[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.]
  

                                  
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