[Senate Hearing 108-994]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 108-994

                      S. 1501, THE PASSENGER RAIL 
                         INVESTMENT REFORM ACT

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

                                HEARING

                               BEFORE THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 2, 2003

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation
                             
                             
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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South 
CONRAD BURNS, Montana                    Carolina, Ranking
TRENT LOTT, Mississippi              DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas          JOHN D. ROCKEFELLER IV, West 
OLYMPIA J. SNOWE, Maine                  Virginia
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              JOHN B. BREAUX, Louisiana
PETER G. FITZGERALD, Illinois        BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  RON WYDEN, Oregon
GEORGE ALLEN, Virginia               BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        BILL NELSON, Florida
                                     MARIA CANTWELL, Washington
                                     FRANK R. LAUTENBERG, New Jersey
      Jeanne Bumpus, Republican Staff Director and General Counsel
             Robert W. Chamberlin, Republican Chief Counsel
      Kevin D. Kayes, Democratic Staff Director and Chief Counsel
                Gregg Elias, Democratic General Counsel
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on October 2, 2003..................................     1
Statement of Senator Burns.......................................     7
    Prepared statement...........................................     8
Statement of Senator Dorgan......................................     9
Statement of Senator Hollings....................................     2
Statement of Senator Hutchison...................................     4
Statement of Senator Lautenberg..................................     5
    Letter, dated September 20, 1996 from George W. Bush, 
      Governor, State of Texas to Thomas M. Downs, Chairman, 
      President and Chief Executive Officer, National Railroad 
      Passenger Corporation......................................     6
Statement of Senator McCain......................................     1
Statement of Senator Smith.......................................    38
    Prepared statement...........................................    39

                               Witnesses

Gunn, David L., President and Chief Executive Officer, Amtrak....    43
    Prepared statement...........................................    44
Howells, Claudia L., Administrator, Rail Division, Oregon 
  Department of Transportation...................................    46
    Prepared statement...........................................    48
Mead, Hon. Kenneth M., Inspector General, U.S. Department of 
  Transportation.................................................    23
    Prepared statement...........................................    26
Rutter, Hon. Allan,Administrator, Federal Railroad 
  Administration, U.S. Department of Transportation..............    10
    Prepared statement...........................................    11

                                Appendix

Busalacchi, Frank J., Secretary, Wisconsin Department of 
  Transportation, prepared statement.............................    56
Hungerbeeler, Henry Director, Missouri Department of 
  Transportation (MoDOT), prepared statement.....................    58
Kerry, Hon. John F., U.S. Senator from Massachusetts, prepared 
  statement......................................................    55
Rockefeller IV, Hon. John D., U.S. Senator from West Virginia, 
  prepared statement.............................................    55
Response to written questions submitted by Hon. John McCain to:
    David L. Gunn................................................    59
    Kenneth M. Mead..............................................    65
Response to written questions submitted by Hon. John B. Breaux 
  to:
    Kenneth M. Mead..............................................    68
Written questions submitted to Hon. Allan Rutter by:
    Hon. John B. Breaux..........................................    70
    Hon. Frank R. Lautenberg.....................................    70

 
                      S. 1501, THE PASSENGER RAIL 
                         INVESTMENT REFORM ACT

                              ----------                              


                       THURSDAY, OCTOBER 2, 2003

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:30 p.m. in room 
SR-253, Russell Senate Office Building, Hon. John McCain, 
Chairman of the Committee, presiding.

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

    The Chairman. Good afternoon. The Committee meets today to 
hear testimony on the Administration's plan for restructuring 
intercity passenger rail service in the United States. Key 
elements of the plan were announced in June 2002 when Amtrak 
was threatening its entire system unless Congress provided yet 
another bailout. But it was only this past July that 
legislation was sent to Capitol Hill. At the Administration's 
request, I introduced the Passenger Rail Investment Reform Act, 
S. 1501.
    The Administration's plan embodies what I believe are the 
concepts critical for reform, a network of trains that makes 
economic sense, fair and open competition for Amtrak, and cost-
sharing with the States. Equally important, the proposal would 
transform Federal support from sponsorship of an intercity 
passenger company, that for all practical purposes is owned by 
the Federal Government, to providing capital support for an 
intercity rail program along the lines of the New Starts 
transit program. Amtrak could become one of a number of 
companies providing service under contract through a 
competitive bidding process.
    While my colleagues and I may not agree on exactly how 
Amtrak and intercity passenger rail service should be 
restructured, I think we all agree that what exists today is 
far from ideal. Amtrak loses over $1 billion annually, yet 
serves less than 1 percent of intercity travelers. It operates 
routes that lose hundreds of dollars per passenger that would 
not survive if service was based on market demand rather than 
parochial political interests. For example, the Sunset Limited, 
a train that operates through Arizona on its long odyssey from 
Los Angeles to Orlando, loses over $400 per passenger and it 
carries less than 300 passengers per day. At the same time, 
four times as many people fly between Los Angeles and Tucson as 
ride between all points served by the Sunset Limited.
    While we continue to subsidize long-distance trains at 
hundreds of dollars per passenger, there is no train service in 
many short-distance corridors where rail might actually attract 
enough customers to break even at least on operating costs. 
Time and again, reports have shown that the future of intercity 
service is in short-distance corridors that can compete with 
other modes of transportation, and corridors are where states 
are proposing to invest their own money.
    The Administration's plan is far from perfect. There are 
obvious omissions in it, notably how much restructuring will 
cost. In some aspects the plan may not be entirely workable. 
Nevertheless, the plan is commendable for addressing head-on 
the difficult issues of restructuring, including the existing 
Amtrak route network, access to the rights of way of the 
freight railroads, and how new rail service could be developed.
    I'm also encouraged by the recent announcement of the 
Administration's intent to nominate Lou Thompson, the U.S. 
expert on international rail reform, Bob Crandall, former CEO 
of American Airlines, well known to the Senator from South 
Dakota and to me, Floyd Hall, former CEO of K-Mart, to serve on 
the Amtrak Board of Directors. We need a board that will 
exercise its fiduciary responsibilities, initiate some real 
change, and provide Congress some constructive legislative 
recommendations. I'll certainly schedule a hearing on the 
nominees as soon as possible once we receive their paperwork.
    Last June, during the Committee's mark-up of our safety 
title for the TEA-21 reauthorization, the Committee inserted a 
placeholder for Amtrak of $2 billion for each of the next 6 
years. The placeholder provision would authorize a level of 
funding well above the average $1.6 billion in annual funding 
requested by Amtrak in its latest 5-year plan and would require 
no reform or restructuring. I think we can do better.
    This Committee has an obligation to come to terms with 
Amtrak's problems and why our passenger rail program is largely 
a failure. Simply throwing billions more at Amtrak, whether 
through appropriations, bonds, or some other scheme will not 
solve the fundamental problems, and if we're serious that the 
status quo is unacceptable, the longer we postpone making the 
tough choices that need to be made, the harder it's going to be 
and the more limited our options become.
    I remain committed to reform. I hope the Administration's 
plan can serve as a basis for developing a consensus proposal 
on Amtrak. Unless we can make progress on legislation in a 
bipartisan manner, I fear that Amtrak will remain the albatross 
blocking the development of a program that actually helps meet 
the needs of the traveling public. I know that the Senator from 
South Carolina has had a long and deep involvement in the 
Amtrak issue, as has our friend from New Jersey who arrives 
here today. I thank them. Senator Hollings.

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

    Senator Hollings. Thank you very much, Mr. Chairman. Your 
test, of course, of whether or not you have sufficient 
passengers to warrant whether you're making sufficient money to 
sustain, those are good business tests. But there are certain 
entities in public domain that are exceptions from that test, 
obviously defense, we don't look upon defense as a money-making 
situation, it's a service necessary to a free government. 
Similarly with Medicare, similarly with Social Security, and I 
say similarly with respect to a national passenger rail 
service.
    I happen to have been the attorney for the local city 
passenger bus service. We constantly looked for how in the 
Lord's world to save money or to make it operate in the black. 
It never did, that was 50 years ago. As of this minute it's 
still not operating in the black, yet they're very capable 
people operating it, the pay scale is appropriate, and all 
these other things, the routes and so forth cut back and 
everything else and it's still in trouble. And last week when I 
met with the distinguished Administrator, David Gunn, and I 
think the Government is lucky to have him, he just outlined an 
emergency situation. He described the track. He brought a piece 
of the track with him, and I hope he'll bring it today or 
something of that kind because you see how the track is just 
worn into half a track, I can tell you that now.
    He says he's money in his own schedule to take that worn 
track and have it replaced and that's what he's doing. He's not 
risking safety at the minute, but he will not be able under the 
present budget to continue doing the necessary repairs to that 
track on the one hand. Otherwise, he had a piece of cable, 
telling me that in 1935 going through the tunnel, Senator 
Lautenberg, into New York, they put this cable, it was very 
sophisticated cable, very expensive, and there was three cables 
there to sustain the Amtrak operation. One of them is gone 
completely, another one went out, and they've got it repaired. 
From his particular experience up in Canada, these repairs 
never last and that one cable that's still got it going, it 
might meet the demands of the distinguished Senator from 
Arizona. Once that goes, Amtrak closes down.
    I think we are in a critical, critical situation, an 
emergency situation. This committee ought to know it because 
Mr. Gunn has proposed that, outlined exactly what he outlined 
to me and to the Amtrak board, and as a result of having 
outlined that, Senator from Texas, there has been no 
appropriations sent up here to take care of the situation and 
to really establish a passenger rail service.
    Now we are establishing one. We're about to vote. In fact, 
the final vote will be Tuesday, 2 weeks from now on a passenger 
rail service for Iraq, but we don't have a proposal from the 
Administration for a passenger rail service for the United 
States of America. This Committee ought to come clean and ought 
to vote close it down or close it up.
    Of course, I favor a national system that's going to cost--
I think the concerns of our distinguished Chairman are very 
well based in other words, there's no use to run a rail service 
just to call it national to where it's not picking up any 
passengers at all. There are going to have to be some cutbacks, 
but then they're going to have to be, if you're going to 
continue to go from north to south and east to west, they're 
going to have to be some inordinate expenses there and they've 
got to be taken care of.
    So I appreciate the hearing but I don't think we can 
continue with hearings or appointing new boards or whatever 
else. We this year, before we adjourn, we ought to call a spade 
a spade and either vote to have a passenger rail service 
appropriating the money or say that we're not going to do it. 
If there's some way to pose this particular amendment to bring 
it to a head so we'll know where we're headed I would try to 
propose it. We'll look at it and see. Thank you very much.
    The Chairman. Thank you, sir. Senator Hutchison.

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

    Senator Hutchison. Chairman McCain and I have battled over 
Amtrak for years, but we agree on one thing: Amtrak is in bad 
shape. We can choose to throw in the towel, we can dissolve 
Amtrak, or we can work to make rail a viable transportation 
option. I fear that the proposal before us today would be the 
elimination of Amtrak. Why not cutoff funding for our highways 
and our aviation system?
    Rail opponents point to low Amtrak ridership numbers to 
justify shutting it down, but as Mr. Gunn has learned from 
actually going on the Sunset Limited, if you have bad service 
you really can't test the ridership. If we are going to have a 
reliable rail option, I think we are going to have to fund it 
and we're going to have to support it and we're going to have 
to treat it like the other modes of transportation in our 
system.
    The Texas Transportation Institute recently released its 
2003 Urban Mobility Study, which surveys surface transportation 
conditions across the Nation. The study depicts a bad situation 
getting worse. In 2001, traffic congestion cost the Nation $69 
billion, $4.5 billion more than in 2000. This figure includes 
5.7 billions gallons of lost fuel and 3.5 billion hours of lost 
productivity resulting from congestion.
    The study also found that the extra time needed for rush 
hour travel has tripled since 1982. This situation is one of 
the greatest domestic transportation challenges facing America 
today. We should strictly act to reauthorize TEA-21 with 
adequate funding for Federal highway and mass transit programs. 
We need to complete the conference on the overdue FAA 
reauthorization bill and we need to make rail a viable 
transportation alternative.
    Senators Lott, Burns, Snowe, and myself have introduced 
legislation that would create a true national passenger rail 
system. Our bill, the American Rail Equity Act, AREA, would 
create a national passenger rail office at the Department of 
Transportation responsible for coordinating with states and the 
railroads to ensure the national system makes improvements 
necessary to efficiently operate an intercity passenger rail 
system. It provides increased capital and operating funds so 
routes on the national system can finally have a chance to 
succeed. In return, Amtrak must operate on time or risk losing 
its routes to private operators.
    I suppose the bill before us is better than no bill at all, 
but not by much. It provides no funding for operating intercity 
passenger rail, insufficient funding levels for capital needs, 
and it tasks the states to fund an engineer of the network. 
Train tracks, like highways, do not stop at State borders. If 
President Eisenhower had adopted this approach, we would not 
have the interstate highway system.
    Amtrak itself has much to answer for. I was extremely 
disappointed in Amtrak's proposed $9.1 billion capital plan, 
which allocates more than $8 billion to the Northeast corridor, 
leaving crumbs for the national system. This inequity can not 
continue. Area sponsors have adopted a motto, national or 
nothing. The Administration bill, I'm afraid, is not much. If 
we fail to enact real change in this reauthorization bill, I 
think we're going to run out of opportunities to achieve 
intermodal transportation systems. I will not support a 
proposal that does not put the national system on a par with 
the Northeast corridor. We face a new beginning or the 
beginning of the end.
    I hope that we can support a bill that will actually fund 
Amtrak, will give us the capital needs to make it a good 
system, and commit to it like we do highways and rail. Thank 
you, Mr. Chairman.
    The Chairman. Senator Lautenberg.

