    [Senate Hearing 107-1078]
    [From the U.S. Government Publishing Office]

                                                           S. Hrg. 107-1078

                       S. 1991, NATIONAL DEFENSE RAIL ACT

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

                                    HEARING

                                   BEFORE THE

                             COMMITTEE ON COMMERCE,
                          SCIENCE, AND TRANSPORTATION
                              UNITED STATES SENATE

                          ONE HUNDRED SEVENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 MARCH 14, 2002

                                   __________

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

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               COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                          ONE HUNDRED SEVENTH CONGRESS

                                 SECOND SESSION

                  ERNEST F. HOLLINGS, South Carolina, Chairman
    DANIEL K. INOUYE, Hawaii             JOHN McCAIN, Arizona
    JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska
        Virginia                         CONRAD BURNS, Montana
    JOHN F. KERRY, Massachusetts         TRENT LOTT, Mississippi
    JOHN B. BREAUX, Louisiana            KAY BAILEY HUTCHISON, Texas
    BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
    RON WYDEN, Oregon                    SAM BROWNBACK, Kansas
    MAX CLELAND, Georgia                 GORDON SMITH, Oregon
    BARBARA BOXER, California            PETER G. FITZGERALD, Illinois
    JOHN EDWARDS, North Carolina         JOHN ENSIGN, Nevada
    JEAN CARNAHAN, Missouri              GEORGE ALLEN, Virginia
    BILL NELSON, Florida

                   Kevin D. Kayes, Democratic Staff Director
                      Moses Boyd, Democratic Chief Counsel
          Jeanne Bumpus, Republican Staff Director and General Counsel
                       Ann Begeman, Deputy Staff Director

                                C O N T E N T S

                                  ----------

                                                                       Page
    Hearing held on March 14, 2002...................................     1
    Statement of Senator Dorgan......................................    11
    Statement of Senator Hollings....................................     1
        Prepared statement...........................................     2
    Statement of Senator Hutchison...................................     8
    Statement of Senator Kerry.......................................    10
    Statement of Senator McCain......................................     5
        Prepared statement...........................................     7
    Statement of Senator Wyden.......................................     9

                                   Witnesses

    Biden, Hon. Joseph R., Jr., U.S. Senator from Delaware...........    12
        Prepared statement...........................................    14
    Carmichael, Gilbert E., Chairman, Amtrak Reform Council..........    87
        Prepared statement...........................................    88
    Carper, Hon. Thomas R., U.S. Senator from Delaware...............    15
    Hamberger, Edward R., President and CEO, Association of American
      Railroads......................................................   146
        Prepared statement...........................................   148
    Jackson, Hon. Michael P., Deputy Secretary, Department of
      Transportation; accompanied by Hon. Allan Rutter,
      Administrator, Federal Railroad
      Administration.................................................    23
        Summary statement............................................    61
        Rutter, Hon. Allan, prepared statement.......................    26
    King, David D., Deputy Secretary, North Carolina Department of
      Transportation.................................................    77
        Prepared statement...........................................    79
    Mead, Hon. Kenneth M., Inspector General, Department of
      Transportation.................................................    48
        Prepared statement...........................................    50
    Moneypenny, Charles F., Director, Railroad Division, Transport
      Workers Union of America.......................................    84
        Prepared statement...........................................    86
    Morial, Hon. Marc H., Mayor, New Orleans, Louisiana; President,
      United States Conference of Mayors.............................   154
        Prepared statement...........................................   155
    Rennicke, William J., Vice President, Mercer Management
      Counsulting, Inc...............................................    92
        Prepared statement...........................................    94
    Warrington, George D., President and CEO, Amtrak.................    19
        Prepared statement...........................................    21

                       S. 1991, NATIONAL DEFENSE RAIL ACT

                                  ----------

                            THURSDAY, MARCH 14, 2002

                                   U.S. Senate,
            Committee on Commerce, Science, and Transportation,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 9:30 a.m. in room

    SR-253, Russell Senate Office Building, Hon. Ernest F.
    Hollings, Chairman of the Committee, presiding.

             OPENING STATEMENT OF HON. ERNEST F. HOLLINGS,
                    U.S. SENATOR FROM SOUTH CAROLINA

        The Chairman. The Committee will please come to order. I
    have a statement, and we have an excellent panel of group of
    witnesses. If this was a hearing on the privatization of the
    railroads, I would be a good witness. Just a few weeks ago, I
    was going from London to Harrogate, less than a hundred miles,
    at a cost of $250 round trip, and the train runs each hour. So
    I got on, right quick like, and caught it and did not have a
    seat because the train that I was to get on was an hour behind,
    and the one I got on was behind an hour. Thereby, I was on the
    wrong train without a seat.
        Be that as it may, we had privatization in the United
    States. The railroads came in 1971 begging us to get rid of
    passenger service, and they gave us hundreds of millions of
    dollars in equipment, support and everything else, and then the
    government joined in with the same thing. We got the cars, we
    got the routes, we got the roadbeds and everything else of that
    kind, and we have given the passenger rail system benign
    neglect, using Senator Moynihan's phrase for the minority
    population. We have given it benign neglect, and it has limped
    along acting as if we could make a profit.
        Now, if Enron is the biggest bankruptcy, I think this one
    is the second biggest or maybe even bigger bankruptcy. We need
    $1.2 billion to keep it going. In an emergency supplemental we
    will be asked to provide funding. Otherwise, the proposal
    before the Committee this morning is not a fix of Amtrak.
        I hate to say the word ``Amtrak'' because you say that to a
    Member, of course, and they say ``that is a dog, do not put me
    on that thing because that is all we have been doing is limping
    along fixing a broken system.'' This is an entirely new
    endeavor to try to put in a national defense rail system,
    somewhat like we did in the mid-1950s with the interstate, to
    actually put the money in to improve the roadbed. Amtrak has
    730 miles of rail in the Northeast Corridor and there is 22,000
    miles of rail operated by freight railroads. We want everybody
    to put in their suggestion for improving the rail system and
    get it going here.
        We want to take over the wonderful endeavor, or not take it
    over, but support the endeavor being made in the various
    regions and in the various States. This is not just a Northeast
    Corridor problem. It is a national problem. 9/11 taught us that
    we have got to have a national rail system. In 1999, of the
    industrialized countries, we are number 25 in spending on rail.
        Let us get going. Let me yield to the distinguished Ranking
    Member, Senator McCain.
        [The prepared statement of Senator Hollings follows:]

                Prepared Statement of Hon. Ernest F. Hollings,
                        U.S. Senator from South Carolina

        This legislation will establish a strong and efficient national
    passenger rail system. For far too long, we have neglected investing in
    our nation's passenger rail system. We have taken an active
    responsibility in developing the infrastructure of all other modes of
    transportation, whether it has been federally funding the development
    of the interstate highway system, subsidizing airport construction, or
    taking the responsibility for dredging harbors and channels or building
    locks and dams. Now it is time to build a world class passenger
    railroad system in the U.S.--we know it can be done--Japan and France
    provide two models of successful passenger railroad service. The time
    to move ahead is now--we cannot wait for highways and airports to
    become so clogged that they cannot operate any longer. Rail systems are
    not built in a day. We need to engage in long-term planning to address
    future passenger transportation growth and show forethought in crafting
    transportation solutions; not wait for an impending crisis. My
    legislation provides the vision to begin to do this.
        The atrocious events of September 11th, 2001, and the aftermath
    which followed exposed the vulnerability of our society and our economy
    when transportation choices are limited and our mobility is diminished.
    In the aftermath of the horrific attack on the World Trade Center and
    the Pentagon, we were forced to adjust to a transportation system that
    was without access to aviation. That should make us all evaluate the
    problems inherent in a policy that results in overall dependence on any
    one particular mode of transportation. We need to have a more balanced
    system of transportation for passengers in this country. Our economy
    depends on it; our travelers deserve it; and our roads and airports
    could operate more efficiently in a balanced system.
        After the Federal Aviation Administration grounded all flights
    following the terrorist attacks on September 11, 2001, travelers
    flocked to Amtrak. Whether people had to travel for business, to help
    with rescue efforts, or just to get home, Amtrak kept our American
    citizens moving during a time of national emergency.
        The situation not only proved that Amtrak works, but that passenger
    rail is a critical part of our transportation infrastructure during a
    national emergency or security crisis. Amtrak provided a critical
    transportation link, carrying 35,000 passengers along the Northeast
    Corridor every day, and hundreds of extra carloads of mail for the U.S.
    Post Office in the days following the terrorist attacks.
        Transportation security--an essential part of our national
    security--requires a balanced and competitive system of transportation
    alternatives. In September, we found that our dependence on the
    aviation system almost crippled us. We cannot afford to rely on any
    single mode of transportation; we need to ensure that we have a
    balanced system that includes a sound passenger rail system. We also
    know that passenger railroads use less fuel per passenger mile than
    highway vehicles and commercial airlines. During these times of oil-
    consciousness, a larger presence of passenger rail in our
    transportation system would reduce our nation's dependence on foreign
    oil.
        Passenger railroads, the interstate highway system, and our
    national aviation network have all taken different paths to their
    current roles in our national transportation system. The tales of their
    development stand in quite a stark contrast from each other:
        The interstate highway system has received significant attention
    and federal funding since the construction of the Lincoln Highway in
    1913 and the Rural Post Roads Act of 1916, and later during World War
    II with the Federal Highway Act of 1944. It was not until 1956,
    however, that the government began heavily promoting highway
    transportation with the passage of the Federal Aid Highway Act of 1956.
    The Act established a Highway Trust Fund based upon federal user taxes,
    in order to finance up to 90% of state construction costs of the $25
    billion dollar plan to pay for new roads, and the construction of the
    Eisenhower National Interstate and Defense Highway System.
        Similar policies and federal attention for aviation, resulted in a
    strengthened infrastructure, and follows much the same story of the
    highways system.
        Passenger rail service was once a vital instrument in the
    transportation needs of our nation. For instance, during World War II,
    not only did the railroads transport 90% of all defense freight, but
    also 97% of all defense personnel on their way to theaters of action.
    By the end of the war, railroads accounted for three quarters of the
    common carrier share of intercity traffic, with airplanes and buses
    sharing the remaining quarter of traffic. However, with national focus
    turned to aviation and highways, by the late 1960s most rail companies
    were petitioning the government to discontinue passenger services
    because of losses.
        Amtrak was created as a federal corporation in order to relieve the
    railroad industry of these unprofitable passenger operations, and in
    the interest of maintaining a national passenger rail network. But in
    retrospect, Amtrak was set up not to thrive and expand passenger rail
    service, but really to just maintain the status quo of 30 years ago.
    That attitude persists even today. Since 1971, Amtrak has received only
    $25 billion in public subsidies; during that period, the United States
    invested $750 billion on highways and aviation.
        So one problem becomes all too clear--that U.S. passenger rail
    infrastructure has no stable funding source, in contrast to highways,
    aviation, and transit. In fact, per capita spending on passenger rail
    is much lower than many other countries: the U.S. ranks behind Britain,
    France, Japan, Canada, Luxembourg, Austria, Switzerland, Belgium,
    Sweden, Denmark, Italy, Ireland, Spain, Norway, Czech Republic,
    Finland, Slovakia, Portugal, Poland, South Africa, Greece, and Estonia.
    Including these countries, no passenger rail service in the world has
    built and operated a passenger rail system at a profit. All have
    required government support for construction and maintenance, or
    operating support, or both. That same principle holds true for highways
    and aviation, which have required substantial federal spending since
    their beginning and continue to receive generous federal subsidies
    today.
        Those who want passenger rail to operate without federal
    assistance--ultimately forcing more travelers onto cars, buses and
    airplanes--argue that we should not ``subsidize'' passenger rail. But
    we subsidize the building of roads and highways with tax dollars. We
    subsidize the building of airports and pay for all of the equipment and
    people needed to run our air traffic control system. We consider those
    subsidies to be worthwhile investments in our economy and our quality
    of life. We must make the same investment to create a world-class
    passenger rail system in order to see the same kinds of benefits.
        While that argument should stand on its own, here's something the
    highway and airline crowd can take to the bank: moving more short-haul
    travelers to rail service reduces congestion on our already overcrowded
    highways and eases congestion at airports. It also provides real
    competition to airlines on short-haul trips.
        Over the past 30 years, the lack of investment and attention to the
    needs of passenger rail infrastructure has resulted in a weak passenger
    rail network, and has caused a strain on the capacity of other modes of
    transportation in many areas of the country. The Amtrak Reform and
    Accountability Act of 1997, and preceding statutes, resulted in
    creating conflicting missions for Amtrak: serve a public function by
    operating unprofitable long-distance routes, but also attempt to
    operate at a profit. To add insult to injury, Amtrak has been forced to
    delay capital improvement projects having important long-term benefits
    in order to attempt to meet the mandate of the 1997 Act. Congress
    passed this misguided law in 1997 requiring Amtrak to operate without
    government support by the end of FY2002. But there is no truly national
    passenger train service in the world that makes a profit. Requiring
    Amtrak to make a profit has forced the railroad to forgo long-term
    capital investments in favor of short-term, bond payment shell games.
    Instead of investing in modern trains and infrastructure upgrades,
    Amtrak was forced to mortgage Penn Station just to pay the electric
    bill.
        From this, it is evident that we need to reevaluate our nation's
    rail passenger policy, and clearly define a role for Amtrak. A strong
    federal role was required to establish the interstate highway system
    and the federal aviation network. And now, federal investment in
    passenger rail infrastructure is critical; once again, federal
    leadership is required to address the needs of a reliable, safe, secure
    passenger rail network.
        This legislation provides a blueprint for the future of passenger
    rail in the United States. The bill will help develop high-speed rail
    corridors, which are the building blocks for a national passenger rail
    system. This will allow regional transportation solutions to play a
    part in the national system. It will also aid in the development of
    short distance corridors between larger urban centers, as well as
    provide funding to preserve longer distance routes for those
    communities that do not have the population densities to merit air
    service--sometimes the train is their only alternative to driving.
    Finally, it will provide Amtrak with the tools and funding it needs to
    operate efficiently.
        This legislation authorizes $1.255 billion in emergency spending
    for Amtrak's security and life safety needs. Similar language was
    included in the Rail Security Act, S. 1550, which was favorably
    reported by the Committee on Oct. 17, 2001. In that legislation, we
    authorized funds to be spent on immediate rail security needs, such as
    hiring more police officers across the entire Amtrak system and
    modernizing the safety infrastructure of old tunnels.
        This bill will give the federal government the script for the role
    it needs to play in establishing a national rail passenger system. It
    would not require any state contribution, and would give preference to
    projects having right-of-way dedicated to passenger rail, involving
    high-speed passenger service of 125 mph (although operations of 90 mph
    speeds or more would be eligible for funding), and those connecting to
    other modes of passenger transportation, including airports.
        The bill authorizes $1.5 billion annually for corridor development.
    These funds are needed for infrastructure acquisition, highway-rail
    grade crossing improvement/elimination, acquisition of rolling stock
    and track and signal equipment. Development of a national passenger
    rail system carries a high cost, and the federal government must take
    the lead role in funding it.
        This bill will also fund $35 billion in loan guarantees. This money
    will dramatically expand the current Railroad Rehabilitation &
    Infrastructure Financing loan and loan guarantee program. But we also
    must restructure that program. Since it was created in 1998 as part of
    TEA-21 bill, the program has processed only a few loans due to
    unreasonable constraints imposed by OMB. Our bill eliminates the
    artificial limits on loan amounts, impossible collateral requirements,
    and unworkable loan cohort structures.
        This bill identifies existing high-speed corridors in 29 states and
    the District of Columbia for priority consideration. Many of these
    corridors are in areas where people are now driving cars or taking
    airplanes on trips of 300 miles or less. In these areas, like the East
    Coast, travelers could take a high-speed train instead--and arrive at
    about the same time. But right now they don't have that rail option and
    they won't until we build it.
        The passenger railroad system that has worked well in the Northeast
    can work in other highly-congested areas of the country: the South, the
    Midwest, California and the Northwest. Thirty years ago, those areas
    did not have the population to support high-speed intercity rail. But
    today those areas are growing by leaps and bounds. As the highways in
    those areas clog up and the planes run three hours late, their
    governors--many of them Republicans--are asking us for help to build
    high-speed rail.
        A short-term benefit of this legislation will be stimulation of the
    economy by providing jobs in developing new corridors. This bill
    ensures that fair labor standards for all projects receiving funds
    under it, including payment of prevailing wages and allowance of
    collective bargaining over wage rates.
        Another immediate benefit will be the closing/improvement of
    highway-rail grade crossings in high-speed rail corridors. Under this
    bill, funds are set aside specifically for these important safety
    improvements.
        This legislation will provide the necessary funds of $1.31 billion
    for Amtrak to repair and upgrade the track it owns and operates in the
    Northeast Corridor. This corridor is a prime example of the benefits we
    can attain when there are transportation choices for travelers. The
    Northeast Corridor has become an invaluable asset to our national
    transportation system, and it should not be left in disrepair. This
    bill authorizes funds to enable Amtrak to eliminate its capital backlog
    of projects, maintain ongoing projects to capital infrastructure, and
    improve capacity to accommodate projected growth in traffic. It also
    allows Amtrak to reinvest revenues from operations in the Northeast
    Corridor back into the backlog of capital infrastructure projects.
        In a nutshell, this is our long term plan to make passenger rail a
    part of our balanced transportation system. But in short run, we must
    make sure Amtrak's financial foundation is strong at a time when we are
    relying on them more than ever. Amtrak's ridership has increased
    consistently, and they now carry over 22 million passengers per year.
    This legislation will give Amtrak the tools and funding they need to
    create a modern, efficient passenger railroad. The bill reauthorizes
    Amtrak for five years, and fully funds the their capital needs and the
    operating losses with respect to long-distance service.
        This legislation repeals the unrealistic operating self-sufficiency
    requirements. It also authorizes funding for compliance with
    environmental standards, and the Americans with Disabilities Act.
        This legislation will further aid Amtrak to operate more
    efficiently. It will require Amtrak to reinvest revenues from non-
    passenger operations into growth projects outside the Northeast
    Corridor. It will require revenue from the Northeast Corridor to be
    reinvested into capital projects on the Northeast Corridor. Finally, it
    will require an annual independent audit of Amtrak, to be reviewed by
    the Department of Transportation's Inspector General.
        I am pleased my colleagues have joined with me in sponsoring this
    bill. By developing passenger rail as part of a balanced transportation
    system, this legislation will lead to the creation of jobs in the short
    run to stimulate our economy. In the long run, high-speed rail
    corridors will become a key foundation for our national rail passenger
    transportation system, which is critical to the strong backbone of a
    prosperous economy.
        Like the interstate highway system, the benefits of passenger rail
    and Amtrak could be immeasurable, so we have much at stake. While I
    have outlined an ambitious blueprint, I keep in mind that fifty years
    ago, the National System of Interstate and Defense Highways was ``pie
    in the sky.'' Now our successful Dwight D. Eisenhower System of
    Interstate and Defense Highways and national aviation network are used
    by many, so much that in many places they are congested and strained to
    capacity. We should not wait until our current transportation problems
    reach epidemic proportions; our economy cannot afford it.

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

        Senator McCain. Thank you, Mr. Chairman.
        I hope today's hearing will be the start of a thorough
    evaluation of the intercity rail passenger service and what
    role Amtrak should have in our nation's transportation system.
    Clearly, a comprehensive re-evaluation of Amtrak is needed.
        In fiscal year 2001, Amtrak's operating loss was $1.1
    billion, the highest ever. The Department of Transportation
    Inspector General reported that Amtrak made no progress in the
    last 5 years toward achieving its financial goals, and even
    though Amtrak has received over $5 billion in Federal funding
    over the past 5 years and another $1 billion from the States,
    it appears now to be on the verge of bankruptcy.
        As you know, Mr. Chairman, I too have introduced
    legislation to address the future of rail passenger service.
    That proposal, S. 1958, The Rail Passenger Service Improvement
    Act, would introduce competition for rail passenger services
    and privatize Amtrak within 4 years.
        To help Amtrak's current financial crisis, this legislation
    would place Amtrak under a control board modeled after the very
    successful District of Columbia Control Board. It would enforce
    the fiscal discipline Amtrak has been unable to apply to itself
    and oversee Amtrak's privatization.
        This legislation would authorize significant funding to
    address operating capital costs and to transition Amtrak to the
    private sector. It would also require more involvement,
    including financial commitments by the States who want to add
    rail service. To help States meet their increased
    responsibilities, this bill would give the States the
    flexibility to use their highway trust fund dollars on rail
    passenger service if they so choose.
        I recognize that not every Member may favor this approach,
    but I hope my colleagues will be looking at all options for
    improving rail passenger service. We face a very difficult
    challenge, and we would be well served to consider a variety of
    possible solutions if we are serious about meeting our Nation's
    transportation needs.
        I hope we will have a full and open debate in developing
    approaches for meeting these needs. I'm concerned that Congress
    may simply pour more money into Amtrak without addressing its
    fundamental problems. I believe that is the approach taken by
    S. 1991. That legislation, S. 1991, would authorize $14.5
    billion for Amtrak over the next 5 years, an average of nearly
    $3 billion per year, not counting the $9.3 billion authorized
    over 6 years for the development of high-speed rail corridors.
    That $3 billion funding level is about six times the amount the
    appropriators have provided in recent funding measures.
        S. 1991 requires virtually no reform or restructuring of
    Amtrak. In fact, Amtrak would be even less accountable to
    Congress and the American taxpayer because the legislation
    would repeal a directive that Amtrak achieve operational self-
    sufficiency. Amtrak as we know it today would not only be
    perpetuated, but significantly expanded with the Federal
    Government's funding obligation.
        Under S. 1991, funding of high-speed rail corridors would
    be made entirely a Federal responsibility, and this obligation
    would apply not only to capital costs, but what could be large
    annual operating losses. This is opposite to the direction we
    should be moving.
        In spite of the $25 billion in Federal assistance invested
    over the past 30 years, Amtrak only carries 2 million more
    passengers now than it did in 1979. It serves less than 1
    percent of the traveling public. Some argue that Amtrak has
    been underfunded compared to highways and airports. Well, I
    remind my colleagues that the infrastructure for those modes is
    funded through user fees. For Amtrak's customers to fund the
    appropriations that would be provided by S. 1991, each rider
    would have to pay a fee of $190 in addition to the price of
    each train ticket.
        To get rail passenger service on track we need to address a
    number of tough questions. What is the future for intercity
    rail passenger transportation service? Where does it attract
    passengers and where does it not? Does rail passenger service
    have to mean Amtrak, or after 30 years is it finally time find
    a new approach? Where might high-speed rail service actually
    attract enough passengers to be economically viable? How does
    rail passenger service fit into the national transportation
    system? What is the most equitable way for the Federal
    Government, State and municipalities and other rail passenger
    stakeholders to share the financial burden?
        One of Amtrak's biggest problems has been its inability to
    control the growth of its expenses. The Department of
    Transportation IG's January report concluded since the 1997
    Reform Act, for every $1 of new revenue Amtrak has received,
    its cash expenses have risen $1.05. States complain that
    Amtrak's bills for State-supported services do not provide a
    clear and consistent accounting of its costs. In my view, the
    source of most of Amtrak's problem is Amtrak's status as a
    government-owned monopoly.
        We can address this by introducing competition for
    passenger service. After all, we do not have one national
    airline or one bus company. Should not we at least consider the
    possibilities that could come to light if we permitted another
    operator to offer service?
        I believe we should authorize the Secretary of
    Transportation to contract out passenger service to franchisees
    that meet specified safety and liability requirements. This
    would not happen overnight, and it should be an option.
        I look forward to hearing from our witnesses. I hope each
    of you will give us your perspective on what needs to be done
    to creating a more cost-effective and customer-responsive rail
    passenger program.
        I thank you, Mr. Chairman.
        [The prepared statement of Senator McCain follows:]

                    Prepared Statement of Hon. John McCain,
                           U.S. Senator from Arizona

        Mr. Chairman, I hope today's hearing will be the start of a
    thorough evaluation of intercity passenger rail service in our nation's
    transportation system and what role Amtrak has in providing service.
    Clearly a re-evaluation of Amtrak is needed. In fiscal year 2001,
    Amtrak's operating loss was $1.1 billion, its highest ever. And even
    though Amtrak has received over $5 billion in Federal subsidies and
    over the past five years another $1 billion from the states, it is now
    on the verge of bankruptcy.
        As you know, Mr. Chairman, I too have introduced legislation to
    address Amtrak's problems. My proposal, S. 1958, The Rail Passenger
    Improvement Act of 2002, introduces competition for passenger rail
    services and privatizes Amtrak within four years of enactment of the
    legislation. To help address Amtrak's current financial crisis, my
    legislation places Amtrak under a Control Board modeled after the
    District of Columbia Control Board. I recognize that not every member
    of the Senate may favor my approach, but I hope my colleagues will be
    willing to look at other options for improving passenger rail service.
        While I hope we will have a full and open debate, I am concerned
    that Congress will simply throw more money at the problem and not
    address Amtrak's fundamental problems. This is the approach taken by S.
    1991, the subject of today's hearing. The legislation would authorize
    $14.5 billion for Amtrak for the next five years, or an average of
    close to $3 billion per year, not counting the funds authorized for the
    development of high-speed rail corridors. And while I support funding
    to address legitimate security issues on Amtrak, I'm not sure what
    Amtrak hopes to accomplish with some of the authorizations in the
    bill--especially the leasing of 10 bicycles. I didn't know it was
    possible to lease a bicycle other than at the beach.
        The bill requires virtually no reform or restructuring of Amtrak.
    In fact, Amtrak would be even less accountable to Congress and the
    American taxpayer since the legislation would repeal the requirement
    that Amtrak achieve operational self-sufficiency. Amtrak as we know it
    today would not only be perpetuated but significantly expanded--as
    would the Federal government's funding obligations. Under S. 1991,
    funding of high-speed rail corridors would be made entirely a Federal
    responsibility. And this obligation would apply not only to capital
    costs but to what could be large annual operating losses.
        Where is the money for S. 1991 going to come from? It is simply not
    realistic to think that the nation can afford to spend this kind of
    money for such a lightly used rail system. In spite of the billions
    invested over the past 30 years, Amtrak only carries 2 million more
    passengers now than it did in 1979. Some argue that Amtrak has been
    underfunded compared to highways and airports. But I remind my
    colleagues that the infrastructure for those modes is funded through
    user fees. For Amtrak's customers to fund the appropriations provided
    by S. 1991, each customer would have pay a fee of $190 in addition to
    the price of their train tickets.
        We will be failing in our Congressional responsibilities if we
    simply give Amtrak more money without making another effort to get more
    value for the taxpayers' investment. Despite testifying repeatedly
    before Congress that it was on a ``glidepath to self-sufficiency'',
    Amtrak has failed to achieve operational self-sufficiency and failed
    miserably. The Inspector General of the Department of Transportation
    recently concluded that Amtrak made no progress in the past five years
    toward achieving self-sufficiency.
        To get rail passenger service on track, we need to address a number
    of tough questions. What is the future for intercity rail passenger
    transportation? Where does it attract passengers and where doesn't it?
    Does rail passenger service have to equate to ``Amtrak'' or can we
    accept the fact that after 30 years, it is time to find a new approach?
    Where might high-speed rail service actually attract enough passengers
    to be economically viable? How does it fit into our national
    transportation system? And what is the most equitable way for the
    Federal government, states and municipalities, and other Amtrak
    stakeholders to share the financial burden?
        Amtrak's failure to make any progress toward self-sufficiency does
    not mean the standard was unfair or unachievable. It means that more
    reform is needed. Amtrak's biggest problem over the past five years has
    been that it has not been able to control the growth of it expenses.
    The DOT IG's January report on Amtrak concluded that for every $1 of
    new revenue Amtrak has achieved since the Reform Act was passed, its
    cash expenses have risen $1.05. States complain that Amtrak's bills for
    state-supported services do not provide a clear and consistent
    accounting of its costs. In my view, the source of this problem is
    Amtrak's status as a government-owned monopoly.
        My proposal for Amtrak addresses this problem by introducing
    competition for passenger service. A new Rail Passenger Development and
    Franchising Office would be established within the Federal Railroad
    Administration. Beginning October 1, 2003 the Secretary of
    Transportation would be authorized to contract our passenger service to
    franchisees that meet specified safety and liability requirements.
    Operations could not be authorized if they would result in a
    significant downgrading in freight rail service.
        My proposal would also restructure Amtrak into three subsidiaries
    to be managed as for-profit businesses: Amtrak Operations, Amtrak
    Maintenance, and Intercity Rail Reservations. Each subsidiary would be
    privatized within four years after enactment.
        Under my proposal, Amtrak Operations would be prohibited from
    operating any route on which Amtrak revenues do not at least cover the
    avoidable costs of providing the service, unless a state or other
    entity provides a subsidy to make up the difference. While increasing
    the responsibility of the states on some routes, the bill would also
    give the states the flexibility to use highway trust fund dollars on
    rail passenger service.
        Additionally, the Amtrak Control Board established by my proposal
    would approve and amend Amtrak's annual budget and financial plan. It
    will enforce the discipline Amtrak has been unable to apply itself. The
    Control Board would also oversee Amtrak's privatization.
        Finally, my legislation would authorize funding to address Amtrak
    security needs and to transition Amtrak to the private sector.
        Before closing, I want to mention two other provisions of S. 1991
    about which I have serious concerns.
        The legislation establishes criteria to be used in allocating funds
    for high-speed rail projects. The criteria include whether the project
    encourages the use of automatic train-stop technologies and whether
    there will be a regional balance in the provision of assistance. But
    the economics of a proposed project would evidently not be a
    consideration. I think this is a serious oversight. I am also concerned
    that the bill directs the Secretary of Transportation to give the
    highest priority to projects in Chicago, Atlanta, and Dallas/Fort
    Worth, instead of requiring that all projects be evaluated on their
    merits.
        For high-speed rail projects and other rail rehabilitation projects
    using Federal funds, the bill makes any person performing rail
    operations, catering, maintenance, cleaning, construction or other
    services subject to the Railroad Retirement Act, the Railroad
    Unemployment Insurance Act, and other railroad laws. This is patently
    anti-competitive and counter to the flexibility given to Amtrak under
    the Reform Act to contract out.
        I look forward to hearing from our witnesses. I hope each of you
    will give us your perspective on what needs to be done to create a more
    cost-effective and customer-responsive passenger rail program.

        The Chairman. Thank you.
        Senator Hutchison.

                STATEMENT OF HON. KAY BAILEY HUTCHISON,
                        U.S. SENATOR FROM TEXAS

        Senator Hutchison. Thank you, Mr. Chairman. Thank you for
    putting forward the Amtrak reauthorization bill.
        I am very concerned about Amtrak, concerned about the
    financial condition and concerned that I keep getting the
    assurances from the leadership of Amtrak that this is a
    national rail system, but every time there is a budget
    shortage, the long-haul routes are eliminated, and that means
    it is not a national system. It is a Northeast Corridor system.
        What I want in this reauthorization is the ``fish or cut
    bait'' eventuality. We must have a national system that we are
    going to support fully and fund at a level where it can
    function as a truly national system. Frankly, Senator McCain,
    if your legislation permitted a national system, I think some
    of your reforms might be helpful.
        I would not close the door on your reforms as long as your
    purpose is to have a national system rather than kill one,
    because I think we need some changes, and we do need to shape
    up, but we also need to be committed to a national system, not
    only for our national defense, but also for our homeland
    security.
        I do think that we have seen a situation in which airlines
    cannot alone fulfill all the transportation needs of our
    country. We saw a huge rise in ridership during the crisis
    after September 11. This, if it were a viable national system,
    could become a viable alternative, a viable part of a
    multimodal system that allows people in rural areas and small
    towns to be able to feed into a train system that would allow
    much more flexibility in transportation options.
        I look forward to hearing from all the witnesses. I look
    forward to supporting Senator Hollings' bill with whatever
    input that we can have from Senator McCain and others if we are
    committed to a national system and committed to a funding level
    that will support a national system that works.
        Thank you.
        The Chairman. Thank you.
        Senator Burns.
        Senator Burns. Thank you for the hearing. I look forward to
    visiting with the witnesses. I have no statement at this time.
        The Chairman. Thank you.
        Senator Wyden.

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

        Senator Wyden. Thank you, Mr. Chairman, and I think your
    efforts are really a breath of fresh air at this point, and it
    is coming at a critical time.
        It seems to me that on the current CEO's watch--Mr.
    Warrington's watch--Amtrak has failed to deliver on all of the
    major pledges that they have made to the Congress, the pledge
    that they would be self-sufficient with respect to their
    operating costs by October 1st, and they have not done that.
        They said they would make the route decisions on the basis
    of financial criteria. They have not done that. They said they
    would run a national system, and they have not done that.
        I very much share the view of Senator Hutchison with
    respect to the way this system operates. This is a system out
    of the Northeast, for the Northeast and by the Northeast, and I
    will tell you we are not, I think, going to abide by that, and
    I think perhaps Mr. Warrington can tell us what this system is
    all about.
        He comes out of New Jersey Transit, ran the Amtrak
    Northeast Corridor. Then he is CEO of Amtrak, and now he has
    gone back to the New Jersey Transit system, and I think it is
    very curious that at a time when he is working out arrangements
    to go back to New Jersey Transit, he is cutting routes across
    the country. He is cutting routes, 18 of them, in fact, unless
    he gets the additional money.
        I am going to ask some questions about that because I would
    like to know exactly how all of that unfolded. We are having
    proposals to cut routes in the rest of the country and he is
    heading back to run the New Jersey system, and by the way, New
    Jersey Transit operates commuter trains in the Northeast
    Corridor. So there are some curious processes there at Amtrak,
    but all of them seem to blend in the same place, and that is,
    that you have a system for the Northeast Corridor, and at some
    point I guess they think some revenue is going to trickle down
    to the rest of the country, and what they are really doing is
    turning that part of the country into a zone, and I for one am
    not going to support sending any more tax dollars from Oregon
    just to run trains on the East Coast, and that is why your bill
    is so welcome, Mr. Chairman.
        The Chairman. Thank you.
        Senator Kerry.

