[Senate Hearing 107-1078]
[From the U.S. Government Publishing Office]
S. Hrg. 107-1078
S. 1991, NATIONAL DEFENSE RAIL ACT
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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
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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
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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.]