            STATEMENT OF HON. FRANK R. LAUTENBERG, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. Thanks, Mr. Chairman. I'm going to 
repeat something I heard just now. Senator McCain and I have 
occasionally disagreed on this matters, so that's two against 
one. We haven't done well so far, but thanks, Mr. Chairman, for 
holding the hearing. It's the second time this year this 
Committee has held a hearing on the topic of passenger rail 
service, and here we are with another idea before us about what 
to do with Amtrak, this one from the Bush Administration, and 
frankly I think it's a non-starter.
    In my previous stint in the Senate, I was the Chairman and 
then Ranking Member of the Appropriations Subcommittee on 
Transportation and I learned one thing: Transportation takes 
money and anybody who tells you otherwise isn't being candid. 
David Gunn was hired last year to stabilize Amtrak and he has 
done, as Senator Hollings said, a very impressive job and my 
hat's off to him. The job's gotten harder since he has had the 
task. He has told us in forthright terms what resources he 
needs to provide safe and efficient rail service to our 
country. He's told us what we will get for the funding we 
provide.
    My read of the Administration's Amtrak proposal is that 
it's long on ideology and short on practical solution. Let the 
states pay for rail services is what the Bush Administration's 
proposal is. It's just not realistic. The states are facing 
their biggest budget crunches since the Great Depression, and 
I'll take the liberty, Mr. Chairman, of reading something that 
I'd like put in the record. It's a letter dated September 1996 
and it says in one paragraph on the second page, ``First, many 
of us believe that Amtrak finances and operations are a matter 
for the Federal Government. The Federal Government created 
Amtrak.'' It's signed by George W. Bush, then Governor of the 
State of Texas. So I don't know what kind of a change in view.
    The Chairman. That will be made part of the record without 
objection.
    [The information referred to follows:]

                     State of Texas--Office of the Governor
                                                 September 20, 1996

Thomas M. Downs,
Chairman, President and Chief Executive Officer,
National Railroad Passenger Corporation,
Washington, DC.

Dear Mr. Downs:

    Since our conversation, it appears that there is a discussion in a 
number of states about subsidizing Amtrak's operations. This letter is 
a report on some of the sentiments of leaders in the State of Texas.
    Before I talk about funding options, I do want to reiterate how 
disappointed we are with the Texas Eagle decision. I am particularly 
concerned about the inadequate notice given to communities along the 
Eagle route. Amtrak has encouraged local officials to invest funds in 
depot facilities and to help market rail services. As I am sure you can 
understand, this abrupt decision created a lot of consternation and 
worry among the impacted communities. Secondly, it is hard for us to 
understand the Texas Eagle decision since few Amtrak routes were 
eliminated, although many lines are losing money just like the Texas 
Eagle.
    Recently, congressional action allows Texas to spend our 
Congestion, Mitigation and Air Quality (CMAQ) program funds as a short-
term subsidy for the Texas Eagle. After discussions locally elected 
officials, it appears that the CMAQ option is not feasible. First, CMAQ 
funds are generally limited to projects within our state's four air 
quality non-attainment zones. Only one of these zones, Dallas/Fort 
Worth, is served by the Texas Eagle. Secondly, the Dallas/Fort Worth 
area Metropolitan Planning Organization has fully allocated all of its 
expected CMAQ appropriations to specific projects for the next five 
years. Finally, it is unlikely that the portion of the Texas Eagle 
which operates in the Dallas/Fort Worth area will have any significant 
impact on air quality in the region: a fact which would make a rail 
subsidy a poor candidate for CMAQ funding. In short, many of the local 
leaders are convinced that diverting CMAQ funds from ongoing air 
quality projects would hurt efforts to meet air emissions reduction 
goals.
    I have discussed the idea of long-term state funding subsidies with 
key members of the legislature. I am not optimistic about long-term 
funding for several reasons.
    First, many of us believe that Amtrak finances and operations are a 
matter for the Federal Government. The Federal Government created 
Amtrak. If your long-term plan is entice states to be Amtrak's main 
funding source, as opposed to Washington, you should clearly state this 
goal and debate it. We understand that there are efforts to dedicate 
some of the ??? cents of the gas tax to meet Amtrak's capital need. If 
this is the case, it seems wise to wait and see whether or not this 
course of action is approved. It if is approved, the concept of state 
subsidies should be moot.
    Secondly, state leaders, including me, worry about subsidizing a 
poorly run operation over which we will have no control. Germane 
questions such as routes, frequency of traffic, capital improvements, 
and marketing plans, concern us. With no control, it seems that any 
state's subsidy would be like pouring money in a black hole.
    Finally, Texas is being asked to subsidize interstate long-haul 
services. This does not seem fair since other states' subsidies fund 
intrastate and short-haul routes. In short, other states are buying 
more frequency and more runs, not just paying for survival. Texas 
leaders do not want to be treated differently.
    I appreciate your attention to this matter, and I hope this update 
helps in your future planning.
            Sincerely,
                                            George W. Bush,
                                                          Governor.

    Senator Lautenberg. Thank you very much. The Bush 
Administration officials argue that rail infrastructure 
shouldn't be funded at the same Federal/State share as highways 
and airports and the Government has no business providing 
essential transportation services. Well, that's ideology 
talking and ideology doesn't build or maintain our Nation's 
transportation infrastructure. It takes concrete and steel and 
human labor and engineering, yes, it takes money, Federal 
money. It took Federal money not just gasoline taxes to build 
the Dwight D. Eisenhower interstate highway system. It took 
Federal money to build our national aviation system.
    Yesterday we celebrated the 75th anniversary of Newark 
Liberty International Airport, one of the most utilized 
airports in our Nation's history. Ideology didn't build it, 
money did. With regards to witnesses who are here today on 
behalf of the Bush Administration, I have to ask them where 
some of their ideas come from. It seems to me they're bankrupt 
ideas to bankrupt a railroad. After 9/11 I thought it would be 
quite evident, self-evident, how important Amtrak is as part of 
our national intermodal transportation system, but I guess it 
didn't.
    According to the Texas Transportation Institute at Texas 
A&M University, the average rush-hour driver wasted 26 hours 
stuck in traffic in 2001, and that's nearly a 20 percent 
increase in just 5 years. People in Los Angeles spent 90 hours 
a year stuck in traffic. In Phoenix, in the Chairman's home 
State, commuters spent 61 hours on average stuck in traffic 
each year. The annual cost of all of this is estimated to be 
$70 billion, according to the Institute. Instead of solutions 
to these problems we get an ideology.
    So if I sound angry, I am, that the Bush Administration 
wants to abdicate its responsibility with regard to passenger 
rail in this country. And I remind everybody that on 9/11, that 
fateful day when America's vulnerability was evidenced, the 
only thing that moved in the busiest region of our country was 
Amtrak. Aviation stopped dead, 5,000 airplanes directed to land 
because we were afraid that their being in the sky was a danger 
to the passengers. The country needs Amtrak and Amtrak needs 
Federal assistance. It's that simple and I thank you, Mr. 
Chairman.
    The Chairman. Senator Burns.

                STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. Thank you, Mr. Chairman, and thank you for 
this hearing. I will offer my statement for the record and I'll 
just paraphrase. I want to hear from the testimony today.
    We took a look at the recommendation or the idea that 
states should participate more financially in the support of 
Amtrak in the local states, and I just want to pass this along 
to you. In Montana, we requested a report, analysis of the 
economic benefits of Amtrak's Empire Builder into Montana. I'm 
not going to go through all the findings but we found out some 
very interesting things. The Empire Builder is an essential 
transportation service, which is by and large, in most 
communities served, the communities had had no alternative 
means of transportation.
    Direct spending by Amtrak using non-resident travelers in 
Montana by Amtrak is estimated between $5.3 and $5.7 million 
annually. Now that might not be a hill of beans to some States, 
but it is to my State of Montana up on the High Line. And it 
plays a very important part to the everyday lives of Montanans 
who live in isolated areas and that is the High Line of my 
State.
    I concur with the ranking member of this committee that if 
we want a national railroad system it should be a national 
system. We can't draw it back into areas where the so-called 
heavily traveled or demand for commuter routes, because we know 
one thing: Highway 395 North at 6 in the morning until 9 is the 
world's largest parking lot and it's getting worse. And for us 
to be discriminated against because we're in rural areas and 
have no public transportation, our relief is just as great. So 
a national system in the bill that was identified by my friend 
from Texas, and I'm a co-sponsor on that bill, we think is the 
right approach.
    And so we've got to wrestle with this and I think the 
Committee is going to have to take on the responsibility of 
coming down on one side or the other. So Mr. Chairman, thank 
you for the hearing and I'll submit my full statement.
    [The prepared statement of Senator Burns follows:]

   Prepared Statement of Hon. Conrad Burns, U.S. Senator from Montana
    Thank you Mr. Chairman for calling this important hearing. As you 
know, myself and several others on this Committee have an ongoing 
interest in the future of Amtrak. Together with Senators Hutchison, 
Lott and Snowe, who all sit on this Committee, we introduced S. 1505, 
the American Rail Equity Act of 2003, in response to the bill we are 
reviewing today. I applaud the Administration and you Mr. Chairman for 
your work in this area, but I do not agree with you on this issue.
    Our bill, in summary, reauthorizes Amtrak for six years to coincide 
with TEA-21 reauthorization. It establishes a National Passenger Rail 
System that consists of Amtrak's current routes. Additionally, S. 1505 
authorizes approximately $60 billion over that six year authorization 
period, with $12 billion for operating costs and $48 billion in bonding 
authority.
    Now is not the time to pull the plug on a national passenger rail 
system. Our authorization alternative gives Amtrak the funds to prove 
itself over a six-year term and doesn't shift the burden to states whom 
without our assistance could not afford to maintain service. If changes 
need to be made at the end of that time period then we should deal with 
them. Amtrak should be given a decent shot and not provided another 
year of ``just enough.''
    In this Committee and in Congress as a whole, we sometimes forget 
the true positives Amtrak provides to many rural areas of the Nation. I 
want to take a moment and discuss the results of a report prepared in 
July of this year that addresses Amtrak's importance and footprint in 
my state.
    In July an outside company provided a requested report for the 
Montana's Departments of Transportation, Commerce and Agriculture 
labeled ``Analysis of the Economic Benefits of The Amtrak Empire 
Builder to Montana.'' While I don't intend to go through all the 
findings, there are some important excerpts I believe should be 
considered by the Committee.

   The Empire Builder is an essential transportation service 
        for which there is, by and large in most communities served, no 
        reasonable alternative.

   Direct spending by Amtrak-using nonresident travelers in 
        Montana and by Amtrak is estimated to be between $5.3 and $5.7 
        million annually. This may not amount to a hill of beans in 
        some states but $$5-6 million along the hi-line of Montana 
        makes a dent in the lives of those who live there.

   The Empire Builder as an institution is no small part of 
        everyday life to many Montanans who live in rural isolation 
        along the hi-line and who depend upon it to get to medical 
        services, send children to college, and for travel out of the 
        state.

