State transportation plans.

Create an effective partnership, after a reasonable transition, to 
        manage the capital assets of the Northeast Corridor
    I also believe that the ownership, management and control of the 
Northeast Corridor must be carefully evaluated. The multiple States and 
corridor users need time to identify practical solutions to these 
issues.
    It will take extensive coordination--and a deliberate approach--to 
assess the mechanisms appropriate to manage this vital national asset. 
How will capital costs be allocated? How can the Federal Government and 
States assure that necessary capital investments will be funded? How is 
the capital backlog addressed? What is the best ownership structure to 
represent the multi-State interests? How do we adequately protect 
rights of access for transit? How will freight be moved on the corridor 
and what special needs does it have? These and many other such issues 
will be among the matters I plan to raise with our many stakeholders.
    We may wish to consider a group modeled after the Defense 
Department's base realignment commission to finalize details of such a 
transition. During the transition, Amtrak would continue to operate the 
corridor. But perhaps at some intermediate juncture, it should be 
required to do so through a separate corporate entity formed for that 
purpose. Again, our goal should be to find lasting solutions to the 
thirty-year capital investment problem. This will take time, to be 
sure. But the job must be done.
    Expanding the Debate: An Invitation to Stakeholders.--I recognize 
that reform along these lines will impact many different parties, and 
all stakeholders must be prepared to accept change if we are to develop 
a viable system of passenger rail. I want to invite these stakeholders 
to participate in the process of developing the details of a reform 
plan consistent with the general principles I have just set forth.
    Our nation's governors and the States they lead are major 
participants in developing and implementing public infrastructure 
investments. So it should come as no surprise that a central element of 
the Administration's vision entails a partnership with the nation's 
governors and other State and local leaders to support intercity 
passenger rail. To promote a systematic deliberation about these 
important issues, today I invite the National Governors Association to 
appoint a Governors' task force to work with me to develop the details 
of this partnership. In particular, I also invite the Northeastern 
Governors to work with me on core corridor infrastructure issues.
    We must also recognize the importance of forging equitable business 
relations with a private freight railroad industry that owns the 
majority of the rail tracks on which Amtrak runs. In recent years, the 
freight railroads have begun to face significant capacity issues that 
strain both passenger rail and freight rail. From Amtrak's perspective, 
its on-time performance is significantly affected by access delays not 
within Amtrak's control. The next authorization for intercity passenger 
rail--and plans for high speed rail expansion--must balance equitably 
the interests of passenger and freight rail operators. And we should 
consider further the impact of reform on Amtrak's workers.
    For these reasons, the Federal Railroad Administration will soon 
sponsor an industry policy seminar to explore more carefully with 
Amtrak, the freight rails, rail labor and other stakeholders the issues 
raised by reauthorization. Proceedings of this meeting will be made 
available to policymakers and the public.
    Making Incremental Improvements: The Perfect is the Enemy of the 
Good.--It will not be possible to solve the accumulated problems of 
thirty years in a single year. It would be folly, however, to wait any 
longer to make a start.
    That is why last summer I called for early consideration of 
authorization for intercity passenger rail. The Bush Administration 
undertook an extensive evaluation of the core problems at Amtrak, and 
has formulated key principles for reform that I described here today. I 
am now personally persuaded that more debate and further consultation 
with transportation policymakers are needed. A full five-year 
authorization seems unlikely this year.
    The vision I have outlined for the ongoing debate is incremental, 
yet would bring fundamental change. I look to the past to understand 
the challenge we face in the future, not to cast blame or stir rancor. 
Our long term vision would incorporate definitive performance 
milestones in a new authorization. It would impose statutory discipline 
and accountability in moving toward a viable system of intercity 
passenger rail service. It would preserve and strengthen a national 
asset.
    Congress is presently considering passenger rail policy. I announce 
these principles today so that any Congressional action will be 
measured against this vision for the future. The Administration is 
concerned about recent Congressional actions that would increase 
funding for Amtrak without addressing any of the core problems that 
have produced this crisis. We believe this is the wrong approach. For 
this reason, the Administration opposes fiscal year 2003 Amtrak funding 
in excess of the $521 million in our budget unless such an increase is 
accompanied by significant reforms consistent with the principles I 
have outlined.
    If Congress is unable to enact longer term reauthorization for 
Amtrak this session, we feel strongly that any short-term authorization 
should include significant steps toward more systematic reform. This 
afternoon, Administrator Rutter can begin a process by which we engage 
Congress in identifying the reforms we believe should be made, 
including: increasing financial accountability, Federal oversight, and 
performance standards; limiting growing Federal operating subsidies; 
and mandating pilot projects in commercializing route services and 
train operation support services.
    Let me close by reiterating that the moment has arrived to make 
fundamental, lasting changes in U.S. passenger rail policy. Such 
changes will no doubt engender resistance. In the past, such resistance 
has left us with unfulfilled hopes and timid policy-making.
    I believe it is time to recognize the role that intercity passenger 
rail service can play in America's transportation system, to offer a 
comprehensive vision for the future of intercity passenger rail, and to 
set out a proposal that offers an alternative to the previous 30 years 
of Amtrak history--a vision worthy of a passenger rail system that 
plays a sustainable role in the national transportation network. I have 
tried to set forth core elements of such a vision here. The Bush 
Administration looks forward to refining this vision and discussing the 
implications of these policies with interested stakeholders.
    Thank you for your attention.
    Secretary Mineta's remarks set forth an ambitious agenda to place 
intercity passenger rail service on a sound footing for the future. The 
Secretary, I and the rest of the Department of Transportation team look 
forward to working with the Congress to achieve that goal. I would be 
happy to answer any questions you may have.

    Senator Murray. Mr. Gunn.

STATEMENT OF DAVID GUNN, PRESIDENT AND CHIEF EXECUTIVE 
            OFFICER, NATIONAL RAILROAD PASSENGER 
            CORPORATION

    Mr. Gunn. Madam Chairwoman and members of the Subcommittee: 
I thank you for the opportunity to be here today. My name is 
David Gunn and I have been Amtrak's president for the past 5 
weeks or years, I am not sure which. But I want you to know 
that when I accepted the position I did so with both eyes open, 
knowing that the company had some very significant and 
immediate problems. The company has lost credibility on many 
fronts and its management structure is ineffectual, was 
ineffectual. The company made bad decisions while pursuing an 
impossible goal of self-sufficiency mandated by Congress.
    Despite these problems, Amtrak and the service it provides 
are well worth saving. How it has conducted its business over 
the last few years is something that must be changed 
immediately if we are to survive.
    I have been in one form or another of the railway industry 
all my adult life and I firmly believe that rail service and 
public transit in general must assume a greater role in our 
lives if we wish to avoid a gradual loss of personal mobility. 
I have run larger organizations than Amtrak, but I do not 
recall in nearly 40 years of service taking the reins of a 
company with such immediate and significant problems. Let me 
tell you exactly where we are in getting through the immediate 
cash flow crisis and then I want to spend a few short moments 
on what I plan to do over the next 12 months.
    As many of you know, we have been working since the 
beginning of the year with our auditors to close the books for 
fiscal year 2001 and receive an audit opinion that will allow 
us to have access to short-term borrowing. At this time, we 
have come to closure on Amtrak's fiscal year 2001 financial 
statements with the auditors, i.e., they are in accordance with 
GAAP. However, we have not come to closure with the auditors on 
a final opinion. This fact plus the fundamentals of our 
business means that our ability to obtain a short-term loan is 
in serious jeopardy.
    We are pursuing other options at this time, before the 
company runs out of cash. Since time is of the essence, we 
notified the Administration that securing a loan guarantee is 
the only real option available to us to obtain short-term 
financing. On Monday we took a proposal for a loan guarantee to 
the Federal Railroad Administration and since then we have been 
working closely with them to hammer out the details of the 
proposal.
    If the Administration were unable or unwilling to give us a 
loan guarantee, then the only other options would be for 
Congress to direct the Secretary of Transportation to guarantee 
a loan or, as a last resort, to step in with short-term bridge 
financing for the balance of the fiscal year.
    The window for fixing this problem in this way is short. 
Unless we are able to secure access to these funds either 
through a loan guarantee or another form of funding, I will 
have no choice but to announce a shutdown of the entire system. 
We are in the process of contingency planning and hope that it 
does not come to that. However, I have to reinforce that our 
cash position will run out, or our cash will run out, in July 
and we have but the next few days to find a resolution to this 
short-term problem.
    Senator Murray and members of the Subcommittee, I come from 
a place called Cape Breton Island, which is in Nova Scotia. I 
have to give a little plug. It is remote, but I do get 
newspapers out of Halifax and Toronto. Even with just that 
source of information, I knew last summer that Amtrak was in 
deep trouble. When you have to mortgage your busiest station 
just to make payroll, you are only a step or two before the 
precipice.
    The announcement in February threatening to cut back long 
haul services was not based on reality, since Amtrak's problems 
will not be solved by such action.
    My approach to running Amtrak hinges on the fact that I 
cannot imagine a country such as ours without a National 
Railroad Passenger System. That means I would expect that 
Amtrak will be around for a while. Second, the basic model, 
Amtrak, can and should work, and I am referring here to Amtrak 
as a management company managing passenger services. Third, no 
passenger system in the world operates without some form of 
governmental subsidy, which means Amtrak will, A, never be 
profitable, and B, will always need, just like every other mode 
of passenger transportation, some form of public investment or 
subsidy.
    Lastly, no amount of councils or commissions or study 
groups, panels or symposiums, will find a painless answer to 
what to do about Amtrak. Recent proposals to privatize or 
restructure are exercises in problem avoidance. The Federal 
Government must decide what role rail should play, just as it 
does with highways, air, and waterways.
    Now, about Amtrak. I am what most people would call a very 
traditional manager. I believe in small, technically competent 
management staffs with clear lines of authority and 
responsibility. I believe Amtrak can be a good operator of rail 
passenger services. I have gotten around quite a bit in my 5 
weeks and I have found the employees to be friendly and 
dedicated, but very concerned about the railroad and their 
future. Despite years of equipment and infrastructure 
maintenance deferrals, our employees have persevered.
    Unfortunately, the plant and equipment for the most part 
suffers from neglect. Deferrals of maintenance and elimination 
of heavy overhauls have resulted in a multitude of problems. In 
addition, we have nearly 100 cars and locomotives in wreck and 
repair, what we call wreck-repair status--they are badly 
damaged--the majority of which cars are used on long distance 
trains. With a fleet of 1500 cars, this is about one in 15 cars 
out of service, some of which have been so since the early 
1990's. This must change.
    Also, we have begun to reduce the number of consultants on 
the payroll. I have never been a fan of using consultants. My 
approach has been to build a strong management team that can 
solve and work through its own problems.
    I will streamline the organization and establish clear 
lines of authority and responsibility. The first thing I asked 
for when I arrived was the preparation of organization charts. 
I found we had nearly 85 people with the titles of vice 
president. Many of these titles had adjectives like ``senior,'' 
``executive,'' or ``regional'' in front of the word ``vice 
president.'' This has to change to get to a streamlined, 
functional organization.
    I found a budget process not based on the actual needs of 
the operation and it was very inefficient as a tool to enforce 
fiscal discipline throughout the company. The budget was a 
document based on unrealistic assumptions regarding revenue and 
expenses. There was inadequate control over staffing.
    Next year we will take a different approach by building a 
budget from the ground up, a zero-based budget approach. It 
will be detailed, based upon authorized positions and planned 
activities. In other words, if we are going to rebuild a piece 
of track we want to know where and when, how much it costs. You 
may choose not to fund everything we ask for, but you will at 
least know what is needed and what you are funding.
    Driving the budget process, we will look at every route and 
service to improve efficiencies and cost recovery. Most of our 
trains lose money and they always will, but we can run them 
more efficiently. This is an achievable goal. Pursuing self-
sufficiency was not. We will share our budget with you in 
detail and we will report monthly on our progress.
    I have found in life that anything worthwhile comes through 
setting realistic goals and then dedication and initiative and 
loyalty to the company to accomplish those goals. In pursuing 
Congressionally mandated self-sufficiency, the company tried 
too many initiatives simultaneously and pursued an array of 
financing arrangements to make up for budget shortfalls. The 
debt the company now carries is just under $4 billion and it is 
unsustainable.
    Obviously, we cannot rewrite history. What we can do is 
learn from our mistakes, go back to basics, and move forward. I 
will return Amtrak to the basics, i.e., the running of a 
railroad.
    Finally, while all our focus has been to resolve the 
immediate short-term budget crisis, we have begun to plan for 
the fiscal year 2003 budget process. To this end, I cannot 
emphasize how important it is for Congress to fully fund 
Amtrak's $1.2 billion request for fiscal 2003. This level of 
funding should allow us to begin work that I have outlined in 
this testimony and start to rebuild the railroad.
    I also believe that during this period Congress, the 
Administration, and Amtrak will grapple and should grapple and 
come to closure on some of the larger fundamental issues that 
need to be resolved about the level of service and the way it 
is paid for. Unless and until that occurs, we will always be 
living on the edge. Therefore, I reiterate the importance of 
our budget request of $1.2 billion for next year and to begin 
work to resolve these larger fundamental questions which have 
been raised.
    It is my hope that you will see significant positive change 
in the months ahead--better equipment, investment in 
infrastructure, and a leaner organization, and an open, 
straightforward approach. Our budget request will be 
transparent, realistic, and understandable, and we will build a 
better railroad and leave the politics to you.
    I will stop here. I know you have a number of questions you 
want to ask. Thank you for your attention.
    [The statement follows:]