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

        Senator Kerry. Mr. Chairman, I appreciate the opportunity
    to be here. This is a terrific hearing, and I thank our
    colleagues from Delaware who understand this issue as well as
    any two Senators.
        I'm in support of your bill, Mr. Chairman. I think it is a
    terrific bill. It is a long overdue one, and it is important
    for the country, but I have been listening in the last days as
    the Northwest, Western and elsewhere complaints are lodged with
    respect to the Northeast Corridor, and believe me, I am very
    sympathetic to their complaint, but we should not be bamboozled
    here into creating a sort of false divide that pits us against
    each other. It is not a problem of the Northeast
    inappropriately or sort of taking from somehow.
        What happens is the system has been pushed in this
    direction because Congress itself and the administrations have
    failed to properly allocate resources and structure this, and
    the reason you are left saying ``why is the Northeast getting
    this?'' Well, it happens to have the most ridership and it
    happens to be a commitment we made many years ago to go do the
    electrification in the Northeast Corridor. That should be
    happening elsewhere in the country. That is what a national
    rail system is about. That is what a national commitment is.
        Now I agree with the Senator from Arizona. There are some
    places where today at this moment certain kinds of commitments
    do not make sense. They are not going to make sense in terms of
    transportation needs. They are not going to make sense in terms
    of economic needs. I believe it is possible to structure a
    national system that once and for all properly allocates the
    resources in order to be able to have a working entity.
        We have talked about it here in this Committee before. We
    are the only country in the world, the only one in the world
    trying to make a railroad system profitable when, in fact, the
    very foundation of it is incapable of being profitable. I know
    the Senator from Arizona and others have problems with the
    labor structure. That is not a differential here. The
    differential here is that if you do not have a rail system that
    gets people from here to there comfortably and rapidly and as a
    legitimate alternative to other systems they are not going to
    take it and use it and can never make it profitable or even
    close to profitable.
        The rolling stock investment comparative figures that we
    have looked at before in this Committee between the United
    States and other countries is a shameful statement about our
    negligence and unwillingness to provide the kind of rail repair
    and rolling stock necessary to be competitive.
        So my hope is that we are going to end this confusion here
    so that we allow the system to begin to become more competitive
    and to function better, Mr. Chairman, and we just have to face
    some economic realities about how that is going to happen.
        I think your bill is a tremendous place to start doing
    that. I might just mention, Mr. Chairman, the air system of
    America, those components funded by the Federal Government,
    does not make a profit and never will. The highway system of
    America does not make a profit and it never will.
        Senator McCain. They are funded by user fees.
        Senator Kerry. No. They are funded partly by user fees,
    partly government.
        Then the question is why not allow those fees to be
    properly allocated? Over the lifetime of the airports, I think
    we have put something like $40 billion in the highways, $16
    billion in the airports, and $33 million into the rail. The
    disparity in the allocation is the problem.
        So we could use user fees just as we do gas tax or have
    user fees to do that, build a railing system, and you have the
    equal kind of funding. We do not have an equal funding
    structure, and that is the problem, and we need to create that
    change.
        The Chairman. Senator Dorgan.

                  STATEMENT OF HON. BYRON L. DORGAN,
                     U.S. SENATOR FROM NORTH DAKOTA

        Senator Dorgan. Mr. Chairman, thank you very much. I will
    be brief.
        I am pleased to co-sponsor the legislation that you have
    introduced. I think it is an important step in the right
    direction, and I agree with Senator Kerry, there is an
    incredible discrepancy with respect to support for various
    forms of transportation, and I am one who believes that we
    should have a national rail passenger system, support Amtrak,
    believe in Amtrak, believe we can invest in Amtrak, and I think
    your legislation is an important step in the right direction.
        I'm pleased to co-sponsor it, Mr. Chairman.
        The Chairman. That is our legislation. Efforts are not
    going to go anywhere on this unless it is our legislation and
    that is what I have tried and so far with good success. We have
    got bipartisan 25 co-sponsors in behind this move. We are
    listening, we are learning, but this is not just for the
    Northeast.
        Senator Wyden's here. Senator Murray is working at the
    Appropriation Committee level. I'm working with it, and unless
    we take care and really have a national system with Texas or
    the mid-States, West as well as the Northeast and everything
    else, it is not going anywhere.
        We have got wonderful witnesses here and the two experts.
    The Senior Senator from Delaware has traveled more on Amtrak
    than any of the Amtrak employees, and Senator Carper has been
    serving on the board.
        Let me hear first from the Senior Senator, Senator Biden.

                STATEMENT OF HON. JOSEPH R. BIDEN, JR.,
                       U.S. SENATOR FROM DELAWARE

        Senator Biden. Thank you very much, Mr. Chairman, Members
    of the Committee. Let me begin first by setting a few things
    straight just generic, not straight from my perspective.
        The fundamental problem here is money. The distinguished
    Senator from Arizona said we do not have one airline. We
    probably would have one airline if we did not subsidize them so
    much and bail them out so much. They would be out of business
    if we had not come up with about $14 billion in about a 4-
    minute debate on the floor of the U.S. Senate.
        I say to my friend from Oregon about you do not want to
    subsidize railroad in the East and you do not want rail in the
    East when you are not getting it in the West. Well, I think I
    should stop subsidizing water projects that cost about $30
    billion to keep your State alive and keep my friend from
    Arizona, him being able to drink water at a cost less than my
    mother pays for water in Delaware.
        I thought we were a Federal system. I thought we made up
    for each other's needs. I thought we were in the business as
    United States Senators and the Federal Government to deal with
    the problems that each of our districts had, each of our areas
    have. Ours happens to be some incredible traffic congestion.
    Yours happen to be you do not have water, among other things.
    That is a little problem. You have got a lot of water
    someplace, and if we did not spend Federal money to divert it,
    you would all be in real deep trouble.
        So I find it offensive to be talking about how we are not
    going to help on one end of the country another company because
    you do not have benefit the same way we benefited. Maybe I
    should stop voting for farm bills. Maybe I should stop voting
    for water projects. Maybe I should stop voting for anything
    that does not directly benefit Delawarans, but I'm not going to
    do that.
        The second point I would like to make is about airports in
    rural areas. Let us get this thing straight. The people of
    Delaware pay for people to fly into No Place, Oregon, that no
    one wants to go to. We pay for it. We pay for it. We pay for
    it. It is called essential services. Essential services. We
    just came up with another $20 million for that, essential
    services. I do not know why that does not apply about essential
    services.
        Third, the irony of all this is if Senator Hollings' bill
    does not pass, we are not going to have a national passenger
    rail system, but guess who is the only one who is going get to
    ride the rail? Me. Me, because it is going to survive in the
    Northeast. We are making money. They are making money in the
    Northeast Corridor. They are making money.
        Revenues are up 40 percent. The number of passengers is up
    21 percent or 20 percent. So we are going to be OK. That is the
    irony of this whole deal. Delaware's going to have Amtrak.
    Delaware's going to have somebody going up and down the
    Corridor. We do not have a problem. You all are going to have a
    problem. You are going to have a problem.
        Mr. Chairman, you have the opportunity to do something
    really significant here with your bill, but there are a few key
    points that I think need to be made.
        I do not need to tell you that our national rail system is
    at a crossroads, and because of the decades of underfunding,
    Amtrak is struggling to stay afloat. They imposed drastic
    spending cuts in the last several months, the deferred capital
    maintenance projects. They mortgaged Penn Station in New York,
    the most valuable asset. They slashed employment, and short-
    term moves have only served to worsen Amtrak's long-term
    financial viability.
        The IG report, you should read the whole report. The IG
    report says that there is a need for a minimum of $1.2 billion
    a year in capital improvement. Now, whoever picks up the
    railroad, let us remember why they got out of the business, why
    Union Pacific got out of the business, why Penn Central got out
    of the business, why the BNO got out of the business. They got
    out of the business because they could not make any money in
    the business. That is why they got out of the business.
        The reason Richard Nixon came along and said there should
    be this outfit called Amtrak was just because we needed a
    national passenger rail service. Somebody had to do it.
        Now this $1.1 billion loss that Amtrak supposedly has this
    year, that is depreciation in non-revenue losses of $280
    million in actual losses. There would be no loss if we just
    funded what we authorized the last 2 years. We authorized twice
    as much as we appropriated. By the way, when they put this new
    railroad together called Amtrak, I see my friend from Montana,
    they got a great deal.
        Senator Burns. I did not make an opening statement here.
        Senator Biden. No, I know that, but I know how critical my
    friend from Montana is. He is a key player here.
        I just want to make a point. We inherited all this rolling
    stock that was useless. They inherited this stuff that was not
    worth anything. People were anxious to give it away. They ended
    up with track that was in disrepair. So they started off kind
    of slow, folks, because we did not give any money.
        Let me cut to the chase here and end by pointing out we
    have spent $750 billion on our highway and aviation system
    since 1971, and $25 billion in passenger rail service. Make no
    mistake about it, at the same time we were underfunding Amtrak,
    we were also placing unrealistic expectations on Amtrak.
        In 1997, the Amtrak Reform Accountability Act was passed.
    Amtrak was mandated to be operational and self-sufficient by
    2002. With this, Congress said Amtrak, go be profitable, but
    also provide a public service to the Nation. Send railroads and
    trains places it does not make sense, where it is not possible
    to be profitable, send them there and then, by the way, with
    the highway trust funds, with the little funds you were able to
    get, why do not we allow, just as an illustration, just allow
    the States, not the Federal Government, but allow the States to
    say that our rural highway trust fund money that we can now use
    to build a bicycle path, that we can now use to buy buses and
    have a bus system, just if the State wants to do, let the State
    use that money that goes to Amtrak and say we will give you
    this money if you run a railroad, a passenger train on our
    service. But all our cement boys here, they all thought that
    was a real bad idea and you are allowed to build a bicycle
    path, you are telling me, with highway trust money? You can
    build a bicycle path and you can buy buses, but you cannot use
    an existing railroad track that sits in the middle of your
    State? This is ridiculous, ridiculous.
        Kay Bailey Hutchison is right. Let us either fish or cut
    bait. We have a national rail system or we do not. I am
    finished. I cut bait. I am out of here.
        [The prepared statement of Senator Biden, Jr. follows:]

               Prepared Statement of Hon. Joseph R. Biden, Jr.,
                           U.S. Senator from Delaware

        Mr. Chairman, thank you for the opportunity to appear before the
    Committee this morning. I would like to take this time to quickly
    outline a few key points that I think are crucial in understanding the
    current state of passenger rail in this country, and the ways in which
    I envision its future.
        As we're all well aware of by now, our national passenger rail
    system is at a crossroads. The decades of underfunding has finally
    caught up with us. Struggling just to stay afloat, Amtrak has imposed
    drastic spending cuts in the last several months, deferring key capital
    maintenance projects and slashing employment. These short-term moves--
    which includes the recent mortgaging of Amtrak's most valuable asset,
    New York's Penn Station--has only served to worsen Amtrak's long-term
    financial viability, and put its future in jeopardy.
        We have the chance to change that this year, and S. 1991 represents
    a solid start towards the goal of a truly national, efficient, and safe
    passenger rail system. By reauthorizing Amtrak at the funding levels it
    needs to maintain and grow, this bill is a blueprint for both the
    present and the future.
        For 30 years, Congress has taken a back-seat approach to this
    matter, stalling and bickering, in the end providing only enough money
    to allow Amtrak to continue to limp along. Now, we have to end that
    trend--we have to sit down with governors, mayors, laborers, and all
    other interested parties, and discuss, as we are doing today, what kind
    of passenger rail system this country deserves, and how much support
    from federal, state, and local agencies will be needed to sustain such
    a system.
        And we must not forget the larger context in which this discussion
    takes place. In the last several years, I have talked with lots of
    local, state, and federal policymakers about the increasing capacity
    constraints on our nation's highways and airplanes, which have caused
    greater pollution and chronic overcrowding. Add to this September 11th,
    which demonstrated in even starker and more rigid terms how important
    it is to have a diverse, balanced national transportation system, and
    it is clear that the federal government must begin to adequately
    support passenger rail.
        Every industrialized country in the world has provided, and in
    almost every case continues to provide, substantial subsidies to their
    rail systems, as they understand the enormous capital costs involved in
    developing and maintaining a national rail system. And yet, in this
    country, though we have committed strongly to highway and aviation
    development, we have not yet understood the parallel commitment
    necessary for passenger rail. Whereas we have spent $750 billion on our
    highway and aviation systems since 1971, we have only spent $25 billion
    on passenger rail in that same period.
        And at the same time that we have been underfunding Amtrak, we have
    also been placing unrealistic expectations on them. In 1997, when the
    Amtrak Reform and Accountability Act (ARAA) was passed, Amtrak was
    mandated to be operationally self-sufficient by December 2, 2002. With
    this, Congress said to Amtrak: ``be profitable, but also provide a
    public service to the nation.''
        This is not the right way to approach this issue. Instead, as S.
    1911 would rightly do, we need to move away from threatening to cut off
    Amtrak's funding, and towards a realization that no system, anywhere in
    the world, operates without some level of federal and local support.
        This legislation lays out the priorities and vision for the future
    of passenger rail in this country. It provides for a one-time cost of
    $1.3 billion for security-related improvements. As I've been saying for
    months, and as the Department of Transportation and others have
    concurred, Amtrak needs close to $3.2 billion to improve its tunnel
    infrastructure, upgrade its security measures, and invest in other
    safety programs.
        And S. 1911 also provides for longer-term investments in developing
    the infrastructure for Amtrak's future. For example, it would fund
    $1.55 billion annually to the planning and implementation of high-speed
    rail corridors. As we all know, one of the brightest points for Amtrak
    has been the development of high-speed rail service. The Acela train is
    a fantastic success, as it has helped Amtrak increase its revenue by
    close to 40 percent and ridership by 20 percent in the last several
    years. The 11 corridors outside of the Northeast that the Department of
    Transportation has identified have the same potential to vastly improve
    the efficiency and profitability of Amtrak. The only thing stopping
    them from developing these routes is a lack of funding from the federal
    government.
        Let me conclude my remarks with one final comment: while it is
    crucial to set long-term goals for passenger rail, during this
    reauthorization debate, we should not also forget the immediate
    concerns facing Amtrak today. As George Warrington, the head of Amtrak,
    has stated numerous times over the last several months, if Amtrak does
    not receive a bare-bones minimum amount of $1.2 billion, more drastic
    labor cuts, and potentially even route closings, may be the only way
    for passenger rail to continue in this country. I think everyone in
    this room would agree that this would be detrimental to our national
    transportation infrastructure, and so, I'd ask that we continue to work
    to get Amtrak the $1.2 billion they so desperately need next year, as
    we also work to reauthorize passenger rail service for the future.
        Thank you, again, Mr. Chairman, for the opportunity to briefly
    offer my thoughts on this subject.

        The Chairman. Senator Carper, thank you very much.

                  STATEMENT OF HON. THOMAS R. CARPER,
                       U.S. SENATOR FROM DELAWARE

        Senator Carper. Now, you see the kind of act I have been
    trying to follow for 25 years in Delaware. I believe what I was
    going to say has been said. I will not say it.
        I do want to say a word about George Warrington. I did
    serve on the Amtrak board for 4 years when I was Governor of
    Delaware. I was one of the people on the board who asked George
    to serve as our interim president for our Amtrak. I asked
    George Warrington to apply for the position of president of
    Amtrak.
        I have known a lot of people in my life, not just at
    Amtrak, but in a lot of roles. He is one of the finest people I
    have ever had the privilege to work with, and as he leaves
    Amtrak to return to his home in New Jersey, he goes with my
    thanks and I hope with yours.
        I do not know who said this, Harry Truman or somebody else,
    ``the only thing new in the world is the history we never
    learn'' or words to that effect. The only thing new in the
    world is the history we never learn or have forgotten.
        A couple of people alluded to it. We need to say it again.
    In 1971, when Amtrak was created, it was created because of
    freights and other rails could not make money carrying
    passengers. They wanted out of the business, and the deal was
    they bought some stock in Amtrak. They gave up some of the real
    estate in the Northeast Corridor. They gave old track bed, old
    overhead wires, old repair shops, old train stations, old
    locomotives, old passenger cars and old dining cars to this new
    entity called Amtrak, and basically we said as a Congress and
    as a country ``go run the railroad.'' What we have done for 31,
    now 32 years is to starve Amtrak for capital investment.
        Many countries around the world have passenger rail systems
    that they are proud of. I would like us to be proud of our
    national system in America, but what they do in all those other
    countries where we have ridden their trains from Europe to
    Japan and other places, they do not starve their passenger rail
    system of capital. They heavily invest in capital and we simply
    have not, and the difference shows every time you ride one of
    our trains and every time you ride one of theirs.
        Maybe the folks in all those other countries are stupid or
    maybe they see something that we do not, and I think what they
    see that maybe we do not is in those countries it is in their
    naked self-interest to be less reliant on foreign oil. Many of
    them have less oil than we do, and by putting together a good
    passenger rail system, they economize on oil.
        Joe and I rode down on the train today that had probably
    500 passengers on the train, and along the way, we passed a lot
    of cars that had one person in those cars, one driver. I can
    tell you, we are saving a lot of energy compared to those 500
    cars we passed with single persons in them.
        But not only do the other countries save energy, they end
    up with cleaner air because of lower emissions. They end up
    with less congestion on their highways. They end up with less
    congestions around their airports, and that is why they do it.
    It is in their naked self-interest, and I would contend that it
    is in our naked self-interest to do the same.
        What kind of passenger rail system do we want in America?
    This is a timely debate. You ever see the old movies where you
    have got the damsel in distress tied to the railroad tracks and
    like the train is bearing down? Every year it is like that for
    Amtrak, only Amtrak plays the role of the damsel in distress to
    the train bearing down, and with the train bearing down and the
    question is, is Amtrak going to be saved?
        Another role that Amtrak plays is the role of the beggar
    with the tin cup coming to us about every year begging for
    money. Neither role is one that we ought to continue.
        Let me just take a moment and just say this is the kind of
    passenger rail system that I would envision for our country.
    Joe is right. We are always going to have a Northeast Corridor.
    We will have train service from Boston to and through
    Washington, the only place in the country that Amtrak actually
    owns the track there and the overhead wires that we use.
    Everyplace else Amtrak is on somebody else's track. They do not
    like having Amtrak on their track especially, and they let
    Amtrak know that because they do not give them the rights-of-
    way.
        This is the system I would like for us to consider having
    for the future. There are a quarter-of-a-billion people who
    live in America today. Seventy-five percent of them live within
    50 miles of one of our coasts. As time goes forward we will
    have more people and we will have more densely-populated areas
    in our country. Many of them live in corridors that we
    represent. The Northeast Corridor is not the only corridor that
    lends itself to high-speed trains. There are others in the
    Southeast. There are others in the Northwest. There are others
    in the Midwest out of Chicago.
        What we need to do is to make capital investments in the
    tracks in those high-speed corridors to benefit Amtrak and also
    to benefit the freight railroads. We should make those
    investments with dedicated sources of revenue, with earmarked
    sources of revenue. We should ask State and local governments
    to share in the cost of those investments.
        Second thing we should do, as Joe said it and others have
    alluded to it as well. As Governor of Delaware, I found it
    offensive that I could spend my State's Federal transportation
    moneys for bicycle paths, for freight railroads or a variety of
    other uses, but if I thought it was in the best interest of my
    State to use some of that money for passenger rail service, I
    could not do that. That is foolishness, and we should stop
    that.
        Next, we should relieve Amtrak of the burden of having to
    pay railroad retirement for people who retired who never worked
    for Amtrak. Amtrak spends about $200 million a year to pay
    railroad expenses for people who never worked for Amtrak, who
    never will work for Amtrak, and that should just be stopped.
    The moneys have to be paid, but it should not be taken out of
    Amtrak's hide.
        There is a great partnership, and George Warrington can
    tell you more about this, but whenever Amtrak is running on
    tracks with the freight rails, they can actually carry things
    other than passengers, and Amtrak is doing a very good pilot
    project with the Burlington Northern and Santa Fe rail where
    they actually carry commodities, not just packages of mail and
    express, but actually commodities, perishables and
    nonperishables on the tracks of the freight railroads. Amtrak
    makes money doing it. They split the profits with the freights,
    and it gives the freights a reason to want Amtrak to be in
    their system.
        I think we ought to expand services like the Auto Train.
    Some of us have taken the Auto Train. It is the longest train
    in the world. It actually can make money, a train on the West
    Coast called the Coast Star. People pay a premium in order to
    ride the train to see some of the most beautiful landscape in
    America. We expanded some of those services where the ride is
    really the view, not the destination, but the ride itself is
    the deal.
        Amtrak owns the Northeast Corridor. It is a valuable piece
    of land. We can use it for all kinds of things from fiber optic
    to rural electricity, swing electricity up and down the
    Northeast Corridor, making money to do that.
        Last, if we actually make the investments in the Northeast
    Corridor to fully harness the potential of the new Acela
    Express trains, some of us are going to ride that train when we
    go up to New York in a month or so for our caucus. We do not
    fully utilize the potential of that train, and the reason why
    is because of the track. That has not been upgraded
    sufficiently. The overhead wiring is old. The signaling is old.
    We do not fully use the capacity. Even so, Amtrak, I think, now
    carries over 50 percent of the passengers. There are more
    passengers on trains in the Northeast Corridor than go by air.
        This is just a thumbnail sketch of a system that can
    actually survive and not just survive, but make this system a
    system that can make us proud. It needs to start with a vision.
    I like the vision in your bill. I am interested in learning
    more about what Senator McCain has to say, and I very much
    appreciate the chance to be here today.
        Senator Biden. Mr. Chairman, could I have 60 seconds?
        The Chairman. Sure.
        Senator Biden. Only 60 seconds. Three points. Number one,
    we are going to spend $112 million to service 78 cities in the
    year 2002, which is 20 percent of the entire Amtrak budget. Got
    that? We are going to spend a $112 million straight up Federal
    revenue to service 78 cities for airports. We are going to
    spend $500,000 for all of Amtrak.
        Number two, we have an $8.5 billion deficit in the highway
    trust fund this year. Mark my words, we are going to take out
    of general revenues another $4 billion. We are going to take
    probably $4 billion this year to subsidize the highways. If I
    am wrong, I will be happy to say I am wrong, but I will make a
    bet that you all are both putting another $4 billion beyond the
    revenues into highway.
        The last point is, we promised that on October 16 we would
    take care of the security problems of Amtrak. We made that
    commitment. We passed it out of here unanimously. I cannot even
    get it up for a vote, because there is secret holds on not
    being able to deal with the security interest of Amtrak, and
    there are more people right now as I speak in New York City in
    tunnels that were built in 1919, with no lighting, no
    ventilation, and no escape than there are on 747s right now.
        The Chairman. Very good. You both are very knowledgeable
    and have been a terrific help to us as we move this bill along.
        Senator Wyden. Mr. Chairman, I am going to be very brief. I
    just want to ask Joe a quick question. First, so you know, in
    21 years in the Congress, I have voted every single time for
    the dollars that you all have been interested in, and I think
    what people in Oregon are concerned about, people in the West
    are concerned about now, and I think this is something we can
    walk out of here and agree on, is we want the calls on the
    merits. We want the calls on the basis of objective criteria,
    and I think what really set people off in the West is when
    those trains were eliminated, other trains were continued, but
    the GAO said we were less cost effective.
        I think probably I would like, as we walk out the door, in
    an effort to find some common ground is an agreement that would
    just call these on the merit, because in my part of the
    country, people are doing everything except holding bake sales
    to keep their train service coming.
        We have small towns--at least in Oregon, Joe--that have
    voted to levy per capita assessments to keep trains going on
    themselves, and I think if we can just walk out of here saying
    we are going to have as part of the Hollings bill, we are going
    to have these decisions based on the merits, I think we can
    come together and make some common ground, and if you want to
    get a quick reaction to that, maybe the Chairman will allow
    that, give us a chance to walk out of here and an opportunity
    to make some progress.
        Senator Biden. Well, I think it should be made on the
    merits. You may be right that it was not made on the merits. I
    am not aware that it was not made on the merits.
        I would like to add Wilmington, Delaware, to the 78 towns
    that are subsidized for air traffic. We do not have any air
    transportation in Delaware. I would like to have that
    considered on the merits. We would join some of the towns that
    get subsidized findings, and let us do it all on the merits. I
    am ready to do it.
        Senator Carper. Mr. Chairman, neither Joe nor I are
    interested in running trains where people do not want to ride
    trains, and we are not interested in running trains where State
    and local governments are not interested in providing some
    support. If people want to ride the train, if State and local
    governments want to provide the support, we should not let
    trains go.
        The Chairman. Very good. We thank you both. The Committee
    is indebted to you all.
        Senator Biden. Does the cowboy have any questions?
        The Chairman. We have got nine other witnesses here before
    us this morning. Thank you.
        Now, we have panel number one: Michael Jackson, Deputy
    Secretary of the Department of Transportation; Kenneth Mead,
    Inspector General of the Department of Transportation; and
    George Warrington, the President of Amtrak. Please come
    forward. We welcome you all this morning.
        Your statements will be included in their entirety, and you
    can summarize if you wish. Let me start with Mr. Warrington, if
    you do not mind, Michael. Let us see what the gentleman says
    about Amtrak and what we are going to get done.

                  STATEMENT OF GEORGE D. WARRINGTON,
                       PRESIDENT AND CEO, AMTRAK

        Mr. Warrington. Thank you very much, Mr. Chairman and
    Members of the Committee. You have my formal statement which we
    got over to you yesterday, and I would like to summarize that
    statement by making a couple of very short points here.
        This gets to some of the issues that you raised Senator
    Wyden. I will tell you that the basic underlying model for
    intercity rail service in the country really does not work, and
    it does not work anywhere in the world. I think we have all
    come to that conclusion, and it does need to be fixed
    appropriately.
        I will tell you that we have tried very, very hard to make
    that model work. We have managed costs aggressively,
    particularly discretionary costs. We have squeezed revenue from
    every conceivable source across the operation, including all of
    our assets, and we have also explored and developed other
    financing techniques to generate revenue to hold this system
    together. When I came to this position, I know that there were
    a number of folks who believed that I was a Northeast Corridor
    guy, that I had a secret plan in the vault to dismantle this
    system, that my interest was the Northeast Corridor interest
    and that I had substantial bias in that direction. I will tell
    you that that is simply not the case at all.
        I recognize and thoroughly understand that this Congress
    established clear expectations about a national system. The
    reason we have pushed as hard as we have on revenue and cost
    and creative opportunities to generate income here, whether it
    be mail and express, equipment leasing, pursuing fiber optics,
    pursuing highway transmission, all those ancillary businesses
    that frankly we have been criticized for engaging in, is to
    hold the national system together while at the same time trying
    to remain on the glidepath.
        I always have been and have assured Senator Hutchison that
    I am committed to this national system. I have worked very,
    very hard to try to hold this system together as we have
    reduced Federal support and within the context of significant
    undercapitalization.
        I think looking forward what is most critical here is that
    those expectations, which many of you have expressed here this
    morning and that were clearly established earlier in those days
    when I first came to Amtrak about a national system, be aligned
    with public investment, because in the end, much of what we do
    is really a public service.
        We have worked hard to create a commercial culture inside
    the corporation, but in the end it is a public service, some of
    which is an essential public service that I would, as Senator
    Biden has said, make analogous to an essential air service to
    rural and principally Western communities across the country.
        I think the Congress and the Administration need to once
    and for all bring to closure what the system is, which as a
    matter of public policy really does constitute the third leg of
    the transportation stool, particularly in the context of the
    highway and aviation systems being reasonably built out.
        Amtrak cannot do that alone, and in fact, what Amtrak has
    tried to do is hold that system together. I think the Congress
    and the Administration need to align public investment with
    that defined system, like the interstate highway system in
    1955, as a matter of national transportation policy. Amtrak
    cannot do this alone, and Amtrak cannot carry this burden on
    its back. The Federal Government needs to establish as a matter
    of national transportation policy, as it did when it defined
    the interstate highway system, that there is a 10- or 15- or
    20-year defined intercity rail passenger system that is a
    matter of public policy. The debate, frankly, is much less
    about Amtrak and should be about the government's national
    transportation policy with respect to rail investment over the
    next 10 or 15 or 20 years.
        I will tell you that while there are certainly
    opportunities around restructuring, there are more meaningful
    opportunities around significant State and freight railroad
    engagement and partnership as such a system develops.
        I think fundamentally at the beginning, for any vision to
    be executed here, which is the case anywhere around the world,
    it does have to be a substantial Federal commitment and Federal
    investment such as that which took place decades ago with
    respect to the aviation and highway systems. I think this is
    fundamentally a Federal transportation policy question.
        I will be leaving Amtrak soon, and I just wanted to say
    that I want to thank all of you for all of your support. I want
    to also thank you for focusing on and bringing this important
    matter to the table and hopefully to closure in the near
    future.
        I also want to take this public opportunity to sincerely
    thank all of the folks at Amtrak who I have worked with over
    the years, management and the troops. They are an outstanding
    group of people who are incredibly passionate, interested,
    engaged and service-oriented in what always has been a very,
    very difficult environment, and I will miss them immensely.
        Thank you, Mr. Chairman.
        [The prepared statement of Mr. Warrington follows:]

                  Prepared Statement of George D. Warrington,
                           President and CEO, AMTRAK

        Mr. Chairman and Members of the Committee, thank you for the
    opportunity to appear before you this morning. All of us at Amtrak
    appreciate your leadership on passenger rail issues, and we welcome
    this discussion. In addition to my statement this morning, I have
    submitted for the record a copy of our Business Plan and Legislative
    Grant Request, which was sent to Congress on February 15, and which
    provides more detail about our past, present and future issues.
        Mr. Chairman, we especially appreciate that this hearing marks the
    beginning of a forward-looking discussion about the proper scope of our
    national passenger rail system--and sources of adequate, predictable
    funding to support that system. As you yourself have noted, it took a
    sustained federal commitment to build our national highway and aviation
    systems, both of which have become essential ingredients in our
    economic vitality and quality of life. Going forward, it will take the
    same kind of federal responsibility and vision to build a passenger
    rail system that delivers comparable benefits.
        Mr. Chairman, before I comment on re-authorization and the
    legislation currently before this committee, I want to briefly provide
    a bit of context that everyone should keep in mind as we discuss these
    issues.
        First, it's ironic that Amtrak finds itself in today's difficult
    position, because the demand for passenger rail--and the recognition of
    its critical role in our transportation system--have never been
    stronger.
         Since 1996, our overall ridership has grown by 19% to an
    all-time record of 23.5 million passengers.
         Also since 1996, Amtrak's ticket revenue has grown by 40%
    to $1.1 billion, and overall revenues have risen by 38% to $2.1
    billion.
         We have developed successful partnerships with a growing
    list of commuter agencies and private sector partners, and we have won
    increased state operating contributions for state-supported services.
         We launched North America's first all-new, high-speed
    train, Acela Express, which has carried more than 1 million guests in
    its first 14 months of operation.
         We have instilled a greater emphasis on customer service,
    which is reflected in the industry's only satisfaction guarantee.
         We have developed new business and analytical tools that
    have enabled us to operate more efficiently. And we have reined in the
    growth of discretionary spending, achieving zero growth in expenses
    over the last year, excluding depreciation.
        Certainly, we are far from perfect, and our work is far from done.
    But in a number of critical areas, we are better positioned to meet the
    country's needs than we were just 5 years ago.
        The second bit of context that everyone should understand is the
    economic realities underpinning passenger rail service. All over the
    world, passenger rail is a competitive mode of travel in relatively
    high-density areas and for trips of up to 350 miles. Rail is much less
    competitive for longer-distance, lower-density routes.
        This means that a national passenger rail network in the United
    States will never be profitable on a classic, commercial basis. While
    some routes will cover their own operating costs, other routes will
    need operating support, even after internal cross-subsidies. And none
    of our routes will ever cover their cost of capital. No one should be
    surprised by any of this, as every other transportation mode in the
    United States and every other passenger rail system in the world relies
    substantially on public funding.
        As I mentioned a moment ago, we have worked very hard and
    successfully to maximize revenue opportunities and to control our
    discretionary expenses. And while we have made significant progress,
    the reality is that it will never be enough to fully cover the costs of
    today's national network.
        The third piece of context that everyone must bear in mind is that
    Amtrak is expected to move in two directions simultaneously--to
    maintain a national network including many segments which will require
    ongoing public support, while at the same time becoming operationally
    self-sufficient. As a result of the successful initiatives I mentioned
    earlier, Amtrak has been able to accommodate a nearly 90% reduction in
    its federal operating support from $319 million in FY '99 to $40
    million this year, excluding RRTA. But the only practical way to
    maintain a national network with declining levels of operating support
    is through borrowing and cross-subsidies from our profitable lines of
    business. But borrowing drives up our debt load, and cross-subsidies
    deprive us of resources that could otherwise be re-invested in
    modernized fleet, facilities and technologies.
        Fourth, on top of conflicting policy mandates, Amtrak has had to
    cope with inadequate levels of public investment for the system we were
    expected to maintain. Over the last 31 years, our federal funding
    available for capital investment averaged less than $325 million a
    year, for a 22,000-mile system. The total capital funding over 31
    years--about $10 billion--is still a fraction of what this country
    invests in highways and aviation in a single year.
        Mr. Chairman, as you yourself have pointed out, passenger rail is
    the only mode of transportation in the United States that does not have
    guaranteed appropriations and a dedicated source of capital funding.
    Highways, aviation, transit and ports all have this predictability.
    Passenger rail is the only mode subject to the uncertainties of the
    annual appropriations process. And the result is deferred
    modernization, higher maintenance costs for aging assets, and higher
    debt service due to our dependence on private financing.
        The more recent factors that have affected our performance are the
    recession, the higher security costs stemming from September 11, and
    the actions of the Amtrak Reform Council, which have had a direct cash
    impact of $52 million since November.
        But rather than dwell on the combination of factors that have
    undermined America's passenger rail system in the past, I think the DOT
    Inspector General said it best in the Wall Street Journal on January
    28, and I quote: ``For what it has been charged to do, it's amazing
    that Amtrak has gotten this far.''
        Mr. Chairman, there is one more piece of information about the
    passenger rail system that is widely misunderstood, and that is our
    operating losses. In FY 2001, Amtrak's operating losses were just over
    $1 billion. Of that total, depreciation expenses were $488 million,
    excess RRTA was $183 million and net interest expense--driven by
    inadequate levels of federal capital--was $80 million. So as you can
    see, more than 80% of the operating losses were attributable to these
    three mandatory items alone, and nearly 50% was non-cash depreciation.
        Mr. Chairman, I hope these comments shed some light on the
    challenges facing us all, as we work together to improve and transform
    Amtrak. In particular, I hope I've made it clear that any future course
    of action that relies primarily on short-term business actions within
    the current policy framework will fail. Likewise, any proposal to fix
    Amtrak's problems by splitting it into several parts is a distraction
    from the fundamental issues.
        After the latest round of expense reductions, capital deferrals,
    and revenue actions, Amtrak will have improved its financial position
    by a total of $543 million during FY 2002 and 2003 without compromising
    safety or eliminating any train services. But having cut nearly to the
    bone, with a mounting capital backlog and our financial flexibility
    impaired by uncertainties about the policy process, we are running out
    of tools and time.
        Indeed, the time has come for Congress and the Administration to
    put the country's passenger rail system on a firmer foundation--because
    our country needs it.
        Even before September 11, our highways and airports were reaching
    capacity limits. And in the aftermath of September 11, the need for a
    balanced transportation system couldn't be clearer. Passenger rail
    offers additional benefits--as an engine of regional economic
    development, as a cost-effective way to expand transportation capacity,
    and as an environmentally friendly way to expand capacity without
    increasing our reliance on petroleum.
        As I said earlier, I want to briefly speak about reauthorization
    and talk about the legislation currently before this committee. Both
    you, Mr. Chairman, and Senator McCain, have introduced legislation that
    would begin the debate on Amtrak's reauthorization and the future of
    intercity passenger rail service in this country. Although the bills
    differ in approach, you have both recognized that a substantial federal
    commitment will be required to fully develop the potential of intercity
    passenger rail service.
        As I've said before, the key questions that need to be answered in
    this debate are: What is the scope of the intercity passenger rail
    system that's needed? What will it cost? And how will we pay for it?
    But, in the end, Congress and the Administration will ultimately decide
    the size and scope of the system and how that will be paid for. Amtrak
    commits to you that it is ready to contribute to the debate in a
    direct, honest, and transparent manner. Whatever you choose to do, my
    only strong recommendation is that you do it sooner rather than later.
        We look forward to working with you, other Members of Congress, the
    Bush Administration, Governors, Mayors and all interested parties
    across the country to ensure a strong and vital passenger rail system.
    Moreover, as this debate moves forward, I want to assure you that
    Amtrak is prepared to share the expertise that we have developed over
    30 years of operating America's passenger rail system. We have devoted
    a great deal of thought and analysis to these questions. There is no
    doubt that we can build a national passenger rail system that makes
    America proud and meets her need for a balanced, efficient
    transportation system. We simply need to summon the political will, and
    we appreciate your leadership in that regard, Mr. Chairman.
        That concludes my presentation; I'll be happy to answer questions.