    Retention of long-distance trains and specifically the Empire 
Builder is essential to my state. Without it, there would be relatively 
no transportation alternative when looking at the rural and isolated 
character of Montana and adjoining states.
    This Congress needs to remember there is a lot of land and a lot of 
people who need transportation alternatives who reside between the east 
and west coast of this country. Until we address the reoccurring 
problems with Amtrak and make a good faith long-term effort to 
establish a national passenger rail system this issue will dog us for 
years to come.
    I look forward to hearing from the witnesses on this matter and I 
look forward to hearing from the panel on their thoughts for the future 
of Amtrak.
    Thank you, Mr. Chairman.

    The Chairman. Thank you very much. Our first panel is the 
Honorable Alan Rutter, who is the Administrator of the Federal 
Railroad Administration. Pardon me? But first we'll hear from 
Senator Dorgan.
    [Laughter.]

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

    Senator Dorgan. Mr. Chairman, thank you very much. I feel 
like a consolation prize.
    The Chairman. He usually blends into the woodwork.
    Senator Dorgan. That's true. Let me just say that I 
appreciate Mr. Rutter and Mr. Mead being here. Mr. Mead, you've 
been very helpful to our Committee on a good many issues, and 
to Mr. Gunn, thank you for assuming this obligation that you've 
undertaken.
    The Amtrak rail passenger issue is a serious issue, and 
regrettably, I don't think the administration's Passenger Rail 
Investment Reform Act is a serious proposal. It's a serious 
proposal if you just decide you want the message to be shut 
down the rail service on the long-haul routes and continue the 
rail service on the Eastern Corridor. That would probably be 
self-sufficient, raise revenues so that you can have rail 
passenger service on the East Corridor from Boston to Florida.
    The Administration is not quite saying it that way, but it 
would probably more appropriate for them to just say, look, we 
don't believe in long-haul routes. We think the Empire Builder 
ought to shut down and we'll just continue an Eastern Corridor 
piece of rail passenger service. They don't do quite that, they 
concoct a mechanism by which they say the states should create 
compacts and do various things.
    Transportation, I think, is critical to this country's 
economy. Whether it's on wheels or on rails or on water or in 
the air, this economy moves forward with transportation and the 
transportation for people and freight makes this economy run. I 
happen to think, as Senator Burns has indicated, that rail 
passenger service is something very important to this country, 
and not just the service on the East Coast. Roughly 70- to 
80,000 North Dakotans use Amtrak service in a year. Montanans 
use it. It's a significant adjunct to our transportation needs 
and it's just very important that we continue it. The Empire 
Builder has been a great part of our transportation network and 
we want to continue it.
    So the question is today how do we seriously address this. 
We will, I think, dismiss quickly the Administration's 
proposals because I don't view them as serious. Then the 
question is, how do those of us from both political parties 
serving in Congress construct something that is serious, that 
recognizes we want to continue rail passenger service in this 
country's future. We can do this and we should do it, but we 
ought not delay much longer, because we delay, it seems to me, 
at the risk of having this service shut down and that's the 
last thing I want to have happen.
    Finally, Mr. Chairman, one statement. Will this require 
some subsidy? Sure. Frankly, we subsidize every form of 
transportation in this country. We always have and I don't 
think we ought to shy away from providing a reasonable subsidy 
to create a rail passenger system that works, one that is 
national in scope, and one that I think strengthens this 
country's economy.
    The Chairman. Mr. Rutter, Mr. Mead, welcome.

        STATEMENT OF HON. ALLAN RUTTER, ADMINISTRATOR, 
      FEDERAL RAILROAD ADMINISTRATION, U.S. DEPARTMENT OF 
                         TRANSPORTATION

    Mr. Rutter. Thank you, Chairman McCain, Members of the 
Committee. Thanks for the opportunity to discuss the 
administration's proposal for intercity passenger rail reform, 
the Passenger Rail Investment Reform Act, which Senator McCain 
has so graciously introduced at Secretary Mineta's request.
    In my 2 years in office I've often come to this Committee 
to talk about passenger rail and have been chastised, rightly 
so, for not having more to say. Today I'm proud to describe and 
defend a comprehensive proposal to reform the manner in which 
passenger rail services are provided to our citizens. I've been 
reading capsule descriptions of our proposal in the press, 
often included in recent stories about the perpetual battle on 
Amtrak appropriations.
    Our proposal has been described in general terms as this: 
The Bush Administration seeks to dismantle Amtrak, dumping 
passenger rail service on the states and privatizing the 
remaining routes. I'd have to identify with newspaper readers, 
who upon reading that assertion would react with incredulity. 
Not only does that not sound like a great plan, it doesn't 
sound like our plan at all, its intent, or its likely effects.
    I hope my testimony has clarified some of the features of 
our legislation, but let me now respond to the three ways in 
which that caricature fails to describe our bill. First, I 
don't think the word dismantle should be used to describe our 
proposal to alter the organizational structure of the current 
passenger rail provider. Dismantle is a verb with intent. It 
describes a process or stripping down and does not always imply 
reassembly. We have no such malice here. Rather, we are merely 
proposing a different institutional arrangement for passenger 
rail service in hopes of providing an increase in the quality 
and quantity of such services. We can disagree about the 
effects or the pace of that restructuring, but no one should 
impugn our motives.
    Second, I'll object to the word ``dumping''. After Isabel 
blew through our region recently, I frequently joined my fellow 
Prince William County residents at our county landfill to 
dispose of the remains of our uprooted trees. When you go to a 
dump, you drive up, drop off your refuse, and drive away. To 
apply that analogy to passenger rail, we would have to be 
proposing to leave states wholly responsible for all passenger 
rail provision and propose that the Federal Government refuse 
to have anything to do about it ever again, and that is not 
what we are proposing.
    When I was in Buffalo a few weeks ago to discuss our 
proposal with AASHTO's standing committee on rail 
transportation, I heard from State officials who disagree with 
our proposals for long-distance train operating support or 
capital matching percentages. However, most of them appreciated 
that we are proposing a long-term partnership where the Federal 
Government would share capital funding and service design 
responsibility with States.
    Finally, I want to make sure we distinguish between the 
board's privatization and competition. I call your attention to 
my discussion of this point in our testimony so I won't repeat 
it verbatim here. If states are already providing operating 
subsidies for intrastate passenger rail service, we agree with 
many of them that there should be a careful, routine process 
for allowing them to choose an operator who will provide the 
best value proposition for their citizens. We do so consistent 
with a core tenet of governmental procurement policy that 
taxpayers receive more value when service providers compete 
against each other. We deliberately chose this path, not that 
of the British experience or that recommended by the Amtrak 
Reform Council.
    That's my opening statement, Mr. Chairman. This is a 
complicated issue and ours is a complicated proposal, and I 
look forward to discussing it with your Committee. This hearing 
is another step that we trust will lead to fundamental, 
sustainable, long-term reform in intercity passenger rail 
policy. Thanks.
    [The prepared statement of Mr. Rutter follows:]

    Prepared Statement of Hon. Allan Rutter, Administrator, Federal 
       Railroad Administration, U.S. Department of Transportation
    Chairman McCain, Senator Hollings and members of the Committee, I 
am honored to appear on behalf of Secretary of Transportation Norman Y. 
Mineta and the Bush Administration to discuss our legislative proposal, 
the Passenger Rail Investment Reform Act (the PRIRA), and the future of 
intercity passenger rail service.
    This year marked the first time in the last several years that 
there was no summer Amtrak crisis. There was no impending financial 
meltdown that required the Congress and/or the Administration to bail 
Amtrak out yet again.
    That was not a happy accident. Much of the credit goes to Congress: 
in the Department of Transportation's FY 2003 Appropriation Act, you 
imposed on Amtrak the discipline and oversight of the formal Federal 
grant process. This is a process that is common throughout the 
Department's other programs but which had not applied to Amtrak for 
decades. FRA used the grant process effectively to hold Amtrak 
accountable. Much credit also goes to David Gunn and his senior 
management team who have embraced the need to change the way things 
have been done at Amtrak. They have recognized the need for accurate 
and reliable financial reporting, and improved fiscal controls. They 
have also recognized their accountability for the sound and effective 
expenditure of the public's funds. These are essential values for any 
organization that depends upon the public's investment and trust.
    The lack of a crisis this year does not mean that the Congress and 
the Administration can put intercity passenger rail service policy on 
the back burner. We must confront the reality, as the Department's 
witnesses have stated in our past testimony before this Committee on 
April 29 and June 5 of 2003 and during the previous year that this 
Nation's present business model for intercity passenger rail service 
cannot be sustained indefinitely. It will take more than authorizing 
mountains of cash to address the need for improved intercity passenger 
rail service in this country, particularly since we know that such 
mountains will look more like molehills in the final versions of the 
appropriations acts. The Department believes significant structural 
reform is required. Only forceful action will permit this form of 
transportation to be anything more than an afterthought in 
transportation plans of our citizens.
    Any objective analysis of intercity passenger rail today leads to 
the conclusion that this form of transportation is slowly withering 
away under the current system. After $25 billion of Federal subsidies 
and countless Congressional hearings, studies, and new business 
initiatives by Amtrak, intercity rail passenger traffic volumes have 
remained essentially constant over the past 25 years, while airline 
enplanements have increased to 250 percent of their mid-70s levels, and 
traffic volumes for both commuter rail and intercity automobile travel 
have more than doubled.
    But the picture is not bleak across the board, not by any means. 
When the Administration undertook an effort to reform the way we make 
passenger rail investments, we looked at where passenger rail is 
working and growing. Those places have a few things in common: broad 
public support for passenger rail and support from local communities 
and states, often in the forms of capital investment and operating 
assistance.
    We have strived to build a system based on those descriptors of 
success, rather than on the cobbled-together remnants of the failed 
passenger rail operations of freight railroads. We need a passenger 
rail system that is dynamic, one whose services and route structure can 
adapt to changing consumer needs, one coordinated with the rest of our 
intermodal transportation system.
    In every other mode of transportation, we get that flexibility and 
that degree of planning and investment through a state-federal 
partnership. The Federal Government cannot do good highway investment 
without partnering with states on where those highways should go. We 
cannot do good work on maintaining and growing our maritime or aviation 
infrastructure without state and local partners making some key 
decisions. Thus, our proposal's foundation is built on a strong, stable 
federal-state relationship.
    Before I talk about the specifics of the Administration's 
legislative proposal to accomplish this reform, I wish to reiterate the 
consistent message of the Department before this Committee and before 
other forums for the last two years. This Administration believes that 
there is a vital role for intercity passenger rail service as part of 
this Nation's system of passenger transportation. That is the reason 
Secretary Mineta reluctantly approved Amtrak's proposed mortgaging of 
its rights to use Penn Station in 2001, and why the Department expended 
substantial effort to provide Amtrak a loan under the Railroad 
Rehabilitation and Improvement Financing Program in 2002. Without 
either of those actions, Amtrak would today be in the hands of the 
Bankruptcy Court. The Administration's commitment to successful reform 
of intercity passenger rail can also be seen in the President seeking 
out truly gifted citizens such as David Laney, Robert Crandall, Floyd 
Hall, and Lou Thompson to serve on Amtrak's Board of Directors.
    It is the Administration's belief in intercity passenger rail 
transportation that also led to the first serious review of intercity 
passenger rail service in a generation and the first new Administration 
proposal for how that service should be provided in three decades. In 
the Administration's reform bill, we have addressed how to best 
structure the decision-making and public financial assistance this form 
of transportation requires, taking into account the changes that have 
taken place in this country's transportation needs and patterns over 
the last three decades and the changes yet to come. And, quite frankly, 
we have also tried to recognize the realities and limits of the Federal 
treasury.
The Fundamental Issues of Intercity Passenger Rail Reform
    The Administration's legislative proposal for the Passenger Rail 
Investment Reform Act contains a very detailed sectional analysis that 
describes not just the specifics of each section but how they work 
together. Rather than use this testimony as an opportunity to say the 
same thing a different way, I will append that analysis to this 
testimony. Instead, I will focus this testimony on the issues that are 
addressed by the reform bill and must be addressed by any other serious 
effort to provide for viable intercity passenger rail service over the 
long-term. After almost two years of internal Administration analysis, 
review of options and debate, I am convinced that the Administration 
and Congress must resolve these eleven fundamental issues, loosely 
grouped in three broad categories. These categories are:

   Governmental Roles and Relationships

   Constituency Issues

   Money
Governmental Roles and Relationships

        Defining the future Federal/State and local roles in the 
        provision of intercity passenger rail service: The Federal 
        Government and 12 State Governments have taken on essential 
        roles in the provision of intercity passenger rail service 
        either for that service in general, or for specific routes and 
        services. It is difficult to imagine the absence of a public 
        sector role in this form of transportation, particularly over 
        the upcoming five or six years covered by the next 
        authorization legislation. But are the current relationships in 
        the public sector the optimum or most desirable? In the 
        proposed reform bill, the Administration says they are not. The 
        dominant decision-making and funding role of the Federal 
        Government in this form of transportation is inconsistent with 
        Federal involvement with other forms of transportation. This 
        over-reliance on Federal initiative may be a contributing 
        factor to intercity passenger rail's inability to effectively 
        address the changing transportation demands of this country. 
        The Administration's legislative proposal looks to the 
        successful highway and transit programs as models for intercity 
        passenger rail. The bill would establish a strong Federal/State 
        partnership much like those that exist for highways and transit 
        where the Federal Government is responsible for safety, is a 
        partner in capital investment, and establishes certain minimum 
        standards that services must meet to receive this funding. The 
        States, however, will be the initiator and implementer of 
        actions.