                    Prepared Statement of David Gunn

    Madame Chairwoman and members of the Subcommittee, I thank you for 
the opportunity to appear here today. My name is David Gunn and I have 
been Amtrak's President for the past 5 weeks. I want you to know that 
when I accepted the position, I did so with both eyes open knowing that 
the company had some very significant and immediate problems. The 
company had lost credibility on many fronts and its management 
structure was ineffectual. The company made bad decisions while 
pursuing an impossible goal of self-sufficiency mandated by Congress. 
Despite these problems, Amtrak and the service it provides are well 
worth saving. How it has conducted its business over the last few years 
is something that must be changed immediately if we are to survive.
    I have been in one form or another in railroading all my adult life 
and I firmly believe that rail service and public transit in general 
must assume a greater role in our lives if we wish to avoid gradual 
loss of personal mobility. I have run larger organizations than Amtrak, 
but I do not recall in nearly 40 years of service taking the reins of a 
company with such immediate and significant problems. Let me tell you 
exactly where we are in getting through the immediate cash flow crisis 
and then I want to spend a few short moments outlining what I plan to 
do over the next 12 months.
    As many of you know, we have been working since the beginning of 
the year with our auditors to close the books for 2001 and receive an 
audit opinion that will allow us to have access to short-term 
borrowing. At this time, we have come to closure on Amtrak's fiscal 
year 2001 financial statements with the auditors. However, we have not 
come to closure with the auditors on a final opinion. This fact plus 
the fundamentals of our business means that our ability to obtain a 
short-term loan is in serious jeopardy.
    We are pursuing other options at this time before the company runs 
out of cash. Since time is of the essence, we notified the 
Administration that securing a loan guarantee is the only real option 
available to us to obtain short-term financing. On Monday, we took a 
proposal for a loan guarantee to the Federal Railroad Administration 
and, since then, we have been working closely with them to hammer out 
the details of this proposal. If the Administration were unable, or 
unwilling, to give us a loan guarantee, then the only other options 
would be for Congress to direct the Secretary of Transportation to 
guarantee a loan or, as a last resort, to step in with short-term 
bridge funding for the balance of the fiscal year. The window for 
fixing this problem in this way is short. Unless we are able to secure 
access to these funds either through a loan guarantee or another form 
of funding, I will have no choice but to announce a shutdown of the 
entire system. We are in the process of contingency planning and hope 
that it does not come to that. However, I have to reinforce that our 
cash will run out in July and we have but the next few days to find a 
resolution to this short-term problem.
    Senator Murray and members of the Subcommittee, my home is on Cape 
Breton Island. I do get the newspapers out of Halifax and Toronto and 
even with just that source of information, I knew last summer that 
Amtrak was in deep trouble. When you have to mortgage your busiest 
station just to make payroll, you are only a step or two before the 
precipice. The announcement in February threatening to cut long-haul 
services was not based on reality, since Amtrak's problems will not be 
solved by such an action.
    My approach to running Amtrak hinges on the fact that I cannot 
imagine a country such as ours without a national passenger railroad 
system. That means, I would expect that Amtrak will be around for a 
while. Second, the basic Amtrak model can and should work. Third, no 
passenger system in the world operates without some form of 
governmental subsidy. That means that Amtrak will never (a) be 
profitable, and (b) will always need, just like every other mode of 
transportation, some form of public investment, or subsidy. Lastly, no 
amount of councils, commissions, study groups, panels, or symposiums 
will find a painless answer to what to do about Amtrak. Recent 
proposals to privatize or restructure are exercises in problem 
avoidance. The Federal Government must decide what role rail should 
play just as it does with highways and air, even waterways.
    Now about Amtrak. I am what most people would call a traditional 
manager. I believe in a small technically competent management staff 
with clear lines of authority and accountability.
    Amtrak can be a good operator of rail passenger service. I have 
gotten around a bit and have found the employees to be friendly and 
dedicated, but very concerned about the railroad and their future. 
Despite years of equipment and infrastructure maintenance deferral, our 
employees have persevered.
    Unfortunately, the plant and equipment, for the most part, suffers 
from neglect. Deferrals of maintenance and elimination of heavy 
overhauls have resulted in a multitude of problems. In addition, we 
have nearly 100 cars and locomotives in wreck repair status, the 
majority of which are cars used on long distance trains. With a fleet 
of 1500 cars, that is about 1 in 15 cars out of service, some of which 
have been so since the early 1990s. This will change.
    Also, we have begun to reduce the number of consultants on the 
payroll. I have never been a fan of using consultants. My approach has 
been to build a strong management team that can solve and work through 
its own problems.
    I will streamline the organization and establish clear lines of 
authority and responsibility. The first thing I asked for when I 
arrived were organization charts. I found we had nearly 85 people with 
titles of vice-president. Many of these titles had adjectives like 
senior, executive, or regional in front of the word vice-president. 
This is changing.
    I found a budget process not based on the actual needs of the 
operation and inefficient as a way to enforce discipline throughout the 
company. Rather the budget was a document based on unrealistic 
assumptions regarding revenue and expenses. There was inadequate 
control over staffing. Next year, we will take a different approach by 
building the budget from the ground up, a zero-based approach. It will 
be detailed, based upon authorized positions and planned activities. If 
we are going to rebuild track, we will want to know where and when. You 
may choose not to fund everything we ask for, but you will know what is 
needed and what you are funding.
    Driving the budget process, we will look at every route and service 
to improve efficiencies and cost recovery. Most of our trains lose 
money and they always will, but we can run them more efficiently. That 
is an achievable goal. Pursuing self-sufficiency was not. We will share 
our budget with you and we will report monthly on our progress.
    I have found in life that anything worthwhile comes about through 
realistic goals, dedication, initiative and loyalty, not by wishing it 
so. In pursuing Congressionally-mandated self-sufficiency, the company 
tried too many initiatives simultaneously and pursued an array of 
financing arrangements to make up for budget shortfalls. The debt the 
company now carries is just under $4 billion and is unsustainable. 
Obviously, we cannot rewrite history. What we can do is learn from our 
mistakes, get back to basics, and move forward. I will return Amtrak to 
the basics of running a railroad.
    Finally, while all of our focus has been to resolve the immediate 
short-term budget crisis, we have begun to plan for the fiscal year 
2003 budget process. To that end, I cannot emphasize how important it 
is for Congress to fully fund Amtrak's $1.2 billion request for fiscal 
year 2003. This level of funding should allow us to begin the work that 
I have outlined in this testimony and start to rebuild the railroad. I 
also believe that during this time period Congress, the Administration 
and Amtrak will grapple with and hopefully come to closure on some of 
the larger fundamental issues that we need to resolve about the level 
of service and the way that it is paid for. Unless or until that 
occurs, we will always be living on the edge. Therefore, I reiterate 
the importance of our budget request of $1.2 billion for next year and 
to begin the work to resolve these larger fundamental questions.
    It is my hope that you will see significant positive change in the 
months ahead--better equipment, investment in infrastructure, a leaner 
organization and an open straightforward approach. Our budget requests 
will be transparent, realistic and understandable. We will build a 
better railroad and leave the politics to you.
    I will stop here because I know you have a number of questions you 
want to ask. Thank you for your attention. Everyday Savings Specials

    Senator Murray. Thank you.
    We will finally turn to Mr. Mead, and I especially want to 
thank you for being here. I know you were before the House 
committee all morning long and made time in your schedule this 
afternoon for this hearing. I appreciate it.