        The Chairman. Well, the Committee, Mr. Warrington, thanks
    you very much. I join in the sentiments of Senator Carper. You
    have done an outstanding job and the best job that could be
    done under the circumstances.
        Let the record show that we asked, of course, Secretary
    Mineta to appear. He had a conflict, but added that his
    designee on the Amtrak board was the Deputy Secretary Michael
    Jackson, and the Committee is pleased to recognize you now,
    sir.

            STATEMENT  OF  HON. MICHAEL P. JACKSON, DEPUTY
    SECRETARY, DEPARTMENT OF TRANSPORTATION; ACCOMPANIED  BY  HON.
      ALLAN RUTTER, ADMINISTRATOR, FEDERAL RAILROAD ADMINISTRATION

        Mr. Jackson. Thank you, Mr. Chairman and Members. I am
    grateful for the opportunity to speak before you today.
        Amtrak's financial condition is grave. Since Secretary
    Mineta was assigned to the Amtrak board and assumed that
    position, I have, as his designee, as you say, Mr. Chairman,
    been attending to meetings and working with George Warrington
    and Amtrak staff on these issues.
        We have had three objectives since roughly a year ago last
    May when I first sat down and attended a meeting: One,
    understand the financial facts about Amtrak; two, get them out
    to the Congress and to the public; and three, encourage and
    support an effort this year to reauthorize national passenger
    rail service.
        As we sit here and grapple with this Amtrak problem, we
    have made progress, because a year ago when we started looking
    at these issues there was a sense that everything was OK, we
    are on a glidepath. We have serious financial problems at
    Amtrak, and I think they have been well described by the
    Members and by Amtrak so I will not spend time on that. It has
    taken us 30 years to get to this point, but it is a crossroads
    and time to fix this in some fundamental way.
        The Administration is grateful, Mr. Chairman, for your
    legislation and that of Senator McCain being placed on the
    table because they begin the very detailed debate about the
    specifics of what we have do to structure an outcome that is
    going to be acceptable to the country and that will not just
    punt this problem forward once again. So we are grateful for
    your efforts and welcome the opportunity to dig into those
    details.
        We are continuing a review of the specifics, not only of
    these pieces of legislation that are on the table here and in
    the House, but of the core sets of problems. I would like to
    outline just briefly as an introduction some of these ten
    questions that we are trying to work our way through, because
    when you add the answers up to these ten questions, you have
    the outline and the details for a piece of legislation that can
    get us where we need to go.
        The first question the Administration is asking itself is
    should we continue to support Federal funds for intercity
    passenger rail, and I want to say at the outset that Secretary
    Mineta has been clear on this. So we know the answer to that
    one from his perspective, and I absolutely share it, that
    intercity passenger rail is an indispensable part of the
    national intermodal transportation network and we must have
    intercity passenger rail in some viable form.
        Second question--have we understood adequately the major
    financial and policy drivers that make Amtrak incapable of
    financial self-sufficiency? The Board has undertaken an outside
    study of these areas. Internal to the Administration we have
    done the same. Inspector General Mead has contributed
    significantly to our understanding of these issues, and I think
    that we just have to make sure that we all lay on the table the
    significant drivers and then look at the legislation against
    those problems, those drivers.
        Third question--what kind of passenger rail system should
    we support? We have tried to lay out the range from nothing at
    all to an extensive network of high-speed rail that complements
    the system that we have and grows it and builds it, and there
    are pros and cons for each of these.
        There are three or four or five major different options in
    between the beginning and the end. We think that each has
    significant cost and policy questions, and I think there has to
    be clarity first and foremost about what we are trying to
    accomplish. Are we trying to fix Amtrak and basically maintain
    what we have? Are we trying to grow a high-speed rail network
    and make it viable for the long haul? This clarity about what
    we are trying to accomplish is important. Is it a national
    network or is it a regional network? This is the beginning
    point for making sound policy here.
        Forth, and most importantly, and I agree with the Senator
    Biden and Senator Carper, both of whom said the same thing, the
    most important question here is how much is it going to cost?
    How much is it going to cost? When we know what we are trying
    to do is the preferred approach and how are we going to pay for
    it. This is the core set of issues. How should we divide up
    those payments?
        The Federal Government has a role. We agree with that. The
    States we think should have a partnership, should have a role.
    In the West, we see some significant investment in capital
    already, and in the East we have different approaches. So I
    think that there is a role to look at how to pay for the
    approach.
        Fifth, Amtrak has to contribute in the fare box and in
    operating efficiencies beyond what it is doing now. There is
    work, as George Warrington has said, that we can do and
    structures that make sense to make the operating efficiencies
    more effective.
        Sixth question--how are we going to pay for this? What
    specific funding mechanisms are needed? A dedicated fund or
    not? Should Federal funds cover both capital and operating
    expenses?
        Seventh question--does Amtrak's current organizational
    structure provide the right way to deliver needed services? The
    report suggests fundamental changes here. Senator McCain's
    legislation also does. I think it is important to look at the
    question of the structure of Amtrak, the structure of a
    national passenger rail system and how best to achieve it.
        Next, how do we deal with track access and safety issues?
    These are important questions. There is congestion on the
    freight tracks, increased demand on the Northeast Corridor,
    grade crossing issues. These have to be part of the legislation
    that we work through.
        Ninth question--we know what we want and we know how to pay
    for it. How do we get there? What type of transition is
    necessary? The transitional issues are very, very important. We
    cannot flip a switch and change the system overnight.
        Finally, the question of what is politically possible.
    There is a range of views in this Committee and certainly in
    the Congress, and we have to work through the question of what
    we can do. These are expensive investments. They are important
    investments and we have to look to figuring out how we balance
    the multiple needs that we have in our transportation network.
        So this is an orientation, Mr. Chairman, how we are looking
    at these sets of issues, and we welcome the ongoing
    conversation with you and your Members.
        [The prepared statement of Mr. Rutter follows:]

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        The Chairman. General Mead.

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

        Mr. Mead. Thank you, Mr. Chairman. If I could just say a
    note, too, about working with Mr. Warrington over the past
    several years, ever since you passed that legislation. You
    assigned us statutory responsibilities for doing assessments of
    Amtrak periodically. Mr. Warrington and his team have been
    terrific to work with, and I regret seeing him go.
        I have some slides--or some slides are in front of you--
    with the blue banner across the top. Many of you Members may
    reflect that you have heard the financial woes of Amtrak before
    and can legitimately ask what is different this time, and what
    is different this time is Amtrak has run out of options. Most
    everything has been mortgaged that can realistically be
    mortgaged and sold, then leased back, and I have a real
    difficulty making the numbers work on the $521 million budget
    request which the Administration, when they submitted it, they
    said it was a placeholder, but it is very difficult to make
    those numbers work even if all you had was the Northeast
    Corridor.
        I would like to turn to slide one. Slide one I think shows
    some irony and the irony is that Amtrak's revenue and ridership
    has shown significant growth since that self-sufficiency
    mandate was established on the slide, system-wide ridership is
    represented by that blue line. That grew about 11 percent, and
    systemwide passenger revenue which is represented by the red
    line on that same slide, that grew about 26 percent, and that
    growth trend that began in 1995 actually brought Amtrak to its
    highest passenger revenue levels in its history. An interesting
    fact here is that 43 percent of Amtrak's revenue now comes from
    sources other than the fare amounts.
        If you could turn to slide two, unfortunately Amtrak's
    revenue growth is more than matched by growth in expenses. In
    fact, since the self-sufficiency mandate was established, for
    every dollar they are bringing in new revenues, cash expenses
    increase by $1.05.
        Senator McCain. What percentage of costs are labor?
        Mr. Mead. I cannot say what the exact percentage is, but it
    has gone up, but not by the same percentages a lot of other
    categories such as interest, which I am going to come to in a
    minute. Labor certainly is a huge portion of Amtrak's cost, but
    I would not want to represent them as skyrocketing and out of
    kilter by comparison with what is happening in the freight
    railroads.
        On slide three, slide three shows the operating loss for
    2001 and for prior years going back to 1990. The dark blue
    line, that loss shows over $1 billion. It's about $129 million
    higher than its 2000 loss and the largest in Amtrak's history.
    The dark blue line, it is important to know the delta between
    the light blue line, and the dark blue line represents the
    depreciation and that is not bad. It represents capital
    investment and depreciation assets.
        The real test is the cash loss and there is the light blue
    line, and you see that is $585 million and under the current
    law that is the basis for measuring self-sufficiency.
        The dark blue line is not. The light blue is, and as you
    can see that has not gotten any better either. That, in fact,
    is worse by about $24 million than it was in 1998, the first
    year of the self-sufficiency mandate.
        If you turn to the next slide, Senator McCain, this is what
    I was alluded to in response to your question about the growth
    in expenses. Since 1997, Amtrak's total debt has grown 155
    percent. That is a very serious problem here. Gone from about
    $1.7 billion to nearly $4.4 billion. Interest on borrowing was
    $24 million in 1994. It is approaching $180 million or so this
    year and expected to increase to $225 million by 2005. When you
    combine that with the principal payments, you have $300 million
    a year, and that is over half of the current subsidy that is
    going to debt.
        Finally, if you could turn to the slide five, this is the
    last slide I would like to discuss here. What this shows is, as
    best we can measure it, the results of lack of capital
    investment, and you can see that despite investments since
    1997, Amtrak has not been able to invest sufficiently in its
    fiscal plan, and the results are becoming apparent. This is
    total delay for Amtrak trains in the Northeast Corridor and how
    they have risen between 1998 and 2001, and there is a 75
    percent increase in delay, and the Northeast Corridor of all of
    our corridors is a high-speed rail corridor and you cannot do
    high-speed rail and have this type of phenomenon occur.
        I would like to just make a couple of brief comments on
    passenger rail options beyond 2003. I think it is a mistake to
    focus on this operating deficit alone. The real issue is
    capital and the capital shortfall. It is not true that if you
    just did away with the long cross-country trains and the long
    distance trains that Amtrak would be OK. That is not true.
        In fact, the net operating subsidy that is required to
    continue operating the long distance trains, and I will say
    that again, the annual net operating subsidy that is required
    to continue operating the most unprofitable long distance
    trains is less than one-third of the annual capital subsidy to
    continue operating the most profitable trains in the Northeast
    Corridor.
        I would like to make a comment about the bills that were
    recently introduced. There is actually common ground between
    the two bills, and I would like to just mention them. Both
    bills have in common that an immediate increase in capital
    funding is necessary. The amount varies, but it is a lot more
    than we are putting into this system now. The bottom line is
    there is no future for Amtrak in the Northeast Corridor or
    anywhere else if we do not deal with the capital situation.
        Both bills also establish strong oversight provisions in my
    view. The type of money that Senator McCain's bill is talking
    about or Senator Hollings' bill is talking about I would not
    just hand out to Amtrak. I think it is good Senator McCain's
    has a control board-type mechanism. Senator Hollings' has it
    going to the--I think that is an important set of gates to make
    this amount of money go through rather than just sending it to
    Amtrak.
        Finally, both bills authorize capital funding for security
    and life safety improvements, including the tunnels under New
    York, and I think that is very important.
        Thank you, Mr. Chairman.
        [The prepared statement of Mr. Mead follows:]

        Prepared Statement of Hon. Kenneth M. Mead, Inspector General,
                          Department of Transportation

        Mr. Chairman and Members of the Committee: We appreciate the
    opportunity to testify on Amtrak's performance, budget and passenger
    rail service issues. Since December 1997, Amtrak has operated under a
    Federal mandate to eliminate its need for Federal operating assistance
    by December 2, 2002. Amtrak has not succeeded in implementing enduring
    financial improvements of the magnitude necessary to attain and sustain
    self-sufficiency in and beyond 2003. Despite marked growth in Amtrak's
    passenger revenues and ridership--26.1 percent and 11.4 percent,
    respectively--expense growth has more than kept pace, so that for every
    $1 Amtrak realized in additional revenue, cash expenses increased by
    $1.05.
        Amtrak's operating loss in 2001 of $1.1 billion was $129 million
    higher than the 2000 loss and the largest in Amtrak's history. Amtrak's
    cash losses, which are the basis for measuring Amtrak's progress
    towards self-sufficiency, were $585 million in 2001. This was $24
    million worse than Amtrak's cash loss in 1998, the first year of
    Amtrak's self-sufficiency mandate.
        Amtrak's failure to eliminate its need for operating assistance has
    detracted attention from the more critical issue, which is how much
    capital investment will be needed to sustain a system of intercity
    passenger rail. The long-distance trains, which account for most of
    Amtrak's cash losses, actually constitute a relatively small subset of
    Amtrak's capital needs. The annual net operating subsidy required to
    continue operating Amtrak's most unprofitable long-distance trains is
    about 30 percent of the annual capital subsidy required to continue
    operating Amtrak's most profitable trains in the Northeast Corridor.
    The Northeast Corridor alone accounted for about 55 percent of Amtrak's
    total ridership in Fiscal Year 2001 and contributed about $89 million
    in cash profits to the rest of the system, but to ensure safe and
    reliable operations, most of Amtrak's capital investment dollars will
    need to be invested there.
        Any system of passenger rail--profitable or not--will require
    substantial and continuing capital funding. Even if Amtrak (or a
    successor) were to succeed in becoming operationally self-sufficient,
    it would still require substantial external assistance to address its
    capital needs. The Northeast Corridor has a backlog of capital
    investment needs to bring it to a state of good repair that Amtrak has
    recently estimated to cost about $5 billion. To address this backlog
    and make the kinds of annual reinvestment necessary to sustain safe and
    reliable operations, Amtrak estimates that it will need between $1
    billion and $1.5 billion annually.
        As this Committee continues its efforts to reauthorize intercity
    passenger rail service, three issues are likely to shape the outcome:
         The substantial level of capital funding that will be
    required regardless of the operating structure adopted,
         The most equitable and appropriate source and vehicle for
    funding these needs, and
         The importance of each component of the system from a
    national, regional, and state perspective and the implications of such
    for cost-sharing decisions.
        Although the Chairman's bill, S.1991, and the Ranking Republican
    member's bill, S. 1958, differ in their long-term approach to intercity
    passenger rail service, they both recognize that an immediate increase
    in capital funding is necessary. Given Amtrak's history of substantial
    operating losses and its capital spending choices as reported in our
    statutory annual assessments of Amtrak's financial performance, strong
    oversight provisions should accompany any infusion of capital funding
    be it to Amtrak or any successor. S.1991 places substantial oversight
    responsibility with the Department while S.1958 assigns a strong
    oversight role to an independent control board as well as the
    Department. We are pleased to see strong oversight provisions in both
    bills.
        Both bills also provide capital funding for security and life
    safety improvements and we fully endorse these investments as well.
    However, we note that the ultimate goals for much of the proposed
    capital infusion are markedly different in each bill. S.1991 foresees
    substantial growth in capital funding to maintain, improve, and expand
    the current system under Amtrak's operation, including substantial
    funding for the development of high-speed corridors. In contrast,
    S.1958 envisions a restructuring of the current system into separate
    entities for train operations, maintenance, and national reservations
    services. Capital improvements are authorized to make a restructured
    system more viable with the final goal of liquidating Amtrak and
    privatizing the remaining entities at the end of a 4-year period. Which
    direction to take is the province of this Committee and the Congress.
    We stand ready to provide analytical support to you and your staff as
    the process moves forward.

      DETAILED OPERATING AND CAPITAL COST ESTIMATES MUST BE DEVELOPED FOR
                     EACH PASSENGER RAIL OPTION CONSIDERED.

        Congress and the Administration need to determine whether the
    public interest lies in a linked national passenger rail system, in
    regional systems of time-competitive routes, in some variation of the
    two, or in no passenger rail service at all. Once the desired system is
    determined, a detailed cost analysis, including the funding that will
    be needed to support operations and adequate capital investment will
    need to be developed.
        On February 15, Amtrak submitted its own grant request to the
    President, seeking $1.2 billion for operating and capital needs in
    Fiscal Year 2003.\1\ The request included $840 million for capital
    investment needs that Amtrak describes as, ``essential for keeping a
    national rail service network intact,'' during that year. This ``limp-
    along'' budget is substantially greater than the Administration's
    placeholder budget request for 2003 of $521 million.
    ---------------------------------------------------------------------------
        \1\ The Office of Management and Budget traditionally requests
    funds on behalf of Amtrak which it includes in the Department of
    Transportation budget request. A request was submitted by the
    Department on February 4, 2002 for Fiscal Year 2003 funds, which
    included $521 million for Amtrak's 2003 operations. Amtrak subsequently
    transmitted its own request to the President on February 15, 2002,
    requesting $1.2 billion.
    ---------------------------------------------------------------------------
        Amtrak projects that over the next 25 years, it will need to invest
    about $30 billion in capital projects just to sustain the system as
    currently structured. Approximately one-half will be needed in the
    Northeast Corridor, including $5 billion to address the backlog of
    state-of-good-repair needs. The magnitude of need makes it clear that
    neither the Administration's request nor Amtrak's request would allow
    Amtrak to begin to meaningfully address these needs in 2003. However,
    it is not clear at this point how passenger rail will be structured
    beyond that date, which could affect the required level and location of
    investment.
        Congress needs to understand how and where Amtrak intends to use
    its requested 2003 appropriation before it can determine the
    appropriate amount of funding. Amtrak needs to develop specific and
    detailed information on the exact operating and capital programs
    requiring immediate funding as well as long-term attention. More
    specifically:
         To support its FY 2003 grant request for $840 million in
    capital investments, Amtrak needs to provide detailed data on project
    location, construction schedules, cost estimates, spending plans, and
    associated assumptions. Amtrak should identify which routes and states
    would benefit from these investments and describe for each project what
    the implications would be from a safety, legal, service reliability,
    and financial perspective (operating revenues and costs) if the
    investments were not made in FY 2003.
         Additionally, to support its request of $200 million for
    the net losses associated with operating 18 long-distance trains,
    Amtrak should provide details on how it calculated the operating losses
    for each of the trains, how it derived the internally generated
    offsetting profits, and the basis for the related capital investment
    savings. Also, Amtrak needs to provide more specific support for how it
    arrived at its estimate for $160 million in excess RRTA expenses.
        In order to determine the capital and operating subsidies necessary
    to support any future intercity passenger rail service, it will be
    necessary to develop fully allocated cost estimates for each option
    considered, for example, the current system, the current system minus
    long-distance trains, the Northeast Corridor only, or existing
    corridors plus new corridors.
        Amtrak's figures are likely to be the best data currently available
    to establish a cost baseline. From these data, the short- and long-term
    capital and operating funding needs associated with any potential
    option for passenger rail could be determined. This information will be
    essential to the Congress and other stakeholders if any discussion of
    route or service restructuring is to be considered. Amtrak should be
    encouraged to develop these data as quickly as possible.
     funding for continued rail service should be shared among stakeholders
        Amtrak has historically received Federal capital and operating
    subsidies, which it invests systemwide as needed to support operations
    across a national network. In some cases, states and freight railroads
    have partnered with Amtrak on a project-by-project basis to fund
    capital improvements. Some states have also agreed to subsidize the
    operations of services that Amtrak could not otherwise operate due to
    the losses associated with these services.
        The ``formula'' for partnering, however, is inconsistent, and some
    entities have contributed substantially to the growth and operation of
    passenger rail while others have benefited from service without
    contributing anything. Work should be done to better identify and
    allocate the costs of capital and operating investment according to the
    benefits realized by stakeholders. An important precursor to allocating
    costs will be determining how each service fulfills our national,
    regional, and state goals for mobility and other transportation
    priorities.

      IMPORTANCE OF RAIL SERVICE TO A REGION WILL LIKELY PLAY AN INTEGRAL
                    ROLE IN DETERMINING COST-SHARING RATIOS

        Once the costs of subsidizing passenger service are identified--
    both operating and capital--it will be important to weigh the subsidies
    needed--both capital and operating--in light of national, regional, and
    state priorities. A number of variables should be considered in these
    evaluations including the importance of the rail system to regional
    mobility, essential transportation for small communities, national
    security, the need for transportation alternatives, relationship to
    other national priorities including environmental issues, political
    considerations, and historical or nostalgic importance.
        For example, an argument has been made that the rail infrastructure
    in the Northeast Corridor is a national asset and is essential to
    national mobility. The Northeast Corridor serves cities with four of
    the seven most congested airports in the United States, and has for
    several years carried more passengers between Washington and New York
    (62 percent of the total) than all airlines combined. Including
    intermediate stops on the New York to Washington route, Amtrak carries
    nearly three times as many passengers as the airlines. While the
    capital subsidies associated with maintaining the Northeast Corridor
    service may be higher than in other parts of the country, the
    contribution to regional mobility and the implications on congestion
    for other modes of transportation without it, may justify the
    significant capital investment.
        Regions and states may decide that even if a service or corridor
    does not fulfill a national need, it serves a critical regional or
    state priority. For example, California has decided to subsidize both
    rail service operations and capital improvement projects to expand rail
    service within California consistent with the state's sensitivity to
    environmental issues and concerns about regional mobility.
        Assessing and identifying the importance and need of service in a
    particular region or community will play an integral role in
    determining who should bear responsibility for financially supporting
    that service or how those costs should be shared among stakeholders. It
    is possible that cost-sharing equations would differ in areas where
    limited demand makes service less of a necessity even though the
    relative subsidies to continue that service might be far less than what
    would be required in other, more rail-dependent, communities.

     ELIMINATING AMTRAK DOES NOT ADDRESS PRIMARY ISSUE OF CAPITAL FUNDING.

        Proposals have been made concerning the possibility of establishing
    separate entities--either public or private--to address the operational
    needs and infrastructure needs of intercity passenger rail. While
    elements of these proposals certainly have merit, the primary issue of
    funding needs to be resolved first. Amtrak currently estimates that it
    would need about $1.0 billion to $1.5 billion in capital each year just
    to sustain the current system and another $0.5 billion each year to
    begin to develop new high-speed corridors. These needs would not just
    go away by handing the system or parts of it over to another entity.
    What it will cost to continue and begin to expand passenger rail in the
    United States is not dependent upon whether Amtrak is the operator or
    not. The debate over whether a private company or government entity
    should be established solely for the purpose of administering the rail
    infrastructure investment program is irrelevant if there is no
    assurance that adequate capital funding has been secured to invest in
    the system.
        In fact, privatization is not likely to be an option unless
    adequate funding is secured. If the Northeast Corridor were to be
    franchised ``as is,'' with its $15 billion in long-term capital
    investment needs, few investors would find it a good bargain. For the
    Northeast Corridor to become marketable, the capital needs must first
    be addressed, which leads us back to the funding question already on
    the table: ``How much will it cost, who pays, and how?''
        The recent experience in Great Britain with rail service
    underscores concerns about commercializing and separating
    infrastructure and operating functions. Allowing a business to operate
    ``like a business'' may mean relinquishing control over how certain
    expenses are cut or which capital investments are made. An
    infrastructure company that is focused on its bottom line may make
    decisions that are in its best interest financially, but which may
    affect the safety or efficiency of rail service operations.
        With Amtrak's authorization expiring at the end of 2002, many
    questions face the Congress about the future of intercity passenger
    rail in the United States. The question of what kind of system is best
    for the country is inextricably intertwined with the question of how
    much the country is willing to pay for such a system. The answers to
    both questions are most appropriately left to the Administration, the
    citizens of the United States, and their elected representatives.
        We expect that our contribution to the debate will be in helping to
    frame the questions in such a way as to make the task easier as
    Congress moves forward to develop answers. As part of our legislative
    mandate to perform annual assessments of Amtrak's financial condition
    and needs, we will also provide whatever information we can concerning
    possible options and the likely costs, risks, or both associated with
    the various options put on the table.
        The following discussion summarizes Amtrak's performance
    achievements and shortfalls since it received its self-sufficiency
    mandate in 1997, as well as general performance trends experienced over
    the past decade. We also offer some observations on Amtrak's Fiscal
    Year 2003 grant request.

                AMTRAK'S PERFORMANCE ACHIEVEMENTS AND SHORTFALLS

        In the following section, we highlight some of Amtrak's
    achievements and shortfalls in financial and operating performance
    since its self-sufficiency mandate in December 1997 as well as longer-
    term trends in performance. For the most part, the record shows that
    Amtrak has fallen far short of its financial and operating performance
    goals and, as a result, its financial health has significantly
    deteriorated.

      IMPLEMENTATION OF HIGH-SPEED RAIL SERVICE IN THE NORTHEAST CORRIDOR

        First and foremost, Amtrak implemented high-speed rail service in
    the Northeast Corridor. Acela Regional service was initiated on a
    limited basis in January 2000 and Acela Express revenue service started
    in December 2000. These accomplishments were not without their
    downside, however. The electrification of the right-of-way between New
    Haven, Connecticut, and Boston, Massachusetts, was completed about 1
    year behind schedule and more than $300 million over budget. Similarly,
    Acela Express revenue service was introduced about 1 year behind
    schedule with substantial budget overruns. The 20th and final Acela
    Express trainset is now projected to be in service by the summer of
    2002, about 2 years behind schedule.

                     PASSENGER REVENUE AND RIDERSHIP GROWTH

        In 2001, systemwide passenger revenue \2\ and ridership improved
    from 2000, continuing the upward swing of the past few years. Passenger
    revenues increased by 8.2 percent and ridership by 4.3 percent. The
    Northeast Corridor experienced the most significant increase where
    passenger revenues grew a strong 13.5 percent and ridership increased
    by 4.6 percent.
    ---------------------------------------------------------------------------
        \2\ Financial data for Fiscal Year 2001 were compiled from Amtrak's
    unaudited internal financial statements.
    ---------------------------------------------------------------------------
        Systemwide ridership grew 19.3 percent between 1996 and 2001,
    rising from 19.7 million to 23.5 million. Additionally, systemwide
    passenger revenue grew 44 percent between 1995 and 2001. The revenue
    growth trend that began in 1995 has brought Amtrak to the highest
    passenger revenue levels in its history. Figure 1 illustrates
    systemwide passenger revenue and ridership growth from 1991 through
    2001.

    [GRAPHIC] [TIFF OMITTED] T9637.023

        While growth has fallen short of Amtrak's projections for both
    revenue and ridership, in the current economic climate and in the wake
    of the terrorist attacks, Amtrak's relative performance has been more
    positive than its competitors. Domestic air passenger enplanements for
    the major carriers were down approximately 21 percent for the most
    recent quarter ended December 31, 2001, compared to the same quarter
    last year and air carrier passenger revenues were down almost 33
    percent. Amtrak's ridership and revenue numbers, however, remained
    strong. Compared to the same quarter last year, Amtrak's systemwide
    ridership was only down about 1 percent and passenger revenues were up
    by 13 percent. It is particularly noteworthy that passenger revenue in
    the Northeast Corridor grew by 21 percent over the same quarter a year
    ago.

                          NON-PASSENGER REVENUE GROWTH

        Non-passenger revenue has accounted for an increasing share of
    Amtrak's total revenues between 1991 and 2001. In contrast to passenger
    revenues, which grew 31 percent, the overall increase in non-passenger
    revenue has been 139 percent, rising from $394 million in 1991 to $941
    million in 2001. Non-passenger revenue includes revenue from operating
    commuter services, mail and express, reimbursable work, state support
    for train services, commercial development, and other miscellaneous
    sources. Non-passenger activities now account for 43 percent of
    Amtrak's total revenues. Figure 2 illustrates growth in non-passenger
    revenues between 1991 and 2001.

    [GRAPHIC] [TIFF OMITTED] T9637.024

        Amtrak's fastest growing source of non-passenger revenues was
    projected to come from its expanded Mail and Express business line. To
    its credit, Amtrak's Mail and Express revenues increased 67 percent,
    from $70 million in 1997 to $117 million in 2001. Figure 3 illustrates
    actual revenues generated from Amtrak's Mail and Express business line
    for the 5-year period 1997 through 2001.

    [GRAPHIC] [TIFF OMITTED] T9637.025

        However, this performance fell far short of Amtrak's projections.
    Amtrak's 2001 Strategic Business Plan projected revenues of $181
    million for 2001, growing exponentially to over $400 million by 2003.
    Subsequent issuing its business plan, Amtrak recognized that its
    forecasts were not realistic and substantially reduced the estimated
    contributions from the Mail and Express business.

                     EXPENSE GROWTH HAS MORE THAN KEPT PACE

        Since receiving its mandate in December 1997, for every $1 Amtrak
    realized in additional revenue, cash expenses increased by $1.05.
    Between 2000 and 2001, Amtrak's expenses, including depreciation, grew
    9.8 percent, or a total of $294 million. Viewing expense growth in the
    longer term, since 1991, total operating expenses have grown about $1.2
    billion, from $2.1 billion to $3.3 billion, representing an overall
    increase of 57 percent. In the same time period, total revenues grew by
    about $850 million. Figure 4 illustrates growth in various categories
    of expenses between 1991 and 2001.

    [GRAPHIC] [TIFF OMITTED] T9637.026

        Our assessments of Amtrak's prior Strategic Business Plans
    identified large gaps in Amtrak's ability to stay on its glidepath.
    Simply put, Amtrak needed to curtail expense growth by over $700
    million and the railroad did not have concrete plans to achieve the
    reductions. In FY 2001, Amtrak began to focus on cost management
    initiatives but these actions were clearly inadequate.