        And states are already taking that initiative. More than $136 
        million in passenger rail investments were made by the states 
        in FY03. Not coincidentally, those investments are being made 
        in places where demand for passenger rail is high, where state 
        and local commitments are strongest, and where the service has 
        the greatest chance for success. Right now, states are making 
        those investments largely unsupported by the Federal 
        Government. The Administration's proposal considers that kind 
        of state supported investment as the most important sign for 
        where Federal investment should be directed.

        Planning and Decision-making: Currently, intercity passenger 
        rail planning is primarily the responsibility of Amtrak. 
        Amtrak's exercise of that duty is marked more by a defense of 
        the route system it inherited in 1971 rather than initiative to 
        address changing demographics and travel patterns. While the 
        reluctance to change before 1997 might be attributable, in 
        part, to the statutory restrictions on the route system, 
        neither highways nor transit nor aviation are subject to 
        centralized planning of this sort. These are the forms of 
        transportation that have seen explosive growth while Amtrak 
        ridership has stagnated. The Department does not believe this 
        is some sort of unrelated coincidence.

        Highway and transit programs require comprehensive statewide 
        and metropolitan area planning performed by the State 
        departments of transportation and metropolitan planning 
        organizations. These are the organizations most in tune with 
        changing regional and local mobility needs. The Administration 
        believes they must play a primary role in passenger rail 
        planning, deciding when, where, how, how much and who provides 
        intercity passenger rail service as part of a coordinated, 
        comprehensive and multi-modal transportation system.

        Addressing Commuter Service Concerns: The intertwining of 
        Amtrak and commuter rail operations has resulted in the latter 
        being periodically held hostage over issues relating to the 
        financial condition of Amtrak but otherwise unrelated to 
        commuter service. In recent years we have even witnessed a 
        commuter agency that prepaid for its Amtrak services having 
        been threatened by an Amtrak shutdown because Amtrak had 
        commingled the commuter agency's funds with other funds in 
        Amtrak's accounts. The Administration strongly believes that, 
        while intercity and commuter rail service are complementary in 
        many ways, commuters should not go through the periodic stress 
        and uncertainty brought on by Amtrak's regular flirtation with 
        financial catastrophe.

        Under the Administration's legislative proposal, infrastructure 
        currently owned by Amtrak but on which commuters depend will be 
        transferred to public bodies. These new owners can structure 
        contracts for the operation and maintenance of these facilities 
        that are independent of the financial condition of the 
        intercity rail service provider. Equally important, the States 
        will be given the opportunity to select the operators of the 
        intercity rail service important to them. In making such 
        selections, the States can balance the risks versus the 
        advantages offered by different operators. Indeed, some States 
        might decide that the best approach may be to have one entity 
        provide both commuter and intercity passenger service. But 
        these will be local decisions based upon local issues, not ones 
        that result in threatened national shutdowns of commuter 
        service because of the failure of a single national intercity 
        passenger rail carrier.

        Addressing Intercity versus High-Speed Passenger Rail Concerns: 
        Some believe that high-speed passenger rail requires a Federal 
        policy completely distinct from other forms of intercity 
        passenger rail. We don't see it that way. The Administration 
        sees intercity passenger rail as one form of transportation 
        that encompasses a wide range of speeds that reflect the 
        mobility needs of the transportation market being served. We 
        should view high-speed rail, not as a distinct and separate 
        goal, but as a possible end state of current investment in 
        passenger rail.

        The Administration's legislative proposal is consistent with 
        this perspective. Section 7101 of the proposed Safe, 
        Accountable, Flexible and Efficient Transportation Equity Act 
        of 2003 (SAFETEA), would transform the existing program of 
        ``high-speed'' corridor planning into a program that supports 
        State planning for conventional as well as high-speed rail 
        service. This planning program would help States make informed 
        decisions on the where, what and how intercity passenger rail 
        service can play an appropriate role in enhancing passenger 
        mobility. PRIRA would create a Federal/State capital investment 
        partnership modeled after that now used for the transit new 
        starts program. This program would provide capital grants, 
        including full funding grant agreements, to implement State-
        based intercity passenger rail initiatives that are the product 
        of sound State planning. The scope of the planning and capital 
        improvements that can be undertaken under these programs allows 
        the States more flexibility to choose whether to support or 
        expand services currently provided by Amtrak, or to develop new 
        or improved (including high-speed) intercity passenger rail 
        service on new or existing rail rights-of-way.
Constituency-Issues

        The Role of Competition: One of the greatest challenges facing 
        intercity passenger rail is how to assure that the service 
        provides the best value in terms of cost and quality to the 
        passenger and the public, both of whom must foot the bill. This 
        has always been an issue where States have provided financial 
        support for specific trains. To them, Amtrak has looked like 
        the monopoly utility, dictating prices and conditions of 
        service with little or no apparent connection to the actual 
        costs of that service. Missouri knows what Amtrak charges to 
        provide the State-supported Mules and Ann Rutledge, but how 
        does the State determine whether that is the best possible 
        price? Is Amtrak's menu of service options all that can be done 
        or are there service innovations that warrant consideration? 
        How can the State motivate Amtrak to reduce its enormous 
        overhead burden, which is currently about $400 million 
        annually?

        In aviation, in trucking, indeed in most commercial enterprises 
        in this country, the best possible price is determined by 
        competition. Competition also is the incubator of innovation. 
        As Amtrak has stagnated for three decades, lower cost 
        commercial aviation and intermodal package delivery have seen 
        creative and successful new companies grow and flourish. The 
        Administration proposes to phase in the ability of States to 
        use competition to select the operators of services they deem 
        important enough to justify State financial support. If the 
        reconfigured Amtrak operations group, which the 
        Administration's bill calls the Passenger Rail Service 
        Provider, is indeed meeting the State's needs by offering the 
        best possible price and the highest quality service, then it 
        will keep the business. If it is not, competition will force it 
        to improve. The riding public and the State and Federal 
        taxpayers will be the beneficiaries.

        In discussions on the Administration's bill, I have been struck 
        by how some people confuse the concepts of competition and 
        privatization. They argue that because few if any passenger 
        rail systems are profitable, our proposal, which they 
        mistakenly assume transfers the responsibility for intercity 
        passenger rail service solely to the private sector, is not 
        workable. In fact, under our proposal, the responsibility for 
        intercity passenger rail rests with the States and Federal 
        Government, just as it does for the National Highway System. 
        States do not build these highways. They competitively select 
        design teams and contractors to fabricate the bridges and pour 
        the pavement. The States pay these contractors for their 
        services. However, through competitive selection, the States 
        assure themselves they are getting a quality product and a fair 
        price. But this role for competitively selected contractors 
        doesn't make I-95 or any other highway private.

        Passenger Rail Access to the Freight Railroad System: A 
        corollary to the issue of competition is how to provide access 
        to the freight railroad system by service providers other than 
        the current Amtrak operating entity. The Administration 
        recognizes the reluctance of many of the freight railroads to 
        host any passenger rail service of any kind, but their 
        preference is that Amtrak should provide passenger service, if 
        it has to be provided. The freight railroad system is too 
        important to this Nation's economy to create uncertainty that 
        could adversely affect freight service. At the same time, 
        intercity passenger rail cannot survive without access to the 
        freight railroads. The Administration's proposal attempts to 
        reconcile these two positions.

        First, the Administration's bill provides a workable and 
        legally sustainable way to provide access to freight railroad 
        lines for non-Amtrak providers of intercity passenger rail 
        service.

        Then the Administration's bill addresses concerns expressed by 
        some freight railroads that they would have to deal with 
        multiple new, small passenger operators. The Federal Railroad 
        Administration will review and approve the qualifications of 
        any operator the States might propose. Such a review would go 
        to all significant issues needed to assure that the carrier can 
        meet its obligations to operate over the specific freight 
        railroad in a safe and reliable manner. No more than one 
        service provider will operate over any route thus eliminating 
        the possibility of having multiple intercity passenger 
        operations on one line except in limited areas around 
        terminals. Going beyond this, the Administration's bill limits 
        the current access to the freight rail system at incremental 
        cost to those routes and service frequencies currently operated 
        by Amtrak. This amounts to less than 15 percent of the freight 
        rail system currently operated by the Class 1 railroads. An 
        ``arm's length'' agreement between the State and freight 
        railroad would be required to establish service over a new 
        route or expand service on an existing route.

        Addressing the Concerns of Liability: One of the recurring 
        issues related to intercity passenger rail service revolves 
        around issues of liability and insurance. The Administration 
        believes that the Amtrak Reform and Accountability Act 
        adequately addressed this issue by setting liability limits. 
        The issue then becomes the ability of States or their 
        designated operators to obtain insurance up to those liability 
        limits. Experience with Amtrak has shown that insurance is 
        generally available for the higher levels of liability--in the 
        $10 million to $200 million range. It is the first dollar of 
        coverage that is more difficult to obtain because of the 
        greater likelihood of successful claims in amounts less than 
        $10 million. The Administration's bill addresses this issue by 
        making first dollar of insurance coverage an eligible cost 
        under the proposed capital program.

        What Happens to Amtrak's Employees: It is natural that Amtrak's 
        employees are very concerned about the future of intercity 
        passenger rail service. The short-term prospects for Amtrak's 
        financial condition should raise greater questions for them 
        than the long-term effects of the potential introduction of 
        competitive selection of operators and of maintainers of the 
        Northeast Corridor. Over the long run, the reforms of intercity 
        passenger rail service will result in stable if not growing 
        employment in this industry, much as has occurred in the 
        commuter rail industry. But that prospect provides little 
        solace for someone facing this transition. The Administration's 
        bill seeks to address these concerns in a number of ways. It 
        provides a relatively long transition in areas that affect 
        employment; requires that current collectively-bargained 
        agreements transfer to Amtrak's successor corporations; 
        provides current employees with priority consideration for 
        employment with new operators; requires that new operators be 
        subject to the Railway Labor Act, railroad retirement and other 
        railroad laws in the same way as Amtrak; and, provides an 
        employee transition program modeled after the program that 
        helped ease the impact on employees of the changes that made 
        Conrail financially viable.
Money

        Operating Assistance: One of the lessons learned from the 
        Amtrak Reform and Accountability Act of 1997 is that Amtrak 
        requires operating subsidies. While many of the other reforms 
        the Administration proposes will help reduce the size of the 
        subsidy requirements for specific routes and services, some 
        amount of operating assistance will be required for almost all 
        of these routes and services for the foreseeable future. Such 
        subsidies should be the responsibility of the State or States 
        that believe these services are important enough to warrant 
        their support. The Administration really sees no difference 
        between commuter and intercity passenger rail in this regard. 
        Having said that, the Administration is cognizant of the 
        challenges many States will face in first determining whether a 
        particular train or service warrants financial support, then 
        identifying the sources of that financial support. For those 
        reasons, our legislative proposal would not seek the State 
        operating assistance requirement for corridor trains until two 
        years after enactment and phase in this assistance for long 
        distance trains over five years.

        The extended phase-in period is also intended to provide 
        opportunities and incentives to improve the financial 
        performance of these trains. Moreover, the gradual reduction in 
        financial support on an even-handed basis across the system 
        will necessitate addressing first the trains that perform the 
        worst. That should yield important improvements in financial 
        performance each year.

        By the end of the period covered by this authorization bill, 
        the proposed reforms would also provide financial equity among 
        the States supporting intercity passenger rail. The States that 
        choose to pay for more service would receive more service. No 
        State would get for free that for which another State must pay.