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

    Mr. Mead. Thank you. The other hearing was on the 
Transportation Security Administration and its implementation.
    I want to start by just saluting Mr. Gunn. I think he 
should be saluted for taking over the helm at a very difficult 
time in the railroad's history.
    The situation is really serious. Amtrak's running short of 
time and solutions. I like the way you put it in the opening: 
there is a short and a long-term take we all have to consider 
here. You cannot do one without the other very easily.
    I have four points I would like to make. The first is that 
in our January 24 statutory report on Amtrak finances and in 
testimony in March, we said that Amtrak's financial health has 
deteriorated and its cash losses remain high, that it is going 
to miss its budget target by $200 million or thereabouts. So 
what we have here is a cash flow problem, that is not 
unexpected, the magnitude of the loss is not unexpected.
    What is unexpected is the loss of access to its short-term 
line of credit because of the uncertainty over future Federal 
funding and, Amtrak's technical default on the $270 million 
unsecured line. It went into technical default because it does 
not have an audit opinion and it did not have one at the end of 
the first quarter of this year.
    The financial institutions who provide this line of credit 
have said they need security either in the form of collateral 
or a Federal loan guarantee before allowing Amtrak to draw 
against it. The truth is Amtrak does not have much collateral 
left that is not already mortgaged except for the Northeast 
Corridor. So that avenue does not appear fully realistic.
    The second point is Amtrak has applied for a loan guarantee 
through a program that is known as the Railroad Rehabilitation 
and Improvement Financing Program. It is called RRIF for short. 
We feel there are a number of difficult questions that should 
be explicitly answered before that program is used for such a 
purpose. One, it is our understanding that this program's 
purpose, is as a mechanism for long-term financing of capital 
needs of the rail industry that are unavailable from the 
private sector. Well, the real purpose of Amtrak's application 
is not for that. It is for a short-term bridge loan so it can 
make its way through to the end of the year. I think that is 
the truth of the matter. Furthermore, a significant portion of 
the Amtrak short-term cash needs are operating in nature. 
Again, this program is designed for capital.
    I think an alternative to using that vehicle would be to 
explicitly and straightforwardly create a one-time Federal loan 
guarantee or do a direct Federal appropriation, either through 
the 2002 supplemental that is pending or through some other 
legislative vehicle whose consideration by the Congress is 
imminent. Really, everybody is right here; we really do not 
have much time on this.
    I should note that there is $55 million already in the 2002 
supplemental for Amtrak and it is associated, of course, with 
9-11. But you have to answer the question, is that going to be 
in addition to the loan guarantee or will it operate as an 
offset? I do not know the answer to that, but it is $55 
million.
    Third, everybody should recognize that providing Amtrak a 
Federal loan guarantee or a $200 million direct loan to get 
them through the end of the year is just pushing this problem 
off into 2003. This has happened for several years now, where 
we make it close to the end of the year, then Amtrak borrows 
money to get to the end of the year, then we take the 
appropriation as soon as it gets it, and pays back the loan. It 
is a pattern. If we do it again and we do not solve the longer-
term picture here, Amtrak will be back again next year and we 
will have a similar situation.
    In a sense, Amtrak has created an illusion of progress 
toward meeting its glidepath to self-sufficiency and it has 
done that by borrowing money and mortgaging its assets. So that 
is how it makes it through to the end of the year.
    Mr. Gunn mentioned the debt. Between 1997 and 2001 Amtrak's 
total debt grew by about $2.7 billion, from $1.7 billion to 
$4.4 billion. That is a 155 percent growth. And for every 
dollar in additional revenue that Amtrak brings in, it spends, 
because of its expenses, $1.05. So you cannot very well make 
ends meet when you have that operating profile.
    Finally, my last point is Amtrak's current short-term 
funding crisis ought not to be allowed to obscure the very 
critical, far more difficult question of long-term capital 
funding. The operating subsidy, the $200 million, pales in 
comparison to the larger issue of the capital requirements of 
this railroad.
    Thank you.
    [The statement follows:]

               Prepared Statement of Hon. Kenneth M. Mead

    Madam Chairwoman and members of the Subcommittee: I appreciate the 
opportunity to provide our views on Amtrak's current financial 
situation. In our January 2002 Assessment Report and again this past 
March in testimony before this subcommittee, we reported that Amtrak's 
overall financial health had deteriorated, that cash losses remained 
high, and that Amtrak would miss its budget targets for 2002 by more 
than $200 million. To address these problems, Amtrak expanded its line 
of credit and announced the deferral of $175 million in capital 
investments and operating cuts of approximately $111 million. 
Nevertheless, we are hearing now from Amtrak that it must begin an 
orderly shutdown of its entire system if it can not access its short-
term credit line for the more than $200 million in cash it needs to 
fund its operating losses through the end of the fiscal year.
    The situation is serious and Amtrak is running short of time and 
solutions. I want to make four points today.
  --First, Amtrak's cash flow problems for the fourth quarter were not 
        unexpected, but its loss of access to its short-term credit 
        facility was. Because of the uncertainty over future Federal 
        funding for Amtrak and Amtrak's technical default on its $270 
        million, unsecured credit facility, the financial institutions 
        providing the facility have asked for some type of security, 
        either collateral or a Federal loan guarantee, before allowing 
        Amtrak to draw against it.
  --Second, Amtrak has applied for a loan guarantee through the 
        Railroad Rehabilitation and Improvement Financing Program 
        (RRIF) to solve its short-term cash-flow crunch. However, there 
        are a number of difficult questions that we feel must be 
        explicitly answered concerning the use of this program for such 
        a purpose. For example, it is our understanding the RRIF is a 
        mechanism for long-term financing of capital needs of the rail 
        industry not available from the private sector. In contrast, 
        the real purpose of this application is for a short-term bridge 
        loan for Amtrak to make it through to the end of the year. 
        Furthermore, a significant portion of Amtrak's short-term cash 
        needs are operating in nature, which would make them ineligible 
        to be financed under the terms of this Program.
    Alternatives to using the RRIF vehicle would be to explicitly and 
straightforwardly create a one-time Federal loan guarantee or a direct 
Federal appropriation either as part of the 2002 supplemental 
appropriation or through some other legislative vehicle whose 
consideration by the Congress is imminent. We note in this regard that 
the Senate version of the 2002 supplemental appropriation contains a 
grant to Amtrak of $55 million for current operating and capital needs 
related to security and passenger fleet improvements. The relationship 
between Amtrak's request for a RRIF loan guarantee for up to $270 
million and the $55 million supplemental funding is unclear. Would the 
supplemental funds be considered an addition to the loan guarantee or 
would they be an offset?
    Third, all parties should recognize that providing a Federal loan 
guarantee in effect pushes the Amtrak problem forward to 2003. Amtrak 
ended fiscal year 2001 with $85 million in short-term borrowing to 
cover its cash-flow deficit. At the close of 2002, if Amtrak receives a 
loan guarantee, that figure will be closer to $225 million for the same 
purpose. Amtrak can not keep rolling forward into future fiscal years a 
progressively growing, cumulative cash-flow deficit. If this is the 
case, Amtrak will be back before Congress next summer in a similar 
situation asking for additional funds.
    In a sense, in prior years Amtrak had created the illusion of 
progress towards meeting its glidepath to operating self-sufficiency by 
maximizing external financing and selling off assets, rather than 
significantly reducing costs. Amtrak is now burdened with a heavy debt 
load and substantial principal and interest payments that must be 
satisfied in the coming years. Between 1997 and 2001, Amtrak's total 
debt grew by about $2.7 billion, from $1.7 billion to $4.4 billion, 
representing an overall increase of 155 percent. Amtrak faces 
formidable challenges in meeting its rapidly growing debt service 
requirements.
    Finally, Amtrak's current short-term funding crisis should not be 
allowed to obscure the equally critical and far more difficult issue of 
long-term capital funding. The cost of short-term operating losses 
pales in comparison to the multi-billions of dollars in long-term 
capital investment that will be needed to sustain a national, intercity 
passenger rail system. Amtrak's fiscal year 2003 grant request of $1.2 
billion is the minimum needed to maintain the reliability of the 
current system through 2003. To address the backlog of capital 
investment throughout the system and to finance improvements on 
corridors around the country will cost many hundreds of millions of 
dollars more each year.
Fiscal year 2002 Cash Losses Were Expected
    As illustrated in the following table, Amtrak's operating and cash 
losses have continued to increase since 1990. Its cash loss in 2001 of 
$585 million was $24 million worse than 1998, the first full year of 
its glidepath. The unfortunate fact is that expense growth has more 
than kept pace with revenue growth since Amtrak received its self-
sufficiency mandate, so that for every $1.00 Amtrak has realized in 
additional revenue, cash expenses have increased by $1.05. 



    The cash problem in 2002 is not unique but continues a pattern that 
has existed for the last several years. In our 2001 Assessment of 
Amtrak's Financial Performance and Requirements,\1\ we projected 
Amtrak's unfunded cash loss in 2001 to be $277 million. Amtrak was able 
to cover this loss by mortgaging one of its most valuable assets, Penn 
Station-New York for $300 million. For 2002, we projected Amtrak would 
generate $217 million in unfunded cash losses and would, therefore, 
need to tap its short-term credit facility to offset the cash losses.
---------------------------------------------------------------------------
    \1\ Report No. CR-2002-075, January 24, 2002. 2001 Assessment of 
Amtrak's Financial Performance and Requirements, National Railroad 
Passenger Corporation, Office of Inspector General, U.S. Department of 
Transportation.
---------------------------------------------------------------------------
    In a sense, Amtrak had created the illusion of progress towards 
meeting its glidepath to operating self-sufficiency by maximizing 
external financing and selling off assets, rather than significantly 
reducing costs. This is represented by the blue area in the chart on 
the following page. Amtrak is now burdened with a heavy debt load and 
substantial principal and interest payments that must be satisfied in 
the coming years.
    The glidepath was based on a declining use of Federal appropriated 
funds to cover its cash losses. In 2000, Amtrak refinanced a portion of 
its fleet under a sale/leaseback agreement that provided approximately 
$124 million in cash. In 2001, Amtrak mortgaged Penn Station-New York 
for $300 million and borrowed $85 million from its short-term credit 
facility. Each of these transactions allowed Amtrak to cover the cash-
flow deficit.
    By this fiscal year, nearly all available assets have been 
collateralized and Amtrak has nearly exhausted its long-term, secured 
debt capacity. Amtrak's plan was to tap its $270 million short-term 
credit facility to cover its cash losses in 2002. Unfortunately, absent 
audited financial statements and a long-term Federal commitment in the 
form of a reauthorization, Amtrak has apparently lost access to the 
private unsecured credit market. Essentially, the Federal Government 
has now become Amtrak's lender (guarantor) of last resort. 




    Amtrak's debt load has grown dramatically over the last 5 years due 
to this external financing of its cash losses and its new train 
equipment. Between 1997 and 2001, Amtrak's total debt grew by about 
$2.7 billion, from $1.7 billion to $4.4 billion, representing an 
overall increase of 155 percent. During the 7 months from September 30, 
2001 to April 30, 2002, Amtrak's total debt grew by $142 million to 
$4.6 billion, continuing its trend of growing long-term debt 
obligations. The following table illustrates the growth in Amtrak's 
short-term liabilities as well as long-term debt and capital lease 
obligations since 1997. 



Amtrak's Use of RRIF
    Amtrak has applied for a loan guarantee through the RRIF to solve 
its short-term cash-flow crunch. However, there are a number of 
difficult questions that we feel must be explicitly answered concerning 
the use of this program for such a purpose. For example, it is our 
understanding the RRIF is a mechanism for long-term financing of 
capital needs of the rail industry not available from the private 
sector. The program's long-term nature can be found in its terms that 
prescribe a maximum repayment period of up to 25 years. In contrast, 
Amtrak's loan application indicates repayment within 5 months 
indicating that its real purpose is for a short-term bridge loan to 
make it through to the end of the year. Furthermore, a significant 
portion of Amtrak's short-term cash needs are operating in nature, 
which would make them ineligible to be financed under the terms of the 
program. Lastly, this action would likely add to Amtrak's funding needs 
in 2003 and defer its financial uncertainties and any resolution to 
2003 or later.
    Alternatives to the RRIF vehicle would be to explicitly and 
straightforwardly create a one-time Federal loan guarantee or direct 
Federal appropriation either as part of the 2002 supplemental 
appropriation or through some other legislative vehicle whose 
consideration by the Congress is imminent. We note in this regard that 
the Senate version of the 2002 supplemental appropriation contains a 
grant to Amtrak of $55 million for current operating and capital needs 
related to security and passenger fleet improvements. The relationship 
between Amtrak's request for a RRIF loan guarantee for up to $270 
million and the $55 million supplemental funding is unclear. Would the 
supplemental funds be considered an addition to the loan guarantee or 
would they be an offset?