                  OPERATING AND CASH LOSSES CONTINUED TO GROW

        Continued expense growth coupled with lower-than-projected revenue
    growth has resulted in operating losses that have continued to increase
    since Amtrak's mandate was established in 1997. Amtrak's operating loss
    in 2001 of $1.1 billion was $129 million higher than the 2000 loss and
    the largest in Amtrak's history. Amtrak's 2001 cash loss, which is the
    basis for measuring operating self-sufficiency, was $585 million, $24
    million higher than its cash loss in 2000. Figure 5 illustrates growth
    in Amtrak's operating and cash losses since 1990.
    [GRAPHIC] [TIFF OMITTED] T9637.027

               AMTRAK'S OVERALL FINANCIAL HEALTH HAS DETERIORATED

        Between September 2000 and September 2001, Amtrak's long-term debt
    and capital lease obligations grew by 30 percent, or a total of $832
    million. Since 1997, Amtrak's total debt has grown about $2.7 billion,
    from $1.7 billion to $4.4 billion, representing an overall increase of
    155 percent.\3\ Figure 6 illustrates the growth in Amtrak's short-term
    liabilities as well as long-term debt and capital lease obligations
    since 1997.
    ---------------------------------------------------------------------------
        \3\ In 2000, Amtrak entered into several sale-leaseback
    transactions involving passenger train equipment. Amtrak set aside
    proceeds from the transactions that, combined with projected interest
    earnings on the proceeds, are expected to satisfy the associated future
    capital lease obligations of over $900 million.

    [GRAPHIC] [TIFF OMITTED] T9637.028

        As a result of its growing debt burden, Amtrak has experienced a
    significant increase in interest expenses.\4\ The expenses primarily
    relate to externally financed purchases of new equipment, including the
    Acela trainsets and high-horsepower locomotives in the Northeast
    Corridor. Interest expense is expected to grow substantially, reaching
    $225 million by 2005. Figure 7 illustrates past growth in interest
    expense since 1993 and projected growth through 2005.\5\
    ---------------------------------------------------------------------------
        \4\ Discussion of interest is on a cash interest basis, rather than
    accrual.
        \5\ Estimated.

        [GRAPHIC] [TIFF OMITTED] T9637.029

        In addition, depreciation expenses will increase dramatically over
    the next 4 years as the new capital investments financed by Taxpayer
    Relief Act funds, Federal appropriations, and private borrowing add to
    the total value of Amtrak's capital assets. Depreciation expense is
    expected to reach nearly $650 million by 2005, almost double the
    expense in 2000. Although depreciation is a non-cash expense, it is
    important to note that this reflects the cost of assets used up in
    generating the railroad's revenues. In essence, this is the annual
    amount of capital required just to replace or restore train equipment,
    stations, tracks, and other facilities. Figure 8 shows actual
    depreciation levels from 1993 through 2001 and projected levels for
    2002 through 2005.

    [GRAPHIC] [TIFF OMITTED] T9637.030

        During 2001, Amtrak's liquidity continued to deteriorate. As a
    result, Amtrak sought to compensate for cash shortfalls through a
    variety of means, including mortgaging portions of one of its most
    valuable assets, Penn Station-New York, for approximately $300 million.
    Despite this cash infusion, Amtrak's working capital ratio went from
    0.45 in 2000 to 0.31 in 2001, its lowest level in over a decade. The
    working capital ratio, which is calculated by dividing the value of
    current assets by current liabilities, is a measure of an entity's
    ability to meet short-term liabilities. The decrease in working capital
    means that Amtrak may have to increase its short-term borrowing or
    slash current expenses to enable it to meet its current obligations.
    Figure 9 shows the changes in Amtrak's working capital ratio since
    1991.

    [GRAPHIC] [TIFF OMITTED] T9637.031

               amtrak has not met its operating performance goals
        While Amtrak's ridership grew from 22.5 million in 2000 to 23.5
    million in 2001, it fell short of Amtrak's 2001 ridership goal of 24.7
    million. The shortfall was primarily attributed to delays in the Acela
    Express trainset deliveries, a slowing economy, and poor on-time
    performance. Other key performance measures for Amtrak are on-time
    performance and the Customer Satisfaction Index (Index). Amtrak
    reported systemwide on-time performance in 2001 of 75 percent, which
    was significantly below performance levels in 1999 and 2000, and far
    short of 2001 goals. Amtrak cited scheduled and unscheduled track work,
    freight rail traffic interference, mechanical failures, and weather as
    the largest contributors to the poor performance. As illustrated in
    Table 1, all three business units fell short of 2001 on-time
    performance goals.

                                              Table 1: On Time Performance
                                                      [percentage]
    ----------------------------------------------------------------------------------------------------------------
               Business Unit            1999 Actual  2000 Actual  2001 Actual   2001 Goal    +/(-) 2000   +/(-) Goal
    ----------------------------------------------------------------------------------------------------------------
    Systemwide........................           78           78           75           85          (3)         (10)
    Intercity.........................           67           68           62           75          (6)         (13)
    Northeast Corridor................           88           87           83           92          (4)          (9)
    West..............................           75           75           75           79            0          (4)
    ----------------------------------------------------------------------------------------------------------------

        Amtrak's Customer Satisfaction Index, which indicates the level of
    customer satisfaction with Amtrak's overall service delivery, remained
    the same in 2001 as the score in 2000, 82 (out of 100). However, as
    Table 2 indicates, all three business units fell short of their goals
    for 2001.

                                      Table 2: Customer Satisfaction Index Results
                                                     [Scale: 1-100]
    ----------------------------------------------------------------------------------------------------------------
               Business Unit            1999 Actual  2000 Actual  2001 Actual   2001 Goal    +/(-) 2000   +/(-) Goal
    ----------------------------------------------------------------------------------------------------------------
    Systemwide........................           83           82           82           86            0          (4)
    Intercity.........................           78           79           79           83            0          (4)
    Northeast Corridor................           85           82           81           86          (1)          (5)
    West..............................           86           84           87           89            3          (2)
    ----------------------------------------------------------------------------------------------------------------

             INFRASTRUCTURE HAS DETERIORATED DUE TO UNDERINVESTMENT

        While Amtrak's capital funding since 1998 has been substantial, it
    has not been sufficient to invest in both high rate-of-return projects
    and reinvest sufficiently in existing infrastructure. The projects that
    support self-sufficiency, while not frivolous, have come at the expense
    of other, less visible reinvestment and operational reliability
    projects. The most notable of these needs is an estimated $5.0 billion
    backlog of ``state of good repair'' needs in the Northeast Corridor.
    Amtrak has not been able to invest sufficiently in operational
    reliability or other kinds of projects that would begin to address
    these needs. The results of this deferred spending are becoming
    apparent. Total minutes of delay for Amtrak trains in the Northeast
    Corridor rose nearly 75 percent between 1998 and 2001.\6\ Figure 10
    compares minutes of delay in the Northeast Corridor from 1998 to 2001.
    ---------------------------------------------------------------------------
        \6\ Total includes delays caused by equipment, infrastructure,
    train operations, and outside interference (weather, police, and
    trespassers). The total includes delays incurred by Amtrak operating
    along its own right-of-way as well as trains operating over territory
    in which Amtrak neither owns nor is responsible for maintaining the
    infrastructure.

    [GRAPHIC] [TIFF OMITTED] T9637.032

      AMTRAK'S FY 2003 GRANT REQUEST EXCEEDS THE ADMINISTRATION'S BUDGET
                       SUBMISSION BY NEARLY $700 MILLION

        The Department of Transportation's FY 2003 budget submission to the
    President requested funding in the amount of $521 million for Amtrak.
    On February 15, 2002, Amtrak submitted its own 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. Included in this $1.2 billion is $160 million for payments to the
    railroad retirement fund in excess of the amount paid to Amtrak
    retirees, commonly referred to as ``excess RRTA,'' $200 million to
    cover net losses generated by 18 long-distance trains, and $840 million
    to pursue a ``minimum'' capital program. Figure 11 illustrates Amtrak's
    FY 2003 grant request.

    [GRAPHIC] [TIFF OMITTED] T9637.033

        We have not had an opportunity to review the detailed support, but
    Amtrak's request for $200 million to subsidize the operation of 18
    long-distance trains as well as $160 million for excess RRTA appears
    reasonable. However, the $840 million Amtrak is requesting for
    ``minimum'' capital investment needs close scrutiny. Table 3 outlines
    the general categories of capital projects Amtrak is proposing to fund
    with its FY 2003 capital grant request.

              Table 3: Amtrak's $840 Million Capital Grant Request
                                 [$ in millions]
    ------------------------------------------------------------------------

    ------------------------------------------------------------------------
    Environmental...........................................             $29
    Americans With Disabilities Act.........................              19
    Minimum Fleet Overhauls/Preventive Maintenance..........             190
    Life Safety.............................................              26
    Debt....................................................             105
    Federal Infrastructure/Operational Reliability..........             286
    Non-Federal Infrastructure/Operational Reliability......              75
    Fleet Repair and Additional Limited Overhaul............              59
    Facilities..............................................              12
    Technology..............................................              40
                                                             ---------------
        Total Capital.......................................             840
    ------------------------------------------------------------------------

        Amtrak's grant request for capital alone is significantly higher
    than the funds requested by the Administration for Amtrak's total needs
    in 2003. We note that the Administration recognized that the $521
    million essentially serves as a funding placeholder until a new
    paradigm for intercity passenger rail service is identified.
        However, Amtrak's mandatory requirements including payment on debt
    service, excess RRTA, and net losses on the 18 long-distance trains
    identified by Amtrak amount to about $500 million before the first
    dollar is spent on real capital projects.
        Amtrak forecasts that over the next 25 years, it will need to
    invest about $30 billion in capital projects just to sustain the system
    as currently structured. Approximately one-half will be needed in the
    Northeast Corridor, including about $5 billion to address the backlog
    of state-of-good-repair needs. The magnitude of need makes it clear
    that neither the Administration's request nor Amtrak's request would
    allow Amtrak to begin to meaningfully address these needs in 2003.
    However, it is not clear at this point how passenger rail will be
    structured beyond that date, which could affect the required level and
    location of investment. Congress needs to understand how and where
    Amtrak intends to use its 2003 capital dollars before it can determine
    the appropriate amount of funding.
        In our view, the most significant area where more information is
    needed is in the category of investment related to ``infrastructure/
    operational reliability.'' Amtrak's budget request includes $286
    million for Federally-owned infrastructure and $75 million for
    agreements with partner railroads for improvements on non-Federally-
    owned infrastructure. In our prior assessments, we have maintained that
    Amtrak's annual minimum capital need for Federally-owned infrastructure
    was about $135 million, $151 million less than Amtrak's grant request.
        It may be that Amtrak needs more than our annual estimate for FY
    2003, but its budget request only includes a laundry list of projects
    that could be undertaken, which Amtrak indicates is ``subject to
    condition assessments.'' To enable Congress and the Administration to
    make informed decisions, Amtrak should provide specific and detailed
    information on exactly what projects need to be done in FY 2003, where
    they are, how much each is estimated to cost, how the projects will
    improve service, and what would be the implications if the projects
    were not done in FY 2003.
        The same type of information is needed for the $75 million Amtrak
    requested for operational reliability on non-Federally-owned
    infrastructure. While we fully endorse Amtrak partnerships that
    leverage funding from other sources and improve service, Amtrak has not
    shown in detail how the $75 million will be spent and the implications
    if it did fund its share of these agreements in FY 2003.
        The lack of clarity and specificity in its budget request may be
    symptomatic of Amtrak's unwillingness or inability to provide detailed
    financial information for effective decision making. Despite
    recommendations by the Amtrak Reform Council to break out financial
    results from train operations and owned infrastructure, and our
    repeated requests for detailed financial information on its mail and
    express business, Amtrak resisted implementing a financial reporting
    system that provided the information.
        The absence of this important data makes it difficult to arrive at
    good business decisions and to pinpoint responsibility and
    accountability for achieving measured results. As an example, even
    though Amtrak was leaning heavily on generating substantial bottom-line
    contributions from its mail and express business to achieve self-
    sufficiency, Amtrak was not closely tracking the costs associated with
    this business line and could not account for how much, if any, it was
    netting from this activity. Even as it entered the 5th year of its 5-
    year glidepath, Amtrak was still trying to refine how to assign costs
    to its mail and express activity.
        Mr. Chairman, this concludes our statement. I would be pleased to
    answer any questions.

        The Chairman. Thank you very much, General Mead.
        Mr. Rutter, we are glad to have you, sir.
        Mr. Rutter. Thank you, Senator. I appreciate the indulgence
    of the Committee in allowing me to be here accompanying the
    Deputy Secretary. I simply ask that be entered into the record
    some testimony that we provided to the Committee that we
    offered to Senator Murray's Subcommittee last week.
        The Chairman. That will be included.
        [The information referred to follows:]

         Summary Statement of Hon. Michael Jackson, Deputy Secretary,
                          Department of Transportation

        Mr. Jackson. Thank you, Senator. I appreciate the opportunity to
    testify today before your committee. Madam Chairman, Amtrak's financial
    condition is grave, as you have outlined, and the administration
    understands and agrees with you about the gravity of the circumstances
    that Amtrak faces.
        As George Warrington has testified and spoken about recently, there
    is a structural problem in the way that Amtrak has to operate its
    mission to make profit and its public service commitment that has
    reached a point where those goals cannot be effectively reconciled. Its
    financial problems are significant.

                            BOARD OF DIRECTORS FOCUS

        Since the Secretary was appointed to the Amtrak board in May of
    last year, his focus on these issues has been three-fold: First, to
    understand the financial facts; second, to support getting these facts
    out to the Congress and to the public to stimulate the type of
    understanding, and debate, and discussion about Amtrak's financial
    difficulties that we are having here today, and to help the public
    understand, and the Congress to understand that Amtrak is, indeed, at a
    crossroads, not just another reauthorization period.
        Finally, that is why he encouraged early in the summer of last year
    that we undertake a reauthorization early this year to look at the core
    issues and to figure out how to proceed with intercity passenger rail
    going forward.
        It took us 30 years to get here. It will take us a little bit of
    time, I think, to build the consensus on the State level, at the
    Federal level, with all the parties that are necessary to take what is
    a very complex series of issues, and to bring them to some closure so
    that we know how to provide for intercity passenger rail in the future.

                        DEPARTMENTAL FINANCIAL ANALYSIS

        If I could, in May of last year, late April of last year, we were
    presented at the Department of Transportation with the transaction that
    you referred to regarding Penn Station, and at that time began to
    understand the degree of difficulty that Amtrak faced in meeting its
    financial obligations and the various methods and mechanisms that it
    had sought to use to try to reach the glide path objectives that were
    set out for it.
        We expressed concern about that particular financing deal at the
    time, but agreed with Amtrak that their mandate for the glide path and
    their requirements to live within their budget left no alternative, and
    the Secretary agreed to provide the guarantee necessary by the
    Department to allow that transaction to move forward, but that started
    for us the beginning of a very intensive look at the Amtrak issues.
        Internally, we began a financial analysis, and it was shortly after
    that that the management of Amtrak and the board voted to seek some
    outside support in looking at these same set of core issues. So I think
    that the realization about Amtrak's financial difficulty has
    appropriately and helpfully reached the stage which we are at today,
    which is to say that they are struggling to live within their financial
    means this year, and have taken significant steps at Amtrak on the
    board--these issues have been -discussed in great detail to try to get
    us to the end of the fiscal year within the means that we have at the
    disposal of the corporation, and to provoke this reassessment of how to
    proceed going forward.
        I would like to talk just briefly, and then would be happy to
    answer any questions about the issues that I think need to be
    addressed.
        I do not come here today with a legislative package, with a
    specific opinion about each of the details that have to be incorporated
    into the solution of the problems that we have, but I want to just
    outline the questions that I think we have to face before us and fold
    into any solution that we should carry forward.

                            AMTRAK SELF-SUFFICIENCY

        First, do we need to continue to support with Federal funds
    intercity passenger rail? Secretary Mineta's view of this has been
    clear from the outset, and is clear from his whole congressional
    career. Yes, indeed, we do need to support with Federal funds, inter-
    city passenger rail, and that the intercity passenger rail is a vital
    part of our national transportation needs.
        Second, have we understood adequately the major financial and
    policy drivers that make Amtrak incapable of financial self-
    sufficiency? I think we have a much clearer picture of that. George
    will be speaking about that; so will the Inspector General. We have
    cooperated carefully with both, and I think we have a clearer view of
    what the drivers are.
        Third--and this is the beginning of the key questions. What kind of
    passenger rail system can we sustain, should the American people
    support? No system? I have said that we think that is not a viable
    option. But then we have to look--a limited system, with certain
    corridors only, a national system characterized mainly by routes, or a
    true national system comparable in scope to the type of system we have
    today?
        That does not even address the question of improving service with
    high-speed rail, or the significant investments that would be necessary
    to make high-speed rail possible. So then layered on top of the three
    option I just mentioned, do we support corridors or a national system
    of higher-speed rail capability?
        Finally, what is the role of MAGLEV in this area? These three
    strands supporting what we have today, growing for the future with
    high-speed rail, and the MAGLEV issue out on the side, have to be
    brought together in a single authorization.

                             AMTRAK FUNDING OPTIONS

        What is the total cost? Each of these have broadly different costs.
    Just to keep what we have, I believe, personally, that the cost order
    magnitude is $2.5 billion to $3 billion a year. That is not to grow to
    high-speed rail. It does provide money for some of the deferred capital
    investments that need to be made in their existing network.
        What portion of these costs should be borne and by whom? The
    Federal Government? State government? Fare box revenues and increased
    operating efficiencies at Amtrak? I believe all of these are part of
    the solution and have to be part of the solution. Just as you have
    said, some States are putting significant investments in. And we have
    to manage this problem of how to fund intercity passenger rail by
    looking at Federal, State, and the Amtrak assets that come here, fare
    box, and operating efficiencies.
        I would like to raise the question of whether there is outside
    capital investment, private sector investment that should have a role
    somehow in providing the necessary funds.
        The next question we have to raise is: How is the government going
    to pay for its share? As you have said already, Madam Chairwoman, the
    amount of money needed to bring this together is very, very large,
    indeed. Should the Federal funds cover operating expenses as well as
    capital expenses?
        The next question I think we have to face is whether Amtrak's
    current organizational structure provides the appropriate means for
    providing intercity rail passenger service. The ARC report suggests
    some fundamental restructuring.
        I would suggest that the more difficult questions are what we want
    and how we are going to pay for what we want, and that the structural
    questions really follow behind that, and would drive solutions once we
    can address those core questions.
        How do we deal with access issues on trackage and safety issues?
    There is increasing congestion in the freight rail tracks which Amtrak
    uses. Amtrak has a special right of access under the law. We have
    increased demand on the Northeast Corridor. There are grade crossing
    issues associated with high-speed rail improvements, and noise issues.
    There is a cluster of those issues which have to be understood,
    addressed, and evaluated as part of a solution that we need for
    reauthorization.
        Next, we have to know what we want, and how to pay for it, and how
    to get there. What type of transition is necessary? I do not think it
    will be easy, or possible, or desirable simply to say that the Amtrak
    that exists today is going to be changed dramatically in a structural
    way, or in an operating way, in terms of how we fund and manage this
    going forward.
        So I think we have to look at some transitional approaches to move
    from where we are today to where we want to go. It may not be possible
    to throw a switch and get the system that we want, or the organization
    and operation that we want overnight at the beginning of a new fiscal
    year.

                                AMTRAK STRUCTURE

        Finally, what is the will of the Congress, the States, and others
    who are part of this process? There was on the table with the previous
    authorization, a very strong mandate that we must meet operational
    self-sufficiency at Amtrak, and that operational subsidies were not to
    be expected.
        So we have this question on the table: What are we going to be able
    to sustain, and what is the political realm of possibility that we have
    to choose from among these options, these questions, these issues?
        So without trying to lay specific answers on the table, I am very
    pleased with my colleague, Administrator Rutter, to be engaged in a
    dialogue with the Congress, with the States, and with interested
    varties here, with Amtrak's employees, to look at its future, and to
    build a better future for intercity passenger rail.
        I look forward to participating in this dialogue in the coming
    weeks with you.