        Design of the Capital Assistance Program: One of the Federal 
        Government's continuing responsibilities for intercity 
        passenger rail will be as a capital investment partner of the 
        States. Intercity passenger advocates aspire for a capital 
        program that is like those for other modes of transportation, 
        and our legislative proposal contains such a program. The 
        proposed structure of the capital program in the 
        Administration's proposal is closely modeled after the Federal 
        Transit Administration's Transit New Starts program. It will 
        have the same sort of eligibility criteria. It will require the 
        same rigorous planning and analysis by applicants, including 
        the development of project management plans with regular 
        updates. Finally, it will include the same safety, procurement, 
        management and financial compliance reviews and audits as the 
        Department undertakes with recipients of FTA funding.

        Amounts and Sources of Capital Funding: The Administration has 
        consistently said that it is willing to invest in a reformed 
        system of intercity passenger rail service. The 
        Administration's willingness to support funding for intercity 
        passenger rail recedes the less the system is reformed and the 
        more it resembles the flawed business model we currently use. 
        The Administration also believes that this funding should be 
        upfront and honest and thus come from the General Fund of the 
        Treasury. The Administration cannot support the use of the 
        Highway Trust Fund nor can we support back door approaches to 
        financing from the Federal treasury such as those using tax 
        credit bonds.
A National System
    One other issue that should be addressed as part of intercity 
passenger rail policy is the meaning of a ``national system''. Must 
such a system involve a single carrier national in scope? The 
Administration does not believe so. Indeed, before the creation of 
Amtrak, there was no national carrier of rail passengers. Our Nation's 
system of intercity passenger rail service was really composed of 
regional services provided by multiple carriers that came together in 
precursors of what we today call intermodal terminals but back then 
were frequently called ``union stations.'' The Administration's 
proposal envisions a modern view of a national system that has 
attributes of the past. This would be a coordinated system of passenger 
transportation that takes advantage of the strengths of all forms of 
passenger transportation; a system where connections to rail, air, 
highway and personal transportation come together in intermodal 
terminals. This is the promise of the Statewide and metropolitan area 
planning that are part of the surface transportation program. The 
Administration's intercity passenger rail legislative proposal would 
provide additional encouragement to the States to consider the merits 
of all forms of passenger transportation in their planning and to 
prioritize their investments based upon how the different forms of 
transportation can work together to provide for effective passenger 
mobility throughout this country.
    The Passenger Rail Investment Reform Act is a serious effort to 
address a serious problem, the declining state of intercity passenger 
rail transportation in this country. For the first time in 30 years, an 
Administration has made a proposal that actually has a chance of 
providing long-term stability for this form of transportation. It 
deserves thoughtful consideration by this Congress. Secretary Mineta 
and I look forward to working with this Committee and Congress to craft 
a meaningful authorization of intercity passenger rail service that 
looks beyond the failures of the past to the needs and opportunities of 
the future.
                                 ______
                                 
Sectional Analysis
    Summary: The purpose of the bill is to undertake a restructuring of 
intercity passenger rail transportation in the United States that will 
increase management accountability and encourage response to market 
forces. The assumption adopted in 1970, at the time Amtrak was 
established, that a single for-profit private entity could succeed in 
planning and providing nation-wide passenger rail service has long 
since been shown to be unworkable. The losses of several predecessor 
railroads on passenger service foreshadowed this outcome and, in any 
case, the Federal Government has provided $26.6 billion in subsidies to 
Amtrak over its 32-year existence.
    Notwithstanding Congress' enactment in 1997 of a strong reform 
mandate, Amtrak has demonstrated since that date that, in its current 
form, it is either unwilling or incapable of rationalizing its 
operations. Five principles for change are:

   Create a system driven by sound economics.

   Require that Amtrak transition to a pure operating company.

   Introduce carefully managed competition to provide higher 
        quality rail services at reasonable prices.

   Establish a long-term partnership between the states and the 
        Federal Government to support intercity passenger rail service.

   Create an effective public partnership, after a reasonable 
        transition, to manage the capital assets of the Northeast 
        Corridor.