Amtrak's fiscal year 2003 Legislative and Grant Request
    On February 15, 2002, Amtrak submitted its grant request to the 
President, requesting $1.2 billion, which it stated would be 
``essential for keeping a national rail service network intact'' in 
2003. We have reviewed Amtrak's grant request and concluded that Amtrak 
will require at least $1.2 billion to maintain its current system and 
minimize any negative effects on operations or safety. This does not 
include the need to repay any type of short-term loan at the outset of 
the year. We believe there is a high probability that Amtrak's net 
operating cash loss will be more than the $200 million Amtrak 
anticipates. If this is the case, Amtrak will be back before Congress 
next summer in a similar situation asking for additional funds. 
Therefore, Amtrak should reserve something on the order of 20 percent 
of its capital appropriation for 2003 until the fourth quarter to keep 
open the option to request permission from Congress to reprogram the 
money to cover operating shortfalls.
    It is important to note that if the 2003 capital appropriation is 
less than requested, the likelihood of reliability problems in the 
Northeast Corridor increases in 2003 and beyond. A summary of our 
recommendation and Amtrak's fiscal year 2003 grant request is shown 
below.

    AMTRAK'S FISCAL YEAR 2003 GRANT REQUEST AND OIG'S RECOMMENDATION
                          [Dollars in millions]
------------------------------------------------------------------------
                                           Amtrak grant         OIG
                Component                     request     recommendation
------------------------------------------------------------------------
Capital Investment......................            $840        \1\ $787
Operating Subsidy.......................             200             265
Excess RRTA.............................             160             160
                                         -------------------------------
      Total Funding Required............           1,200           1,212
------------------------------------------------------------------------
\1\ We have recategorized $65 million for progressive overhauls as
  operating expense.

    This request does not cover the majority of safety and security 
improvements Amtrak identified in various proposals following September 
11. Amtrak has made the decision to seek funding for these projects 
separately.
    Madam Chairwoman, this concludes our statement. I would be pleased 
to answer any questions.