        Mr. Rutter. And I am here to answer any questions that the
    Senators may have.
        The Chairman. Very good. Secretary Jackson, you must have
    had that Dick Morris write your statement. You acted as if we
    were having a hearing for the Administration. You asked more
    questions than we could possibly answer, and it is probably a
    darn good idea.
        We have given you the answers. What do you think of them?
    At least that is why we got you here. We know how to ask the
    questions. At least we got onto General Mead and that is
    valuable, but we both believe in capital funding, Senator
    McCain's bill and mine, otherwise strong oversight and not to
    get rid of Amtrak, and that means get rid of Amtrak which we
    both agreed and then let us get something operating with
    respect to security and everything else of that kind.
        But why had not you all set up something that we can act
    on? After all, you all have made decisions in the country of
    Georgia. You all can make up your mind about what can be done
    in the Philippines. Cannot you make up your mind what ought to
    be done with this bankruptcy that is at your doorstep? I mean,
    you mortgaged Penn Central Station in order to pay the light
    bill. You know that I know that. So come on, what do you all
    want to do?
        Mr. Jackson. Senator, we appreciate the difficulty of this
    problem, and I am going to give you a couple of answers, and I
    am just going to say this. The Administration is continuing the
    assessment portion of the rest of it, and we want to engage in
    a dialog. Where we started at the end of last year, we were
    operating under a Congressional mandate that said Amtrak had to
    meet a glidepath and be operating self-sufficiently by the end
    of the year.
        The Chairman. I do not mean to be rude, but this is not
    foreign policy. We do not want to get in a dialog. We want to
    make decisions and provide. I mean, that is what we have been
    into is a dialog since 1971, an unfunded dialog.
        Mr. Jackson. Well, we are ready to work very closely with
    you, sir, to make that dialog into legislation. Let me give a
    couple of particulars.
        The Administration last December 5th supported the measures
    that this Committee put forward on the safety improvements for
    the tunnels. That is a part of your bill. That is something we
    have supported. We also supported about a $500 million
    investment on improving Amtrak security. That is something that
    the Committee has supported in a bipartisan way, and we support
    that as well.
        In your legislation and in Senator McCain's legislation, as
    General Mead said, there are some important provisions that
    relate to making sure that we audit carefully and watch the way
    that money is allocated, and we support that fiscal
    responsibility and the impulse to structure this in a different
    way than we have now.
        There are two different measures on the table here in the
    two bills that Committee Members have laid on the table and are
    looking at that issue of how best to structure it. I think both
    bills look at a transition period. Senator McCain's bill has a
    control board mechanism and a period of years. We are concerned
    that we cannot just simply change the appropriation and throw
    more money at Amtrak as currently structured without
    understanding that we want to change the behaviors that have
    produced these problems. So we will be recommending a
    transitional structuring through what we have today and make it
    operate more effectively.
        So there are series of things that I think we will be in
    very much agreement on, but the President is going to have to
    review with his advisers the significant financial cost
    associated with this transportation need, and we are not
    prepared as an Administration, and I would be rash to get out
    in front of my President on this issue, to commit to a specific
    dollar amount and an enumeration of exactly what we can support
    in that regard. I think the questions have to do above all with
    what we can afford and what we are trying to produce.
        The Chairman. Is the Administration ready for a national
    system? Mr. Warrington has already testified to the fact that
    the basic model is flawed, it has not worked and has not worked
    anywhere in the world, and right to the point, we need a
    national system according to the bill before us. Do you agree
    or disagree?
        Mr. Jackson. The Administration is not prepared to see what
    we have as a national system continued because it is broken and
    does not work, and I think, Senator, you have acknowledged the
    same. So we recharacterize it, restructure it. We do need
    intercity passenger rail in this country.
        The Chairman. You keep saying intercity. Is that as far as
    the Administration will go, just intercity?
        Mr. Jackson. Well, a national system is a system that links
    cities, and the question is how extensive a network do we need,
    and so we are not able to commit to a specific network in the
    exact way that we have it today because I think we have to work
    through the funding mechanisms of what we can afford and how to
    pay for it and also the structural reforms of the sort that the
    Amtrak Reform Council has on the table are, we believe,
    important questions to take up as well.
        The Chairman. Is there anything any one of the panel finds
    radically wrong or a mistake or any one of you four gentlemen
    have got some criticism? Let us have it. If you see some
    mistake being made or something's wrong in the bill before us,
    Mr. Warrington, how about you?
        Mr. Warrington. First of all, as I said earlier, Mr.
    Chairman, I think it is important for the Congress and the
    Administration to define what the expectations are, the service
    expectations for a system, define it and invest in building it
    and acknowledge which of those services are clearly essential
    public services that will require some form of subsidy no
    matter how efficiently they are managed.
        I would also suggest that whatever the outcome I do believe
    that there does need to be an appropriate measuring stick. The
    concept of operating self-sufficiency applied to the entire
    service model and types of services that Amtrak runs does not
    work.
        I think the underlying economics of each part of the
    business are different kinds of services and aligning a set of
    measurements, both financial measures and operating
    measurements and standards against different parts of the
    business is an important consideration as any kind of quid pro
    quo for public investment. I think that is very important. I
    think the concept of self-sufficiency was not the right
    measuring stick, but I think measuring sticks are important
    around efficiency, around discipline and around clear
    expectations of what we are getting for publicly invested
    dollars.
        The Chairman. Mr. Mead, do you have a suggestion?
        Mr. Mead. I guess I would have a couple. One is I think you
    need to have some incentives for Amtrak to be efficient and
    even with a substantial capital infusion, and I think the
    operating self-sufficiency test is a good test in some
    corridors that encourages it be efficient, and I would
    encourage your bill to include provisions along those lines.
        The second area is in cost-sharing. I think that we are
    going down the road where we are going to have to look to some
    cost-sharing with the States because different States will
    want, for example, high-speed rail, and I will pay some
    attention there.
        In Senator McCain's bill, it is not clear what will happen
    at the end of the authorization period. For example, the
    Department of Transportation becomes apparently the caretaker
    or the custodian of the Northeast Corridor, but it is not clear
    after putting that capital money into the Northeast Corridor to
    fix it up what is going to happen at the end of the
    authorization period because it is very unlikely that you could
    charge at the fare box enough money to cover all the costs in
    the Northeast Corridor.
        So those would be two or three suggestions I would make,
    sir.
        The Chairman. Secretary Jackson, do you have a suggestion
    rather than a question?
        Mr. Jackson. Yes, sir. I have two points to make.
        On the cost-share, I agree that as I have said earlier that
    this is going to be an indispensable part of a solution that is
    going to work.
        Second, I think on the capital investment issue, one of the
    drivers of the whole conversation about structuring and
    restructuring is really a manifestation of our efforts to
    grapple with how are we going to pay for the capital investment
    and then how do we operate off of that investment.
        So I do think that one of the structural questions proposed
    by the Amtrak Reform Council is are we going to fund the
    capital investments sufficiently and how do we face up to that
    issue. That goes back to the question I asked of what sort of
    system are we going to have. Sorry to have another question
    here, and when we decide that, how expensive it is and how we
    are going to fund it, we really have to structure that capital
    investment in such a way as to make that happen. Then I think
    there is an opportunity to inject competition into the
    operational component of the railroad and to look at those
    issues independent of the capital, but the capital is the big
    driver.
        The Chairman. Mr. Rutter.
        Mr. Rutter. As long as it would be inappropriate for me to
    make critical judgments if we are not prepared to make positive
    ones, but I would make a couple of observations about where we
    are trying to go that illustrate where some of the positions of
    the two bills are.
        First, we are trying to find out ways of increasing the
    ability of the private sector to participate in the delivery of
    these systems. Whether it is a matter of franchising whole
    lines, as Senator McCain's bill does, or finding ways of having
    certain elements of what the passenger transportation system is
    provided by non-Amtrak employees, there are possibilities of
    having private sector involvement that would reduce what now is
    a very high cost of providing those services.
        Second is a way of enhancing and giving incentives for
    States to participate in delivering these systems. Many of the
    States are already putting in quite a bit of money into the
    system that exists and want to be willing to invest in enhanced
    speeds, enhanced service, how we structure a system that
    encourages those States to make those investments because the
    Federal Government cannot do all of it on its own.
        Then third would be a way of, in terms of where we are
    going with high-speed rail systems, how do we meet those State
    expectations and desires for increased services when most of
    the States are looking at services that would provide top
    speeds of under 125 miles an hour for reasons that that is a
    way of them getting increased service to their populations at a
    cost that is nonprohibitive. Those are some of the things we
    are looking at in these two bills and all the other ones that
    are up on the table.
        The Chairman. Senator McCain.
        Senator McCain. Thank you, Mr. Chairman.
        Mr. Jackson, I have the highest regard for you and the
    Secretary and many of the people that work for you, but look,
    it is time that you come forward with a proposal from the
    Administration so we have something to work on. We had a very
    unhappy experience with the airport security bill because
    frankly of the failure of the Administration to come forward
    with a specific proposal, and we ended up delaying by weeks a
    bill that should have been passed in a very short time. So, Mr.
    Jackson, carry the message back, get a proposal.
        Mr. Chairman, I suggest you have another hearing when the
    Administration is ready with their proposal because this is an
    important issue that must be addressed.
        So, please, seriously do that. Worst of all is for us to go
    through the whole legislative process and have a bill that the
    President threatens to veto and, therefore, does veto.
        This issue of a short- and long-term debt is really perhaps
    the most disturbing aspect of your presentation today and
    obviously we have had some very interesting things go on,
    buying equipment that we pay for and then it being sold back
    and try re-leasing it and we pay for it. So taxpayers have paid
    for this equipment sometimes three or four times.
        I do not like to revisit history, but there is an old line
    about those that ignore history are doomed to repeat it. I have
    in front of me an Amtrak news release November 7, 1997, that
    talks about the leadership of Senator Kay Bailey Hutchison,
    Senator Lott, Senator John McCain and Senator John Kerry
    enacting this legislation which Amtrak, in a news release,
    states the bill contains important reforms that will help
    Amtrak wean itself from Federal operating support which
    Congress and the Clinton Administration says it will cease in
    2002.
        Enactment of the reauthorization bill will put Amtrak on
    the road to financial recovery and begin to ensure its place in
    America's future transportation system, and if you look through
    the colloquies and statements on the floor of the Senate at the
    time we passed that, everything was going to be fine with
    Amtrak, and I will bet you if we went back through the previous
    iterations all the way back to 1971, we would have the same
    rhetoric, the same statements, only we just extended it for
    several more years, and now we have compiled an investment of
    some $25 billion over this period of time, and we obviously
    have a railroad that is in very, very serious difficulties.
        Are they in serious financial difficulties, Mr. Mead?
        Mr. Mead. Yes, they are. I do not know what the right
    adjective or characterization is. Mr. Jackson said grave. I am
    saying extremely grave.
        Senator McCain. In 1997, everything was going to be fine
    because of the legislation that we passed. I want say another
    word about this.
        For years, a line in the State of Wisconsin which we
    subsidized $1,200 per passenger finally was shut down. So I am
    not averse to supporting the Northeast Corridor, because I plan
    on trying to get from Washington to New York and to Boston and
    other places just as well. So for us to say, well, we are not
    going to support the Northeast because we do not have a rail
    system that goes to Portland, prove the viability of a rail
    service and I will support it. I think we prove unequivocally
    that if we have rapid transit in the Northeast Corridor on a
    good and safe railway system that will be viable and over time,
    it will be financially viable. I do not have that assurance
    about Texas, Arizona or Oregon.
        So talk about the ``need'' for a national rail system. The
    case has to be made. I think the case has been made in the
    Northeast. I think the case will be made in the far West. I
    hope the case will be made in Oregon, Texas, Arizona, but so
    far it has not, and my constituents have voted with their feet,
    and that is to go to the airport in order to get to Los Angeles
    rather than go down to the train station in order to get to Los
    Angeles or Portland.
        So, no, I am not averse at all to using Federal dollars to
    make all American citizens have a better opportunity, and I am
    sorry I have used up all my time.
        I just want to ask Mr. Mead again, Mr. Mead, do you believe
    that the present system, what is your estimate of the amount of
    money that would be necessary to inject into Amtrak today,
    exactly as it is today, in order to let them start off with
    zero debt again?
        Mr. Mead. Probably speaking, just to get rid of the debt
    alone, would be $4 or $5 billion, but then assuming you want
    the railroad to continue to operate, you are going to have to
    fix up the Northeast Corridor, and you are going to have to fix
    up the rest of the country. I would guess you are in the
    neighborhood of $10 billion immediately.
        Senator McCain. Immediate injection?
        Mr. Mead. If you want to liquidate all the debt and keep
    the railroad going and make the necessary repairs to the
    corridor and keep the rolling stock in good shape and keep the
    overall national system running, but I do not think that that
    is what the hour calls for.
        I think what the hour probably calls for, I think Amtrak
    could maintain its current system, not fall into further
    disrepair, with an annual funding of between $1.3, $1.5
    billion. That would not go and contemplate the building and
    structuring of additional high-speed rail corridors.
        Senator McCain. Well, I think it would help this Committee
    in its deliberations significantly if you could provide us an
    estimate of how much money it would require in order to give
    Amtrak, after reorganization, whatever legislation is passed,
    an opportunity to become financially viable, and I understand
    there are other variables, whether we have to subsidize a line
    in Wisconsin, as they did for several years in Wisconsin, as
    they did for several years for $1,200 a passenger or whether we
    do it in a most efficient fashion, but I would appreciate very
    much if you would, for the benefit of the Committee, give us a
    sum of the moneys that would have to be made available in the
    short-term and the long-term in order to give this organization
    an opportunity, at least if well-managed, an opportunity to
    have financial viability.
        I thank you, Mr. Chairman. I have no second line of
    questioning.
        The Chairman. Senator Hutchison.
        Senator Hutchison. Thank you, Mr. Chairman.
        Mr. Chairman, I would like to respond somewhat regarding
    the national system to say that it would be very hard for
    someone in Phoenix to get on an Amtrak train and not be 6 to 12
    hours late going to Los Angeles or to Dallas-Fort Worth. So
    starving the system is going to continue to make it less and
    less viable. That is why I think you do have to make a
    commitment, and yes, it will cost money to corridors that we
    know will be there, that can allow a high-speed component and
    will run on time with good rolling stock. I think the continued
    starvation of capital improvement in the long-haul routes has
    caused a difficulty in making it viable.
        My concept has always been to take the United States rough
    drawing and do a Northeast-to-Florida Corridor, and a Western
    Corridor connecting those at the bottom part of the country to
    the top part of the country where the top part of the country
    is Chicago and would go right down through the middle of the
    country with Chicago, St. Louis and Dallas-Fort Worth and then
    San Antonio or Houston as that final stop where you could have
    a high-speed line. This would be very viable, particularly in
    Texas. One of the highest priorities for our Governor and the
    Department of Transportation is to have a high-speed corridor
    from Dallas to Houston and San Antonio and back to Dallas-Fort
    Worth in a triangle.
        I think that could be viable because it would allow them,
    if you had an Amtrak intercity connection, to have the State
    and the local government step up to the plate and create feeder
    lines that would make Amtrak more viable and increase your
    ridership.
        Oklahoma has done that to a minor extent by putting in a
    line from Oklahoma City down to Dallas-Fort Worth, and they did
    it at State expense working with Amtrak.
        I do think it is fair to ask every State that receives
    Amtrak service to step up to the plate. I think the
    Northeastern States should. I think Southern States, the
    Midwestern States, and the Western States should step up. That
    is fair. I think some of the lines that were eliminated in the
    past were because the States refused to step up to the plate.
    Texas did step up to the plate, but other States did not, and
    that was part of the factor.
        Right now, except for the Northeast Corridor and maybe the
    Western Corridor to an extent, probably the only real use of
    the national system is for pleasure because the on-time
    performance is so abysmal, that a person that has to make a
    meeting could never take Amtrak outside the Northeast Corridor
    or perhaps the West.
        I think we have got to say, when we talk about a national
    system, it has to be viable, and it has to perform, and that is
    going to take a capital investment, and clearly I think you are
    probably going to have to have a debt component for capital
    investment, but not for operating subsidies, and that is
    something that should be looked at and determined if it is
    going to be part of a plan.
        I would like to ask this question. The labor costs in
    running a railroad are out of line with other industries in our
    country. There is no question about that. I was looking at the
    chart that you gave us, and it looks to me like the labor costs
    of Amtrak are about 50 percent.
        Mr. Mead. That looks about right, 53, 55 percent.
        Senator Hutchison. They stayed relatively constant compared
    to some of the other costs, but the question is, and I would
    ask this of Mr. Warrington and Mr. Mead, is there a real
    possibility that we could bring the labor costs in line and
    bring them in line with other industries as opposed to some of
    the archaic labor provisions that were put in place probably
    long before we had an industrial revolution probably? Could you
    comment on whether we could get those in line and if that would
    be helpful in looking at a national system?
        Mr. Warrington. As a consequence of the last round of
    collective bargaining, Senator, you may recall that about 20
    percent of the costs of increased wages which settled at 2.9 or
    3 percent were offset by significant productivity improvements
    which to date have a value of about $85 million a year, and we
    have always incorporated those savings in the plan. We are in
    our next round of collective bargaining right now.
        Senator Hutchison. Are you saying the labor costs turned
    out as you had predicted it would?
        Mr. Warrington. Yes. Actually, we ended up saving $85
    million a year through productivity improvements. The context
    also is that Amtrak's basic wages on an hourly basis are below
    the rest of the industry and substantially below both commuter
    and freight weight on average.
        Senator Hutchison. If you compared that to not just the
    rail industry, but to the efficiency of the aviation
    transportation system, how would that compare?
        Mr. Warrington. I have not looked at that recently. We can
    certainly get you those comparisons. I would say that probably
    on average we are competitive or perhaps even below. I will
    tell you that the long distance train network itself generally
    tends to be a labor intensive set of services just by nature of
    the length and distance and time associated with the operation.
        Senator Hutchison. My staff has just handed me a chart that
    is in Mr. Rutter's testimony that shows rail is out of line as
    compared to aviation and other modes of transportation.
        Mr. Warrington. Yes. Let me respond this way, Senator. If
    you look at that chart, which I am generally familiar with,
    Amtrak's actual costs fall below that industry standard, and I
    can get you that on average annual wage basis. In other words,
    Amtrak's costs associated with labor are below that industry
    average represented in that chart, and I can share those
    details with you.
        Senator Hutchison. Well, yes, since it appears to be the
    exact opposite, that would be helpful.
        Mr. Warrington. That is not Amtrak's. That is the industry
    as a whole, and where Amtrak falls within the industry is
    actually very competitive.
        Senator Hutchison. Competitive with other modes?
        Mr. Warrington. Within the railway industry.
        Senator Hutchison. I was trying to determine if they were
    as efficient as they could be if you compared them with other
    transportation industries which this chart indicates they would
    not.
        Mr. Mead. A quick observation, I think there is something
    to say about labor applied to and its relationship to capital,
    and I am not a student of good comparisons between labor and
    airline industry and labor and rail, but one thing is very
    clear, when you compare airlines to Amtrak, I doubt if the
    aviation employees on the maintenance side are running around
    plugging as many holes in the dike on a daily basis as Mr.
    Warrington's staff probably is, and infusions of capital tend
    to put things in a better state of repair, and that should
    correlate with some productivity gains in labor.
        I would like to thank Mr. Warrington for his great service.
        Thank you, Mr. Chairman.
        The Chairman. Senator Wyden.
        Senator Wyden. Thank you, Mr. Chairman.
        My first question for the panel goes to the point Senator
    McCain was addressing in his question of who gets routes and
    under what circumstances and I want it understood. I want these
    calls based on the merits. I want them based on, in effect,
    good, timely information.
        I have got a draft report that I am going to share with my
    colleagues from the General Accounting Office and Amtrak got
    saying that Amtrak has got lousy information on the key
    questions with respect to revenues generated in areas that go
    right to the heart of the system. I want to share it with my
    colleagues.
        It is not helping us make these calls on the basis of the
    merits, and it meted out political judgments, and as this panel
    knows, the General Accounting Office evaluated training based
    on their cost-effectiveness and areas of service were
    eliminated that were more cost-effective in trains that were
    allowed to go forward.
        So I want it understood that I want to work with my
    colleagues in fashioning this bill so we do have these
    decisions based on the merits, and I will begin by asking you,
    Mr. Jackson, what is the Administration doing specifically to
    help the Congress and the various reforms that are being
    discussed that would allow us to have these decisions based on
    the kind of criteria I am outlining.
        By the way, if we wanted to set out a set of criteria, for
    example, and then hand it over to an independent third party,
    and shoot, Mr. Mead has done good work for us for years, if we
    wanted to set out a set of criterion, we could persuade old
    Mead to do it; it would be fine with me if he would make the
    decisions.
        But the question for you, Mr. Jackson, what is the
    Administration doing as we go forward with this reform effort
    to have these calls made on the merits? They are not being made
    on the merits today. That is what the GAO said and that is what
    they said repeatedly in their reports.
        Mr. Jackson. Senator Wyden, I share the same frustration
    you have. I walked into my first board meeting and did not have
    available to me the data from Amtrak about the cross-subsidies
    that were taking place within the network.
        I want to compliment George Warrington, because they have
    been trying to pull that out and tease that out of the
    financial system that was I believe disincentivized to give you
    the straight dope about what is going on in that regard. So
    they have been trying to pull the cross-subsidy information out
    of an accounting system that was not structured to deliver that
    type of data.
        I think anything going forward has to have rigorous clarity
    about how much it costs to provide service to each community
    and to each segment of the operation. You are absolutely right
    about this.
        Senator Wyden. What is the Administration's proposal on
    that? Do you think we are making progress? The General
    Accounting Office got a draft report to me that say we are not
    making progress.
        Mr. Jackson. I have not seen the draft.
        Senator Wyden. Is it your proposal to take a system that
    now is served with lousy information and change it?
        Mr. Jackson. It is to require that we make all decisions of
    this sort transparent and visible about the viability of a
    given route structure. I think that is an indispensable
    principle that has to be baked into the authorization.
        Senator Wyden. Mr. Warrington, it seems to me you changed
    the goal posts once again this morning. You pledged to the
    Congress a year ago that Amtrak was going to achieve
    operational self-sufficiency this year. Obviously that has not
    happened. I have seen how it has been blamed on September 11,
    but obviously Amtrak ridership is up in a number of areas since
    September 11, and I think it is worth noting you changed the
    goal post again today.
        You said operational self-sufficiency should not be the
    measure, but in your word, the question was whether Amtrak was
    on a glidepath. What does that mean?
        Mr. Warrington. The measure has always been the glidepath
    and the extent to which Amtrak would provide Federal operating
    support to its operations, and what we have worked very hard to
    do is remain on that glidepath and reduce the annual amount of
    each annual appropriation that would be devoted to operations,
    and we have actually done that through this year.
        Senator Wyden. But you said that you were going to be
    operationally self-sufficient.
        Mr. Warrington. What that means is we would have achieved
    that glidepath result by FY 2003, which means that the amount
    of Federal appropriation we would get would not be applied to
    operating support for any of the trains in the company. My
    point here has been that I believe a year ago that continuing
    to work hard could allow us to get to that goal which was the
    goal established in the law, but frankly, moons have to align
    perfectly.
        We were, as I often said, fixated and focused on trying
    hard to get there, and a number of events did occur that made
    it increasingly difficult, in my view, to get there.
        Senator Wyden. What were those events, because ridership
    was up post-September 11 in a number of areas?
        Mr. Warrington. Frankly, the slippage in delivery and the
    introduction of the Acela high-speed train sets on the
    Northeast Corridor had a cumulative value of about $300 million
    in revenue over the course of this measure period for self-
    sufficiency, number one.
        Number two, the economy clearly began to show impacts on
    cash-flow beginning late last winter and early in the spring.
    They reached their height of negative trend in August and
    September and October of last year. September 11 did help us on
    the Northeast Corridor in particular, on other corridors and on
    many of our sleeper services across the system.
        On top of that, we had some security costs associated with
    9/11 that had a cash impact. Another one of the difficulties we
    had this past year resulted from the Amtrak Reform Council
    issuing their formal finding, which had some unintended
    consequences that flowed from that. One consequence was to put
    in play the provision in the law that requires the U.S. Senate
    to consider the liquidation of Amtrak, and with that concept
    being out there, and uncertainty about how this body would deal
    with that statutory issue, as Ken has said earlier, has hurt us
    with the private markets. We depend substantially upon private
    markets, short-term and long-term, and one of the consequences
    of the cumulative effect of Acela high-speed trains is delivery
    delays with the cumulative impact of the economy which was
    fairly substantial by last spring and last summer and into the
    fall and the ARC trigger being pulled, which overnight cost us
    about $54 million in financing relating to equipment overhaul
    that had been in place, created a serious issue that we had to
    deal with this year. As a consequence of all this, I had to
    take a set of actions, given the uncertainty in financial
    markets this year, a set of actions a month or so ago that
    would make sure we would manage this business through the
    balance of the year, Senator.
        The Chairman. Senator Cleland.
        Senator Cleland. Thank you very much. When Senator Carper
    indicated that that intercity passenger rail service nationwide
    is in our naked self-interest, I was reminded of a line by
    southern humorist Lewis Grizzard that ``naked'' is when you do
    not have any clothes on and ``nekkid'' is when you do not have
    any clothes on, but you are up to something.
        I think we ought to be up to something, and what we ought
    to be up to is putting together a nationwide passenger service.
    I will say that there is a national security component to this
    now. I have always believed in the national rail system, but
    after 9/11, it was Amtrak that I took, not Delta, and I took it
    back to Georgia.
        I will say, interestingly enough, that the effort to
    privatize was done by the United Kingdom, and they recently
    announced that rail privatization, which is similar to the plan
    Amtrak Reform Council has suggested, had failed after only 5
    years. I now understand that the UK's transportation secretary
    has announced the plan to extend a $100 billion over the next
    10 years to totally revamp Britain's railway passenger system.
        Matter of fact, the history of Atlanta is quite
    interesting. Atlanta was once called terminus for the very
    reason that rail tracks intersected there. I will say that my
    State is one of the leaders. It is now looking at attracting
    some 8 to 12 million passengers a year through passenger rail
    in Georgia and has invested, through the General Assembly, $2.6
    million in bonds to acquire property in downtown Atlanta for a
    multimodal passenger terminal for buses and trains.
        I would hate for the Federal Government to fall behind
    here. Mr. Warrington, you have done a superb job. We will miss
    you. Your departure is a loss not only of Amtrak, but of this
    country, and I would hate to lose a passenger rail in this
    country. I think it is valuable. I think it is what we ought to
    be up to. I think it helps build out the economy, create jobs,
    particularly in a recessionary period.
        Mr. Warrington, what is your take on what the Congress
    ought to do immediately to help Amtrak get back on a good
    footing other than just committing conceptually to the 10-year,
    20-year plan that you were talking about?
        Mr. Warrington. Well, as I said to Senator Wyden earlier,
    there have been a whole series of events which have served to
    and conspired to make sure this year was very difficult and we
    have had to take a series of actions internally to stabilize
    that. Clearly, over the short haul, an appropriation next year
    is absolutely critical at the right level to make sure we can
    stabilize and basically maintain this system, today's system.
        I will tell you that ultimately the system needs to evolve.
    I think that today's system needs to evolve into a very
    different kind of system over time, and I think that ultimate
    vision of what that system needs to be is what the Congress and
    the Administration need to define as part of this
    reauthorization process.
        It is very clear that there are a whole set of services
    that could be built and developed and operated very
    successfully. If you look at models around the world, and we
    can inform this discussion, as Michael Jackson said, because we
    have done a lot of very good work internally on the underlying
    economics associated with different kinds of corridor and long
    distance services. Each of them have fundamentally different
    underlying economics, and I think that the real, as I said
    earlier, the real issue here is Amtrak does need to be
    stabilized over the short term.
        I think Senator McCain's question about debt service is an
    important one. It has largely been a consequence of not having
    sufficient capital. So for years we have had to borrow
    primarily in connection with the acquisition of equipment. In
    fact, the entire Acela high-speed train set program is entirely
    privately financed, and it is one of the reasons why interest
    costs have risen last year from $50 million to about $150
    million this year as we pay off those train sets.
        So I think short-term the focus for us needs to be on the
    FY 2003 appropriations. Longer term, I think that what is
    critical is defining a system, defining how today's system
    should evolve into a system which would conceivably have better
    economics attached to it.
        Senator Cleland. I would just say I am proud to be on the
    bill. That is the reason why I am co-sponsoring with the
    Chairman, Senator Hollings, and I hope we can move this
    legislation right along.
        Thank you, Mr. Warrington.
        The Chairman. Thank you.
        Chairman Breaux.
        Senator Breaux. I will very brief. I thank the panel for
    their testimony.
        Mr. Warrington, thank you for your service and sorry to see
    you departing.
        I guess just a general question. I mean, we had testimony
    out here this morning that since 1996, overall ridership has
    grown by 19 percent to an all-time record of 23.5 million
    passengers. Since 1996 the ticket revenues have grown by 40
    percent to $1.1 billion. Overall revenues have risen by 38
    percent from $2.1 billion. I guess that is the good news,
    because the bad news is that our operating loss in 2001, $1.1
    billion, was $129 million higher than the 2000 year loss and
    the largest in Amtrak's history.
        It seems that revenues are up, ridership is up and losses
    are up. I used to always wonder when I looked at an airplane
    that was flying as full as it possibly could be with a wait
    list outside that did not get on the plane and you see the
    planes are losing $400, $300 million a year. I said, you know,
    if I was filling up the plane as much as I possibly could and
    was still losing money, I would say maybe I should be in a
    different business.
        I mean, this is a problem. Good things are up and the bad
    things are up. I do not know how we can continue to break this
    cycle. Do you think Amtrak is as efficient today or is it more
    efficient today than we were in 1997?
        Mr. Warrington. I think in many, many ways Amtrak runs a
    much tighter and more efficient operation on a day-to-day
    operating basis. As I mentioned earlier, even from a collective
    bargaining point of view, we have negotiated work rules that
    have secured significant benefits. We run a much leaner
    operation.
        As a matter of fact, if you look at our forecasts for next
    year, the powerhouse in this operation really is the Northeast
    Corridor. Now, potentially there are other powerhouses out
    there, but the powerhouse is the Northeast Corridor.
        Senator Breaux. Let me interrupt that. I think we had a
    statement saying that if that is all you had operating, you
    would still be in a bad situation.
        Mr. Warrington. That requires capital, absolutely. It
    requires capital to even run the Northeast Corridor operation
    and it is substantial capital. In fact, Ken's point I think was
    that the subsidy issue around the long distance train network,
    which I would call basic essential public services, is a very
    relatively small financial issue and requirement, contrasted
    with what really are substantial capital investment needs, not
    only on the Northeast Corridor, but also the viability on the
    long distance network and the build out of other corridors
    across the country.
        Senator Breaux. I asked you are you more efficient and I
    wanted to give you a chance to respond, because Mr. Carmichael,
    when he testifies, will say regardless of whether one
    subscribes to the notion of self-sufficiency for rail passenger
    service, Amtrak is less efficient today than they were back in
    1997.
        Mr. Warrington. I entirely disagree with that assertion,
    and we can share with you all of those places where we have
    tightened up, managed better, in particular around the back
    office, and squeezing better business processes and saving
    money that support the basic operation of this company. I can
    share all of that with you.
        Those actions have been included in our business plans
    historically. We have got many of those actions in play and in
    place today, and they will continue through next year. I am
    very confident about that.
        Senator Breaux. Can anybody give me a comment on, I guess
    in Senator McCain's bill, requiring States to participate to
    cover for the services and the Northeast Corridor States would
    contribute 20 percent? This is as I understand it, but I am
    concerned what happens if one city that is being serviced along
    the route just refuses to make a contribution. Maybe three of
    them will say, ``Fine, we are going to contribute,'' and the
    fourth one says ``Not me.'' What do we do?
        Mr. Mead. I think cost-sharing is probably inevitably the
    way we are going to have to go on both the operating subsidies
    and capital.
        Senator Breaux. Is that a mandated cost-sharing from
    Congress?
        Mr. Mead. Well, as you say, what you do if one State says
    not me, but you have to drive the train through the State, and
    it is different when you drive parallels to the interstate. It
    is a little ditch. I remember when I used to go down to law
    school in South Carolina, I would have to stop at this place
    called South of the Border. They did not have the interstate
    complete. They did not have the interstate complete.
        Senator Breaux. You had to stop there?
        Mr. Mead. But I did. No. The State chose not to complete
    the interstate there at that particular time. So you had to get
    off the interstate, but at least there was a road, and in rail,
    that parallel fails, and so I do not have a good answer for
    your question, but I do think cost-sharing is the guy, sir.
        Senator Breaux. I am supportive. I really think this is an
    essential service. It is necessary. It is a question of how
    much we are going to recognize, and we have to support it and
    continue to make it more efficient, and that is the real
    question, how efficient can we get it, and then how much is it
    going to cost us.
        Thank you.
        The Chairman. Thank you.
        Senator McCain. Mr. Chairman, I just want to make one
    additional comment. When we are talking about the amounts of
    money, of taxpayers' dollars we need to spend here in making
    Amtrak viable, until 9/11 the airlines were growing their
    ridership each year by more than Amtrak's total ridership.
        Less than 1 percent of Americans today ride on Amtrak, and
    I would argue that most of those probably are in the Northeast
    Corridor. So we are talking about a very small number of
    Americans that make use of Amtrak.
        So when we contemplate spending $10-, $15-, $20-, $50-
    billion, I think we ought to make sure we understand what the
    return on that dollar is and whether it will be a viable
    enterprise or will we revisit this issue every 3, 4, 5, 6
    years, as we have since 1971, and find ourselves in the same
    position of pumping more billions of dollars of taxpayer
    dollars into this enterprise. I thank you, Mr. Chairman.
        The Chairman. I thank the panel on behalf of the Committee
    very much for your appearance. The record will stay open for
    questions.
        We will bring forward panel number two: Honorable Marc
    Morial, Mayor of New Orleans and President of the Conference of
    Mayors; David King, Deputy Secretary, Department of
    Transportation, North Carolina; Edward Hamberger, the President
    and CEO of Association of American Railroads; William J.
    Rennicke, Vice President of Mercer Management Consulting;
    Gilbert Carmichael, Chairman of Amtrak Reform Council; and
    Charles Moneypenny of the Transport Workers Union of America,
    and their statements I want to include in the record.
        Senator Breaux. Mr. Chairman, I will just note that I had
    talked to Mayor Marc Morial. He is on his way. He is at another
    event testifying, and he is on his way and will join the panel
    as soon as he gets here.
        The Chairman. Very good. I know the gentlemen want to make
    lunchtime.
        Mr. King, we will start with you, sir. All your statements
    will be included in the record, and you can summarize or give
    them in full as you wish. Try to limit it though.

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

        Mr. King. Thank you, Mr. Chairman. We are very appreciative
    of the opportunity to come before you and very appreciative of
    your leadership in putting forward a bill that allows
    discussions to take place.
        I represent, as you noted, the State of North Carolina and
    also a 22-State coalition that is interested in moving forward
    intercity passenger rail. Those States span the continent from
    the Northwest to Florida and Maine and a number of States in
    between.
        We are DOTs who have come to the realization that intercity
    rail is important because we are in the highway business and
    the aviation business and cannot solve the problem with those
    tools alone. It is clear to those of us in this coalition, and
    in several States such as California and Michigan that are not
    in the coalition, that intercity rail is an important component
    of a State-offered transportation system.
        What is particularly appealing about your legislation,
    Senator, is that it states categorically that we do need a
    system, a national system, and it offers to end the conundrum
    that Amtrak has found itself in lo these many years of being
    expected to be operationally self-sufficient while maintaining
    a national system.
        I would turn your attention to a color map that is in the
    back of my testimony. I am not sure that it is at your place. I
    hope that it is. It was published by National Geographic in
    2001. It is basically a light map of the United States.
    Particularly important to us in the Southeast is how the
    lights, and therefore, the population density, really lines up
    along Interstate 85 from Atlanta through Spartanburg, to
    Charlotte, to Raleigh, Richmond to Washington and, of course,
    up the Northeast Corridor. But as you look across the country,
    you can see how the lights line up, and many of our high-speed
    rail corridors that have already been designated by U.S. DOT
    follow where the people are. So there is a certain common sense
    there, and our challenge, I think, with the national system is
    to knit those corridors together.
        Let me give you the gospel according to the States in terms
    of what we believe should happen.
        Number one, we do believe that there should be a national
    system; that it should connect the dozen or so high-speed rail
    corridors; that it should connect to other modes such as
    airports; that it should connect to city centers and bus
    systems and commuter rail in convenient intermodal
    transportation centers that are in the heart of cities and
    allow you to walk to a number of destinations when you get off
    the train. Obviously, this is quite a contrast from airports,
    which are by definition in the suburbs or exurbs of communities
    and require you to drive as you leave the airport.
        I think States by and large are incrementalists. The
    efforts to leap forward and build a French-style high-speed
    rail system from scratch have not succeeded. They are
    inordinately expensive, and they seem beyond our grasp. We have
    been moving forward on an incremental basis.
        A second principle that I think is shared by the States is
    that we need a Federal-State partnership. We have had a
    Federal-State partnership for decades in the highway business,
    in the aviation business, in the transit business. That
    partnership is based on Federal funding usually on the capital
    side at 80 percent, 90 percent with the interstate highway
    system. We are used to that. That works well, and we believe
    that the same model would work very nicely in the intercity
    rail business.
        Number three, the States recognize the value of freight
    railroads. If you want to get a highway engineer excited about
    rail, and sometimes that is hard, you point out to them the
    degree to which the rail system takes heavy trucks off our
    highways. Heavy trucks disproportionately damage our highways
    and cause them to have to be designed to a much higher standard
    and cause them to wear out a good deal quicker.
        So the first place you win the heart and mind of a highway
    engineer is by pointing out the degree to which heavy freight
    comes off the road system when you have got a viable rail
    network.
        As we move forward with rail passenger service, there
    should be no mistake about the States' commitment to do that in
    a way that does not damage the ability of our freight railroads
    to be successful freight operators. Indeed, over the last
    decade or so there is a growing list of situations in which
    States have partnered with Class I railroads to put
    infrastructure in place to help the passenger business, but
    also help the freight business. Those two are not mutually
    exclusive goals.
        I think it is a false argument that passenger rail is at
    the expense of freight. In fact, the two can work very well
    together if they are well-planned and coordinated.
        I would note a very positive development in our experience
    over the last several years with our two major railroads,
    Norfolk Southern and CSX. The attitude has I think made a sea
    change. The ability and the willingness of those two
    corporations that serve Eastern America to work with States on
    intercity rail has improved dramatically over the last several
    years, and we appreciate that.
        We currently have a $25 million project underway between
    Raleigh and Charlotte with Norfolk Southern, and their
    cooperation is exemplary.
        Several comments on Amtrak. They have been good partners to
    us. There are a lot of excellent people who work for Amtrak, to
    include George Warrington for whom I have a great deal of
    respect, but there are several fairly fundamental reforms that
    I think would add a lot of value.
        One is in your bill, Senator. Section 310 calls for a
    thorough review of Amtrak's accounting system. States have been
    chronically disappointed with Amtrak's inability to provide
    good cost data on the services States support financially.
    There is simply not the capacity there within the company to
    control costs based on good accounting and good information nor
    to control revenues and to account for revenues, nor to figure
    out how we can grow revenue and control cost. Section 310 is an
    excellent feature.
        Second, I think the competition factor is huge, and we
    would love to inject some competition into a provision of
    Amtrak services.
        Third, the essential authority that Amtrak has to access
    the tracks of private railroads needs to be preserved no matter
    what happens to Amtrak. If Amtrak were to go away in its
    present form, then certainly States or multi-State compacts
    need to have that authority or else we would have no ability to
    operate in rail freight corridors.
        There are some comments in my written statement about the
    speed issues. Most of our State projects are designed for 110
    mph, and not 125 miles an hour. We think that is a better
    standard, although those States that feel they can go higher
    certainly should be encouraged to do so.
        I wish Senator Cleland were here. We have tremendous
    business support in Southeast, as you may know, Senator,
    including Greenville, Spartanburg and Columbia chambers and the
    Atlanta chamber and a dozen or so other chambers that have
    gotten together to support this effort, have been up here to
    Congress to make that clear and continue to do so because it is
    good for regional economic development and competitiveness.
        Finally, the States I think feel a sense of urgency. We
    need to do something this year, this legislative session if at
    all possible. Every year that we waste drives costs up and
    squanders opportunities and makes us vulnerable as we saw on 9/
    11. The States that I represent, and some that I do not, I
    think are eager to work with you in this Committee to get this
    done this year, and I hope you will feel free to call on us for
    any information or input that you think would be valuable.
        Thank you very much.
        [The prepared statement of Mr. King follows:]

            Prepared Statement of David D. King, Deputy Secretary,
                  North Carolina Department of Transportation

        Mr. Chairman, my name is David King. I serve as the Deputy
    Secretary for Transportation of the North Carolina Department of
    Transportation. My responsibilities include ferries, aviation, bicycles
    and pedestrians, public transportation and rail.
        I testify today on behalf of the State of North Carolina and the
    States for Passenger Rail Coalition.

                           NORTH CAROLINA ACTIVITIES

        In recent years North Carolina has established a comprehensive rail
    transportation program. Major program components include:
         Passenger Contract operation of intercity passenger trains
    beginning with the Carolinian in 1990. We have acquired passenger
    locomotives and rehabilitated passenger and food service equipment for
    the Piedmont service, which was inaugurated in 1995. We also have
    invested in mechanical and maintenance facilities to support the
    operation.
         We have embarked upon a station improvement program that
    will rehabilitate or construct new stations at every active stop. Our
    commitment of state and discretionary federal funds for 20 projects to
    date is in excess of $109,000,000. These projects serve as a focal
    point for downtown development and re-development activities, and they
    provide modern and safe facilities for intercity rail, intercity bus,
    local transit and other activities.
         In 1998, we invested $72,000,000 to complete acquisition
    of the 317 mile North Carolina Railroad (NCRR) from Charlotte,
    Greensboro, Raleigh, Selma and Morehead City.
         In 2001, we signed a master agreement with Norfolk
    Southern Railway (NSR) and the NCRR to initiate a program of speed,
    capacity and safety improvements between our major city pairs. Our
    initial investment of $24,000,000 will reduce travel time between
    Raleigh and Greensboro by about 20 minutes. Construction will be
    completed in 2 years or less. A program of additional investments is
    now being developed.
         We operate a marketing program in support of passenger
    services. This program includes toll-free 1.800.ByTrain information
    center and the North Carolina Volunteer Train Host Program.
    Engineering and Safety
         NC develops engineering plans and specifications and cost
    estimates for our rail freight and passenger improvement projects.
         We have partnered with the Federal Railroad Administration
    (FRA) and NSR to develop the Sealed Corridor approaches to improving
    crossing safety. The FRA has documented benefit to cost ratio for
    Sealed Corridor projects of up to 40 to 1. Once FRA formally reports
    their findings to the Congress, these cost-effective innovations can be
    applied nationally throughout the traditional ``Section 130'' grade
    crossing safety program.
         Since 1992 NC has closed 40 at grade crossings on the
    designated high-speed line between Raleigh and Charlotte, NC.
         Partnering with the FRA we have initiated a demonstration
    program designed to address ``gaps'' in safety resulting from private
    crossings. Under this program we will inventory private crossings on
    the designated high-speed line, develop a program of recommended safety
    improvements, and implement two public-private grade crossing safety
    demonstration projects.
         NC also houses its grade crossing safety and federally
    certified rail safety inspection programs within the Rail Division.
    Planning
         We have developed a comprehensive long-range plan for the
    development of high-speed, intercity and commuter passenger rail for
    our state.
         We have partnered with the Commonwealth of Virginia to
    complete a programmatic Tier I Environmental Impact Statement between
    Charlotte and Raleigh, NC, Richmond, Virginia and Washington, DC. We
    now have a basis for making a high-speed rail routing decision. This
    decision includes environmental, engineering and cost-benefit
    documentation and has been thoroughly coordinated with all the
    interested local, state and federal resource agencies.
         A Virginia-North Carolina High Speed Rail Commission has
    been created to evaluate the feasibility of developing high-speed rail,
    and to develop a program of legislative and financing recommendations.
    The new Commission seats legislators from both states.

                      STATES FOR PASSENGER RAIL COALITION

        The States for Passenger Rail Coalition is a grass roots
    organization of state departments of transportation. North Carolina is
    one of 22 states in the coalition. I serve as Chairman and Ken
    Uznanski, Manager of Washington State's Rail Program, is our Vice-
    Chairman and Randall Wade, Passenger Rail Implementation Manager of the
    Wisconsin Department of Transportation serves as our Secretary-
    Treasurer. Our growing membership is drawn from around the country and
    includes states with existing passenger rail service as well as those
    in the planning and development stage. Large states and small states,
    we span the continuum of partisanship, varied interests and geography.
    A map of the Coalition members is attached. We are quite a diverse
    group and we are a national group. Our strength is that it is a
    bottoms-up initiative, created and supported by the states because we
    share a common goal.
        Following the tragic events of September 11, 2001, many citizens
    had their first travel experience with our national rail passenger
    system and they were glad it was available. They also have first-hand
    knowledge that our national rail passenger system is in need of major
    capital investment in order to assure reliability and to have travel
    times that are auto and air-competitive. Rail passenger service is now
    a national security issue as well as a mobility and economic
    development issue.

        FIVE BASIC PRINCIPLES PROVIDE THE FOUNDATION OF THE STATES FOR
                           PASSENGER RAIL COALITION:

         First, high-speed passenger rail complements existing
    intercity passenger and freight systems. Those systems, mainly road and
    air, are increasingly saturated to the point that safety and
    reliability are compromised. The states and the private sector are
    meeting the challenge by investing record amounts of money in those
    systems. Increasingly states have made the business decision that we
    receive a greater return on investment by increasing the capacity of
    freight and passenger rail than by making alternative investment
    decisions. An example would be when the cost of adding a lane of
    interstate is much more expensive than improving a segment of rail
    where the rail improvement results in the same or more capacity than
    the additional lane of highway.
         Second, because intercity passenger rail trips tend to be
    100 to 300 miles in length, many of the corridor development planning,
    analysis, and construction management tools routinely used at the state
    level apply. States plan, build and maintain interstate transportation
    corridor systems. We meet a myriad of environmental, planning, and
    safety standards. These are multi-million dollar projects we deliver
    daily.
         Third, improved intercity passenger rail is attractive to
    states since it can be implemented incrementally. Because our programs
    are publicly funded to deliver public services, states must make
    prudent investments. We recognize that major new transportation
    infrastructure cannot be built overnight, but we need to start where we
    are today and work to improve those systems. Our stockholders, the
    citizens of our various states, have very high expectations.
         Fourth, states recognize the importance of partners in
    this process. Because railroading is both a capital and labor-intensive
    business, we must have the full participation of the freight railroads
    and labor organizations. The freight railroads own most of the assets
    outside the Northeast Corridor. Publicly and privately held railroad
    assets are currently shared in part with commuter agencies. Our
    emphasis is to assure safety and reliability and capacity for our
    freight carriers and our customers. The burden is on the states to
    understand the needs of and work with our partners effectively.
         Fifth, the federal government has a role to play in
    intercity passenger rail because this financial investment is in the
    national interest. Beyond the direct interest of the thirty-four states
    that comprise the eleven corridors designated by the federal government
    for high-speed rail development, it also is in the interest of the
    Nation to have a network of vibrant, well built, well-operated
    conventional intercity rail corridors. These corridors contribute to a
    national commitment to improve mobility and the social and economic
    quality of life for all our citizens. States, however, cannot
    accomplish this laudable call alone or even collectively; a national
    transportation system dictates a role for a federal partner.