    This bill proposes a different course for Amtrak, one that has been 
shown to be viable and beneficial in earlier examples of legislative 
restructuring in the transportation area. One instructive example is 
the transfer of the Alaska Railroad, a federally owned and operated 
railroad, to the State of Alaska in 1985. More recently, in 1987, the 
Federal Government entered into a long-term lease of the two federally 
owned airports in the metropolitan Washington region (Reagan National 
and Dulles International) to an airport authority created by the 
Commonwealth of Virginia and the District of Columbia. In both cases, 
governmental entities with a direct stake in the service accepted 
planning and management responsibility for these facilities, with 
subsequent major improvements. A third example, very close to the 
Amtrak situation, was the Northeast Rail Service Act of 1981, which 
provided for transfer of Conrail commuter operations in the Northeast 
Corridor to the states or localities involved, or to an alternative 
Amtrak operating subsidiary that was not considered a serious 
competitor at the time. This shift in responsibility also succeeded.
    The model for the restructuring proposed in the bill is the 
Federal-State-local partnership found in the public transit mode. Under 
this model, the regional, state, or local entity (``public entity'') 
makes the fundamental decisions about what service is justified, 
undertakes the planning that fits this service into overall passenger 
transportation patterns in the area, and manages the enterprise to best 
advantage. The Federal role is to participate in making capital 
investments that support high-quality, integrated services in an area, 
but not to subsidize service that the local entity itself would not 
subsidize.
    Throughout the bill and this analysis, the time-frame for actions 
is expressed in relation to the date of enactment and the subsequent 
Fiscal Year (that is, the first Fiscal Year after enactment is defined 
to be ``Year One,'' with subsequent years identified in the same 
manner. If the legislation is enacted sooner than 61 days after a 
Fiscal Year begins, that Fiscal Year is defined to be ``Year One.''
    The bill consists of three Titles. Title I provides the foundation 
for Amtrak's future--the basic realignment of Amtrak management and 
services that would permit a public entity to inherit and enhance 
existing routes through decisions that it has the ability to develop 
and implement itself. Specifically, (1) the Board of Directors would be 
directed to restructure Amtrak to prepare for the transfer of decisions 
about what service to provide and how to pay for it to public entities; 
(2) all but a few residual but important legal rights and duties would 
be shifted into two separate, free-standing corporations (along with 
associated personnel and assets) that would undertake arms-length 
contracting with public entities for services starting not later than 
the second year after enactment; (3) a North East Corridor Compact 
Commission would be created to formulate an interstate compact among 
the eight states comprising the Northeast Corridor and the District of 
Columbia to, under a 99-year lease from the United States, manage all 
rail operations in the Corridor; (4) an employee severance payment 
modeled on that provided to Conrail employees in the Northeast Rail 
Service Act of 1981 would be offered to current Amtrak employees; and 
(5) a schedule for phased reduction of operating subsidies to Amtrak's 
17 long-distance routes would be put in place over the second through 
sixth years after enactment, to enable states or groups of states to 
determine whether and how to continue these operations in whole or 
part.
    Title II addresses the many financial matters Amtrak must deal with 
to ready itself for transfer of services and equipment and other assets 
to successor organizations. Specifically, (1) the Fiscal Year 2003 
limits on grants to Amtrak to ensure more accountability would be made 
permanent for the transition period of continued operations by Amtrak; 
(2) Amtrak would prepare the necessary financial and engineering plans 
to address the backlog of capital projects in the Northeast Corridor 
and elsewhere; (3) Amtrak's common stock would be redeemed or acquired 
by eminent domain at book value to simplify the corporate structure in 
advance of transfers; (4) an exchange of assets held by Amtrak and debt 
held by the United States would occur to place the fee simple title to 
the Northeast Corridor and other assets in the United States for 
subsequent lease or transfer to other government entities; (5) unneeded 
real estate and other facilities would be liquidated over the 2004-2006 
timeframe; (6) the outstanding debt secured by real estate and rolling 
stock would be readied for transfer to the entities that accept this 
property, with a process for possibly refinancing the debt at more 
favorable rates; and (7) necessary operating and other assistance to 
effectuate transfer would be authorized.
    Title III establishes the permanent Federal program of grant 
assistance for capital projects to be provided to the public entities 
that succeed to Amtrak nation-wide, including the Northeast Corridor. 
This title is intentionally structured to parallel the existing capital 
assistance program for public transit (49 U.S.C. 5309). It is quite 
likely that existing transit properties will accept management 
responsibility for existing Amtrak services in some metropolitan 
locales and would benefit from adoption of a familiar, time-proven, 
grant program mechanism.
    Short Title and Purposes: The Act would be named the ``Passenger 
Rail Investment Reform Act.'' This signifies that the bill is designed 
to maintain and enhance rail passenger service nation-wide, not to 
undermine it.
    The purposes of the bill emphasize the need to restructure 
passenger rail service in the United States to adapt to competition 
from other modes by establishing a long-term partnership among the 
states and the Federal Government to support intercity passenger rail 
service through mutual commitment.
Title I--National Passenger Rail Service Restructuring
    Transition Board of Directors: Section 101 would expand the current 
7-member, reform Board of Directors to 11 members, to equip the Board 
with enough depth and expertise, such as corporate financial management 
and accounting experience, to undertake the many transition duties set 
forth in the bill. Current members would continue to serve for their 
established terms, the Department of Transportation (DOT) Secretary 
would remain as an ex officio voting member, and the Amtrak President 
would remain as an ex officio non-voting member. In anticipation of the 
decreased membership due to the expiration of terms prior to enactment 
of the bill, a quorum of members for conducting business is defined as 
a ``majority of the Board members who have been lawfully appointed.'' 
This will allow decisions to be reached and implemented while 
additional Presidential appointees are considered by the United States 
Senate.
    To ensure that the valuable rail assets currently held by Amtrak 
are used to best advantage and in the public interest, the Board of 
Directors would be directed to form an Asset Transition Committee 
comprised of the DOT Secretary and two other Board members (or one 
other member if two other members are not lawfully appointed). The 
Asset Transition Committee would ensure that the public interest is 
served in Board decisions and Amtrak management actions that change the 
use of or status of (1) the Amtrak's contractual right of access to 
rail lines of other railroads; (2) Amtrak secured debt; (3) Northeast 
Corridor real property and assets; and (4) rolling stock. This 
committee would approve any Amtrak management actions that would affect 
the four subject areas.
    Elsewhere in the bill, Amtrak is directed to transfer most of its 
personnel, assets, and duties to two successor corporations. In 
recognition of the public nature of the remaining duties following 
these transfers, the Transition Board of Directors would then be 
reduced to three ex officio officials of the Department of 
Transportation: the Secretary of Transportation and possibly the 
Federal Railroad Administrator and Federal Transit Administrator. The 
residual duties are set forth below. The other members of the 
Transition Board of Directors would thereafter no longer serve as 
appointees of the President to the Amtrak Board of Directors, but could 
instead become members of the Board of Directors of the successor 
corporations.
    Passenger Rail Service Restructuring: Section 102 sets forth 
requirements for the fundamental restructuring of Amtrak to prepare for 
the transfer of its duties, personnel, and assets to successor 
entities. Within 6 months of the beginning of Year One, the Board of 
Directors is required to prepare a plan to restructure Amtrak 
management, personnel, assets, operations, and other activities and 
relationships into three entities: (1) a ``holding company'' staff to 
oversee and manage Amtrak's contracts with host railroads, including 
the ``right of access'' to rail lines of other rail carriers, and 
contracts with operators of passenger trains chosen by states or 
interstate compacts (including the rail passenger service provider 
discussed next); (2) a nationwide rail passenger service operator, to 
continue rail services and to include the Reservations Center and 
rolling stock ownership and maintenance; and (3) a rail infrastructure 
manager. This would involve the assignment of all Amtrak personnel by 
name to one of the entities and the division of accounting, finance, 
budget, and assets to provide for the operation and funding of each 
entity independently. Amtrak would operate under this division of 
responsibility as of the first day of Year Two.
    An initial step in the restructuring would be the requirement that 
Amtrak file appropriate Articles of Incorporation under state law for 
two business corporations that are entirely independent of Amtrak, 
referred to in the legislation as the ``Passenger Rail Service 
Provider'' and the ``Passenger Rail Infrastructure Manager'' or the 
``successor corporations.'' No later than the first day of Year Two, 
the two divisions of Amtrak that generally correspond to the 
descriptions of the successor corporations would be transferred to 
create the successor corporations. Employees of Amtrak on the date of 
enactment would retain their pay and benefits, seniority, and other 
collective bargaining rights for a minimum of four years from date of 
transfer. The corporations would only undertake railroad activities on 
a contractual basis with Amtrak or another entity.
    The first successor corporation, the Passenger Rail Service 
Provider, would enjoy the exclusive right, until the last day of Year 
Three, to continue to provide the intercity passenger service that is 
being provided by Amtrak on the date of enactment, and would provide 
interline reservations services to any other provider of intercity 
passenger rail services on the same basis and rates as services are 
provided to the operational entities that provide service within Amtrak 
on the date of enactment. This corporation would also take ownership of 
Amtrak rolling stock and associated debt. The President of Amtrak on 
the date of enactment of this section would be offered the position of 
Chief Executive Officer of the Passenger Rail Service Provider. Prior 
to the last day of Year Three, a competitive process would be required 
to decide who would provide services after that date.
    The second successor corporation, the Passenger Rail Infrastructure 
Manager, would enjoy the exclusive right, until the last day of Year 
Six, to continue to provide the dispatching, maintenance, and 
infrastructure services that are being provided by Amtrak on the date 
of enactment in the Northeast Corridor, and would begin to carry out 
the capital backlog investment plan prepared by Amtrak, to the extent 
funds are made available. Prior to the last day of Year Six, a 
competitive process would be required to decide who would provide those 
services after than date.
    While the successor corporations and the ``holdover company'' 
entity have no common carrier obligations, they would continue to be 
subject to laws and regulations governing railroad safety, employee 
representation for collective bargaining purposes, the handling of 
disputes between carriers and employees, employee retirement, annuity, 
and unemployment systems, and other dealings with employees that apply 
to a rail carrier providing transportation subject to subchapter I of 
chapter 105 of title 49, U.S.C.. In addition, retirement, annuity, and 
unemployment system rights would be maintained for employees in the 
remaining Amtrak entity.
    This section directly addresses the interests of commuter 
authorities and freight railroads whose facilities and operations are 
intertwined with Amtrak's. As a general matter, Amtrak is required to 
ensure that the implementation of the restructuring gives due 
consideration to the needs of freight and commuter rail operations 
that, as of the effective date of the Act, operate in the Northeast 
Corridor on Amtrak right of way. In addition, two restrictions are 
placed on use of the ``right of access'' to freight lines as of the 
date of enactment: (1) the terms and conditions for operation of an 
intercity passenger rail route or frequency that is not in place on the 
date of enactment of this section would be subject entirely to 
negotiation and mutual agreement between the host railroad and Amtrak, 
or any successor to Amtrak, and would not operate under the pre-
existing right of access; and (2) the right of access to any segment of 
rail line of another rail carrier would not be available to more than 
one intercity passenger rail operator, whether Amtrak or a successor to 
Amtrak, during any period of rail passenger service over that line.
    Other portions of the section address the terms that would apply 
after ``exclusive rights'' for the successor corporations terminate if 
a public entity chooses to replace the successor corporations. For 
example, ``legacy equipment'' (rolling stock associated with a 
particular route) would be made available on an equitable basis, and 
passenger reservations services would be provided at reasonable cost.
    North East Corridor Compact: Under section 103, Congress would 
encourage creation of an interstate compact among the eight states that 
comprise the Northeast Corridor, plus the District of Columbia, to 
succeed to Amtrak as the provider of passenger rail services in the 
Corridor. The United States would lease the Corridor and its facilities 
to the NEC Compact for 99 years at no cost. The Compact would, in turn, 
accept full responsibility for managing service at its expense, with 
the exception of capital grant assistance. The Compact would be 
established no later than the last day of Year Two, and operating no 
later than the following June. The Compact would contract with the two 
successor corporations at least until the end of the periods of 
exclusive rights enjoyed by the corporations, and thereafter at the 
option of the Compact if the contracts are competed.
    The minimum responsibilities and authorities of the Compact 
specified by section 103 are as follows: (1) full responsibility for 99 
years to succeed to Amtrak as operator of the Northeast Corridor, 
subject to the provisions of a lease from the Department of 
Transportation; (2) execution of a lease of the Northeast Corridor from 
the Department of Transportation for a period of99 years; (3) 
responsibility for Corridor maintenance and improvement; (4) operation 
of intercity passenger rail service; (5) arrangements for operation of 
freight railroad operations and commuter operations; (6) assumption of 
financial responsibility for Northeast Corridor functions; (7) 
authority to make use of the Corridor for non-rail purposes; and (8) 
provision for participation by the U.S. Department of Transportation as 
the non-voting representative of the United States. Authority (7) 
contemplates creative use of the Corridor right of way and easements to 
help finance Corridor operations over the long term.
    The section provides for a ``Compact Commission'' of five members 
that must propose a Compact for adoption no later than the last day of 
Year One. Two of the members are appointed by the DOT Secretary; two by 
the governors of the Northeast Corridor states and the Mayor of the 
District of Columbia; and a fifth member chosen mutually by the other 
four members. Elsewhere, section 207(c) of the bill provides an 
authorization of funding for the activities of the Commission. In 
addition to the Compact responsibilities and authorities set forth 
above, the Commission must create a Compact that addresses the basis 
for Compact debt issuances; the assurance that the Federal Government 
is ``held harmless'' as to lease of the Corridor; and guarantee of any 
residual rights of organized employees who transfer to a replacement 
organization from a successor corporation. The Commission would 
terminate upon the completion of its work.
    Three inducements to adoption of the Compact are provided by this 
section or elsewhere in the bill. First, the ``backlog'' capital 
funding authorized to bring the Corridor to a state of good repair 
would not be released until the Compact is established and 
operationally prepared to accept a grant. This best assures that this 
large amount of capital investment will be made in ways that best serve 
the passenger rail service the Compact decides to provide. Second, 
commuter services headquartered in a state that does not join the 
compact would pay fully allocated costs of commuter operations on the 
Corridor after the last day of Year Two. Third, in the event the 
Compact is not adopted, the legislative directs that the DOT Secretary 
to make appropriate legislative recommendations to Congress that 
address the monetary contributions by Northeast Corridor states and the 
District of Columbia that would be necessary to provide continued 
intercity passenger rail service to those states and the District.
    Assistance to Address Capital Needs: Section 104 provides an 
authorization for ``backlog'' capital assistance grants on a one-time 
basis (spread over several years) to restore rail facilities and 
equipment nation-wide, including bringing the Northeast Corridor back 
to a state of good repair, consistent with capital spending plans 
developed under section 202 of the bill. In the case of the Northeast 
Corridor, the funding would only be released with the NEC Compact is 
functional. Such sums as may be necessary are authorized to be 
appropriated over the time-frame of Years Three through Six. The 
Federal share of expenditures for capital improvements under this 
section would be up to 100 percent but solely for the purpose of 
funding deferred maintenance, safety and security projects. 
Expenditures for capacity expansion are not authorized by this section.
    Employee Transition Assistance: Section 105 provides an 
authorization for voluntary buyouts for current Amtrak employees that 
are modeled on, but (when adjusted for inflation) are more generous 
than, those available to Conrail employees at the time Conrail was 
readied for sale to the private sector. A maximum payment of $50,000 
would be offered during Years One and Two to employees of Amtrak who 
voluntarily terminate their employment with Amtrak and relinquish any 
legal rights to receive termination-related payments under any 
contractual agreement with Amtrak. Amtrak would be required to certify 
that the financial assistance results in a net reduction in the total 
number of employees of Amtrak equal to the number receiving financial 
incentives; the financial assistance results in a net reduction in the 
total employment expense of Amtrak equivalent to the total employment 
expenses associated with the employees receiving financial incentives; 
and Amtrak would not increase the total number of employees eligible 
for termination-related payments without the express written consent of 
the DOT Secretary.
    Limit on Operating Assistance for Long-Distance Routes: Section 106 
provides an authorization for a gradual reduction in and phase-out of 
the Federal subsidies of Amtrak's 17 ``long-distance'' routes, over a 
five-year period to permit adequate time for the adjustments in service 
or provision of state-funded operating subsidies that would permit 
continuation of service desired by affected states. States or 
interstate compacts might be able to preserve some long distance routes 
by making modest incremental improvements in their economic performance 
each year. In other cases, states or interstate compacts might decide 
that they want to preserve a portion of a long distance route that 
performs well and stop or reconfigure other portions. Section 106 is 
designed to facilitate such decisions by the states. The technique 
proposed would effectively preserve the existing subsidy levels longest 
for the most cost-efficient service, by capping the per-passenger mile 
subsidy amount at $0.40 in the first year of restriction (Year Two) and 
gradually reducing the cap to $0.10 in the last year of subsidy (Year 
Five). This relatively long transition for long distance routes 
compared to other routes is provided in recognition that it is more 
difficult to form interstate compacts among large numbers of states and 
the states involved with long distance routes may need more time to 
work out what to do and implement it.
Title II--Financial Reforms
    Limitations on Availability of Grants to Amtrak: Section 201 would 
make permanent the Fiscal Year 2003 restrictions on grants to Amtrak 
that bring more accountability to the use of those Federal funds. 
Because two successor corporations will take over from Amtrak in Year 
Two, a revised form of the restrictions would then be applicable to 
them, as appropriate to their duties.
    Spending Plans for Capital Backlog Reduction: Section 202 would 
direct Amtrak to undertake the development of the backlog capital 
investment plans for the Northeast Corridor and elsewhere in the 
system. The plan would be required within 6 months of the beginning of 
Year One, and this section would specify that Amtrak submit the capital 
spending plan prepared under this section to the Secretary of 
Transportation for review and approval The plan could be implemented 
only after approval by the Secretary, and with any modifications 
specified by the Secretary. When the NBC Compact becomes effective, it 
would take over the plan for the Corridor. Authorizations for grants is 
separately provided in section 104 of the bill.
    Redemption of Common Stock: Section 203 provides for the redemption 
of Amtrak common stock, to simplify the governance of the corporation 
as it is restructured. Given Amtrak's current assets and liabilities, 
it is anticipated that the common stock has little or no value. This 
section would provide for mandatory redemption of the stock on the 
basis of current book value, after an impartial valuation supervised by 
the Secretary of the Treasury. In the event the shareholders do not 
accept this outcome voluntarily, the section provides for use of 
Amtrak's eminent domain authority to acquire the stock. Judicial review 
of such an action would be limited to the question of just 
compensation. The common stock would not be reissued, with the 
exception of a token amount to the DOT Secretary in recognition of the 
financial contributions of the United States to Amtrak over time.
    To prepare for the stock redemption, the DOT Secretary would 
arrange, at Amtrak's expense, for a valuation of all assets and 
liabilities of Amtrak to be performed by the Secretary of the Treasury, 
or by a contractor selected by the Secretary of the Treasury. The 
valuation would be completed not later than 6 months after the 
beginning of Year One.
    Retirement of Amtrak Preferred Stock; Transfer of Assets: Section 
204 provides that, subsequent to the redemption of common stock, Amtrak 
would exchange its assets, including the Northeast Corridor, to the DOT 
Secretary in return for extinguishing the mortgage held by the United 
States on the Corridor and the cancellation of more than $10 billion in 
accrued but unpaid dividends on preferred stock that Amtrak owes the 
United States. The United States would also surrender its preferred 
stock, in exchange for a nominal amount of common stock. Amtrak would 
remain liable for debt secured by these assets that is not held by the 
U.S., such as the mortgage on Pennsylvania Station in New York City. 
These debts would ultimately be assumed by the successors to Amtrak. At 
the time of transfer of assets to the United States, the DOT Secretary 
would enter into an agreement with Amtrak under which Amtrak would 
exercise on behalf of the Secretary care, custody and control of the 
assets transferred.
    An element of the valuation and exchange process under section 203 
and 204 would be to accomplish a detailed specification of the assets, 
personnel, and activities that support commuter authority operations in 
the Northeast Corridor and elsewhere. This would permit the 
uninterrupted continuation of commuter service in the event of other 
service disruption in the Amtrak system.
    It is contemplated that, outside the Northeast Corridor, the DOT 
Secretary would consider the retransfer of certain real estate assets 
to appropriate state authorities, including Chicago Union Station and 
rail-related assets in the Chicago metropolitan area, and properties 
owned by Amtrak between Boston, Massachusetts and Washington, District 
of Columbia that constitute the route through Springfield, 
Massachusetts and the routes to Harrisburg, Pennsylvania and Albany, 
New York from the Northeast Corridor mainline.
    Real Estate and Asset Sales: Section 205 mandates liquidation in 
the Year One-Year Three time-frame of the many properties held by 
Amtrak that are not integral to the provision of rail service and do 
not convey to successor entities. Any proceeds from the liquidation of 
assets under this section would be credited as an offsetting collection 
to the account that finances grants for debt and interest payments 
under section 206 of the bill to the Passenger Rail Service Provider.
    Management and Transfer of Secured Debt: Section 206 sets forth a 
number of criteria for the future handling of Amtrak debt. First, 
except as approved by the DOT Secretary to refinance existing secured 
debt, Amtrak would not be allowed to enter into any obligation secured 
by assets of Amtrak after the date of enactment. Second, when the 
Passenger Rail Service Provider successor corporation is in place and 
it accepts the transfer of ownership of the existing rolling stock from 
Amtrak, all debt secured by the rolling stock would be transferred to 
and become a liability of the Passenger Rail Service Provider. An 
equivalent transfer of debt obligations would be made to the North East 
Corridor Compact.
    This section would also authorize such sums as may be necessary to 
the Secretary for grants to the Passenger Rail Service Provider and to 
the North East Corridor Compact to pay principal and interest payments 
on its secured debt for Years Two through Six.
    Transition Operating Assistance: Section 207 sets forth the final 
operating assistance that would be provided by the Federal Government 
for intercity rail passenger service (other than the separate long-
distance subsidies described above). Specifically, the section provides 
``such sums as may be necessary'' for grants to Amtrak for operating 
expenses in Year One; grants to the Passenger Rail Service Provider for 
operating expenses of all services except long-distance trains and 
routes in Year Two; the administrative expenses of interstate compacts 
in Years One through Three; and grants in Years Two through Six to 
cover administrative expenses of the ``holding company'' Amtrak.
    This section also provides that, after the last day of Year Two, 
the Federal Government would only enter into a grant agreement with a 
State, regional Compact, or other public entity.
Title III--Grants and Other Assistance for Intercity Passenger Rail 
        Service
    Capital Assistance For Intercity Passenger Rail Service: Section 
301 adds a chapter 244 to title 49, United States Code, to set forth a 
permanent program for Federal grant assistance to rail passenger 
operations for needed capital investments. The provisions of the 
chapter are closely modeled on the existing Federal transit capital 
assistance program (49 U.S.C. 5309). The new program is intended to 
adopt the same stance as the current transit program, in leaving the 
management and operations of transit systems to appropriate government 
entities and restricting the Federal role to up to a 50 percent share 
in the capital projects that qualify under planning and other criteria 
for Federal assistance. As an interim measure, the Federal share could 
be a higher percentage (up to 100 percent in the first year of the 
program (Year Two)). Up to an additional 30 percent of project net 
capital cost could be funded from amounts appropriated to or made 
available to a department or agency of the Federal Government that are 
eligible to be expended for transportation.
    Grants could be used for acquiring, constructing, supervising or 
inspecting equipment or a facility for use in intercity passenger rail 
service, expenses incidental to the acquisition or construction 
(including designing, engineering, location surveying, mapping, 
environmental studies, and acquiring rights-of-way), payments for the 
capital portions of rail trackage rights agreements, passenger rail-
related intelligent transportation systems, highway-rail grade crossing 
improvements on routes used for intercity passenger rail service, 
relocation assistance, acquiring replacement housing sites, acquiring, 
constructing, relocating, and rehabilitating replacement housing, and 
rehabilitating, remanufacturing or overhauling rail rolling stock and 
facilities used primarily in intercity passenger rail service.
    In addition to these purposes, the grant funding would be available 
to fund self-insured retention of risk for the first tier of liability 
insurance coverage for rail passenger service associated with the 
capital assistance grant, but the coverage may not exceed $20 million 
per occurrence or $20 million in aggregate per year. This option 
addresses the difficulty that replacement operators for Amtrak may have 
in obtaining ``first dollar'' liability insurance coverage.
    Final Regulations on Applications by States for Corridor 
Development Grants: Section 302 provides that the Federal Railroad 
Administration must issue final implementing regulations for the new 
capital assistance program not later than June 1, 2004, so that the 
program can be available in Fiscal Year 2005.
    Authority for Interstate Compacts for Corridor Development: Section 
303 encourages the formation of interstate compacts (other than the NEC 
Compact, addressed separately) that can succeed to Amtrak as a regional 
operator of continued rail service. Formation of such entities, along 
with states that take on Amtrak service, is a necessary step in the 
restructuring process.