    Senator Murray. Thank you very much.
    I have a great many questions on Amtrak's financial 
condition, both in the short-term and the long-term. But if 
Amtrak does not survive the next 3 months, then there will be 
really no point in discussing the Secretary's long-term plan. I 
am going to begin today with questions on the short-term crisis 
and ask the long-term questions secondly. Let me begin with the 
short-term crisis.
    Four months ago Deputy Secretary Jackson, who chairs 
Amtrak's Audit Committee, told this Subcommittee that we could 
expect Amtrak's auditor to issue a clean opinion on Amtrak in 
the near future. That audit opinion has never been issued. Mr. 
Rutter, can you explain to this Committee why that audit 
opinion has not been issued?
    Mr. Rutter. I think it was our expectation, being on the 
board at that time, based on representations that had been made 
to us by the Amtrak staff, that the opinion was indeed coming. 
What has happened in the mean time is that the auditors, for 
any number of reasons, have been loathe to finish their work 
and we have been dealing with an ongoing list of tasks that 
they have set out to solve, resolve, deal with, and we are 
still waiting on that finished product.
    Given the fact that the financials are in fact done, we are 
much closer than we had been in the past. But it certainly was 
our expectation, and I think a reasonable one based on what we 
were being told, that the audit opinion was going to be there. 
As it has turned out, it is that very audit opinion that is 
getting in the way of that access to the short-term line of 
credit.
    Senator Murray. Mr. Gunn, how recently did Amtrak and its 
auditor come to agreement on the details of your financial 
statements for last year?
    Mr. Gunn. I believe it was last week.
    Senator Murray. Did your process of finalizing your 
financial statements result in a change to your estimated 
financial loss for last year?
    Mr. Gunn. Yes, it did.
    Senator Murray. By how much?
    Mr. Gunn. The result of the audit, the net change in the 
deficit was approximately, I think it was, $160 million.
    Senator Murray. The net change was $160 million?
    Mr. Gunn. In other words, if you look at the operating 
loss, for example, unaudited it was $990 million; audited was 
$1.198 billion.
    Senator Murray. So your deficit increased by $160 million?
    Mr. Gunn. Yes. Actually, that is almost $200 million. But 
part of that was prior years' adjustments, which was just 
easier to put in 2001 than go back and try to restate all the 
prior years. So the change in 2001 numbers was about $160 
million.
    Senator Murray. Mr. Rutter, during the hearing 4 months ago 
I specifically asked Deputy Secretary Jackson whether there was 
any material or substantive adjustments that were being 
contemplated to Amtrak's financial statements and he said he 
did not know of any. How is it that Deputy Secretary Jackson as 
chairman of Amtrak's Audit Committee did not know that 
adjustments would need to be made to the tune of hundreds of 
millions of dollars?
    Mr. Rutter. Part of that was that the auditors at that time 
had not come to us with some of those estimates of how they 
were going to be adjusting those books. We did not have that 
information in front of us. Nor were we told that it looked 
like those adjustments would be forthcoming.
    Ms. McLean. Excuse me. May I also add that the Audit 
Committee was established just a couple months ago, so at the 
time the Deputy Secretary was not the chairman at the time.
    Senator Murray. My understanding is he was chairman of the 
Audit Committee. When he spoke to us 4 months ago he was 
chairman of the Audit Committee.
    Ms. McLean. Well, we can verify that, but it was just 
recently established.
    Senator Murray. He was on the finance committee, that is 
correct.
    Mr. Gunn, can you describe the condition of Amtrak's 
financial controls and the status of its books when you took 
control as president of Amtrak a few weeks ago?
    Mr. Gunn. Well, clearly there is a problem when you have 
that big a swing. What the board was told in the fall was the 
unaudited number for 2001 and then the actual comes in almost 
$200 million to the worse. That is a pretty significant change.
    I think the other--so that is the problem. But the 
situation that I think is most disturbing is that internally---
internally, the budget process was basically ineffective. In 
other words, the operating departments could not use it as a 
control mechanism. So you had a budget process which, first of 
all, was late. I do not think they actually distributed the 
budget until after the first of the calendar year.
    But it tended to be numbers that were not based on a 
realistic assessment of expenses. Then the reporting was not 
useful to the people in the field. In other words, they could 
not rely on it and on the reports for controlling their 
expenses. It was not based upon, as I would hope we do in the 
next fiscal year, a set of authorized positions. The bulk of 
our expenses are labor or labor-related and what you want to do 
is have a very clear control over the number of positions that 
you have in each of your activity centers. The budget was not 
built on that.
    So to me it was not an effective control mechanism and 
clearly the information the board got changed. I think that, 
given what the board received, that I can understand why the 
Deputy Secretary said what he said.
    Senator Murray. Mr. Mead testified this afternoon that 
Amtrak's total outstanding debt has skyrocketed over the last 4 
years. Four months ago I asked Deputy Secretary Jackson whether 
additional debt was in the long-term distant financial interest 
of Amtrak or the taxpayers that support it and he answered me 
with the following quote:
    ``No, I do not. When you combine the principal and debt 
payments, you are close to $300 million, and when you stop and 
think about the $521 million which is their subsidy you have 
over half of the subsidy going to debt and interest payments. 
When we take on additional debt, of course that just increases 
that trend line and there is an unsustainable situation.''
    Mr. Rutter, if that is the view of the Administration why 
are you currently contemplating saddling Amtrak with additional 
debt just to get them through this fiscal year?
    Mr. Rutter. We are contemplating that because they have 
asked us to.
    Senator Murray. What is the other option?
    Mr. Rutter. One of the problems that we face, and frankly 
it is similar to what we faced last summer, is that those 
requests have come at the last minute, with little or no other 
alternatives to do, and do not give us really a whole lot of 
flexibility to consider other options that either we or you the 
Congress can deal with.
    In the spring, in March when Secretary Jackson said that, 
it was less than a month after the board of directors had made 
some fairly dramatic decisions on meeting the financial needs 
of the corporation within its means. As Mr. Gunn has explained, 
systems do not seem to have been in place to have accomplished 
those goals. But it was under our expectations and the 
directive that had been given to the company to accomplish that 
that we were hoping and had been moving toward not having to be 
right here right now with the same situation.
    Senator Murray. Mr. Mead, in his testimony, pointed out 
that a loan guarantee may not be workable for Amtrak and this 
morning Secretary Mineta stated that if a loan guarantee cannot 
be made to work there are, and I quote from him, ``other 
schemes available to tide them over.''
    Ms. McLean, can you describe in detail some of the other 
schemes that are being contemplated and how they might work?
    Ms. McLean. Well, right now we are just focusing on the 
RRIF loan application because of the immediacy of the issue. 
Amtrak just, as you said, just gave it to us Monday night and 
they are asking us to review it and give an answer as quickly 
as next week to be able to solve that. As soon as we understand 
if there is a problem with this loan, we will immediately start 
turning to other options.
    Senator Murray. Let me ask you a very simple and direct 
question, and I really want a simple and direct answer. If you 
cannot grant a loan guarantee to Amtrak and you do not come up 
with any other scheme by next week to extend Amtrak's life, 
will you ask this Committee to provide a supplemental 
appropriation for Amtrak?
    Ms. McLean. What we have said in the testimony and what the 
Secretary also said this morning was that we are willing to 
entertain additional funds for Amtrak if they are combined with 
reforms as outlined in the Secretary's statement.
    Senator Murray. Right now the cornerstone of the House and 
Senate-passed supplemental appropriations bill is additional 
funding for terrorism and homeland defense. Is it possible that 
the Administration might ask us to reduce supplemental funding 
for homeland defense in order to boost supplemental funding for 
Amtrak?
    Ms. McLean. I cannot take a position on that right now, but 
I do know that any additional funding for Amtrak would have to 
be combined with changes in the way that we manage passenger 
rail service right now, again as outlined by the Secretary this 
morning.
    Senator Murray. My time is up for the moment. I will turn 
to Senator Hutchison for questions.
    Senator Hutchison. Thank you, Madam Chairman. You actually 
asked the questions--the end of your questions were the ones in 
which I was interested. That is, when Secretary Mineta said, we 
are going to do everything possible to keep Amtrak running, I 
just wondered what the options are besides a loan guarantee.
    What would you say the options are if there is no loan 
guarantee, Mr. Rutter?
    Mr. Rutter. Well, what is in front of us right now is a 
specific--an application under a specific program that Congress 
has given my agency instructions on how that works. We are 
frantically working to make sure that what has been requested 
meets the statutory guidelines and instructions that we have 
been given to see whether we can make that decision.
    Should there be a determination--we are looking as hard as 
we can to see whether we have the ability to make that happen. 
Congress has the ability to decide on its own to make that loan 
guarantee and instruct us to do it should that be an option. 
And of course, there is the possibility of direct supplemental 
appropriations.
    The former two options of guaranteeing access to private 
lines of capital involve less effect on the Federal treasury. 
But it is our hope that as we address this we do so in the 
context of trying to make some concrete actions to change the 
circumstances under which this seems to keep happening over and 
over again.
    Senator Hutchison. Would you say it is this 
Administration's position that Amtrak is one system, as opposed 
to a Northeast Corridor and the rest of the system?
    Mr. Rutter. The proposal that the Secretary made this 
morning and that is the Administration's long-term vision 
envisions a national passenger rail policy. In it, it talks 
about some of the specific issues to the corridor itself 
because that is the only part of actual infrastructure and real 
estate that Amtrak owns. In the rest of the country they 
operate on infrastructure owned by private freight railroad 
companies.
    Because of the specific difficult circumstances about what 
the corridor does, who it does it for--it is not just Amtrak; 
about 80 percent of its capacity is used by commuter railroads 
as well--it poses certain specific difficult problems that we 
think need to be addressed because it is the only place that 
Amtrak owns that track. However, it is our intention that our 
policies are designed to provide a framework for passenger rail 
to take place throughout the country. As a matter of fact, 
there are many States that are supporting passenger rail being 
run by Amtrak, and it is that model of Federal-State 
partnerships that we would like to see going on in other States 
as well.
    Senator Hutchison. You think the Administration would 
support a national system that has a Federal component with an 
equitable distribution of State help or State matching in 
funds. But you cannot have a national system if one State 
options, the next State opts out, and then the next State opts 
in, unless you are willing to accept that there is a national 
role or a national system.
    So do you think that the Administration would contemplate 
that, if there were a reform package--and I think no one argue 
that there should not be reform. But say a reform package was 
put together that has a national system with Federal money, 
with State subsidies as well in some sort of equitable manner. 
Do you think that the Administration would support a system 
like that?
    Mr. Rutter. That is certainly an end state that we would 
like to see happen, which is circumstances under which all 
States are making--are being asked to make the same kinds of 
decisions and a situation in which the Federal Government 
commits to an ongoing partnership role in providing capital 
Federal in partnership with the States. We would hope that it 
would migrate to a national system where routes are being 
provided where they make some financial sense or where States 
have chosen that those routes meet important transportation 
needs of their places.
    Certainly the kind of issues of making sure that we can do 
that with bringing all kinds of different States to the table 
at the same time is going to take some effort and some thought. 
But it is our vision that that end state be a place where the 
Federal Government commits to an ongoing capital funding role 
and where States are involved, not only in some financial 
participation, but in making operational decisions about where 
passenger rail service makes sense in the context of statewide 
transportation planning.
    Senator Hutchison. But with a Federal component as well?
    Mr. Rutter. Well, the Administration has talked about 
limiting operating subsidies per route, but it is clear that a 
Federal role in providing financial capital assistance is going 
to be an important part of making this work.
    Senator Hutchison. Mr. Gunn, what would be your vision for 
an Amtrak system that could work as a national system?
    Mr. Gunn. Well, my view is that you need a management 
company to manage rail passenger services, and right now that 
is Amtrak. If you want to change the name, you could do that. 
But by any other name, it will still be Amtrak.
    The reason I say that is that rail passenger service in 
this country, is small. It is a small market for equipment and 
for facilities and power supply and so forth. If you fragment 
it, the odds of being able to actually manage and run a 
passenger rail network I think will be--the ability to do that 
will be lost. We have the technical expertise to run an 
electric railroad. No one else has that, at least a main line 
passenger railroad. We are the only ones that have it. We 
should have the expertise in cars and locomotives and so forth.
    So what I get when I look at the talk of disassembling 
Amtrak, I think what you are really doing is setting passenger 
rail back significantly. You are destroying the technical 
expertise. I believe that--I agree that there should be 
standards for all of our service and there should be equitable 
sharing arrangements between the various governmental bodies. 
In other words, one State should not get a better deal than 
another. There should be equity and I agree with that.
    But I also believe that there has to be for a lot of these 
national system routes, to be a Federal--the Federal Government 
has to take a lead because--I think Senator Byrd said it--that 
what do you do when West Virginia wants something and Virginia 
does not? Just stop the train at the border? And that you have 
to treat it like the interstate highway system.
    I have really strong reservations about, if I may just 
elaborate a little bit, about a couple of other proposals. One 
is that when you look at the current proposal that has been put 
forward by DOT, the idea that you can privatize the service I 
think is not realistic. Everybody knows that trying to push us 
to self-sufficiency was a bad idea. In fact, I know the FRA 
Administrator said that in his testimony this spring. Secretary 
Mineta said it again today. Well, if that is a bad idea, how 
can you privatize it? It is not a profitable business.
    The other thing I feel very strongly about is the idea that 