     CAPITAL FORMATION IS AN ESSENTIAL ROLE FOR THE NATIONAL GOVERNMENT IN
                           TRANSPORTATION FEDERALISM

        The federal government fulfills a vital role in highway, public
    transportation, aviation and inland water transportation by creating a
    series of excise taxes and fees, placing them in trust funds and
    allocating those resources. As capital markets have become increasingly
    restricted, states and the freight railroads are working together to
    develop public-private partnerships that can build increased capacity
    for rail passenger and freight operations
        We need a federal partner who will help us provide a stable,
    dedicated, long-term financial commitment for all modes of
    transportation. Development of a high frequency, high-speed passenger
    rail network requires a level playing field.
        More specifically:
         The complex, long-term nature of corridor development
    dictates a multi-year programming tool.
         The federal government, through direct outlays and through
    the tax code, can provide a useful means of attracting and organizing
    larger amounts of private investment capital.
         States are making significant investments in intercity
    passenger rail. These funds can be used to match federal investments.
    In fact, the issue of matching funds deserves a more thorough and
    complete examination. States are creatively using a broad array of
    public and private resources to provide improved rail service. Both of
    these public and private matching efforts should be counted on the
    corridor level. Expansion of tools to recognize the value of matching
    efforts is to the common good and should be encouraged.
         The combination of federal, state and other funds can help
    achieve both economies of scale and funding levels attractive to
    investors.
         States are responsible for delivering a broad array of
    transportation services. This requires program stability and a reliable
    and predictable source of revenue. In large measure this stability is
    derived from the latest multi-year surface transportation bill ``The
    Transportation Equity Act for the 21st Century'' or ``TEA-21.''

      SENATE 1991, THE NATIONAL RAIL DEFENSE ACT, COMBINES LEADERSHIP AND
       PARTNERSHIP FOR NEW INVESTMENT IN THE RAIL PASSENGER AND FREIGHT
                                    NETWORK

        S. 1991 presents a funding program to lead investment in high-speed
    intercity passenger, and for the freight railroads.
         The National Rail Defense Act requires the Secretary of
    Transportation to establish a national high-speed ground transportation
    policy.
         The National Rail Defense Act promotes intermodalism and
    transportation efficiency by encouraging cooperative arrangements
    between the States and the host railroads and by giving preference to
    projects that link passenger rail services with other modes of
    transportation.
         The National Rail Defense Act recognizes the value of
    federal leadership in planning and developing a network of high-speed
    rail corridors. It is important that we encourage the development of
    these corridors so that we can expand the benefits of high-speed rail
    throughout the country, and bring new systems on-line in a rational,
    coordinated manner.
         The National Rail Defense Act authorizes needed rail
    freight infrastructure funding and streamlines the Railroad
    Revitalization and Regulatory Reform Act to make it a more effective
    instrument.
         The National Rail Defense Act provides for timely
    implementation by establishing time limits for rulemaking.
        We believe one area of the National Rail Defense Act merits further
    discussion and perfecting language:
        The provision ``giving a priority to systems which will achieve
    sustained speeds of 125 miles per hour or greater and projects
    involving dedicated rail passenger rights-of-way'' will favor
    development of a limited number of projects at the expense of many
    other worthy projects.
         Most, but not all of the high-speed development outside of
    the Northeast Corridor is designed for maximum operating speeds of
    between 90 and 110 miles per hour. Preliminary engineering and advanced
    environmental studies have been performed using these standards to
    develop auto and air-competitive travel times on many of the corridors.
    Of the thirty-four states with federally designated high-speed rail
    corridors it is believed that only three (California, Florida and New
    York) are being planned for operations in excess of 110 miles per hour.
         Re-engineering high-speed rail corridors for 125 miles per
    hour operation will require additional time, and the additional
    environmental and community impacts will add significantly to the costs
    to implement service. If the 125 miles per hour priority criterion is
    observed, the funding authorized in the National Rail Defense Act may
    impede rather than facilitate implementation of a network of travel-
    time competitive rail passenger services.
         Sustained cruising speeds of 125 mile per hour and above
    will require electrification. While research and development is being
    completed on high-speed non-electric locomotives, they are not broadly
    available and there are limitations on their use in tunnels.
    Electrification of thousands of miles of corridors will add orders of
    magnitude to the cost of implementation.
         Most high-speed rail corridors are proposed to make
    extensive use of existing freight rail rights-of-way. Few freight rail
    rights-of-way will permit sustained speeds approaching 125 miles per
    hour, thus acquisition of significant new rights-of-way will be
    necessary, resulting in community disruption and new environmental
    impacts.
        The States for Passenger Rail Coalition recommends:
         Deletion of priority consideration for 125 miles per hour
    segments and proceed with the requirement for the Secretary of
    Transportation to establish the national high-speed ground
    transportation policy required by part 309(e)(1) of Section 26100 no
    later than December 31, 2002. This will help ensure an equitable
    program of investments in high-speed rail while not magnifying the
    costs unnecessarily.
         A federal-state funding partnership for high-speed and
    intercity passenger rail development that mirrors the capital
    investment programs for other surface transportation programs.
        We believe that these issues can be readily resolved. Individually
    and collectively we are eager to work with the committee, the committee
    staff and others to remove these challenges to broad and successful
    implementation.

                     STATES ARE READY TO MOVE FORWARD, NOW

        In closing, I want to assure the Committee that many states are
    ready to begin implementing a high frequency, high-speed rail network
    now. States have developed innovations in highway-railroad crossing
    safety, passenger equipment design and manufacturing, and in railroad
    signaling systems. States renovate and construct new multi-modal
    stations and help attract new development to our inner cities. States
    are making investments in commuter, intercity and high-speed rail
    systems that serve state, multi-state and national interests. States
    make these investments in concert with local communities and commuter
    agencies, with Amtrak and the freight railroads, and with adjoining
    states. The federal government should not expect the states alone to
    build a national high-speed rail system. States need federal leadership
    and a federal funding partner to undertake this task.
        States also are working with business leaders to develop solutions
    to our congested highway and airport networks. For example, the
    Southeastern Economic Alliance (SEA), comprised of fourteen Chambers of
    Commerce from six states has been formed with the goal of achieving
    high-speed rail in the southeast. The leadership of the SEA already is
    having an impact on transportation decisions in our state capitals, and
    I believe business leaders around the country will mirror their
    example. Recently, a similar regional chamber effort has gotten
    underway in the Midwest led by the Chicagoland Chamber of Commerce and
    other chambers in the nine states that are a part of the Midwest
    Regional Rail Initiative. Our business leadership is not motivated
    because they are a fan of rail transportation, nor do they simply
    advocate for more government. Rather, their impetus comes from a
    business analysis that our current transportation system has a serious
    weakness, and that weakness hampers our ability to compete in world
    markets.
        Development of a high quality, high-speed intercity passenger rail
    network can help mitigate congestion. Development of high-speed rail
    transportation will help stimulate economic growth by creating new jobs
    and by increasing mobility. Development of a national system of high-
    speed rail is predicated on having a program of public-private
    investment that includes the active participation of states and the
    federal government. Many of our member states have completed
    preliminary engineering and environmental work and are ready to begin
    projects now. Many States have available ``shelf plans'' for
    incremental high-speed rail development, and are investing significant
    state and private funds now; we need a viable federal funding partner.
        As you have heard from the nation's governors, and as you are aware
    from the condition of our economy, states are not in a position to
    finance a network of high-speed rail infrastructure. We must have a
    federal partner. While states generally advocate for flexibility in the
    use of federal funds, the needs of our highway, transit and aviation
    modes far exceed available resources. We can and are eager to partner
    with the federal government to plan, design and construct the network
    of rail infrastructure improvements envisioned by the National Rail
    Defense Act.
        This Congress has as important an opportunity to impact the
    transportation system in the United States through support for
    development of a high frequency, high-speed rail network, as did the
    Eisenhower administration when it presided over creation of the
    Interstate and Defense Highway System. We look forward to working with
    you to develop this critical program. Thank you for the opportunity to
    testify before you today.

        The Chairman. Thank you very much.
        Mr. Moneypenny. Would you pass that microphone to him,
    please?

             STATEMENT OF CHARLES F. MONEYPENNY, DIRECTOR,
         RAILROAD DIVISION, TRANSPORT WORKERS UNION OF AMERICA

        Mr. Moneypenny. Let me begin by saying that rail labor
    applauds you, Mr. Chairman, for the boldness and vision of your
    bill. I have been involved with Amtrak both as a worker and
    union representative since the railroad opened its doors for
    business in Boston more than a quarter century ago.
        In that time yours is the first piece of legislation I have
    seen which addresses the real problem facing national passenger
    rail service in this country. Amtrak's problem today is the
    same problem that has always plagued Amtrak, lack of funding.
        Rail labor looks forward to working with you and other
    responsible parties to give this country the quality of
    passenger rail service it needs and deserves.
        We hope that this Committee is not distracted by the
    efforts of some to blame either labor or management for the
    current Amtrak crisis. Five years ago in the midst of another
    Amtrak crisis Congress decided that Amtrak's problems could be
    solved by attacking Amtrak workers. Accordingly, labor
    protections which Amtrak workers had enjoyed throughout the
    railroad's history and which were standard in the industry,
    were removed from the law and our contracts and made the
    subject of a collective bargaining process which would have
    necessarily ended in binding arbitration. Restrictions against
    contracting out were taken out of the law and made the subject
    of negotiations. This, some assured us, would fix Amtrak's
    problems.
        Five years later Amtrak's problems are worse than ever.
    This time not even an outfit as rabidly anti-Amtrak as the so-
    called Amtrak Reform Council can find fault with Amtrak's
    workers. The council, in fact, recommends that should another
    carrier take over Amtrak service the current work force should
    follow the work with seniority order and collective bargaining
    agreements intact. It is the only thing I agree with the
    council on, and I applaud the Chairman for his wisdom in that
    regard.
        This time we are told the problem is Amtrak management. No
    manager in particular seems to be the problem. Amtrak's
    departing president is, in fact, praised by most Members of
    Congress and indeed by members of Amtrak Reform Council. A
    vague allegation of a bad corporate culture is now introduced
    as evidence that the problem of passenger rail can be fixed by
    a new management team or teams.
        Having been the victim of this sort of witch-hunt 5 years
    ago, rail labor declines the opportunity to point the finger at
    Amtrak management as the source of the problem. Again, the
    Chairman's bill correctly identifies and more importantly
    offers solutions to the real problem, lack of funding.
        We also hope that this Committee will ignore the siren song
    of privatization. As some have noted earlier, passenger rail
    service was privatized in this country. That is how Amtrak came
    to exist. Not one of the freight railroads which was lucky
    enough to get out of the business 30 years ago has been
    knocking on the door trying to get back in. In its 4 years of
    existence, the Amtrak Reform Council was unable to identify
    even one company that runs a passenger train anywhere in this
    country willing to step in as Amtrak's successor.
        We know there are some folks out there who said they would
    like to have a crack at running a passenger rail service. They
    may not have any employees, they may not have any experience,
    they may not even exist as companies yet, but if we are sure to
    give them enough money and they will try the job. That is not
    very comforting to us, and it probably would not be too
    comforting to our customers either.
        I can testify from personal experience, Mr. Chairman, about
    the dark side of privatization. Several years ago, the
    Massachusetts Bay Transportation Authority, the MBTA, in my
    home State decided to contract out maintenance work which had
    been done by Amtrak employees. The MBTA awarded the contract to
    a company which was literally created for the purpose of
    bidding on this contract. This company had no mechanics, no
    office, no telephone, no address, no fax machine.
        In fact, when testifying before a Senate Committee 2 years
    ago, this shadow company's representative responded in classic
    fashion to a question from Massachusetts Senator Kerry. Senator
    Kerry asked the witness if it was true when they were awarded
    the contract they had two employees. The witness responded yes,
    roughly.
        This shadow company had a simple plan to get a work force.
    They planned to break the unions. Threatening letters were sent
    to workers' homes telling them they had no choice but to accept
    the wages and working conditions which the new company intended
    to impose. Wages would be cut, work rules eliminated, seniority
    discarded and pensions stolen. Memoranda passed between the two
    employees of the shadow company warned against hiring those
    with union sympathies.
        Unfortunately for this two man gang, there were way too
    many workers with union sympathies. Not one worker applied for
    a job with a company that wanted to break their unions, and
    unable to produce a qualified work force, the would-be union
    busters lost the contract. It was a stunning example of union
    solidarity and we hope a strong message to those who would seek
    to gain profits by siphoning them from our members' pockets.
        Finally, let me say a word about Amtrak's employees, that
    in simple fact Amtrak would not exist today without the
    sacrifices made by the men and women who make the trains run.
    Amtrak's unionized employees are working every day under
    contracts which expired more than 2 years ago.
        Years of wage deferrals, wage freezes, job cuts, et cetera,
    have made Amtrak workers the lowest paid unionized work force
    in the industry. We hope, Mr. Chairman, that your bill marks
    the end of the sorry practice of funding national passenger
    rail service on the backs of the employees. Our members intend
    to be a vital part of the future of the national passenger rail
    system that they have kept alive all these years. We look
    forward to working with you toward that goal.
        [The prepared statement of Mr. Moneypenny follows:]

        Prepared Statement of Charles F. Moneypenny, Director, Railroad
                  Division, Transport Workers Union of America

        Good morning, Mr. Chairman and members of the Committee. Thank you
    for the opportunity to appear before the Committee and present
    testimony concerning S.1991, the National Defense Rail Act, and the
    future of national passenger rail service.
        My name is Charlie Moneypenny. I am the Director of the Railroad
    Division for the Transport Workers Union of America, and I have most
    recently served as the labor member of the Amtrak Reform Council. This
    is my 30th year in the railroad industry, and more than 25 of them have
    been with Amtrak as either an employee or union representative.
        Let me begin by saying that Rail Labor applauds you, Mr. Chairman,
    for the boldness and vision of your bill, S.1991. I have been, as I
    said, involved with Amtrak, both as a worker and a union
    representative, since the railroad opened its doors for business in
    Boston more than a quarter-century ago. In that time, yours is the
    first piece of legislation I have seen which addresses the real problem
    facing national passenger rail service in this country. Amtrak's
    problem today is the same problem that has always plagued Amtrak: lack
    of funding. Rail labor looks forward to working with you and other
    responsible parties to give this country the quality of passenger rail
    service it needs and deserves.
        We hope that this Committee is not distracted by the efforts of
    some to blame either labor or management for the current Amtrak crisis.
    Five years ago, in the midst of another Amtrak crisis, Congress decided
    that Amtrak's problems could be solved by attacking Amtrak workers.
    Accordingly, labor protections which Amtrak workers had enjoyed
    throughout the railroad's history, and which are standard in the
    industry, were removed from the law and our contracts made the subject
    of a collective bargaining process which would, if necessary, end in
    binding arbitration. Restrictions against contracting out were also
    taken out of the law and made the subject of negotiations. This, some
    assured us, would fix Amtrak's problems.
        Five years later, Amtrak's problems are worse than ever. This time,
    not even an outfit as rabidly anti-Amtrak as the so-called Amtrak
    Reform Council can find fault with Amtrak's workers. The Council, in
    fact, recommends that, should another carrier take over Amtrak service,
    the current workforce should follow their work, in seniority order,
    with their collective bargaining agreements intact. This time, we're
    told, the problem is Amtrak management.
        No manager in particular seems to be the problem. Amtrak's
    departing President, George Warrington is, in fact, praised by most
    members of Congress and indeed even by many members of the Reform
    Council. Vague allegations of a bad ``corporate culture'' are now
    introduced as evidence that the problem of passenger rail can be fixed
    by a new management team or teams. Having been the victim of this sort
    of witch hunt five years ago, Rail Labor declines the opportunity to
    point the finger at Amtrak management as the source of the problem.
    Again, the Chairman's bill correctly identifies, and more importantly,
    offers solutions to the real problem, lack of funding.
        We also hope that this Committee will ignore the siren song of
    privatization. Passenger rail service was privatized in this country.
    That's how Amtrak came to exist. The freight railroads providing the
    service begged President Nixon to relieve them of what the ARC called,
    ``the burden'' of providing passenger rail service. Not one of those
    freight railroads, which the ARC called ``the best in the world'' have
    stepped forward to say they'd like to get back into the business of
    passenger service. And in its four years of existence, the Amtrak
    Reform Council was unable to identify even one company that runs a
    passenger train anywhere in this country willing to step in as Amtrak's
    successor.
        We know there are some folks out there who say they'd like to take
    a crack at running passenger rail service. They may not have any
    employees, they may not have any experience, they may not even exist as
    companies yet, but, we're assured, give them enough money and they'll
    try to do the job. That's not very comforting to us, and it probably
    wouldn't be too comforting to our customers either.
        I can testify from personal experience, Mr. Chairman, about the
    dark side of privatization. Several years ago, the Massachusetts Bay
    Transportation Authority (MBTA), in my home state, decided to contract
    out maintenance work which had been done by Amtrak employees. The MBTA
    awarded the contract to a company which was literally created for the
    purpose of bidding on this contract. This company had no mechanics, no
    office, no telephone or fax machine. In fact, when testifying before a
    Senate Committee two years ago, this shadow company's representative
    responded in classic fashion to a question from Senator Kerry. Senator
    Kerry asked the witness if it was true that when they were awarded the
    contract, they had two employees. The witness responded, ``Yes,
    roughly.''
        This shadow company had a simple plan to get a workforce. They
    planned to break the unions. Threatening letters were sent to workers'
    homes telling them they had no choice but to accept the wages and
    working conditions which the new company intended to impose. Wages
    would be cut, work rules eliminated, seniority discarded, and pensions
    stolen. Memoranda passed between the two employees of the shadow
    company warned against hiring those with ``union sympathies.''
    Unfortunately for this two man gang, there were way too many workers
    with ``union sympathies.'' Not one worker applied for a job with the
    company that wanted to break their unions, and, unable to produce a
    qualified workforce, the would-be union busters lost the contract. It
    was a stunning example of union solidarity and, we hope, a strong
    message to those who would seek to gain profits by siphoning them from
    our members' pockets.
        Finally, let me say a word about Amtrak's employees. It is a simple
    fact that Amtrak would not exist today without the sacrifices made by
    the men and women who make the trains run. Amtrak's employees are
    working every day under contracts which expired more than two years
    ago. Years of wage deferrals, wage freezes, job cuts, etc., have made
    Amtrak workers the lowest paid workforce in the industry. We hope, Mr.
    Chairman, that your bill marks the end of the sorry practice of funding
    a national passenger rail service on the backs of the employees. Our
    members intend to be a vital part of the future of the national
    passenger rail system that they have kept alive all these years. We
    look forward to working with you toward that goal, and I would be happy
    to answer any questions you might have.

        The Chairman. Very good.
        Mr. Carmichael.

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

        Mr. Carmichael. Thank you, Mr. Chairman and Members of the
    Committee. I have two of my council members here with me today.
    You just heard from Mr. Moneypenny who has been a very active
    and aggressive member of the council, and I have enjoyed
    working with him.
        We learned early on that labor was not the problem. Then we
    looked at Amtrak and started investigating, we learned that
    management was the problem. I listened a minute ago to Mr.
    Warrington when he answered the question about deficiencies
    that are in the bill. It is interesting to note that of the
    24,000 employees, that over 3,000 of them are managers, and in
    the last few years the management has grown.
        The other member of the council that is here today is Jim
    Coston who is sitting here and a very active member from
    Chicago.
        Quickly, on our Amtrak Reform Council, the Congress created
    this council, and we got in the business in 1998, had a hard
    time getting started, but in the last 4 years the ten members
    of this council, working with about a six person staff, have
    done a very good job of producing a citizen's report on Amtrak.
    We took our role seriously.
        Those ten members, plus the Secretary of Transportation,
    who was not able to participate, those ten members did
    thousands of hours of hard work for no fee. They were not paid.
    The small staff under Tom Till produced a very good citizen's
    document. It is not a real polished literary tome, but it is
    good, thoughtful research into the Amtrak problem and some of
    the suggestions and solutions.
        What has made me happy this morning was as I was listening
    to the witnesses earlier in the meeting they are getting where
    we were about a year ago. They are putting the facts together
    and they are in the learning curve, and we do have, as
    Inspector General Mead said a moment ago, we do have a serious
    crisis. As David King added a minute ago, we are at the
    position where we need to come up with a new plan for a new
    national rail passenger system. And the council has been very
    pro-rail.
        We gave Amtrak every bit of the benefit of the doubt during
    these last 4 years as they were on the glidepath they were
    talking about. The council let me be the Chairman, and I asked
    for that privilege, to give Amtrak as much leeway as possible
    to help them reach the self-sufficiency that they were trying
    to reach. It was not till last November that we got to the
    point that it was necessary, the council members got concerned
    enough, and while I wanted to postpone the vote till January,
    the council came together and we made the vote in November.
        Looking back, it was probably a very wise idea to go ahead
    with the vote because one of the things that happened, is that
    it did provide the trigger. It did start the national debate,
    and we are having a good, strong debate and your bill and
    Senator McCain's bill are excellent examples of where the
    debate ought to be going and how it ought to be solved.
        I have submitted a report here, Mr. Chairman. I had some
    more little comments that I wanted to make in here, but I have
    got one report. I will probably clean it up and submit a mini
    version of it, but I think we have come a long way. We are very
    close to a new national rail passenger plan. The freight
    railroad people throughout need our help in this debate. They
    will be major beneficiaries, like your bill or Senator McCain's
    bill. They need to increase their speed and their capacity for
    their freight side, and if they do that and if there is funding
    available for that, we will have a beautiful railroad right-of-
    way out here for intercity high-speed trains, also.
        So I just encourage you to please proceed, and I stand by
    for questions.
        [The prepared statement of Mr. Carmichael follows:]

            Prepared Statement of Gilbert E. Carmichael, Chairman,
                             Amtrak Reform Council

        Good morning, Mr. Chairman, and members of the Committee.
        I am Gil Carmichael, Chairman of the Amtrak Reform Council. Thank
    you for the invitation to present the Council's views on S. 1991, The
    National Defense Rail Act, in the context of the Council's Action Plan
    for the Restructuring and Rationalization of the National Intercity
    Rail Passenger System, which was submitted to the Congress on February
    7, 2002. With your permission, Mr. Chairman, I will summarize my
    statement and submit the full statement for the record.
        The Council has submitted its recommendations to the Congress for
    reform. Other reasonable reforms will be proposed. The Council believes
    that reform is no longer an option, Mr. Chairman. Reform is an
    imperative.
        Over its lifetime, the increase in Amtrak's ridership has barely
    kept pace with the growth rate of the U.S. population. Contrary to
    popular belief, in the period between September 11, 2001, and the end
    of last year, Amtrak carried fewer passengers than it did in the
    comparable period of 2000. Amtrak is burdened with debt and debt
    services, and its assets are in poor condition. All its routes lose
    money when depreciation is taken into account.
        Regardless of whether one subscribes to the notion of self-
    sufficiency for rail passenger service, Amtrak is less efficient today
    than it was in 1997. And this is after the appropriation to Amtrak of
    more than $5 billion during the past five years, including $2.2 billion
    in capital funding under the Taxpayer Relief Act.
        The continuing deterioration of Amtrak's performance since the
    Council was established led the Council to its finding that Amtrak
    would not achieve operational self-sufficiency by December 2, 2002, as
    required by the Amtrak Reform and Accountability Act of 1997.
        Without reform, FY 2003 will be business as usual for Amtrak--lower
    revenues and higher costs and greater losses than Amtrak promised.
        Why does Amtrak have this record of poor performance?
        Amtrak has too much to do, and does little of it well. In this
    environment, Amtrak has proven that it cannot concentrate on its core
    mission of running trains. As it is chartered and organized today, no
    agency has effective oversight of Amtrak's business plans, its funding
    requests, or its financial and operational performance. Our analyses
    and those of the DOT/IG and the GAO are all done in hindsight. No
    program can be successful without good, timely oversight.

                       THE COUNCIL'S PROPOSALS FOR REFORM

        The Action Plan the Council sent to Congress on February 7, 2002,
    thus recommends a fundamental restructuring of the way we organize,
    fund, and operate the national rail passenger service program. If we
    are to have a modern rail passenger program that works, we have to
    separately organize and fund the passenger trains from the 20,000-plus
    miles of nationwide rail infrastructure that supports them.
        The Council proposes that the two new companies be administered by
    a small federal agency, the National Railroad Passenger Corporation
    (NRPC). The NRPC should be restructured on the model of the United
    States Railway Association (USRA), created by Congress in 1973 to
    restructure Penn Central and 6 other railroads. USRA planned Conrail,
    enforced strict accountability on Conrail, and shielded Conrail from
    political interference. The Council believes a new National Passenger
    Rail Program needs a similar oversight organization.
        In this framework, a new national train operating company could
    concentrate strictly on running trains, with the resources to do so,
    under contract, with no unfunded mandates, and without political
    pressure on its management decisions.
        The Council's proposal for a National Passenger Train Operating
    Company also recommends introducing the possibility of competition into
    the provision of passenger train services. In many countries around the
    world, reforms in the provision of both passenger and freight rail
    service have involved competitive bidding for contracts to provide
    public services.
        Our recommendations also deal directly and strongly with the parts
    of the Northeast Corridor and other infrastructure that Amtrak owns.
    Today's Amtrak is a minority user of the Northeast Corridor--running
    only about 150 of the Corridor's 1200 trains--and its finances and
    management cannot bear the burden of maintaining and improving what is
    largely a commuter facility.
        As an aside, Mr. Chairman, you have some very interesting figures
    in your own bill. Those figures make it clear that the annual cost of
    operating, maintaining, and improving the NEC infrastructure, which S.
    1991 sets at $1.3 billion, is equal to the cost of operating,
    maintaining, and improving the entire national passenger operating
    company.
        The Council's final major recommendation is that the Congress enact
    measures to provide stable and adequate sources of funding--separate
    sources for train operations and for infrastructure--for a restructured
    National Rail Passenger Program. There are those who say that putting
    more money into the existing Amtrak--as S. 1991 provides--is all we
    need to do. The Council strongly rejects that notion. What we have
    today is an institution that, through more than 30 years of existence,
    has never had the full confidence of the Congress or the Executive
    regarding Amtrak's ability to spend money properly, regardless of which
    party controlled either of those branches. Effective reforms will
    correct that lack of confidence.

                        FUNDING A PASSENGER RAIL PROGRAM

        Even then, the reality of government funding today poses important
    challenges to effective funding of passenger and freight rail
    infrastructure needs. As you know, guaranteed spending programs, which
    today predetermine the appropriation of 75 percent of all federal
    transportation funds, have been very beneficial for highways, transit
    and aviation. But the rail mode of transportation is having a tougher
    time getting funds appropriated because there is no room in the
    transportation appropriations bill to fund major facilities such as the
    Northeast Corridor infrastructure, which needs at least $1 billion per
    year.

    Funding Passenger Rail Infrastructure
        Most important for the infrastructure needs of an improved
    passenger rail program are several bond bills that have been
    introduced. One is the High Speed Rail Investment Act, co-sponsored by
    Senators Daschle and Lott. A bill sponsored by House Transportation and
    Infrastructure Committee Chairman Don Young, RIDE-21, provides $36
    billion in tax-exempt bonding authority (and $35 billion in loan
    guarantees) for railroad investments.
        Under appropriate safeguards, the Council also recommends that
    states have flexibility to use highway and aviation funds for
    investments to improve the intermodal connectivity of the passenger
    network or to fund rail investments that would relieve highway or
    aviation congestion in short-haul corridors.
        When such a program is enacted, these funds should be the engine
    for an effective federal-state rail infrastructure program, in
    cooperation with the freight railroads, to support improved passenger
    rail (and intermodal freight) service. The systematic and continuing
    improvement of railroad rights-of-way and tracks that this program will
    support is an essential element of the sound national rail passenger
    (and freight) program that America needs.

    Funding Operations and Equipment
        The issue of funding for operating subsidies and other needs for
    Amtrak's long-haul trains, as well as for the capital requirements of
    corridor trains, and also for operating assistance during a transition
    period, is more difficult. The Council's Action Plan recommends that
    the government provide funding on the basis of a formula that will
    promote its efficient use, not simply fund cash shortfalls resulting
    from inefficient, deficit-ridden operations. Funding under such a
    structure might be provided through appropriations or through some
    dedicated source of funding (some have suggested that a new penny might
    be added to the federal motor fuel tax that could go to rail uses if
    matched by a new state penny). Under the program structure that the
    Council recommends, in which train operations would be provided under
    contracts, much of the funding for the passenger equipment investment
    needs of the operating company should or could come from private
    capital markets.

    Funding the Northeast Corridor Rail Infrastructure
        Let me go back and address the Northeast Corridor infrastructure.
    Separating the Northeast Corridor infrastructure--both organizationally
    and financially--from Amtrak's nationwide train operations is another
    way of narrowing the gap between the subsidy needs of Amtrak's national
    train operations and the uncommitted funds available in the budget.
    There is little or no chance that Amtrak will be able to get the
    capital it needs to maintain and improve the NEC out of appropriated
    funds. Clearly, the NEC infrastructure needs to be shifted to a federal
    agency or authority that has better access to federal, state, and local
    guaranteed funding than Amtrak has.
        Why? Because Amtrak has demonstrated that it has to use whatever
    cash is available to offset the operating losses of its trains. To fund
    operations, Amtrak raised $300 million for operating expenses last year
    by mortgaging future income from two concourses in Penn Station New
    York. Amtrak regularly charges portions of its oversized management
    overhead costs to capital projects, and it has deferred maintenance on
    the NEC infrastructure below levels needed for minimum operational
    reliability. Despite the $3.8 billion backlog of critical fire and life
    safety and other urgent capital projects on the Northeast Corridor,
    Amtrak did not request the full amount of appropriations authorized by
    the Congress under the Amtrak Reform Act.
        Amtrak--as it is presently structured--cannot be an effective
    public steward for this vital toll road known as the Northeast
    Corridor.
        A variety of funding sources, not all directly available to Amtrak,
    are accessible to NEC state governments (and the other states with
    emerging corridors) to assist in providing the investments to support
    their large NEC commuter operations, as well as Amtrak's high-speed
    operations.
        Indeed, there is no single source that could provide all the
    necessary capital for the NEC. Thus, the Congress should look at a
    variety of sources, which may include:
         Bond bills that are pending before Congress (RIDE-21 and
    HSRIA) would help, and may be the principal way to fund all of the
    corridors.
         The private market will likely provide bond funding to a
    separated NEC infrastructure;
         For vital fire and life safety projects on the NEC,
    federal appropriations might be used to reauthorize the Northeast
    Corridor Improvement Program or provide part of the funding needed to
    establish a trust fund to pay off bonds issued by a new Northeast
    Corridor Authority.
         Loans or guarantees under TIFIA and/or RRIF can also help.
    A restructured National Railroad Passenger Corporation and the states
    might work with Regional Transmission Organizations, to undertake one
    of the major infrastructure projects south of New York--the replacement
    of the electric traction system.
         Expanding the flexibility provisions in current
    transportation trust funds to include the NEC projects that would
    reduce highway and air traffic congestion.
         Civil works projects under the Army Corps of Engineers to
    undertake bridge projects that are over navigable waters can be
    implemented with federal transportation funds.
         Special purpose mechanisms for ownership and control of
    such NEC assets as the Penn Station Complex, which has total needs of
    more than $4 billion, might be effectively handled under some kind of
    appropriate regional umbrella.
         Federal and/or state tax incentives, such as tax credits,
    might be developed to encourage the private sector to make investments
    in the corridor.

              COMMENTS ON THE NATIONAL DEFENSE RAIL ACT (S. 1991)

        Mr. Chairman, let me take the opportunity to contrast the thrust of
    the proposals that you put forward in S. 1991 with the comparable
    proposals from the Council's Action Plan.
        Oversight. Mr. Chairman, S. 1991 does not provide badly needed
    oversight of Amtrak. The Council suggests you give due consideration to
    strengthening oversight.
        Corporate and Board Structure. Following on from improved
    oversight, S. 1991 does not propose any substantive changes in
    corporate or board structure for Amtrak. A major reason for the
    structural changes the Council proposes is to provide effective
    corporate governance for the three major functions that today's Amtrak
    carries out. These are: National Rail Passenger Program direction,
    direction and management of national rail passenger operations, and
    direction and management of the Northeast Corridor rail infrastructure.
    Each of these functions is very different from the others. They each
    require different skills and different representation. The Council
    would suggest that you give due consideration to appropriate changes in
    the rail passenger program's corporate governance.
        High-Speed Rail Corridors. The Council strongly supports the
    development of the emerging high-speed rail corridors. Our proposal,
    however, would be to base such a program on federal-state cost-sharing
    rather than on 100 percent federal funding. First, we doubt that
    sufficient federal funds exist to carry the entire burden. Second,
    where freight railroads get major benefits from the investment, they
    should make an appropriate contribution. The Council would also support
    having the funding priority of the Corridors determined by the
    Secretary of Transportation, rather than by federal law. And while
    transitional federal operating assistance might be warranted, basing
    the corridors on permanent federal operating support is likely to be
    fiscally and economically untenable.
        Non-Transportation-Related Profits. Without organizational
    separation, the Council believes there is reason to doubt that Amtrak's
    current accounting systems and practices can effectively determine
    whether Amtrak's activities are indeed profitable. Assuming such
    profits could be accurately determined, another problem arises. If
    profits have to be given away, then it is likely that not much in the
    way of profits will materialize. This is what happened under the
    Transportation Act of 1920, which required that the profitable
    railroads subsidize the unprofitable railroads. All profits magically
    went away. This provision also has the aura of a kickback to states
    that hire Amtrak for various non-transportation-related contracts,
    which could be unfail to private firms bidding to supply such services.
        Efficiency. S. 1991 does not contain any incentives to improve the
    efficiency or customer satisfaction of Amtrak's corporate overhead
    functions, train operations, or supporting services. Amtrak needs
    strong incentives to get its costs under control, increase its
    revenues, and improve its service quality.