    The Chairman. Thank you very much. Mr. Mead, welcome back 
to the Committee.
    Mr. Mead. Thank you, Mr. Chairman.
    The Chairman. Next time you come tell me how many 
appearances you've made before this Committee.

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

    Mr. Mead. I'll have to add them up. I think working with 
committees like this though is what makes being a civil servant 
worthwhile.
    The Chairman. Or makes you earn your pay.
    Mr. Mead. Well, it is a hard way to earn a dollar, sir. 
Reauthorization of the aviation, highway transit, and rail 
programs all seem to involve difficult policy and funding 
issues this year, more so it seems to me than in the past, but 
Amtrak and passenger rail, in fact, may be the most difficult 
of all of the reauthorizations that you face. Fiscal 2004 
actually marks the second year that Amtrak's getting Federal 
money without any authorizing legislation. I think 
Congressional direction is needed to move the current system 
beyond the unsatisfactory status quo.
    I want to reiterate a point we made at the hearing this 
past spring that the current model for designing, governing, 
and funding the intercity passenger rail system in this country 
is broken, that problems manifest by numerous indicators, most 
notably the persistence of Amtrak's cash operating loss, 
growing debt burden, and declining on-time performance. There 
are charts in my testimony to that effect and I'm not going to 
belabor it here.
    Something that's not commonly understood is that for the 
past 6 years those results, the declining performance, have 
developed in an environment where Amtrak had access to external 
funding of about $8.4 billion. That's an average annual amount 
of $1.4 billion per year. Most people think they've been 
getting $650, $670 million a year, which is their annual 
appropriations, and they have gotten that, but you add to that 
the money that came from the taxpayer relief fund and from 
their borrowings, a couple billion dollars of borrowing and 
going further into debt.
    I don't want to paint this though as just a problem of 
money. It goes well beyond that to the amount of services 
provided, who controls the investment, who provides the 
service, who selects the providers. And without a 
reauthorization, the answers to those questions, you're likely 
to see a continuation of the stalemate or current status quo.
    I want to make a strong point of saying I think the 
Department, the Amtrak board, and David Gunn, his management 
team, all have done a good job over the last year of 
controlling expenses, something we have not seen in the past. 
Make no mistake about it, those efforts are not going to save 
you from a limp-along, deteriorating Amtrak without either a 
significant increase in funding for the current system or 
fundamental changes to it. There is no way that Amtrak is going 
to save its way through success. There is no way that pinching 
pennies alone is going to make the current model we have work.
    Some thoughts, Mr. Chairman, on the Administration's 
proposal. In fact, I think the Administration's proposal 
confronts several key issues in a straightforward and 
comprehensive way while leaving others quite vague or 
unanswered altogether. In particular, its provisions on 
corridor development and governance, that is giving the states 
greater control over passenger rail service and decisions in 
their state. I think that has merit and deserves consideration.
    But the proposal leaves open and unanswered what level of 
Federal capital funding it's prepared to support. The bill 
says, ``such sums as are necessary'' and that's it. Answers are 
needed here because probably the biggest problem facing the 
current system, in our view, is the condition of its 
infrastructure, and that of course is going to be a show-
stopper to any corridor development.
    This lack of clarity on the funding issue has also fostered 
a conception that the burden of funding operating losses is 
going to fall on the states in a relatively short period of 
time with no compensating, sustained, Federal commitment to 
significantly expanded Federal capital funding. Given the 
current fiscal climate in the states as well as the Federal 
Government, this funding uncertainty has got to be addressed as 
a central part of any reauthorization measure.
    I also want to point out that the Administration's proposal 
calls for the separation of the Northeastern Corridor 
infrastructure from the operations. In our view, keeping the 
infrastructure, the tracks, the bridges, signaling, as well as 
the operations of the trains as one integrated unit is likely 
to introduce the least risk to the successful transfer of its 
governance to the Northeastern states or to disruption of 
operations. The concern here is that if you have two separate 
units, a separate infrastructure group would have different 
incentives and priorities than the operations group and that 
could be pretty disruptive.
    And as for the proposed phase-out of operating subsidies, 3 
years may seem like a long time, but it's likely to prove 
logistically and financially difficult for the states to deal 
with in the timeframes contemplated, especially in the current 
budget climate. I think that requiring a large increase at this 
pace in State operating subsidies for their trains is more 
likely to lead to their elimination and restructuring than 
improvement.
    I want to say a couple words about the Administration's 
focus on short-distance corridors. These are corridors that are 
500 miles or less. I think this is a central element of the 
proposal. I think it deserves your consideration. That's 
because these corridors are the ones that are most patronized 
today. They're all over the country, there's not just a 
Northeast Corridor, and they hold the greatest potential for 
some growth.
    I'll give you a frame of reference. Amtrak ridership in 
2002 totaled about 23.4 million people. The short-distance 
corridor trains carried 19.8 million, or 84 percent, of them. 
Forty-seven percent were in the Northeast Corridor, 37 percent 
outside. The remaining 16 percent of the passengers, or 3.5, 
3.6 million, rode the 17 long-distance trains. Many of the 
people that rode the long-distance trains are traveling only 
between stations located on existing corridors that could be 
served by improved service on the corridor trains, which are 
the Amtrak trains, rather than riding on long-distance trains 
that go well beyond the corridor and sometimes arrive very late 
at night or in the early a.m.
    A word on Amtrak's 2004 funding needs. I'm assuming no 
reauthorization before enactment of the Fiscal Year 2004 
appropriations. We think that Amtrak can get by and run the 
current system with about $1.5 billion in 2004. How can that be 
accomplished? It can be accomplished by limiting the capital 
spending to the minimum needed to maintain reliability. Amtrak 
ought to be able to cover the difference between the 1.5 
billion and the Senate mark, which is around 1.35, because it's 
going to have $200 million in carry-over funds from 2003. But I 
don't want to leave with you the erroneous impression. You 
shouldn't make any mistake about it, that level of funding is 
merely going to postpone the day of reckoning. Amtrak can't 
continue to operate the current system without eventually and 
soon addressing the backlog investment needed to bring the 
system to a state of good repair. The price tag on that is 
about $6 billion.
    I noted earlier that the Administration's bill provided no 
guidance on funding levels and it merely authorizes such sums 
as may be necessary. Well, I wanted to give the Committee an 
illustration of how this bill might work, and so we assumed, 
that is the Inspector General, this isn't the Administration, 
that given the fiscally constrained budget environment, the 
total annual funding would be about $1.5 billion. That's 
illustrative only and it may sound conservative but it's more 
than has ever been appropriated to Amtrak for intercity rail in 
a single year and it's more than the Senate 2004 mark.
    After allocating funds to cover the operating costs, we 
allocated the remaining money between capital and debt, and we 
were able with that level of funding to pay off about two-
thirds of Amtrak debt, while also providing an increase in 
capital funding continuously over the period of 
reauthorization. There's a chart in my testimony, and I don't 
want to get into a lot of detail now, I'll answer questions in 
the Q&A period, but I want you to keep in mind please that the 
Administration bill provides that the Federal Government would 
share in the capital investment. The states would be required 
under the bill to pick up the full cost of subsidizing 
operating losses on all the trains. That's going to be about 
$600 million a year. Additionally, that proposal would 
eventually require a 50 percent capital match, which would 
total another $600 million per year.
    I think the capital match requirements and the phase-in of 
the operating subsidy, that the states should pick that up. I 
think those could usefully be points in negotiation and 
compromise. I think the states this is a mode of transportation 
like highways and the others and I think they should pay their 
fair share. It's a question about what their fair share is and 
when the fiscal situation is such that they can responsibly 
assume it. Thank you.
    [The prepared statement of Mr. Mead follows:]

    Prepared Statement of Hon. Kenneth M. Mead, Inspector General, 
                   U.S. Department of Transportation
    Mr. Chairman, Senator Hollings, and Members of the Committee:

    We appreciate the opportunity to testify on the reauthorization of 
intercity passenger rail service and Amtrak, and the Administration's 
proposed reauthorization legislation. Fiscal year 2004 represents the 
second year that Amtrak will have received Federal funding without new 
authorizing legislation providing guidance on how that money should be 
spent. In the interim, Congress has provided that direction in piece-
meal fashion in the appropriations process. At this crossroads for 
passenger rail service, a comprehensive reauthorization that provides 
new direction is needed to move the current system beyond the 
unsatisfactory status quo.
    Current Model Is Broken. We want to start today by reiterating a 
point we made to this Committee last spring which is that the current, 
overall approach to designing, governing, and funding the intercity 
passenger rail system in this country is broken. As shown in the 
following table, these problems are evident in the persistence of 
Amtrak's cash operating loss, growing debt service burden, and 
declining on-time performance.