you can separate the infrastructure from the operation. There 
is a perfect model for this if you want to see how it works. It 
has already been done, and it is in Britain. Great Britain has 
done this through Rail Track. Now, whether or not you sell the 
asset or not does not make any difference. In Britain they sold 
the right of way to a private company. Here I believe the 
proposal is to maintain controls, title to the asset, but have 
a private company operate it.
    When you separate the infrastructure from the operation, 
you have a really serious problem, I think. First of all, you 
have conflicts in the goals of the two companies. The 
infrastructure company I assume is going to be a profit 
making--or I assume it is going to be a profit making or I 
assume it is a company that is going to be a profit making or a 
cost avoidance company at some point. So you will have a basic 
conflict between the way they will want to do maintenance and 
what is required to run good passenger service; i.e., do you do 
the maintenance at night or during the day? You need an 
operator who can make the decisions and control those 
decisions.
    I think the other issue is capacity in the corridor. You 
need someone who has--what kind of a corridor do you want? Do 
you want to handle freight trains, coal trains, commuter 
trains, and Amtrak? Or do you want to just handle high-speed? 
You need someone who has a foot in both camps, operation and 
maintenance to make the decisions on that.
    The last thing that I think is most important, and this is 
where the British experience should be taken very seriously, is 
the whole issue of safety. In Britain they have literally had 
trains fall over, roll over and fall on top of the welded rail 
that was supposed to be put in to replace the bad rail. They 
have killed people as a result of the basic incompetence of the 
Rail Track management system. I will not accuse individuals, 
but the system.
    What they did was they privatized everything. They 
destroyed the railroad management structure, the technical 
structure to run the track, the track inspection people and the 
engineering forces that oversee the rights of way. They 
contracted that all out. What has happened is you have people 
trying to do jobs they do not fully understand and as a result 
their national rail network has deteriorated significantly 
since they have gone to this model and, amazingly enough, it 
costs more than it did when British Rail ran it.
    So my view of a national rail network is one where we have 
standards, cost standards that we have to meet, we have 
equitable arrangements for sharing costs, capital and 
operating, that everybody agrees to, States and the Federal 
Government and so forth. But I think that the Federal 
Government has to provide funding to that. And I think it 
should be run by a corporation that is well run and managed as 
an efficient management company, and it should not be broken 
up.
    Senator Hutchison. Thank you, Madam Chairman.
    Senator Murray. Senator Durbin.
    Senator Durbin. Thank you, Madam Chair.
    Mr. Gunn, thank you for that, because I was visiting 
England during the worst of this.
    Mr. Gunn. It was awful.
    Senator Durbin. It was terrible. It was a national 
disaster.
    Mr. Gunn. It still is.
    Senator Durbin. This Margaret Thatcher model which 
apparently has now been embraced by this administration to some 
extent failed, and it is amazing that we would make the same 
mistake again and jeopardize the basic service we have and 
safety of the system that currently exists.
    I want to make it clear, Mr. Gunn, for the record. If you 
do not receive the loan, the $200 million loan, by June 30, I 
think is the date that you have given, what will happen at 
Amtrak?
    Mr. Gunn. Well, actually the time is even more critical. 
Basically, if we do not have this issue resolved by the middle 
of next week I think we are out of time. I think at that point 
we begin the process of shutting down, because what happens--in 
order to shut down the system--and we have put together the 
plan to do it. We know where we are going to store the cars and 
the locomotives and so forth. What we have to do is we have to, 
obviously, stop accepting passengers and we have to move all 
the equipment to central storage locations.
    Senator Durbin. Would this be systemwide?
    Mr. Gunn. Systemwide.
    Senator Durbin. All Amtrak service would come to----
    Mr. Gunn. All Amtrak service would stop. But the reason we 
need to do it before we actually spend the last penny is that 
when we cease operations we have to have funds in the bank to 
provide for the collection of the equipment, storage of the 
equipment, and arrange for some security, at least for a couple 
of months, so that the equipment will not be vandalized. We 
also have to do things like keep the catenary energized, 
because if we do not it will disappear, it will be stolen.
    There is a series of things that we have to do. So we need 
about $40 to $50 million expense just to close down. But I 
cannot stress--the urgency of this is enormous. We are very 
near the point of no return.
    Senator Durbin. Have you considered alerting the governors 
of the States that are served by Amtrak of this possibility?
    Mr. Gunn. Well, we have been pretty vocal about it in the 
media and we have been on television. We have been saying it to 
anybody that will listen.
    Senator Durbin. I have to tell you, there have been so many 
stories about Amtrak's demise that if this is a serious and 
real possibility I think we owe it to the governors across 
America to prepare for the travel disaster that will result, 
particularly in the Northeast Corridor, in my State of 
Illinois, and others.
    Mr. Gunn. Yes, sir.
    Senator Durbin. Have you done that?
    Mr. Gunn. No. We have gone to the agencies where we 
operate, like in California for example, and our Illinois 
people have talked to the people that they work with. But 
specifically to the governors, no.
    Senator Durbin. I would, unless something happens 
immediately, I would suggest before the end of this week that 
notice be given, because there will have to be contingency 
plans considered by families and businesses and governors and 
others.
    Mr. Rutter, Ms. McLean, I am not clear as to where the 
Administration is about this looming disaster. Have you said 
that you are conditioning the interim financing and the loan to 
keep Amtrak running on some kind of reform proposal? Is that 
what you said, Ms. McLean?
    Ms. McLean. We are looking at the RRIF application that 
Amtrak has provided us, just simply to see if it complies with 
the law. So we have not completed our review of whether or not 
the application actually can be honored under the legislation.
    Senator Durbin. Can you give this Committee and the people 
who are following this the assurance that the money will be 
forthcoming from the Bush Administration so that Amtrak does 
not have to cease operations next week?
    Ms. McLean. I can tell you that we are doing everything we 
can to look at the application and see if it can be approved 
under this program. I cannot at this time say that it will be 
approved, but we are doing the best we can to be able to look 
at it and review it and hopefully get this approved.
    Senator Durbin. Do you understand the gravity of ceasing 
Amtrak operations?
    Ms. McLean. I certainly do.
    Senator Durbin. The impact it will have on this Nation.
    So how soon will you be able to tell us yes or no whether 
or not you are going to approve this application for short-term 
financing at Amtrak?
    Ms. McLean. We are right now I think looking at early next 
week. Next week. I do not know, Allan, if you want to.
    Mr. Rutter. Well, certainly, as Mr. Gunn has said, we need 
to be able to make some decisions by mid-next week. They also 
need to be able to have conversations with the banks that make 
up the line of credit earlier than that. We are stretching 
every possible resource to get to a decision point on whether 
we have the capacity, the capability, the authority to do what 
it is that we have been asked to do.
    Senator Durbin. If I understand what Mr. Gunn has said, 
that is that by the middle of next week he will have to shut 
down operations, the best you can tell me is that by early next 
week you will tell him whether the Government is going to make 
that happen. That really is cutting it thin, cutting it very 
close.
    Mr. Rutter. Yes, sir.
    Senator Murray. If the Senator will yield, let me just 
follow up on that. If I understand you correctly now, you are 
going to know by the first of next week whether or not the loan 
guarantee will work. If your answer is no, is the President 
going to be willing to ask us to put the money into the 
supplemental in order to keep Amtrak running or not?
    Ms. McLean. I think we have not gotten to that decision 
point yet, so I cannot answer that today. But I understand the 
immediacy.
    Senator Murray. We do not have much time on that and I am 
very concerned because, in response to my question and Senator 
Durbin's, we are hearing that if we ask for money in a 
supplemental that you want some kind of reform. We have not 
seen your legislation. We have heard of a speech to a Chamber 
of Commerce. But if you are expecting to request supplementals 
if this loan guarantee does not work out somehow and you want 
us to put reforms and $200 million into a supplemental on 
legislation you have not written, Amtrak is going to shut down. 
I think Senator Durbin just expressed his concern over that.
    Senator Durbin. Frankly, I think it will be too late, 
Chairman Murray. Honestly, we cannot get a supplemental out of 
here in time to give Mr. Gunn the resources to keep Amtrak 
running. He made it clear that he has no choice. If the money 
is not there by the end of the month, he has to start taking 
action in the middle of the next week. This is a doomsday 
scenario and I cannot understand why the Administration would 
let it reach this point.
    Ms. McLean. Sir, the application was given to us Monday 
night and our employees have been working practically night and 
day poring through this extremely thick application. So we are 
definitely committed to looking at this and taking this 
seriously, and we completely understand the immediacy of this, 
the importance of this review, and we are certainly not taking 
this lightly.
    Senator Durbin. Do you believe it is advisable to inform 
the governors across America in States served by Amtrak to 
prepare for the possibility that Amtrak will cease service next 
week?
    Ms. McLean. I think I would take Mr. Gunn's lead on that.
    Senator Durbin. Let me just ask you, if I can understand--
Mr. Gunn, we are facing this scenario which, sadly, could mean 
the termination of Amtrak service by the middle of next week 
across America. I am going to ask you--I only have a minute or 
2 left here--can you envision a system with some Federal 
assistance that would allow Amtrak to have a long-term future 
in this country? If so, what would be the level of Federal 
assistance which would be necessary?
    Mr. Gunn. The answer to that is yes, I can envision a 
system, with some Federal assistance. The question is how big 
and how--is it the existing system and the existing level of 
service, at existing speeds and so forth? At that point you are 
looking at numbers which will not--that would probably be I 
would just be guessing, but it is like a billion to $2 billion, 
$2 billion, in that range.
    Senator Durbin. Annual?
    Mr. Gunn. Yes. But I am just guessing at this point. I 
think we can help ourselves a lot in the coming budget year, if 
we make it, and make ourselves a little more efficient. There 
will be a number of initiatives that Amtrak has historically 
undertaken in the developmental areas throughout the country 
that will stop because we will not be able to afford them. But 
the existing system can be maintained, with some Federal help, 
for I think a fairly reasonable amount of money.
    Senator Durbin. Let me just close because my time is up and 
say that, first, I cannot understand how we have reached this 
point with this looming travel disaster facing our country. I 
cannot imagine what my friend from Pennsylvania is going to 
face with this news hitting the street.
    Senator Specter. I will take the plane to Chicago.
    Senator Durbin. We will welcome you, but we need Amtrak, 
too.
    But it is hard to believe that, after all of these months 
and all of this discussion about the future of Amtrak, we are 
literally coming down to a matter of hours as to whether or not 
Amtrak is going to shut down service in America. How did it 
ever get to this point?
    I think what we need to have is clearly some leadership at 
all levels, in the White House and Congress, to avoid this 
disaster. I happen to believe, as Mr. Gunn has said, the 
Margaret Thatcher model failed in England. Let us not try it 
here. Let us try to do something that has a sensible approach 
toward giving Amtrak a long-term future.
    Thank you, Madam Chair.
    Senator Murray. Thank you, Senator.
    I am going to turn the hearing to Senator Specter for his 
questions. A vote has been called and, Senator Specter, if you 
do not mind I am going to let you go ahead and ask your 
questions. I will go over and vote. If I am not back by the 
time you finish, we will take a short recess and I will resume 
as soon as I return. But I will just vote and come right back.
    Senator Specter [presiding]. Well, thank you very much.
    Mr. Rutter, does the Department of Transportation have a 
contingency plan for transportation in America if Amtrak shuts 
down?
    Mr. Rutter. We are doing everything we can right now to 
make sure that that does not happen. That is what is occupying 
all of our time, which is to make sure----
    Senator Specter. Is the answer to my question no?
    Mr. Rutter. The answer would be no because we are focused 
on making sure that the current services are maintained.
    Senator Specter. Well, Mr. Rutter, I think it is fine if 
the current services are maintained. In fact, beyond saying it 
is fine, I think it is indispensable. But if it does happen 
there has to be some plan to take effect. If there is any 
chance at all that it can happen, if you are as pure as Ivory 
snow, 99.44 leaves it a little over half a percent. If that 
happens, what is the plan?
    If the United States Department of Transportation does not 
have an alternative plan, who is to come up with an alternative 
plan?
    Mr. Rutter. I think what we face is the decision that has 
been left to us and the way that it has been posed to us, which 
is we have been asked in the span of less than a week to decide 
whether we have the ability and authority to keep Amtrak in 
existence. We did not expect to be given that choice or that 
demand in the way that it has come to us. Rather than devote 
our resources to determining what might happen, we are trying 
to do everything we can to preserve and to find ways of keeping 
Amtrak in existence, because that is what we are committed to.
    Senator Specter. Well, in the absence of an alternative 
plan by the United States Department of Transportation to keep 
transportation available, you are really posing a situation 
where you have no alternative but to find the money for Amtrak. 
I can tell you from personal experience, I ride Amtrak every 
week and those Amtrak trains are full. You are going to have a 
gigantic number of people who travel from Boston to Washington, 
which is only one small part of Amtrak.
    Mr. Gunn, once you shut down how complicated is it to start 
up again mechanically? You are going to have loss of confidence 
by a lot of passengers once it is unknown when you get to 30th 
Street Station in Philadelphia whether you are going to get to 
Washington or not. People are going to lose confidence. But 
mechanically, do you start up again very easily?
    Mr. Gunn. If we shut down, what would happen is we would be 
in bankruptcy. So we would go into bankruptcy and we would be 
under the protection of a court and a trustee. Unlike normal 
railroad bankruptcies, the way the Bankruptcy Act works, a 
railroad, it is assumed there is a positive cash flow. So the 
bankruptcy protects the railroad from its creditors, removes 
the debt and allows them to reorganize and move forward.
    In our case, there is not a positive cash flow. What would 
happen is if we shut down you would be faced with this same 
problem. In other words, is there money to resume operations? 
So you would have to get over that hurdle.