                                   CONCLUSION

        With all due respect to your proposals, Mr. Chairman, the Council
    believes its recommendations are strong and sound. The chronic
    difficulties that Amtrak experiences--year in and year out--are not due
    principally to lack of funding. They spring primarily from an
    organization that does not inspire confidence and thus desperately
    needs to be redesigned. Effective reform will beget funding. Funding
    alone will not beget reform.
        For these reasons, the Council strongly recommends that the
    Congress first adopt badly needed institutional reforms before
    providing major new funding for passenger rail service.
        I will be pleased to answer any questions. On behalf of the
    Council, I thank you, Mr. Chairman, for the opportunity to address the
    Committee.

        The Chairman. Very good, and get that plan to us as soon as
    you can.
        Mr. Rennicke.

       STATEMENT OF WILLIAM J. RENNICKE, VICE PRESIDENT, MERCER
                      MANAGEMENT CONSULTING, INC.

        Mr. Rennicke. Thank you, sir.
        My name is Bill Rennicke, and I am Vice President of Mercer
    Management Consulting. One of the things we found in the late
    1980s was that a very exportable product around the world was
    our understanding of the commercial and private railroad
    structures in the U.S. As such we wound up being involved in
    virtually every railway privatization in the world or
    application of private secondary activity to the rail passenger
    and freight business.
        I think one of the important lessons we have learned, and
    something to bring up right up front, is that when we speak
    about privatization, we are not talking about returning to the
    model that the U.S. railroads had with private operations up
    until 1970. That is one of probably 25 models that have worked
    in some other countries, but it is not the only model. We are
    talking about places where private sector involvement has
    worked, not necessarily with companies with two employees, but
    companies with thousands and thousands of employees.
        The kinds of things that typically have gone on is
    countries, governments and regulators have revised the
    privatization structure, the structures of companies. They have
    changed regulatory governance, funding, and recruited bidders.
        The whole process started about 10 years ago almost
    concurrently with the change in political situations in Eastern
    Europe. Most major countries of the world, whether they were
    industrialized or developing, ran out of money to support the
    railroads. Argentina, the first country where we were hired,
    had spent almost $1.6 billion U.S. in that year funding
    railroad operations and capital programs. It was a very, very
    small country and that was a very considerable amount of money.
        So in most cases those countries were facing many of the
    same issues and debates that you are having today, and
    basically, they said, ``What do we need to do to change?'' They
    were experiencing poor performance of the railroads themselves.
    Services were poor, massive amounts of capital were required,
    and the government felt tremendous financial pressures.
    Particularly it was felt among people like the World Bank, and
    in the U.S. Government, and European governments, that if the
    Eastern European governments were going to survive, and one of
    the biggest cash drains on their economies was the railroad,
    then they had to commercialize, if not privatize. There was
    frustration on the parts of governments over the lack of any
    kind of a firm action or protocol on the part of the railroads.
        The process that typically was used and one that I would
    suggest be considered in the U.S. is something we call
    unbundling. If you try to digest the railroad as a whole, the
    complex integrated business structure of a private company, you
    often will come up with either a very simplistic yes or no kind
    of answer--do we return to 1970 or do we not?
        In almost every country in the world that has embraced what
    is called private involvement in railways, whether they be
    passenger or freight, they have not necessarily applied it to
    100 percent of the activities. They have looked for selected
    places in the railroad where these could be done with the
    concurrence and support of the regulators, of the passengers,
    and of employees. I would say in none of the countries that can
    I think of in which we were involved with private sector
    participation was there a situation where at the end of the
    cycle we did not have the full support of the employees. The
    fact is in Argentina, the unions formed a company and became
    one of the franchise bidders themselves.
        Again, the kind of private structures that we are talking
    about are several. One is the full or partial privatization of
    the railroad.
        The MTRC was the largest subway system in Hong Kong, whose
    functions were basically outsourced by privatization. You had
    sales to foreign operators. The New Zealand rail system, and
    the Argentine freight systems were sold as concessions, with
    significant involvement of private financing and the provision
    of assets by maintenance companies and equipment companies.
        One of the most important things is to realize that while
    there has been a characterization in the U.S. that nobody will
    step forward to become a private operator, it is really wrong.
    Most of the private companies that you want to have as
    operators in the United States are operating elsewhere in the
    world, and in fact, operate things like bus companies in the
    United States. They are well-seasoned railroad companies. They
    understand how to run a railroad and how to run a private
    company. Some of them actually involve, from our past
    experience, interest on the part of the U.S. airlines in some
    parts of the rail system.
        Those companies will probably never step forward until
    there is a process that would allow them to bid on something.
        So until there is some kind of request for proposal or
    resolution or establishment of a structure, they will not get
    involved in spending their resources in trying to go through
    the years of debate and discussion about what to do with the
    railroad.
        When there is a transparent program they will decide to bid
    or not to bid, and in the supplemental material I gave you
    there is a list of about I think 70 companies that we think
    might be interested. We have not contacted them. Some of them
    are U.S. railroads that run commuter operations, and they may
    or may not be interested, but I think if you had a transparent
    process like those we found even in much less desirable
    situations in developing countries, you could probably count on
    25 to 50 world class companies showing up.
        The kind of things that I think are of interest to these
    folks, and I listed this out in my comments, is primarily
    clarity on the framework. They are going to want to understand
    the politics. They are going to want a structured business
    offering. They are going to want enforceable commitments and
    some ideas of the funding because we are not talking about
    total private funding. That does not exist anywhere.
        You cannot run most passenger railroads totally out of the
    farebox. They are going to want to know where the funding comes
    from, and in the material I provided we have show you that you
    can reduce the subsidies tremendously. Mexico went from a $700
    million subsidy to zero. Argentina is down to about $50 million
    from the total of $1.6 billion.
        I have given some examples of what is happening in other
    countries, and I have also provided on page 46 of the
    supplemental material something that I was not necessarily
    asked to do and that is at least a hypothetical version of how
    you might want to consider as part of this debate incorporating
    some other issues that face the transportation sector in the
    U.S.--not that Amtrak is not enough to bite off, but there are
    things like airport congestion that, as you think about the
    restructuring of the system, if you incorporate those planning
    concepts you could actually come up with a much more attractive
    opportunity for private operators to get into the system. This
    is described in some of the supplemental material.
        Thank you.
        [The prepared statement of Mr. Rennicke follows:]

          Prepared Statement of William J. Rennicke, Vice President,
                       Mercer Management Consulting, Inc.

        My name is William J. Rennicke, and I am a Vice President with
    Mercer Management Consulting, Inc. (Mercer). I have 30 years of
    experience consulting to the transportation industry on a wide range of
    regulatory, economic, litigation, and asset management issues. I
    specialize in transportation strategic planning, management, marketing,
    economics, and operations, and have particular expertise in
    restructuring, organizational redesign, and transactions to improve
    financial and operating performance of transport operators around the
    world. I have previously provided expert testimony on the state of the
    North American rail industry on several occasions before the U.S. and
    Canadian legislatures. I have also directed the analysis of the
    competitive effects of transactions before the FTC and DOJ.
        My purpose in preparing this statement is to provide the Committee
    with Mercer's perspective on the worldwide trend towards private sector
    involvement in passenger railroad restructuring and privatization. My
    testimony is based on experience working with many of the national
    railways worldwide that have been restructured, privatized, or are
    otherwise seeking ways to attract private sector investment and improve
    both their finances and their services.
        In the last ten years, there has been a radical change in the way
    passenger railroads around the world are structured and operated. A
    particular feature has been growing private sector involvement in all
    areas, from operating trains, through maintenance of rolling stock and
    infrastructure, to financing of large-scale projects. In general, the
    result has been very positive, with improvements in service and
    ridership, increases in investment and big reductions in subsidies.
        Many of the lessons can be applied to the U.S. passenger rail
    situation, although obviously each country is different, and we should
    be careful in applying wholesale a model used elsewhere, however
    successful.

                                 TEN YEARS AGO

        Ten years ago, around 1990, virtually all countries had large,
    integrated, state-owned railroads. The integrated railroads did
    everything--specifying, procuring and owning equipment and
    infrastructure, maintaining it, running passenger and freight services,
    operating stations and freight terminals, providing add-on services to
    customers, and managing all the associated administrative activities.
        Many of the railroads were actually government departments, others
    some form of public corporation. In both cases, funding came from the
    government, usually through coverage of the annual operating deficit,
    and funding of the capital budget. Since governments are perennially
    short of money, capital spending was inadequate to replace assets, and
    the condition of the equipment and infrastructure was steadily
    deteriorating.
        The only major private sector involvement was U.S. freight
    railroads. Outside of U.S. freight, private sector involvement was very
    limited.

                         CHANGES IN THE LAST TEN YEARS

        Since 1990, the railroad sector worldwide has undergone a radical
    change that is still continuing. The change has been driven by three
    related factors:
         Poor and declining performance by the railroads, including
    declining (or barely increasing) ridership, poor service (especially
    frequency and on-time performance), and increasing costs and financial
    support required.
         Financial pressures on governments that made the subsidy
    paid to railroads look a poor value use of public funds compared to
    alternative uses such as health and education.
         Frustration by governments at the lack of firm action by
    railroad management to address these problems, and at the intransigence
    of labor to adapt in ways that would assist performance.
        The changes differed by country, depending in particular on how bad
    the situation was, the government's objectives and the level of skills
    available in the existing railroad staff to sort out the problems.

                                   UNBUNDLING

        A common theme in all countries has been ``unbundling''. The
    integrated state-owned railroad comprised a series of activities--for
    example, financing the equipment, owning it, maintaining it, operating
    it, marketing the service to passengers--that together provide the
    service to customers.
        Unbundling separates out these activities and gives them to the
    most efficient type of provider. So, financing and ownership of
    equipment may be done more efficiently by an operating lessor or a
    bank. Equipment maintenance may be done more efficiently by a
    specialist maintenance company, or by the manufacturer who understands
    the technology and can give a long-term commitment to equipment
    availability. Train operation may be done better by large bus operators
    who are skilled at providing high-frequency customer-oriented services.
        Importantly, unbundling allows the private sector to become
    involved. No private sector companies have the experience to manage the
    full range of rail activities, but they can be very effective at
    managing pieces of it. Where there is a requirement to manage more than
    that, they can create consortium arrangements where each member does
    what he is good at and they all share in the overall risk and reward.

                           PRIVATE SECTOR INVOLVEMENT

        Private sector involvement has taken a variety of forms:
         Full or partial IPO of the railroad or unbundled parts of
    it. Examples include Canadian National, the Japanese railroad (split
    into regional operators), the UK infrastructure company Railtrack, and
    the subway operator MTRC in Hong Kong.
         Sale to private owners. Examples here include the New
    Zealand railroad and the UK freight operator (both sold to Wisconsin
    Central), the Argentinian freight lines (sold to local and U.S. short
    line operators), and the UK passenger rolling stock and maintenance
    shops (sold to various banks and manufacturers).
         Concessions to operate services. Examples include
    Argentina passenger services (originally concessioned for seven years
    and now being extended to encourage re-investment), Swedish and German
    regional rail concessions (typically 3-10 years), and UK passenger
    franchises (7 years).
         Financing of new assets. This includes growing private
    sector leasing of rolling stock, and the financing of major
    infrastructure. Examples include the UK passenger rolling stock fleet
    (the ROSCOs), and FBOT (finance, build, operate, transfer) schemes such
    as the Dutch high-speed line, the high-speed Channel Tunnel Rail Link
    in the UK, and the Taiwan high-speed line.
        As the examples show, it is not necessary to sell the whole system
    to get many of the benefits of private sector involvement. Many
    countries, particularly in Europe, are working toward a mixed model,
    where some activities, particularly management of infrastructure, will
    be state-run and others, particularly train services, will be run by
    the private sector. However, even state-run infrastructure activities
    will use the private sector, e.g., for maintenance or for financing
    major projects, as the normal part of doing business.

                             COUNTRY CASE EXAMPLES

        South America has seen the most radical changes in its railroads,
    with virtually all the region's railroads moving from state-owned to
    private sector in the last ten years. Argentina was the first country
    in South America (and in the world) to move to complete private sector
    railroads in 1993-5. At the time service was very poor, financial
    support was out of control, and poor asset condition threatened even
    basic operation. The government, with Mercer's help, moved quickly to
    bring in private operation of all passenger and freight lines, and
    committed them to a program of asset improvement. Similarly in Mexico,
    the rapid devaluation of the peso forced the government, again with
    Mercer's help, to split up and concession the freight railroad in three
    pieces in record time, yielding over $2.5 billion in one-off cash to
    the government.
        In continental Europe, railroads were better run, and government
    financial pressures less. As a result, there has been a gradual
    evolution, pushed along by the European Commission. The succession of
    changes started with restructuring of the railroads while still in
    state ownership to make them more commercial, efficient and financially
    sound (and to separate infrastructure from train operations). It has
    now moved to greater private sector involvement and competition, with a
    requirement for commuter, regional and light rail systems to be offered
    to competitive concession, and plans to IPO the freight and inter-city
    passenger services in some countries. Similar changes are happening,
    more slowly, in Eastern Europe, as countries prepare to join the EU.
        The UK, of course, followed a different path. The government
    unbundled the system into 100 separate pieces and privatized
    everything. The resulting complexity has caused problems, and
    contributed to the failure of Railtrack, but other parts have performed
    well, particularly the train operators, and the rolling stock
    management and maintenance.
        Elsewhere, Japan is completing the privatization of its system,
    mainly through IPO of existing operators; Australia is concessioning
    most of its passenger and freight operations; and New Zealand sold off
    its railroad in the early 1990s. Even China is now reviewing options
    for unbundling and private sector involvement in its massive system,
    and Russia has recently restructured its railroad in preparation for
    privatization.

                     EMERGENCE OF PRIVATE SECTOR COMPANIES

        Parallel to these changes has been the emergence of private sector
    companies to take on the new roles. Ten years ago, governments had to
    search for companies with the right skills when they wanted to bring in
    the private sector. Now, there is a group of companies experienced in
    operating in the new unbundled rail industry.
        There are four different types of new companies:
         Train operators. New passenger train operators are
    primarily French or British bus companies that started with UK rail
    privatization. They include Connex, National Express, Via GTI, First
    Group, Arriva and Stagecoach. They now hold concessions in the UK,
    Netherlands, Australia, Sweden, Portugal, Germany, and Denmark,
    including some high-speed services (over 125 mph).
         Maintenance companies. Infrastructure maintenance
    specialists have emerged mainly from construction companies and include
    Balfour Beatty and Jarvis of the UK, and Sersa of Switzerland. In
    rolling stock maintenance, manufacturers predominate, including
    Bombardier, Alstom and Siemens.
         Finance providers, including lessors (financial and
    operating), arrangers and commercial lenders. There is a large list of
    commercial lenders in Europe in particular that now have experience
    owning rail assets and lending to major railroad projects, and a
    growing understanding of how to assess and price the risks involved.
         BOT (build, operate, transfer) consortia. Consortia
    members include finance providers and train operators, but also other
    risk-taking comp anies such as project managers (e.g., Bechtel) and
    engineering consultants.
        With their international experience with different rail operations,
    these new companies are increasingly transferring best practices from
    one country or operation to another.

                   MAXIMISING VALUE FROM PRIVATE INVOLVEMENT

        As governments have developed private sector involvement, they have
    learned what conditions are required to maximize the value they get.
    Some of the conditions relate to attracting private sector bidders in
    an international marketplace where private companies have many other
    opportunities; others relate to ensuring ongoing value as the contract
    or concession progresses. The major conditions are:
         Clarity on the framework (political, institutional and
    legal) within which the private sector will operate. Without this, the
    private sector fears it will get squeezed by ever changing political
    pressures. In the UK, for example, the threat by the Labour party of
    re-nationalization put off bidders and considerably reduced the value
    the government obtained from the sale of the ROSCOs and the IPO of
    Railtrack.
         A structure of the business being offered that gives
    private operators sufficient breadth over which they can add value, and
    sufficient flexibility to make changes. Too narrow a set of activities
    and too many constraints (e.g., on service frequency, prices, or labor)
    reduces the private sector's ability to improve performance. Some
    private operators are not bidding for concessions in Europe because the
    concessions are too narrow and too short to make a decent return.
         Agreed, measurable and enforceable commitments on service
    and investment, which if met will deliver to government the benefits it
    needs. This effectively aligns the government's and the private
    operator's interests.
         Strong performance monitoring arrangements, including
    reporting and meaningful penalties/incentives which focus the private
    company's management and staff day-to-day. This needs to be coupled
    with a hands-off day-to-day management approach by government, which
    allows the company to manage in a normal commercial manner.

                                    RESULTS

        In general, the results of the changes have been very positive. For
    example:
         In Argentina, ridership of the commuter system increased
    by 125% in the first seven years of the concessions (1993-2000),
    service improved dramatically, and subsidies for the commuter and metro
    systems combined reduced from $300 million to $50 million.
         In Mexico, in addition to the $2.5 billion initial cash
    inflow, government subsidies of $0.7 billion a year were eliminated.
    Freight traffic rose by 50% between 1995 and 2000 and a $1.3 billion
    investment program was completed.
         In the UK, passenger and freight traffic increased by 25-
    40% in the first five years, subsidies for passenger services were
    committed to fall by 60% over the seven years of the franchises, and a
    major replacement program for passenger rolling stock is still
    underway.
         In passenger concessioning in countries such as Sweden,
    Germany and Australia, private operators are committing in their bids
    to operate the services with cost reductions of 20% or more, with a
    larger reduction in subsidy.

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        The Chairman. Very good.
        Mr. Hamberger.

         STATEMENT OF EDWARD R. HAMBERGER, PRESIDENT AND CEO,
                   ASSOCIATION OF AMERICAN RAILROADS

        Mr. Hamberger. Thank you, Mr. Chairman. On behalf of the
    AAR, we appreciate the opportunity to be here and I would like
    to add my words of praise to the job that George Warrington did
    in recognizing the importance of cooperation between rail
    freight and rail passenger providers.
        First, let me point out that it is important to recognize
    that Amtrak could not exist without the facilities and services
    of freight railroads. Outside the Northeast Corridor, of
    course, Amtrak operates almost exclusively over tracks that
    freight railroads own and maintain, and while passenger rail is
    important to the country, it pales in comparison to the
    importance of freight railroads.
        Freight trains provide more than 40 percent of the Nation's
    intercity freight transportation and according to Lou Thompson,
    the World Bank's railways adviser, our railroads provide the
    most efficient, cost-effective rail freight service in the
    world. Consequently, any solution to Amtrak's problems must not
    burden the freight railroad operations.
        I would like to just say I appreciate the comments from
    Secretary King about his recognition of maintaining adequate
    freight transportation and his comments about the cooperation
    he has received from two of our members. I would also observe
    based on my own experience and comments I received from several
    of our members that perhaps the sea change to which you refer
    occurred not just in the freight rail industry, but also in the
    hallways of State rail agencies who now recognize the
    importance of cooperation. So congratulations to all I guess
    who have come to that conclusion.
        The freight railroads have identified seven principles
    which we believe should be part of the debate as we go forward.
        Number one, intercity passenger rail service on a broad
    scale simply is not profitable in this or any other country and
    cannot exist without significant government subsidization.
    Every railroad passenger service in the world, as we just
    heard, receives a government subsidy, and indeed, Amtrak was
    created to preserve passenger service in the country at a time
    when freight railroads were losing over $200 million annually
    equaling $775 million in today's terms.
        Number two, freight railroads should receive full
    compensation for the use of their assets by intercity passenger
    operators. By statute, Amtrak is accorded priority access and
    access on the basis of incremental costs which do not fully
    cover the costs incurred by freight railroad.
        It is interesting to note that when freight trains operate
    over Amtrak's Northeast Corridor, Amtrak charges them as
    appropriate, fully allocated, not incremental, costs, and the
    difference is up to five times more than is paid by the freight
    operator for access to the Northeast Corridor than that paid by
    Amtrak to access to the freight roads.
        Number three, freight railroads should not be expected to
    further subsidize intercity passenger rail service either
    through new taxes or the diversion of existing taxes, and you
    will not be surprised to hear that I am referring to the 4.3
    cent per gallon deficit reduction fuel tax which, of course, we
    believe should be repealed immediately.
        Four, Amtrak should have as its business focus the safe
    transport of passengers, and therefore, subsidized passenger
    authorities, including Amtrak, should not have a statutory
    right to carry mail and express, but should be required to
    negotiate arrangements in these areas with the right-of-way
    owners. We understand the drive of Amtrak management to try to
    accumulate capital from outside sources. Senator Carper
    commented this morning there are cases where that occurs on a
    voluntary, bilateral basis. We think that is the way that
    should go forward.
        Five, safety requirements and the integrated nature of
    railroading necessitate that intercity passenger rail be
    provided by one entity. We believe that should be Amtrak, and
    further, Amtrak's right of access, preferential access rates
    and operating priorities should not be transferred or
    franchised. We believe this because we operate a national
    system, and it is important that we deal with one entity who
    recognizes that this is a national system and can deal with us
    on the impact of what happens in Chicago affects what happens
    in New York and as we try to compete with trucks, and I will
    leave for another hearing whether or not we are competing on a
    level playing field with trucks. As we compete with trucks for
    business, we need to be able to deal with one entity that
    recognizes the importance of our system operating in
    competition with national truck system.
        Six, Amtrak's present obligations, notably those under the
    Railroad Retirement Act, must not be shifted to the freight
    rail industry. We believe it would be inequitable for that to
    happen. It would threaten the viability of the railroad
    retirement system itself, and of course, given the reforms that
    Congress passed and the President signed last year that would
    be too ironic if that were to occur right now.
        Seven, future high-speed passenger rail corridors should be
    separate, dedicated and sealed. I think this is just matter of
    safety and efficient operations.
        Let me now apply these principles to your bill, Mr.
    Chairman. We are pleased that certain sections of the proposed
    National Defense Rail Act are consistent with these principles.
    Specifically, the legislation recognizes that passenger trains
    do need to be subsidized. It recognizes the value of an
    integrated system operated by a single entity. It recognizes
    Amtrak's obligation to the railroad retirement system. It
    increases the money available under the Railroad Rehabilitation
    Improvement Financing Program and removes the unrealistic
    lender of last resort requirement, and it promotes the
    industry's ability to ensure safety and security by increasing
    the need for authority on the railroads' property.
        However, there are some provisions with which we have some
    concerns. The legislation does not appear to require that grade
    crossings should be eliminated on high-speed corridors nor does
    it require high-speed operations be conducted over separate,
    dedicated tracks, and high-speed, I think we are talking 125
    miles an hour and above.
        It encourages Amtrak to develop freight revenue which would
    distract Amtrak from its public purpose and generate conflict
    with the freight railroads.
        Finally, we see no benefit from interjecting the Surface
    Transportation Board into issues between Amtrak and freight
    railroads regarding on-time performance which are handled now
    very efficiently through contracts which provide for penalties
    and incentives.
        We recognize the difficult mission that you have
    undertaken, and we look forward to working cooperatively with
    this Committee, with Amtrak and others to achieve a viable
    passenger service in this country.
        [The prepared statement of Mr. Hamberger follows:]

         Prepared Statement of Edward R. Hamberger, President and CEO,
                       Association of American Railroads

        America's freight railroads are grateful for the opportunity to
    present their views as you consider the future of Amtrak and intercity
    passenger railroading in this country.
        Although there are numerous commuter rail and subway systems in the
    United States, Amtrak (more formally, the National Railroad Passenger
    Corporation) is the sole provider of intercity passenger rail
    transportation. It operates over more than 22,000 route miles, carries
    23 million passengers annually, and serves more than 500 stations in 46
    states and the District of Columbia. Amtrak is also the nation's
    largest contract provider of commuter rail service for state and
    regional authorities, serving an additional 54 million commuter
    passengers per year in California, Connecticut, Maryland,
    Massachusetts, and Virginia. Amtrak has approximately 23,500 employees.
        Amtrak could not exist without the facilities and services of
    freight railroads. Other than the approximately 730 route-miles Amtrak
    owns (primarily in the Northeast Corridor bounded by Boston and
    Washington, and in Michigan), Amtrak operates the remaining 97 percent
    of its system almost exclusively over tracks owned and maintained by
    our nation's privately-owned freight railroads, via mandatory access at
    below market rates. Freight carriers also furnish other essential
    services to Amtrak including train dispatching, emergency repairs,
    station maintenance, and, in some cases, police protection and
    communications capabilities.
        Throughout its history, Amtrak has faced recurring questions
    concerning its funding needs and the proper role it should play in our
    nation's passenger transportation system. Today, Amtrak faces perhaps
    its most urgent and serious reappraisal yet.
        As policymakers deliberate the future role and structure of Amtrak
    and intercity passenger railroading in general, they should know that
    freight railroads will continue to work cooperatively to help ensure
    that intercity passenger railroading succeeds. Freight railroads
    believe that intercity passenger railroading in this country has a role
    in alleviating highway and airport congestion, decreasing dependence on
    foreign oil, reducing pollution, and enhancing mobility and safety.
        It is critical, however, that as you deliberate the future of
    Amtrak and intercity passenger rail, you fully recognize the
    appropriate freight railroad role in the provision of intercity
    passenger service.

                             PASSENGER RAIL HISTORY

        Immediately following the birth of our nation, economic development
    was concentrated along the East Coast and in areas with navigable
    rivers, largely because barges and ships were the only practical means
    available to transport people and freight long distances.
        The rise of the U.S. rail industry changed that. In the second half
    of the 1800s, railroads allowed population centers to develop in areas
    previously considered inaccessible and allowed mineral, timber, and
    agricultural products to reach distant markets at home and abroad.
    Railroads were a catalyst that allowed our nation to grow.
        Well into the 20th century, railroads were the primary means by
    which people and freight were transported in this country. In 1930, for
    example, the rail share of both the intercity freight and passenger
    markets was around 75 percent. Over time, though, a number of factors,
    especially the enormous expansion of our nation's highway system and
    the development of an extensive commercial aviation industry--both
    accomplished with the help of hundreds of billions of dollars in
    government subsidies--brought enormous competitive pressures to bear on
    passenger railroading.
        In fact, by the 1930s, passenger railroading had become clearly
    unprofitable. World War II brought a brief respite, but by the late
    1950s, private railroads were losing $750 million per year (about $3.8
    billion in 2002 dollars) in fully distributed costs on passenger
    service, according to an Interstate Commerce Commission (ICC) study.\1\
    A series of subsequent studies by others confirmed the ICC's findings.
    In fact, a noted transportation scholar wrote ``it is no exaggeration
    to say that by 1958 railroad passenger service had demonstrated itself
    to be the most uneconomic activity ever carried on by private firms for
    a prolonged period.'' \2\
    ---------------------------------------------------------------------------
        \1\ Interstate Commerce Commission, ``Railroad Passenger Train
    Deficit, Proposed by Howard Hosmer, Hearing Examiner, Assisted by
    Robert A. Berrien, Fred A. Christoph, and Raymond C. Smith, attorney
    advisers,'' Docket No. 31954, 1958.
        \2\ George W. Hilton, The Transportation Act of 1958, Indiana
    University Press, 1969, p.13
    ---------------------------------------------------------------------------
        The primary reason that these massive losses continued for so long
    was that government regulators often made it extremely difficult for
    railroads to discontinue even clearly unprofitable passenger rail
    service. Until 1958, only state public service commissions could grant
    railroad requests to eliminate money-losing passenger trains--something
    commissioners were often loathe to do, no matter how much money the
    railroads were losing.
        The Transportation Act of 1958 transferred to the ICC the authority
    to approve discontinuances of interstate passenger service, as well as
    appellate power over the discontinuance of intrastate trains that had
    been denied discontinuance by state regulators. From 1958 through mid-
    1967, the ICC approved the discontinuance of 490 interstate and 331
    intrastate trains. Nevertheless, the passenger deficit in 1968 was not
    appreciably different than it had been a decade earlier.
        By 1967, many purely local trains had been discontinued, and the
    railroads were pursuing the elimination of major trains that comprised
    the basic elements of the national passenger rail network. With fewer
    than 600 daily passenger trains nationally (down from more than 1,400
    per day in 1958), political pressure against the cessation of passenger
    service intensified. In June 1968, the ICC called for more demanding
    legislative standards for train discontinuance, longer time periods for
    deliberation, and exclusive ICC jurisdiction over determinations
    applicable to the last train on any given route. If approved, these new
    standards would have made it even more difficult for railroads to
    eliminate unprofitable passenger service.
        Looking only at incremental or avoidable costs (as opposed to fully
    distributed costs), the ICC found in 1969 that railroads could save
    $200 million (approximately $775 million in 2002 dollars) each year if
    they were allowed to exit the passenger business.\3\
    ---------------------------------------------------------------------------
        \3\ Incremental (or avoidable) costs are those direct costs which
    result from additional traffic/volume or which would be eliminated by
    the discontinuance of a traffic or a particular activity. Fully
    distributed (or allocated) costs include incremental costs as well as a
    proportionate share of the fixed and common costs (including the cost
    of capital necessary to provide the service) allocable to the traffic
    or service in question.
    ---------------------------------------------------------------------------
        In essence, for several decades the railroad industry was forced by
    various governmental bodies to lose hundreds of millions of dollars
    annually providing a public service that fewer and fewer people chose
    to use. By 1970, passenger rail ridership had plummeted to just 11
    billion passenger-miles, an 88 percent decline from its 1944 peak of 96
    billion, despite a 40 percent increase in U.S. population during the
    same period. By 1970, the cumulative passenger deficit had reached
    countless billions of dollars.
        Unfortunately, the massive passenger losses were draining a rail
    system that was also facing unrelenting attack on its freight business
    from subsidized trucks and barges, leading to railroad bankruptcies,
    consolidations, service abandonments, deferred maintenance, and general
    financial deterioration. By 1970, railroads' share of intercity freight
    ton-miles had fallen to 40 percent, down from 56 percent just 20 years
    earlier, and the industry's overall return on investment had fallen to
    1.7 percent--less than a child could earn on a passbook savings
    account.
        In 1970, the largest U.S. railroad, the Penn Central, went into
    bankruptcy. At the time, it was the largest bankruptcy in U.S. history.
    Not coincidentally, the Penn Central was also the largest passenger
    railroad in the country.

                     THE RAIL PASSENGER SERVICE ACT OF 1970

        The Rail Passenger Service Act of 1970 (RPSA) was a response to the
    very real possibility that the United States would soon have no
    intercity rail passenger service at all, and a recognition that rail
    passenger losses were a serious threat to the viability of freight
    railroading. Given the huge financial pressure they faced, it is no
    surprise that when the RPSA created Amtrak, railroads welcomed the
    opportunity to rid themselves of their hopelessly unprofitable
    passenger obligations.
        However, the RPSA exacted a hefty price from freight railroads for
    the opportunity to exit the intercity passenger rail business.
        First, freight railroads were required to capitalize Amtrak in
    cash, equipment, or services. These payments to Amtrak totaled $200
    million (approximately $740 million in today's dollars).\4\
    ---------------------------------------------------------------------------
        \4\ The fee each railroad had to pay was based on each carrier's
    1969 passenger services and consisted of the lesser of (1) 50 percent
    of the fully distributed passenger deficit; (2) 100 percent of the
    passenger service avoidable cost; or (3) 200% of the avoidable loss
    associated with passenger service over routes retained in the Amtrak
    system.
    ---------------------------------------------------------------------------
        Second, the RPSA authorized Amtrak to operate wherever it wished
    over the privately-owned freight rail network. Amtrak was also granted
    the power to force freight carriers to convey property to it if the
    property were necessary for intercity rail passenger transportation.
        Third, the RPSA explicitly ordered freight railroads to grant
    preference to Amtrak trains over their own trains or any other
    customers in the use of any given line of track, junction, or crossing.
        Fourth, the RPSA gave the ICC the authority to intervene if Amtrak
    and the host freight railroad could not agree on the compensation due
    the owner for Amtrak's access. However, a 1973 ICC decision that
    ordered Amtrak to pay a rate of compensation greater than incremental
    or avoidable cost was overridden by a 1973 amendment to the RPSA, which
    allowed Amtrak to pay no more than the incremental costs of the owning
    freight railroad caused by Amtrak's use of the tracks.
        Railroads that refused to accept the statutory terms offered in the
    RPSA were required to continue their passenger operations--despite any
    losses they would incur--for at least four more years. Thereafter, they
    could seek relief before regulatory agencies, but received no guarantee
    that they would be permitted to discontinue unprofitable service at
    that point. All but a few of the railroads accepted the terms of the
    RPSA and immediately turned over passenger operations to Amtrak, rather
    than face continuing losses and the uncertainty of the regulatory
    process.