    Then the next thing is----
    Senator Specter. Well, how would you get over the hurdle? 
Borrow the money from the bankruptcy judge?
    Mr. Gunn. Once you are in bankruptcy----
    Senator Specter. I know their salaries. I know the Federal 
judges' salaries. They are the same as members of the Senate. I 
want you to know now that you will not be able to borrow money 
from the bankruptcy judge.
    Mr. Gunn. No, no, we know that. What I am saying is there 
will be, the fiscal problem will still be there, but it will be 
in the hands of a trustee.
    In terms of the practical effect of opening up, it depends 
how long you have been shut down. It will take days in any 
event. But if you are shut down for an extended period of time, 
2 weeks, 3 weeks, you begin to run into some serious problems.
    Senator Specter. Have you started to run the complexities 
of shutting down with the bankruptcy court and advice of 
counsel as to what will happen and how long it will take you to 
get the wheels in motion before they are rusted shut, which is 
what I cautioned Stockman about in 1981?
    Mr. Gunn. We have done the part about shutting down. That 
was the first step because we had to know how we would handle 
that. Today we started discussions among ourselves of how we 
can preserve the remnants of a management structure and a 
workforce that has the technical skills to run the railroad.
    As I say, the longer you are out of business the longer it 
takes to get it back. But it is days, because if the railroad 
is shut down you have to go through a whole inspection process 
before you can reopen it. And it will be very expensive. This 
will cost you--there will be millions of dollars spent moving 
equipment around and placing it and storing it and preparing it 
for----
    Senator Specter. Do you have a guesstimate about how much 
extra it will cost----
    Mr. Gunn. Forty----
    Senator Specter. Excuse me, let me finish the question--to 
shut down and then restart?
    Mr. Gunn. Not to restart, but I can tell you it will cost 
us $40 to $50 million to shut down.
    Senator Specter. But then if you restart, then what are 
those costs?
    Mr. Gunn. Well, we do not have an estimate of that, 
Senator. What we know it will be significant, because your 
point is valid about the passenger loads will be reduced 
because people will have found alternative modes and methods of 
getting around.
    Senator Specter. Well, Mr. Gunn, if you get this funding 
one way or another, how long will it be before you are back 
again with another emergency request?
    Mr. Gunn. Well, the next request for funding would be for 
fiscal 2003, which starts, as you know, in the fall. The 
request that was made, that the Amtrak board made, was $1.2 
billion. Now, if we borrow $200 million to get through the rest 
of this fiscal year, that leaves us $1 billion for next year.
    Senator Specter. Is $1.2 billion the calculation for your 
operating losses for the year?
    Mr. Gunn. No, I do not know how they made the calculation. 
I cannot--but I can get that for you. But I have not focused on 
that yet. But that is the number that they have requested, and 
I would say it could be characterized as the minimal amount we 
need to survive.
    But the problem we have is that $200 million of that will 
go to pay for the deficit in 2002. In other words, there will 
not be $1.2 billion----
    Senator Specter. You do not need any other words. I 
understand.
    At one point there is going to have to be a calculation as 
to whether you can survive on what Congress is willing to give 
you.
    Mr. Gunn. That is right.
    Senator Specter. If we are looking at $1.2 billion on 
operating losses each year----
    Mr. Gunn. And capital.
    Senator Specter. Capital expenses as well as operating?
    Mr. Gunn. That is the total amount for next year.
    Senator Specter. Well, at what point do you start to 
project efficiencies? Have you made a determination as to what 
efficiencies you can put into effect in the short term so that 
when you go to the Department of Transportation and urge them 
to make this loan to you, you say to them, if you do make this 
loan--Ms. McLean talks about reforms within the system, and it 
is no surprise to you that the Department of Transportation 
would talk about reforms. I am sure you have thought about 
that.
    Do you have a plan for efficiencies, a word you use, and 
reforms to cut down your losses so that you can say to the 
Department of Transportation or to the Congress next year it 
will not be $1.2 billion, but it will be some other figure 
significantly reduced?
    Mr. Gunn. Oh, I do not think it will be significantly 
reduced. My challenge will be to produce a budget for fiscal 
year 2003 that fits within the $1.2 billion.
    Senator Specter. For the next year are there ideas you have 
which can produce that?
    Mr. Gunn. Yes--well, not to reduce the $1.2 billion. What I 
have to do is put together a budget, both capital and 
operating, that is clearly based upon the minimal amount of 
resources we need to run the company and try to get it back to 
the state of good repair in the case of cars and track and 
catenary.
    It is clear that in starting to put the budget together, 
what I mentioned about streamlining the organization, that we 
had the ability to reduce a few hundred, hundreds, of 
management jobs and there is probably some represented jobs.
    Senator Specter. How about some of the lesserly traveled 
routes?
    Mr. Gunn. Well, I think our position, my position, is that 
we have a system, that there is a national system, and if I 
were to start cutting routes it would have very little impact; 
the way the labor protection laws work, there would be very 
little impact on next year's budget and it would create an 
enormous storm around our capability of getting funding.
    In other words, the political reality of Amtrak is that 
they have tried--every time they try to eliminate routes, they 
ended up with an enormous firestorm, political firestorm. I 
think my time is best spent at this point in trying to improve 
the efficiency of the operation for the existing system and 
that is what I have set out as my own goal.
    I think I can make a difference in terms of the efficiency 
of the operation. I think we will see an improvement. I think 
what we will end up with is we will be lucky if we can fit 
within the $1.2 billion, which is actually $1 billion for next 
year, given the capital deferrals and the maintenance deferrals 
that we have had.
    But I cannot--at this point I cannot even tell you what our 
budget will look like. I know we will have a lot fewer 
administrative people in it because we are going through that 
exercise right now.
    Senator Specter. Well Madam Chairwoman, I have held the 
fort until your return. My recommendation at this point is to 
ask only the indispensable questions so these folks can go back 
to work and find a way to keep the railroads running. Thank 
you.
    Senator Murray. Thank you, Senator Specter.
    Mr. Rutter, I understand while I was gone that you said DOT 
did not expect to be faced with such an urgent decision on 
whether Amtrak should survive. I just have to ask, how is that 
possible when Deputy Secretary Mr. Jackson has participated in 
every board meeting and every board conference call? I do not 
understand how that can be a surprise to this Administration.
    Mr. Rutter. It was only when Mr. Gunn took office that we 
were given financial projections that showed that the company 
was clearly not going to meet the task that had been set before 
them by the board. That kind of reporting had not been there 
before. So we were just as surprised as the other board 
members, and that is really distressing.
    Had we been given information about this circumstance even 
a matter of weeks before we had been told about it, then we 
would have the ability to examine any number of possible 
options to consider how to gain access to that line of credit 
that Amtrak now says it has to have. But we are not there. We 
are where we are, and where we are is, based on what we know 
about how important Amtrak's service is and the consequences of 
not having that service, we are working as hard as we can to 
evaluate the application that has been put before us.
    Senator Murray. Mr. Mead, should they have been surprised 
by this?
    Mr. Mead. Part of the story here--I do not think there has 
been a full exposition of the story on this. You will recall 
last year, we testified on the Penn Station mortgage. The 
Secretary joined the board and Amtrak left the clear impression 
that things were okay for Amtrak, that they were proceeding on 
the glidepath. Then not long thereafter it was announced that 
the railroad needed to mortgage Penn Station and the United 
States needed to subordinate its interest in Penn Station so 
they could get a loan that was secured.
    This time around, the difference is--what is not a surprise 
is the amount of the money. That should not be--nobody should 
say they are surprised by that.
    Senator Murray. The $200 million?
    Mr. Mead. Yes, which is the amount needed to bridge them 
over until the new fiscal year.
    What is the surprise is the loss of access to the credit 
markets, their unsecured line of credit. Tied up with that is 
the fact that under the covenants for their line of credit is a 
provision that by the end of the first quarter of a new fiscal 
year Amtrak have an audited set of financial books. They did 
not. Therefore, Amtrak itself was in technical breach of the 
covenants.
    KPMG, their auditor, had not completed its audit by the end 
of the first quarter. There are two issues there. One of them 
has come out here today. It was the condition of the books, but 
now they have a set of--financial statements, which is good.
    The other issue, though, that has been dragging on is what 
is known as a going concern opinion. An auditor is supposed to 
be able to, when they render an opinion, opine on whether the 
concern being audited will be around, will make, it to the end 
of the fiscal year. In this case it has been only recently that 
it has become very clear that that line of credit is gone. The 
auditor in fact asked Amtrak to get letters from its lenders 
representing that they would provide the line of credit. They 
were not able to get the representation from the lenders, and 
that has precipitated this current situation.
    Senator Murray. We are here and we are $200 million short 
and we are considering a supplemental. If this Administration 
wants to make sure Amtrak keeps running, I assume we will 
either have a loan guarantee or a supplemental request by the 
middle of next week so that we can work with you to assure that 
Amtrak does not stop the trains. Is that correct?
    Mr. Rutter? Ms. McLean?
    I don't believe Mr. Mead said this I believe it was Mr. 
Rutter. I think we will certainly be discussing this with you 
all, with Congress, because this has got to be a joint effort.
    I am going to turn to the long-term. We are going to run 
out of time fairly quickly, but there was a speech to a Chamber 
of Commerce this morning about long-term and we have heard word 
about reforms that need to be put in place and I want to walk 
through some of that. If the Administration is going to insist 
that reforms be part of a supplemental request, I think we 
better have some questions answered very quickly.
    Mr. Rutter, I want to start with you. The recent economic 
downturn has really worked a huge hardship on the Federal 
budget, and the problem is even more pronounced out in our 
States, where 40 States are currently trying to find ways to 
close their own budget shortfall. Estimates are nearly $40 
billion for the States that are short.
    I know in my State we are cutting everything from health 
insurance programs for kids to basic education, and States are 
laying off tens of thousands of employees as well. So given 
that situation, how does this Administration decide that now is 
the appropriate time to pass on a large portion of Amtrak's 
costs to the States?
    Mr. Rutter. What we have talked about as being a more 
sustainable long-term model of providing passenger rail is one 
that involves both States and the Federal Government. A lot of 
what has been--particularly if you look at descriptions or 
positions on providing enhancements to passenger rail service, 
most of those enhancements assume a 100 percent Federal role in 
providing the costs of that. We do not do that in any other 
mode of transportation. We think that decisions on whether to 
increase speeds, frequencies, the actual quality of service, 
should be made by the States and the Federal Government 
together, not solely on the part of the Federal Government.
    We understand, however, and part and parcel of what we have 
outlined this morning and will continue to discuss with members 
of this Committee and all other stakeholders involved is an 
admission that what we have talked about, it is going to take 
some time to get there. As you have mentioned, not only are 
States facing those kinds of financial difficulties, but many 
of those States have a myriad of financial schedules. Not 
everybody has the same fiscal year, not everybody has the same 
legislative schedules.
    We certainly do not envision walking up tomorrow and 
telling everybody that the rules of the game have changed and 
by next week things are going to be different. What we are 
saying is that we need to work toward a situation where what we 
have now is not what we have in the future. Part of that is 
encouraging other States to make the same decisions that 
Washington, Oregon, California, North Carolina, Illinois, 
Pennsylvania, other States who have decided that passenger rail 
is an important part of their State transportation systems and 
that they are willing to invest in it.
    We want to see a model which provides more encouragement 
for States to make that kind of decision and that States who 
make that decision are not penalized by other States not making 
the choice.
    Senator Murray. Mr. Gunn, do you care to comment on States 
taking responsibility completely, as has been proposed?
    Mr. Rutter. Well, Madam, we have not talked about States 
taking responsibility completely for the passenger rail system. 
We have talked about that operating subsidies should be--the 
Federal Government should be weaned from those over time, but 
that the Federal Government should have a role in providing 
capital funding for that. So I beg your pardon, but I do not 
want to let our proposal be characterized as complete Federal 
abdication.
    Senator Murray. I have not seen the written proposal. I 
have just heard the statement this morning.
    Mr. Rutter. That is my fault for not giving it to you.
    Senator Murray. Mr. Gunn, do you care to comment on the 
States responsibility?
    Mr. Gunn. As I said earlier, I do not know if you were in 
the room, Senator. I think it is important to have the same 
ground rules for funding for States for Amtrak services across 
the Nation, so that you do not treat States differently. I 
think that we have right now, we have a number of States, as 
you know, that do pay for Amtrak services. I think that the 
ability of the States to--and most of those are, obviously, 
intrastate, which means they tend to be in the big States or 
regions, California and in the Northwest and New York State and 
so forth.
    I think that it is fine, the States should have a stake in 
the service. But I think on the capital side--you need to look 
at the numbers. In other words, you cannot argue the case 
unless you know the numbers. I think there has to be a proposal 
on the table. In transit, for example, there is a standard 80-
20 capital--at least there was when I was in the business--80-
20 funding arrangement, which it worked pretty well.
    But unless you know the numbers, you cannot comment. I also 
think that, in the case of the rail network, the Federal 
Government has to take the lead. They cannot sit there and just 
be treated as a transit system, because transit systems tend to 
be local and one State is involved, although Metro is a little 
different, whereas a passenger rail network tends to involve a 
lot of States. For example, the Northeast Corridor goes from 
Massachusetts down to Virginia, or down to the District, 
anyway.
    So I think that it is not analogous to transit. You need a 
heavier--you need a leadership role for the Federal Government, 
at least on some of these services. So I think they are right 
in saying that there should be rules to the game and there 