                        FUTURE PUBLIC POLICY DIRECTIONS

        The special statutory privileges regarding its relationship with
    freight railroads that Amtrak has enjoyed over the past 30 years have
    amounted to a significant, mandatory, and inequitable subsidization of
    intercity passenger operations by freight railroads. As you consider
    the future of Amtrak and intercity passenger transportation, the
    freight railroads respectfully suggest that it is not possible to
    ``develop a new, clear national policy for intercity passenger rail
    that can have the broadest possible base of support,'' in the words of
    FRA Administrator Allan Rutter, if these inequities are not addressed.
        While passenger railroading is important to our country, it pales
    in comparison to the importance of freight railroading. Our privately-
    owned freight railroad system is a tremendous national asset. Freight
    railroads operating in the United States move more freight, more
    efficiently, and at lower rates than anywhere else in the world,
    according to Lou Thompson, the World Bank's Railways Advisor. The safe,
    efficient, and cost-effective transportation service that freight
    railroads provide is critical to the domestic and global
    competitiveness of our nation. Indeed, freight railroads are
    responsible for over 40 percent of our nation's intercity
    transportation service. Therefore, we must find the most effective way
    to provide the passenger services that America needs, but without
    burdening the freight rail system--operationally, financially, or in
    any other way.
        Freight railroads have developed a series of principles regarding
    the future of intercity passenger rail service. Our principles call for
    future rail passenger public policy to acknowledge the extreme capital
    intensity of railroading and to ensure that railroads' investment needs
    can be met. Policies which add to freight railroads' already enormous
    investment burden, such as further saddling them with support of
    passenger rail infrastructure needs, or which reduce their ability to
    provide the quality service needed by their freight customers, must be
    avoided. To do otherwise would undercut our nation's freight rail
    capabilities and be counterproductive in addressing our country's
    congestion, environmental, safety, and economic concerns.
        The freight railroad principles are outlined below.
        1. Intercity passenger rail service on a broad scale simply is not
    profitable in this or any other country, and cannot exist without
    significant government subsidization.
        For decades prior to Amtrak's creation, our nation's railroads
    learned the hard way how difficult it is to recover the full costs of
    passenger railroading. Although Amtrak was created as a for-profit
    entity, experience has shown that this is not achievable. No
    comprehensive passenger system in the world operates today without
    significant government assistance.
        Once policymakers in the Administration, Congress, and the various
    states agree on the nature and extent of intercity passenger
    railroading in this country, they must be willing to commit public
    funds commensurate with that determination.
        2. Freight railroads should receive full compensation for the use
    of their assets by intercity passenger operators.
        As explained above, freight railroads do not profit from Amtrak's
    operations. Rather, for the past 30 years, freight railroads have
    heavily subsidized Amtrak by virtue of Amtrak's statutory right of
    priority access to freight railroads' tracks at incremental cost. An
    incremental cost basis does not come close to reflecting the full
    market value of Amtrak's access to the owning railroad's tracks because
    it does not cover the full operating, capital, and other costs freight
    railroads incur in hosting Amtrak trains.
        This has become an especially important problem over the past
    decade, as freight railroads are increasingly required to expand the
    capacity of their networks to accommodate growing traffic volume. In
    certain locations, railroads are experiencing serious and growing
    capacity constraints. Ton-miles per mile of road owned, a useful
    measure of freight traffic density, has risen from 3.9 million in 1970
    (when Amtrak was established) to 14.8 million in 2000--a 279% increase.
    Largely because of this congestion, train ``slots'' on major freight
    corridors are as valued as gates and departure times at major airports
    or berths at ports. Moreover, because most shippers no longer carry
    large inventories, railroads must meet their customers' requirements
    for ``just-in-time'' or more predictable freight arrival. Consequently,
    asset utilization has become a crucial management tool and rail
    infrastructure, crews, communications, and customer satisfaction have
    come to depend on precise and efficient operations.
        Thus, where Amtrak trains fill prized corridor ``slots'' at bargain
    prices, the result is a major cross-subsidy from freight to passenger
    service. It also limits the overall size of certain freight rail
    markets (because slots are not available to freight trains) and affects
    the reliability freight railroads can offer their customers.
        Internal railroad studies have confirmed that the subsidies
    involved are substantial. For example, a few years ago, one railroad
    calculated that its annual subsidy to Amtrak exceeded $56 million per
    year--and this was without including certain major categories of costs,
    including the cost of delays to freight trains and the resulting
    dislocation of freight crews and locomotives.
        It is interesting to note that when freight railroads run freight
    trains over the Northeast Corridor, which is owned by Amtrak, Amtrak
    charges the freight railroads fully allocated costs, not just
    incremental costs. In fact, the fees that freight railroads pay Amtrak
    are many times greater (on a per car basis) than the fees which freight
    railroads must accept from Amtrak. Thus, railroads are prohibited by
    statute from treating Amtrak the same way that Amtrak treats freight
    railroads. Freight railroads should be fully compensated for Amtrak's
    use of their property, on the same terms that Amtrak is compensated for
    use of Amtrak's property.
        3. Freight railroads should not be expected to further subsidize
    intercity passenger rail service, either through new taxes or the
    diversion of existing taxes (notably the 4.3 cents per gallon deficit
    reduction fuel tax).
        If policymakers determine that intercity passenger service provides
    essential public benefits, then the costs of the passenger service
    should be borne by the public, not by freight railroads. For 30 years,
    freight railroads have subsidized Amtrak. Forcing them to continue on
    this basis will seriously hinder freight railroads' ongoing efforts to
    provide safe, efficient, and cost-effective transportation service.
        Indeed, to force freight railroads to continue to subsidize
    passenger operations would be supremely inequitable. Freight railroads
    are suppliers to Amtrak. As such, they should be treated the same as
    those who supply Amtrak with locomotives, passenger cars, diesel fuel,
    electricity, and provisions for the dining car. Nor should freight
    railroads be held to a loftier ``public interest'' standard. Highway
    contractors are not required or expected to bid below cost because
    highways are in the public interest. The same rules should apply to
    railroads.
        The 4.3 cents per gallon deficit reduction fuel tax paid by
    railroads deserves special mention. This tax should be repealed--not
    diverted to any other purpose--so that freight railroads can channel
    these funds into needed infrastructure and equipment. Diverting this
    tax to fund intercity passenger rail would perpetuate the inequities
    faced by freight railroads, because they would continue to derive no
    benefit from a tax they pay but their primary competitors do not.
        4. Amtrak should have as its business focus the safe transport of
    passengers. Therefore, subsidized passenger authorities, including
    Amtrak, should not have a statutory right to carry ``mail and
    express,'' but should be required to negotiate arrangements in these
    areas with the right-of-way owners.
        Amtrak was created as a passenger service company that, by focusing
    its management attention on passengers rather than on freight, would
    have an opportunity to resuscitate America's passenger trains. Congress
    intended for Amtrak to have freight operations only incidental to its
    passenger service. Nor did Congress envision Amtrak establishing and
    scheduling ostensibly ``passenger'' trains for the primary purpose of
    serving freight needs and carrying passengers as an incidental
    activity.
        Indeed, allowing Amtrak to transport general freight traffic under
    the auspices of ``mail and express'' service should not be allowed.\5\
    This is especially so under the terms of access Amtrak currently enjoys
    regarding freight railroads' facilities. Because Amtrak currently need
    only cover freight railroads' incremental costs--with no requirement
    that Amtrak contribute to the owners' fixed costs or profit--allowing
    Amtrak (or any other passenger authority) to carry freight forces
    freight railroads to subsidize their own competitors. Moreover, given
    Amtrak's operating priority over freight railroad operations, allowing
    Amtrak to carry freight forces freight railroads to sacrifice their own
    competitive operational schedules in favor of Amtrak freight movements.
    ---------------------------------------------------------------------------
        \5\ Mail and express traffic commonly refers to expedited delivery
    service involving small shipments.
    ---------------------------------------------------------------------------
        The special terms of access and other privileges granted Amtrak by
    the RPSA make sense only in the context of a clear-cut distinction
    between Amtrak's passenger activities and other railroads' freight
    operations. Permitting Amtrak to transport carload and trailerload
    movements of freight under its ``express'' authority obliterates that
    distinction.
        Simply put, freight railroads fully appreciate Amtrak's current
    financial difficulties and understand the reasons underlying attempts
    to increase Amtrak's operating revenues and cost coverage. Amtrak,
    however, should not be allowed to offload its financial difficulties on
    the backs of the nation's freight railroads, which already heavily
    subsidize Amtrak operations.
        5. Safety requirements and the integrated nature of railroading
    necessitate that intercity passenger rail be provided by one entity--
    Amtrak. Further, Amtrak's right of access, preferential access rates,
    and operating priority should not be transferred or franchised..
        One of Amtrak's fundamental purposes was to amalgamate several
    hundred disjointed passenger trains operated by more than 20 individual
    carriers into a coherent intercity passenger rail system. It was
    envisioned that a single carrier would yield greater efficiency and
    innovation. This approach remains just as sensible today.
        Moreover, the terms and conditions by which Amtrak uses freight-
    owned tracks were set by Congress more than 30 years ago under
    circumstances vastly different from today. As noted above, at that time
    freight railroads were losing hundreds of millions of dollars per year
    on passenger trains they were forced by the government to operate. In
    order to be relieved from these huge losses, freight railroads accepted
    terms covering Amtrak's use of their tracks that under other
    circumstances would have been unacceptable. Moreover, freight railroads
    did not agree to an ``open door'' policy and balkanized structure that
    would allow any number of state, regional, or local entities to claim
    access to their assets.
        Further, freight railroads knew that Amtrak `s obligations were, in
    essence, the obligations of the United States and that Amtrak would be
    operated safely and professionally. Should Amtrak intercity services be
    transferred to other passenger operators, it is unclear under what
    circumstances the transfer would be made and what characteristics would
    apply to the operators. For example, private entities might have
    different degrees of financial backing; public authorities might or
    might not enjoy the full faith and credit of their sponsoring states;
    and some prospective passenger rail operators might be less committed
    to safety and sound operating standards than Amtrak.
        If others are asked to provide Amtrak-like services, freight
    railroads must retain the right to negotiate terms (at arms length,
    free of governmental coercion) under which those providers will gain
    access to the freight railroad's right of way. Freight railroads must
    become satisfied that acceptable operating practices and dedication to
    safety will be observed before they allow use of their facilities.
        Finally, freight railroads view the granting of statutory access to
    other passenger operators to be an unconstitutional ``taking'' of
    private property.
        6. Amtrak's present obligations, notably those under the Railroad
    Retirement Act and the Railroad Unemployment Insurance Act, must not be
    shifted to the freight rail industry.
        Railroad employees and retirees are not covered by Social Security.
    Instead, they are covered by Railroad Retirement, a government
    sponsored and managed pension plan funded by payroll taxes on railroad
    employers and employees. Railroad Retirement covers the full rail
    industry, including freight, Amtrak, and commuter railroads; rail labor
    and trade organizations; rail lessor companies; and miscellaneous
    railroad affiliates.
        Like Social Security, Railroad Retirement is a pay-as-you-go
    system: payroll taxes for current employees are used to provide current
    retiree benefits. Railroad Retirement is also a pooled system in which
    all rail participants contribute at the same statutory rates, all rail
    industry employees receive standardized retirement and survivor
    benefits based upon their years of service and earnings, and
    participating employees are assured of benefits regardless of the fate
    of their particular employers.
        The integrity of such a system is based upon all participating
    entities contributing based on the current number of active workers
    employed. It is inequitable for a single firm, especially one as large
    as Amtrak (which accounts for approximately 10 percent of the rail
    industry work force), to suddenly be granted special relief from a
    pooled, pay-as-you-go system. Simply removing Amtrak from the Railroad
    Retirement system, in whole or in part, would force the remaining
    participants--primarily freight railroads--to sharply increase their
    contributions to maintain the viability of the system.
        7. Future high-speed passenger rail corridors should be separate,
    dedicated, and ``sealed.''
        ``High speed'' rail service is envisioned by many to be a primary
    component of future intercity passenger rail operations. It must be
    acknowledged that the expansion of high-speed passenger rail service
    throughout the United States presents serious challenges. To operate
    safely, high-speed passenger rail operations require the construction
    of separate, dedicated tracks. Further, grade crossings must be
    eliminated (either through closure or through the construction of
    highway underpasses or overpasses). These are exceedingly expensive
    undertakings and will require firm, continued commitments by the
    appropriate authorities, but they are necessary for successful
    implementation of high-speed projects.

                         THE NATIONAL DEFENSE RAIL ACT

        The freight railroads are pleased that certain sections of the
    proposed National Defense Rail Act (S. 1991) are consistent with the
    freight railroads' principles outlined above.
        First, at its heart, S. 1991 recognizes the inherent need for
    public subsidization of intercity passenger rail, since no system in
    the world is financially self-sustaining. Furthermore, the level of
    subsidy recognizes that the current level of funding falls short of
    what is needed.
        Second, the proposed legislation recognizes the value of a
    harmonized intercity passenger system which is operated by a single
    entity.
        Third, S. 1991 recognizes Amtrak's obligation to continue its pro
    rata funding of the pooled, pay-as-you-go Railroad Retirement System.
    To disregard this obligation would have severe implications for the
    other freight and passenger railroad participants of the industry
    system.
        Fourth, the legislation appropriately increases to $35 billion the
    authorization of the Railroad Rehabilitation and Improvement Financing
    (RRIF) program and removes the unrealistic lender of last resort
    barrier to implementation.
        Finally, S. 1991 promotes railroads' ability to ensure safe and
    secure operations by permitting railroad police officers to enforce
    laws on other railroads' property.
        There are, however, provisions of S. 1991 which are inconsistent
    with what the freight railroads believe is in the best interests of
    both freight and passenger railroads, and the national economy in
    general.
        First, while S. 1991 appears to recognize the need for investments
    in grade crossings, there appears to be no requirement that grade
    crossings on high-speed passenger rail corridors be eliminated and that
    high-speed rail operations be performed over separate, dedicated
    tracks. Freight railroads submit that these are threshold requirements
    for the high-speed services contemplated in S. 1991. Safety and
    economic requirements preclude joint freight and high-speed passenger
    operations, and acknowledgement of this foundational criterion allows
    for a more realistic view of the true costs involved.
        Second, the Section 130 grade crossing program was designed to
    address a different highway safety need than the establishment of
    sealed corridors for high-speed passenger rail. Consequently, we would
    like to continue to work with this Committee on how best to address
    this grade crossing program.
        Third, if the United States is to have a responsive and efficient
    intercity rail passenger system, it must come about through a realistic
    appraisal of what is needed and the provision of public funding
    sufficient to build and maintain that system. Freight railroads must be
    treated fairly and equitably. In this regard, the encouragement by S.
    1991 for Amtrak to develop revenue sources from rail freight cargo can
    only serve to distract Amtrak from its appointed public purpose and
    generate conflict with the private sector freight railroad companies.
        Finally, the freight railroads can discern no benefit from, and see
    considerable downside to, positioning the Surface Transportation Board
    between the freight railroads and Amtrak with regard to issues
    concerning Amtrak's on-time performance. The current arrangement of
    contractual incentives and penalties is eminently more efficient than,
    and preferable to, a regulatory construct.

                                    SUMMARY

        Congress has before it a difficult mission: to fashion a realistic,
    fair, and workable solution to the serious problems facing intercity
    passenger rail in the United States. In reaching that solution, we
    strongly urge you to review the principles above in order to ensure
    that freight railroads continue to be a vital part of the North
    American economy.
        Freight railroads look forward to working cooperatively with this
    Committee, with Amtrak, and with others to achieve this worthy goal.

        The Chairman. Very good.
        Marc Morial.

             STATEMENT OF HON. MARC H. MORIAL, MAYOR, NEW
             ORLEANS, LOUISIANA; PRESIDENT, UNITED STATES
                          CONFERENCE OF MAYORS

        Mr. Morial. Thank you very much, Mr. Chairman.
        Mr. Chairman, Senator Breaux, let me first thank the
    Committee for holding these hearings on the future of Amtrak. I
    also want to publicly say how much we have appreciated our
    working relationship with George Warrington. We think he has
    been an excellent executive and a great leader for Amtrak.
        I know much has been said this morning and I do not want to
    try to reiterate too much of what has been said, but I want to
    add maybe a broad perspective, Senator, because I think we are
    at a point in history right now where we can chart a course
    with a goal, and what we hope the goal is to build for the
    United States a first class national passenger rail system.
        In the last 50 years in this country we built a first class
    national highway system. We did it in the name of national
    defense. What we have found is that the commercial and economic
    benefits of it have been a thousandfold. We have also in the
    last 50 years created a first class civil aviation system. Both
    of these systems were created with significant guidance, and
    yes, money from the U.S. Government.
        The highway system is self-evident, the money we put in to
    build, to expand and to maintain that system. On the aviation
    side, people do not realize that we, in effect, financed most
    of the construction, the rebuilding of airports through direct
    subsidies through passenger facility charges.
        We assisted the aviation industry with the FAA and with
    considerable regulatory oversight. We have got to chart a
    course, and I think why it is so important is that we cannot
    build any more highways in this country except in a few places.
        Number two, the skies are crowded.
        Number three, the population of this country is going to
    grow significantly in the 21st century, and we must begin to
    plan for the future, and mayors believe very importantly that
    developing a national passenger rail system, properly funded
    with strong, strategic investments in capital, with the proper
    support on the operating side, certainly should be the mission
    and the goal of this debate that we are having in America
    today.
        At the local level, we run transit systems. Those transit
    systems are not self-sufficient. We can make them self-
    sufficient, but we would have to make fare boxes, the expense
    to the consumer at the fare box, $4, $5, which would defeat the
    purpose of a system which is affordable and available to people
    of all income levels.
        I think as we go through this debate, I hope that the needs
    of the consumers are not forgotten, that the affordability of
    the system is kept in the discussion, and I also hope that we
    will debunk some of the notions, i.e., that people only ride
    trains for pleasure. That is not right and that is not true and
    that is not accurate.
        People ride trains for transportation purposes. Tens of
    thousands of people come to New Orleans each year to come to
    special events on the trains. Maybe they cannot afford a plane.
    Maybe they do not like a plane. Maybe they simply like the
    train. So people travel on trains for more than pleasure.
        Second, I believe that there is a market out there, Senator
    Breaux, for people who might wish to ride a high-speed train
    between Phoenix and Los Angeles, New Orleans and Houston, New
    Orleans and Atlanta, Portland and Seattle, Dallas-Fort Worth
    and Houston. There is a market out there because if you travel
    on short legs on airlines, with all of the security procedures,
    with all of the time to park, with all of the congestion, the
    time we spend in the air is a small portion of the time in the
    actual trip.
        So I think we have got to look at this as a great
    opportunity to create in the 21st century the third leg, if you
    will, the third leg of a truly multimodal system in this
    country, and I think this Committee has a great opportunity to
    guide that, and the mayors of America want to be a participant
    in those discussions.
        Thank you.
        [The prepared statement of Mayor Morial follows:]

        Prepared Statement of Hon. Marc H. Morial, Mayor, New Orleans,
            Louisiana; President, United States Conference of Mayors

        Mr. Chairman and Members of the Committee, I am Marc H. Morial,
    Mayor of New Orleans.
        I appear today on behalf of the United States Conference of Mayors
    where I serve as the organization's President. The Conference is a
    bipartisan organization that represents mayors of the more than 1,200
    cities with a population of 30,000 or more.

                   OVERVIEW--A NATIONAL PASSENGER RAIL SYSTEM

        Mr. Chairman, I want to thank you and other Members of this
    Committee for holding this hearing today and as the spokesman for the
    nation's mayors, I cannot stress enough the importance of a secure and
    comprehensive national passenger rail system--a national passenger rail
    system that touches communities across America from my city of New
    Orleans to the nation's capital and beyond.
        Let me begin by emphasizing that the nation's mayors overwhelmingly
    believe that the time has come to increase our investment in our
    passenger rail infrastructure and build out the third leg of our
    transportation system. We see a powerful linkage between a strong
    Amtrak, a growing national inter-city passenger rail system, and the
    long-term viability of our local and metropolitan economies.
        Mr. Chair and Members of this Committee, as the focal points of
    economic activity, cities are vital to the nation's economic
    development.

       THE U.S. CONFERENCE OF MAYORS CALL FOR A NATIONAL RAIL POLICY FOR
                                THE 21ST CENTURY

        Mr. Chairman, the nation's mayors are not new to this discussion.
    On January 17, 2001, I led the U.S. Conference of Mayors in convening a
    National Rail Summit in Washington, DC as part of our 69th Winter
    Meeting. Over 300 mayors from around the country attended and called
    for a National Rail Policy for the 21st Century.
        The nation's mayors understood that in three decades of existence,
    Amtrak was never provided with a permanent, reliable and sufficient
    source of funding to ensure its ability to deliver the world-class
    service many other countries now take for granted.
        Mr. Chairman and Committee Members, it astonishes people in New
    Orleans when they learn that less than 1% of all federal transportation
    spending has gone to passenger rail over the past 3 years. This year is
    no exception; the administration's budget request for Amtrak funding is
    $521 million. The same budget includes nearly $24 billion for highway,
    road and bridge construction projects and $14 billion for aviation
    purposes. How can we expect Amtrak to offer a vital transportation
    service to other modes without providing it with comparable levels of
    funding?

        PROVIDING A NATIONAL RAIL SERVICE IS NOT PRIVATIZING THE SYSTEM

        The French national passenger rail system for example is clean,
    safe and has an ultra modern fleet of sleek trains run by state-owned
    companies. Often lost in the admiration of the European system is the
    breakdown of the British system. In the mid-1990s, Britain broke up the
    state-run system aiming for privatization and all the traps that are a
    part of that discussion including new investments and improved
    services.
        It simply did not work. What Britain has today is a financially
    troubled company overseeing the tracks and private firms running money
    losing passenger lines that have a reputation for being dirty,
    expensive and unsafe.

                                AMTRAK'S MISSION

        We are requesting that our political leaders in Washington define
    whether Amtrak's mission is to provide an affordable national passenger
    rail service, including running certain politically popular but
    financially ill-advised long distance trains or is the mission to break
    even, perhaps even make a little profit. Mr. Chairman, my constituents
    and visitors to New Orleans need an affordable national passenger rail
    system.
        New Orleans is a special events city. We routinely host national
    events including the NFL Super Bowl, Sugar Bowl, the New Orleans Jazz
    and Heritage Festival, and our world famous Mardi Gras. The success of
    these special events and related financial infusion into our local
    economy depends heavily on transportation choice and that includes
    Amtrak.

                           NATIONAL RAIL DEFENSE ACT

        The mayors applaud Senator Hollings leadership on this issue of
    national urgency and support S. 1991, The National Rail Defense Act.
        Mr. Chair and Members of this Committee, again, I want to convey
    the mayors strong support for S. 1991 and to urge your action on this
    priority legislation. We believe that the National Rail Defense Act is
    uniquely situated to ensure sufficient flows of public capital
    investment into the northeast corridor while guaranteeing defined
    budget allocations to our nationwide system of short and long distance
    routes.
        Mr. Chairman, we also strongly support the priority given to the
    development and implementation of high-speed passenger rail corridors.
        S. 1991 is a long-term plan to make passenger rail a part of our
    balanced transportation system. Mr. Chairman and Committee Members, the
    nations mayors feel strongly that the National Rail Defense Act will
    provide Amtrak the tools and funding needed to create a modern
    passenger system for all Americans to be proud of.

                                CLOSING REMARKS

        In closing, thank you for this opportunity to appear before you
    today to offer the perspectives of the nation's mayors on The National
    Rail Defense Act.
        I would like to underscore that this is a very high priority
    concern for the mayors and other local elected officials and we will
    stand with you and this Committee as you examine ways to meet Amtrak's
    funding request of $1.2 billion this year and development of a
    strategic vision and policy on a passenger rail system for the 21st
    Century--a national passenger rail system that will provide all
    Americans with transportation choice. The nations mayors firmly believe
    that The National Rail Defense Act is an important part of that vision.
        As President of the Conference of Mayors, I can assure you that the
    nation's mayors will strongly support your efforts in this regard.

        The Chairman. This has been excellent testimony. Let me
    yield to our Chairman of our Transportation Committee. You have
    got your distinguished mayor here.
        Senator Breaux. Thank you very much, Mr. Chairman. We
    talked about the good service that George Warrington has
    provided to Amtrak and that he is departing in the not too
    distant future.
        The same compliments go to Mayor Marc Morial. Marc is
    serving currently, of course, as President of the United States
    Conference of Mayors. We just had an election down in New
    Orleans to select the next mayor of New Orleans, and I guess
    Marc's term is shortly to be completed, and New Orleans is a
    better place as a result of that service. We are very proud of
    what you have done.
        The leadership has been absolutely tremendous in very
    difficult times, and we are just glad that you are with us and
    still functioning as the president over here. I did ask could
    he continue as president. He said no, it would be like me on
    the Commerce Committee; if I was not in the Senate, I could not
    be in the Commerce Committee.
        So he is not mayor, cannot be president of the Conference
    of Mayors. So we understand that, and thank you very much,
    Marc.
        The Chairman. You go ahead.
        Senator Breaux. Just quickly, Mr. Moneypenny, I want to
    give you a chance. Senator Hutchison has raised the question of
    labor costs, and I think in Mr. Carmichael's presentation the
    charts that Senator Hutchison referred to say that the most
    important factor in Amtrak's operating costs is wages, fringes
    and employee benefits. Employment costs amount to a large
    portion of Amtrak's expenses, and so that Amtrak's unit
    employment cost exceeds the total unit expense of other
    transportation providers for several reasons, including
    compensation levels, as well as the rate of growth in
    compensation has outpaced inflation.
        I wanted to give you a chance to say something about that
    if you desire to do so.
        Mr. Moneypenny. Thank you, Senator. I can tell you that
    unless inflation has been zero the last 2 years we have not
    outpaced it. Our members' contracts expired more than 2 years
    ago. Let me add also that the sacrifices that Amtrak workers
    have made over the years started more than 20 years ago.
        In 1981, Amtrak workers were told that Amtrak was in a
    financial crisis. We had a negotiated contract that included
    excellent pay raises. We were told that we had to defer 12
    percent of those wage increases. Twenty-one years later our
    members are still waiting for that money to come back. From the
    years 1987 through 1992 our members had their wages frozen.
    Nobody got a pay raise.
        For our coach cleaners, they went 1984 to 1992, 8 years,
    without a pay raise. We are, after all of that, left as I said
    in my testimony the lowest paid unionized rail work force in
    the country by dollars an hour, and I do not know how you make
    comparisons to airlines. I wish Senator Hutchison were here to
    expound on that a little more.
        We represent workers on American Airlines and other
    airlines. Mechanics there make over $30 an hour and they
    deserve it. The best mechanic on Amtrak, no matter how many
    years of service he or she has, makes $19 an hour. The same
    worker, who is doing the exact same work on Metro North or the
    MBTA or New Jersey Transit, makes $3-, $4-, $5-an-hour more
    doing exactly the same work.
        So I know it is ideologically pleasing for some to say when
    they look out the window in the morning and it is raining
    blankety-blank, ``labor did that.'' You cannot credibly point
    to labor as the source of Amtrak's problem.
        Senator Breaux. Thank you. I got the impression that you
    were concerned about privatization. Suppose if it is
    privatization, I am not advocating it one way or the other, but
    if there was privatization, then would not your workers still
    be able to be represented by working for the privatized new
    system as well as working for Amtrak?
        Mr. Moneypenny. I hope you heard the same thing I did this
    morning. Mr. Rennicke, the privatization expert, just told us,
    if I understood him correctly, it is sort of a secret who might
    be interested in taking this service over. I asked the ARC
    after 4 years of studying if it is not Amtrak, who is it going
    to be? If we give a party and nobody comes, what do you do? And
    the answer I got was that the Peter Pan Bus Company had
    expressed some interest, and I am sure they run nice bus
    service. They just do not run any trains, and a foreign
    corporation which has, to the best of my knowledge, one North
    American employee.
        Now I hear Mr. Rennicke say there are 70 companies they
    think might be interested, but they are bashful. They don't
    want to say anything. Amtrak has been subject to the most
    withering scrutiny that Congress can give, and I do not know of
    any other Federal agency that has been studied in as many
    different ways as Amtrak has, and I would hope before we get on
    the road to privatization that we will subject whatever company
    steps forward, whenever they have enough courage to do so, to
    the same sort of scrutiny before we say let us pass legislation
    and see if anybody shows up.
        I will say if a privatized company shows up, they have to
    deal with us. We are the only people that do this sort of work.
    Rail work is so industry-specific and safety-sensitive, there
    simply is not another work force to do it. I would just hope we
    do not throw it up in the air and see who wants to catch it.
        Senator Breaux. Thank you. Mr. Rennicke, talk about the
    question of privatization. My understanding of Amtrak is it is
    kind of like a quasi-public, quasi-private operation that is
    trying to get this job done. If it were to be privatized, how
    could that bring about any change in the problems that we face?
    I guess you are saying that even if it was totally privatized
    you are still going to have to have the Federal Government
    paying a large portion of the cost of the operation. Do you
    envision where it has been done before that somehow the
    privatization brings about efficiencies that would eliminate
    the need for that type of subsidy?
        Mr. Rennicke. Well, in virtually every case, with the
    possible exception of the problems we had in the United Kingdom
    with Railtrack, which I want to be very clear is their
    infrastructure company, not the train operating company, you
    had vast efficiency improvement.
        In Argentina today, 82 percent fewer workers deliver three
    or four times the amount of passenger-miles than there were
    when we started the privatization program. Private companies
    found a way to create value. The government borrowed $300
    million from the World Bank, and basically we had a program
    that everybody wanted. The employees were happy, the prior
    employees working in the same area.
        In Mexico today, private companies down there now run the
    freight business. There are almost 60 percent fewer employees
    working on the railroad than there were 4 years ago. There was
    no labor disruption. Pension funds were stabilized, and
    basically the benefits to the government came from the drastic
    reduction in the unit cost of the operation and drastic
    improvement in service because specialists who had a business
    capability that were different from the incumbent companies
    brought some management expertise to the table that was not
    there before, and that essentially improves the bottom line.
        There are very few places where privatization was
    undertaken where there are not substantial improvements in
    productivity. The government still has to pay, as Mr. Hamberger
    pointed out. There is really no place in the world where a
    passenger railroad or intercity railroad really funds itself
    totally, but they pay far less. That is really the crux of why
    those countries did it, and why there are 70 companies or more
    waiting to see a real RFP or a real resolution to the
    commercial offering that the U.S. would have in a private
    sector environment.
        Senator Breaux. Thank you.
        Mr. King, I have one quick question. In the McCain bill we
    talked about requiring or encouraging cities that benefit from
    the Amtrak service to have to kick in a certain percentage of
    money, I think it was 20 percent maybe in the Northeast
    Corridor, of the operating cost, and I raised the question,
    what if one city along the route or one State just says ``We
    are glad you are coming through our State, but we are not
    kicking anything in.'' How do we handle that with the State?
    Just mandate everybody pitch in? How do we handle that?
        Mr. King. That is a very interesting question. We had the
    same question paving secondary roads in our department, and we
    were faced with that situation in the Southeast. What we want
    to do in the Atlanta to the Washington, DC, Corridor is to
    extend the Northeast Corridor through Richmond, Raleigh,
    Charlotte, Greenville, Spartanburg, to Atlanta.
        North Carolina and Virginia have been very aggressive on
    that and have come a long way and invested a fair amount of
    money so far. Georgia has shown a lot of interest in particular
    lately. South Carolina's heart is in the right place, but they
    have not found a way to put any money in it yet.
        Senator Breaux. You cannot get to Atlanta from Charlotte
    without going through South Carolina other than by air.
        Mr. King. Your point is well taken. The question is how do
    we buy services. Right now, North Carolina buys two services
    from Amtrak. One is a Charlotte-Raleigh-Charlotte round trip.
    The other is a Charlotte-New-York-Charlotte round trip which
    performs very, very well. The Senator from Oregon made the
    point that we perhaps are not charged on an equitable basis for
    those services, and I would submit that this is certainly the
    case with us. At least our perception is that we are paying
    disproportionately as compared with other States.
        I think the answer to your question is that if we do not
    have unanimity at the end of the day when we are ready to step
    forward as a group of four States and put money on the table to
    buy service from Amtrak or any other service offerer that might
    be out there, then all four States are going to have their
    financial plans in place, and I am confident they will. We have
    still got a lot of work and collaboration and planning to do
    before we are ready for that.
        Senator Breaux. Thank you.
        Mr. Hamberger, thank you.
        No questions. Marc, thanks for being with us.
        The Chairman. That is the original railroad. The first in
    the country was from Charleston-Hamburg, and we still have it
    in the Charleston museum which is the truth.
        Mr. Rennicke, you or anyone in the sound of my voice,
    please give us the name of anybody that really wants to operate
    a private national rail system.
        Mr. Rennicke. I did in the material.
        The Chairman. Who?
        Mr. Rennicke. We have got the names of people ready to go.
    I think they will come.
        The Chairman. Do not give me that they will come and so
    forth. You name them because we have not been able to find
    them.
        Mr. Rennicke. You have not put the For Sale sign up. It is
    like somebody walking down the street knocking at every door,
    trying to buy a house and people do not want to sell to you. I
    think as soon as you define what it is that you want to sell or
    privatize.
        The Chairman. We want to sell the system and any part of it
    and that is it, and let us negotiate the terms and everything
    else. There is no use to operate top secret. Business people
    are business. If it is an opportunity, Mr. Rennicke, they will
    come. We have got people that will come in and offer, do all
    kind of things around here. So do not give us you have got to
    wait for the special occasion.
        Mr. Rennicke. If I could have your authority to act on your
    representations here, I think I could produce some people just
    on those representations who would come and talk to you.
        The Chairman. You have the authority and we would
    appreciate it very much.
        Mr. Rennicke. I will.
        The Chairman. The testimony has been very, very helpful to
    us, and the Committee is indebted to each of you.
        We are going to keep the record open for questions. The
    hour is late so we are going to be in recess now until the call
    of the chair. Thank you all very much.
        [The hearing adjourned at 12:20 p.m.]