should be standards for the trains. The issue is what are the 
standards and what are the rules and how much money is going to 
be forthcoming, because this issue of capital--we have heard 
this, I have heard it, for years vis a vis Amtrak, that we will 
put in capital and take out operating funding. The operating 
funding was taken out; the capital did not show up in a lot of 
cases.
    Senator Murray. Mr. Rutter, I mentioned in my opening 
statement Deputy Secretary Jackson told us 4 months ago that 
your budget request for $521 million was a placeholder and that 
you would announce a different budget request once you laid out 
your long-term plan for Amtrak, which the Secretary did this 
morning. Am I correct that your budget request still has not 
changed one penny since your original request of $521 million?
    Ms. McLean. The request has not changed, but we are willing 
to entertain an increase in that budget if, again, if it is 
paired with reforms.
    Senator Murray. Is the Administration going to ask for 
that?
    Ms. McLean. We have not taken that or made that decision 
yet, but we can certainly consider it.
    Senator Murray. Well, I assume then your request is still 
$521 million?
    Ms. McLean. As we stated in the Secretary's statement and 
in Allan's testimony today, we are willing to increase it if we 
have additional reforms.
    Senator Murray. Well, Mr. Warrenton said that an 
appropriation of $521 million would put Amtrak into bankruptcy 
and Mr. Jackson did not contest him on that. I have to ask, Mr. 
Gunn, can you operate next year with an appropriation of $521 
million even if we enacted some of the reforms?
    Mr. Gunn. No.
    Senator Murray. Mr. Rutter, do you contest that view?
    Mr. Rutter. We recognize the shortcomings of $521 as a 
number. But it is our, it is the Administration's contention 
that, whatever that appropriation amount is--and I do not 
pretend to understand the situation that the Committee finds 
itself in in figuring out how they are going to fit $1.2 
billion into the allocations that you get from the full 
Committee. But if we are talking about doubling what was 
appropriated last year, and since we find ourselves in the 
situation we find ourselves in now, we want to make sure that 
that kind of increase is accompanied by measures that lead us 
both into a situation where this company, this organization, 
does not keep coming back to us with: We have run out, we have 
not controlled our expenses, we have not made changes. That is 
not what we are interested in.
    But we are and are willing to talk with this committee and 
with the House about a different number, but it has to be 
accompanied by a difference in how Amtrak does its business.
    Senator Murray. In the reform policy that Secretary Mineta 
outlined this morning, it is clear that you intend to treat 
trains along the Northeast Corridor very different from the 
trains around the rest of the Nation. It appears to me that you 
want States to pick up the costs of the Northeast Corridor 
trains over a very long transition period and for all the other 
trains you want States to pick up those costs right away.
    For the last 10 years, taxpayers all over this country have 
invested billions of dollars in capital investments for the 
Northeast Corridor and its new Acela train service and at the 
same time Amtrak has spent comparatively nothing on capital 
improvements around the rest of the country. Why do you now 
want to put lesser requirements on the Northeast Corridor 
States than all the other States around the country?
    Mr. Rutter. Well, part of our plan is not to impose 
additional burdens on States immediately, but that we share 
your assessment that what happens in the Northeast Corridor 
should necessarily involve the cooperation and participation of 
those States that benefit from it, particularly given that 
Amtrak itself, while expected to fully fund and maintain all of 
that infrastructure, it is a minority user of that capacity.
    We think that a more sustainable model in the long-term 
should involve all the participants, all the users, to share in 
those costs. But we do not pretend that that is going to be 
easy. To the extent that we talk about the need for making that 
a deliberative process is because it is going to involve so 
many different States, so many different legislatures. But we 
do believe that that decision needs to be made on how to create 
a sustainable public entity that controls and manages and 
builds that infrastructure.
    It should not be the sole responsibility of the Federal 
Government, whose moneys come from all the rest of the country.
    Senator Murray. Mr. Gunn, during our hearing 4 months ago 
with your predecessor, Mr. Warrenton, I took exception with his 
concept that if Amtrak receives less than $1.2 billion next 
year that your long distance trains outside the corridor might 
be terminated while the Northeast Corridor trains will continue 
to operate. Do you subscribe to the view that you can phase 
down the railroad and just operate the Northeast Corridor 
trains next year?
    Mr. Gunn. No, I do not. Just mathematically, forget whether 
you agree or disagree with keeping the long distance trains, 
you cannot cut Amtrak to health. In other words, you cannot 
make the corridor a viable corporation by cutting off the long 
distance trains. For a variety of reasons, it will not work. I 
do not subscribe to it.
    Senator Murray. Do you think it is possible to transition 
the cost of the long distance trains to the States as early as 
October?
    Mr. Gunn. By October this year?
    Senator Murray. Yes.
    Mr. Gunn. No, absolutely not.
    Senator Murray. I will turn to Senator Kohl for his 
questions.
    Senator Kohl. I thank you, Madam Chair.
    This is an important and a timely hearing on the future of 
Amtrak. We have all read about Amtrak's recent announcement 
calling for an immediate infusion of $200 million to keep the 
system running. I am hopeful that Amtrak can find a way to 
secure those funds in order to prevent layoffs and route 
eliminations.
    As we look to the future, I am sure you would agree we need 
long-term solutions, a business plan that will provide national 
passenger rail service that is viable for many years to come. 
But just as importantly, we need to hear from Amtrak what its 
plans are and how those plans will turn things around.
    Our Nation's transportation system, including transit and 
aviation, cannot be complete, I think we all agree, without a 
good rail component. Rail has been at an economic disadvantage 
when compared to other modes of transportation because there is 
a history of an enormous amount of money being spent on 
improvements for roads and bridges. That directly benefits the 
automobile industry. The airline industry has also benefited 
from years of tremendous spending on improvements to airports 
and runways. Without that funding, automobile companies and 
airlines would simply be unable to be in business.
    Last year $41 billion benefited the transit and aviation 
industries while rail received nothing comparable, less than $1 
billion. I am not suggesting that Amtrak should receive funding 
equal to, of course, transit or aviation. However, if we expect 
our Nation to have a strong multimodal transportation system we 
must commit to keeping rail adequately funded.
    I would like to hear from Mr. Gunn and Mr. Rutter, as well 
as our other panelists, on this whole issue of funding over the 
years, enormous funding over the years, at the expense of the 
public sector, to keep both automobile and aviation in a 
position to function and compete and make a profit, as compared 
to the conversation that is going around with respect to rail 
and what kind of funding, if any, or if at all very much, 
should be allocated to seeing to it that rail transportation in 
this country is able to maintain itself at some kind of at 
least an adequate level.
    What is your thinking about that, Mr. Rutter, may I ask 
first?
    Mr. Rutter. Certainly those decisions in investing in other 
modes have been made by successive Congresses over a period of 
3 to 4 decades, and most of those modes have their public 
investment supported by user fees paid by the users of those 
systems. We believe that an ongoing long-term commitment by the 
Federal Government is important to provide capital funding for 
passenger rail.
    The problem with how do we get there from here is the fact 
that there is no similar user fee trust fund, nor is it easy to 
expect users, much fewer users, of a system to provide the 
capital to get there. But while we commit to work with the 
Amtrak over the long term to figure out where those dollars for 
capital assistance come from, we do believe that the ongoing 
sustainable future of passenger rail depends on Federal 
investment in capital in cooperation with State Governments, 
just as we make similar shared investments in capital in the 
aviation, transit, and highway business.
    Senator Kohl. Mr. Gunn.
    Mr. Gunn. Well, I think that the passenger rail system has 
been treated very poorly in this whole process. I will just 
give you one example, rather than a long-winded dissertation. 
If you look at what the Big Dig in Boston plus what they have 
done to Logan Airport is going to cost when they are done, it 
will almost equal all the subsidies we have ever received, and 
all they have done is move a highway from here [indicating] to 
here [indicating].
    Senator Kohl. That is very true.
    Mr. Gunn. We are not treated equally.
    Senator Kohl. You know, Mr. Rutter, with respect to your 
comment, which of course was not meant to be adversarial, but 
you pointed out the fact that when it comes to automobile and 
aviation much of that money comes from users. But it is still 
public funds. It is not as though the automobile companies have 
come up with the money for the roads or the airline companies 
have come up with the money for their airports. It comes from 
the public. Public tax dollars, public user fees, but it is 
public moneys, and the automobile companies could not do that 
on their own. Obviously, they would be out of business if they 
had to build the roads and maintain the roads, as would the 
airlines.
    So I think the argument is very strong that rail deserves 
some kind of a comparable consideration. In fact, I do not see 
how one can avoid either accepting that or rejecting the 
concept of using taxpayer money or public funds for roads, 
bridges, and airports. I do not see how one could make the case 
that one makes sense and the other does not make sense. I do 
not think so.
    What do you think?
    Mr. Rutter. Well, I would probably defer to the rest of the 
committee's time. Given my background as a publicly educated, 
trained bureaucrat and a policy wonk, I could probably talk to 
you about those kind of issues for a long, long time, and would 
be happy to do so.
    But the simple answer is maybe one of the reasons why we 
find ourselves in a slightly different situation with 
railroads, passenger railroads, is that over time, particularly 
over the last 50 to 75 years at least, it has been part of a 
tacit national transportation policy that railroads be provided 
and funded and owned privately. The creation of Amtrak 30 years 
ago was an admission that passenger service on its own does not 
meet that model. But why we find ourselves in a place where 
that mode is treated differently is in large part an historical 
fact of how those businesses came to and are continuing to be 
operated.
    Senator Kohl. Ms. McLean, would you like to make a comment?
    Ms. McLean. I think Allan mentioned before about the user 
fees. I think that has long been the issue with aviation and 
highway, is that those are user fee-based trust funds. Those 
trust funds were established for capital investment and for the 
most part that is primarily how highways are funded, through 
those user fees, and primarily how aviation, not totally but 
primarily, how aviation is funded.
    I do not think passenger, intercity passenger rail service, 
could be supported by any kind of trust fund. So I certainly 
would not encourage that type of structure. But that obviously 
puts highways and aviation at an advantage.
    Senator Kohl. Mr. Mead?
    Mr. Mead. About 23 million people ride Amtrak every year 
and that is a lot less than you have in cars and you have in 
aviation. Probably a lot of the 23 million are repeat riders. I 
think the constituency for rail in a lot of quarters is not as 
robust as it is for automobiles and aviation. I would agree 
with the comments of the other panelists that moving towards an 
analogy to say, well, we charge people a ticket tax in 
aviation, let us do that in trains and that is a solution, 
well, that is not the solution. You are going to have to make a 
judgment that for the public welfare, public funds should be 
applied robustly to rail to make it work.
    Senator Kohl. Well, obviously you know where I am coming 
from from my comments. That there needs to be a discriminate 
use of funds to keep rail or to maintain and keep rail healthy 
in this country. To me, the alternative, which is to maybe let 
it atrophy and in most cases even die, is not smart, I do not 
think. It is not a good public policy judgment in my opinion. I 
hope very much that we can persuade the Congress as well as the 
administration that this makes good sense.
    Thank you.
    Senator Murray. Thank you very much, Senator Kohl.
    Mr. Rutter, one more question for you. As I follow your 
testimony, you want the States to absorb most, if not all, of 
the operating costs of Amtrak's trains outside of the Northeast 
Corridor. Within the Northeast Corridor you want a new 
partnership where the States absorb an increased cost share of 
both operating and capital costs. Mr. Mead pointed out in his 
testimony in just 5 years Amtrak's outstanding debt has grown 
from $1.7 billion to $4.4 billion. I am curious. Under the new 
Administration's proposed arrangements, who is going to pay off 
Amtrak's debt?
    Mr. Rutter. Well, it is not only who is going to pay off 
Amtrak's debt, but who is going to catch up on the backlog of 
deferred maintenance to keep what is there operating, which we 
acknowledge to be at least between $5 and $6 billion. Getting 
to a situation where those kinds of investments are made over 
time, our point is that that scale of investment should not be 
solely a matter of Federal responsibility, for the reasons that 
I think you have articulately made, that the region that 
primarily benefits from that, those services, should have some 
partnership role in providing for making that work.
    Senator Murray. Mr. Gunn, I have one more question for you. 
Secretary Mineta made a major policy announcement this morning 
regarding the future of your railroad. He made a lot of 
observations about the way your railroad functions and what 
changes he feels need to be made. Have you ever had one live 
conversation or phone conversation about your railroad with 
Secretary Mineta since you took over your position 5 weeks ago?
    Mr. Gunn. No.
    Could I make one last statement?
    Senator Murray. Absolutely.
    Mr. Gunn. I just want to remind everybody that the cost of 
any shutdown and startup is going to be more than $200 million.
    Senator Murray. Any shutdown or startup?
    Mr. Gunn. And startup. In other words, if we actually shut 
down and then you want to start us up, it is going to cost you 
more than $200 million, I think, or it will be darn close.
    Senator Murray. I appreciate that comment. I just want to 
make one more thing clear before I recess and that is that the 
Administration has not submitted any reform legislation to this 
Committee or to any other committee of Congress. All we have 
had so far is a speech. The proposals in the speech, as you can 
see from this hearing, are very controversial. There is no way 
that we are going to include any such proposals in a 
supplemental request.
    If the Administration wants reforms they need to propose 
them in legislation to the authorizing committee. If they are 
going to approve a loan guarantee, this Committee wants to be 
informed immediately. If they are going to make a supplemental 
request, that needs to be done very quickly.

                         CONCLUSION OF HEARING

    With that, I will conclude this subcommittee to the call of 
the Chair.
    [Whereupon, at 3:52 p.m., Thursday, June 20, the hearing 
was concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]

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