------------------------------------------------------------------------
                               1999     2000     2001     2002    2003*
------------------------------------------------------------------------
Cash Operating Loss             $579     $561     $770     $631     $671
------------------------------------------------------------------------
Debt Service (Principal &        139      131      145      233      247
 Interest)
------------------------------------------------------------------------
On-Time Performance              79%      78%      75%      77%      74%
------------------------------------------------------------------------
* 2003 figures are forecast except for on-time performance which is for
  the 11 months through August 2003. Cash operating loss and debt
  service are in millions of dollars.

    What is not commonly understood is that these results have 
developed in an environment in which Amtrak has had access to external 
funding of $8.4 billion over the last 6 years (1998-2003). This is an 
average annual amount of $1.4 billion per year--more than twice the 
average $670 million in appropriated funds during this period. These 
funds consist of Federal funds of $6.2 billion split between $4 billion 
of annual appropriations and a one-time infusion of $2.2 billion in 
Taxpayer Relief Act funds. To supplement these Federal funds, Amtrak 
tapped private financial markets to borrow an additional $2.2 billion 
in this period. In spite of the resulting $1.4 billion per year in 
funding, the accumulated backlog of capital investment has grown to at 
least $6 billion.
    Reauthorization Guidance Is Essential. The problems with our 
current approach to intercity passenger rail service extend beyond 
issues of funding to questions of who decides on the types and amounts 
of services provided, who controls the investment in infrastructure and 
operations, who provides service, and who selects the providers. 
Without a reauthorization that answers these questions, we are likely 
to see an unfortunate continuation of the status quo that provides too 
little money to adequately fund the current system--a system that, as a 
result, provides unsatisfactory service.
    Although that sounds critical of current operations, on the 
contrary, we think the Department, the Amtrak Board, and David Gunn and 
his management team have all done a good job over the last year of 
controlling expenses--an issue we have consistently cited in our annual 
Assessment Reports as a key to improving Amtrak's financial 
performance. Nevertheless, such efforts will not free us from a limp-
along Amtrak without either significant increases in funding for the 
current system or fundamental changes to it. As we have noted before, 
Amtrak can't save its way to financial success--pinching pennies alone 
won't make this model work.
    The Administration's bill confronts several key issues in a 
straight-forward and comprehensive manner while leaving others less 
clear or unanswered. In particular, its provisions on governance and 
corridor development are well-developed. It leaves unanswered, however, 
what level of Federal capital funding it supports. Also, we would 
suggest a different approach to organizing the Northeast Corridor 
(NEC)--separating operations and infrastructure may risk disruptions to 
service--and the timing of the phase-out of Federal operating support 
could prove problematic, especially in the current fiscal climate.
    The elimination of all Federal operating support over a short 
timeframe, in conjunction with stepped-up requirements for the states 
to match Federal capital funds, would create significant financial 
difficulties for states wishing to preserve long-distance train 
service. Although we make clear in this testimony the trade-offs that 
may need to be made between long-distance and short-distance service if 
funding remains at recent levels, we recognize that resolving this is a 
policy call for the Congress and the Administration.
    Focus on Short-Distance Corridors. The Administration's bill 
proposes to focus Federal capital funding on developing and investing 
in short-distance corridors (routes with end-to-end distances of less 
than 500 miles). This would target service improvements to the services 
that are most patronized today and that hold the greatest potential for 
passenger growth in the future. Specifically, Amtrak ridership in 2002 
totaled about 23.4 million passengers, and short-distance corridor 
trains carried 19.8 million (84 percent) of them--47 percent in the 
Northeast Corridor and 37 percent on other corridor trains. The 
remaining 16 percent of passengers (3.6 million) rode the 17 long-
distance trains. (Attachment 1 provides more details on ridership and 
revenue by route for 2002.)
    In addition, most long distance trains overlap at least one and 
often two or more corridors. As a result, many of the passengers on 
long-distance trains are traveling only between stations located on 
existing corridors and could be served by improved service on corridor 
trains rather than riding on long-distance trains that continue on 
beyond the corridor. For example, on the Coast Starlight from Seattle 
to Los Angeles, only 5 percent of passengers (about 27,000) in 2000 
rode from one end of the route to the other. Over 50 percent of 
passengers (277,000) boarded and alighted within one of the three 
corridors on the route. In other words, if the Coast Starlight had not 
run, 55 percent of the passengers it carried had alternative rail 
service on either the Cascades, Capitols, or Pacific Surfliner 
services. (Attachment 2 provides the ``end-to-end'' and ``corridor'' 
passengers for each of the 17 long-distance trains in 2000.)
    Maintain Integrated NEC and Slow the Pace of Operating Subsidy 
Phase-Outs. We would take a different tack than does the Administration 
on certain issues, however, particularly on the separation of NEC 
infrastructure from operations and the pace of the phase-out of 
operating assistance. Maintaining the NEC as an integrated railroad is 
likely to introduce the least risk to the successful transfer of its 
governance to the northeastern states or of disruption to operations in 
the period leading up to that transfer. The proposed phase-out of long-
distance subsidies is likely to prove logistically and financially 
difficult for the states to deal with in the timeframes contemplated. 
In today's state budget climate, requiring a large, rapid increase in 
state operating subsidies for both long-and short-distance trains is 
more likely to lead to their elimination than restructuring and 
improvement.
    Funding and Fiscal Capacity Are Open Questions. We note also that 
the Administration's proposal leaves open the question of the level of 
funding committed to short-distance corridor development and its 
source. This lack of clarity has fostered the perception that the 
burden of funding system operating losses would fall on the states with 
no compensating Federal commitment to significantly expanded Federal 
capital funding. Such a perception weakens support for the governance 
reforms in the proposal, particularly given the current fiscal climate 
in the states.
    The basic equation confronting the Congress in reauthorizing 
intercity passenger rail service is that, without a substantial 
increase in funding, the entire current, interconnected system cannot 
be adequately maintained while also investing in short-distance 
corridor development. In fact, it will require an increase in 
appropriated funds of nearly 50 percent compared to 2003 enacted levels 
just to maintain the current system ($1.50 billion versus $1.05 
billion). To significantly increase investment in the corridors, which 
serve the majority of passengers, would require an additional increase 
of a like amount. If such funding increases are not feasible, new 
investments in corridors could only come from either cuts to long-
distance train services or, as reflected in the Administration's bill, 
the transfer of the funding responsibility for their operating losses 
to the states.
    A number of reauthorization proposals have been made in addition to 
the Administration's bill. Although each has its strengths, the 
incremental improvements we discuss in this testimony could be lost if 
this contention between funds for new investments or for long-distance 
train subsidies results in a stalemate. Then we are likely to see a 
continuation of the ugly status quo into the indefinite future.
    Amtrak's 2004 Funding Needs. We think that Amtrak can maintain 
reliability on its system and meet its other obligations if its 2004 
appropriation were near to or matched the Senate figure of $1.346 
billion. Although Amtrak has requested $1.8 billion, about $300 million 
of this amount is for reducing the backlog of capital investments on 
the system or for lower priority investments. Therefore, we estimate 
that Amtrak can get by with about $1.5 billion in 2004 by limiting 
capital spending to the minimum needed to maintain reliability. Amtrak 
should be able to cover the difference between this amount and the 
Senate mark from its carryover funds from 2003, which are about $200 
million.
    One should keep in mind, however, that the Senate level of funding 
merely postpones the day of reckoning and that day is surely coming. 
Amtrak cannot continue to operate the current system without eventually 
and soon addressing the backlog of investment needed to bring that 
system to a state-of-good-repair. Otherwise, unacceptable and 
unpredictable equipment and infrastructure problems will surely begin a 
downward spiral of diminished service levels and disappearing passenger 
revenue.
    Cost of the Administration's Bill. The Administration's bill 
provides no guidance on funding levels, but merely authorizes ``such 
sums as may be necessary.'' As a result, providing a projection of the 
costs in the bill requires making assumptions about the annual spending 
totals and the amount of funds to allocate among capital backlog 
investment, corridor development, and debt amortization.
    We have made the following assumptions to give the Committee an 
illustration of how the bill might work. First, we have assumed that, 
given the fiscally constrained Federal budget environment, total annual 
funding would remain flat throughout the reauthorization period at 
about $1.5 billion. This is the amount we have estimated Amtrak needs 
in 2004 to maintain system reliability and have arbitrarily adopted 
that as the 2005 baseline. We note this is more than Amtrak has ever 
received in a single appropriation.
    After allocating funds to cover projected operating requirements, 
we have allocated the remaining funds in each year between capital and 
debt based on the following approach: we have dedicated sufficient 
funds to amortize about two-thirds of Amtrak's non-defeased equipment 
debt while providing sufficient funds to increase capital funding 
continuously over the period. The slow but steady growth in capital 
funding should permit the parties to plan for and efficiently invest 
the new capital funds. The reduction in debt would provide the needed 
flexibility to either use Amtrak's legacy equipment or retire it 
depending on each route's future operating requirements or alternative 
equipment opportunities. Otherwise, this legacy expense will fall on 
the states, saddling them with a burden they did not create, or new 
service providers, reducing their inclination to compete to provide 
existing services.
    The detailed projection of the bill's cost based on these 
assumptions is provided as Attachment 3 and the table below provides an 
abbreviated version of that estimate.

 
----------------------------------------------------------------------------------------------------------------
                                                             OIG Estimate Of Administration's Bill
                            Amtrak      OIG   ------------------------------------------------------------------
                            Request  Estimate                                                        Total 2005-
                             2004      2004      2005     2006     2007     2008     2009     2010       2010
----------------------------------------------------------------------------------------------------------------
Capital (except debt)          $927      $600     $600     $650     $700     $800   $1,000   $1,200       $4,950
----------------------------------------------------------------------------------------------------------------
Debt Principal                  117       117      113       88      177      138      126      120          762
----------------------------------------------------------------------------------------------------------------
Net Added Debt Service            0         0        0        4       37      272      276       83          672
----------------------------------------------------------------------------------------------------------------
Total Capital                $1,044      $717     $713     $742     $914   $1,211   $1,402   $1,403       $6,384
----------------------------------------------------------------------------------------------------------------
Operating Loss                 $607      $607     $634     $664     $476     $189      $ 2      $ 2       $1,966
----------------------------------------------------------------------------------------------------------------
Interest Expense                163       163      153      118      111      104       98       92          676
----------------------------------------------------------------------------------------------------------------
Total Operating                $771      $771     $787     $782     $587     $293     $100      $94       $2,642
----------------------------------------------------------------------------------------------------------------
Total Request                $1,814    $1,487   $1,499   $1,524   $1,500   $1,503   $1,502   $1,497       $9,026
----------------------------------------------------------------------------------------------------------------

    Keep in mind, however, that the Administration's bill and these 
figures assume that the Federal Government would share in capital 
investments, but the states will pick up the full cost of subsidizing 
operating losses on both the long-distance and corridor trains. After 
the 3-year phase-in period in the bill and absent any restructuring, 
this would amount to $650 million per year. In addition, for the states 
to fully tap the capital funding we have projected, the 
Administration's proposal would require a 50 percent capital match at 
full phase-in, totaling $600 million per year. Thus, the $1.5 billion 
in Federal funding we have projected for 2010 would require a state 
match of about $1.2 billion.
    We note that the Administration's proposal has an increasing state 
capital match requirement over the course of the reauthorization 
period. Both highway and transit programs over their histories have had 
changing state matching requirements, some as low as 5 or 10 percent, 
that grew over time as the programs matured. Because of the tough 
fiscal climate facing the states, setting the value of the state 
matching percentages as well as the timing of the phase-out of 
operating support will be points for negotiation and compromise in this 
reauthorization.
    In the remainder of our testimony, we would like to comment in more 
detail on six reauthorization issues and how the Administration's bill 
proposes to address them:

   Targeting system development and capital investment to 
        short-distance corridors;

   Implications for long-distance trains of refocusing 
        investment;

   Maintaining the Northeast Corridor as an integrated railroad 
        and addressing its capital needs;

   Improving the governance of intercity passenger rail service 
        by giving the states more control;

   Funding the legacy expenses of the current system including 
        debt and excess retirement costs; and,

   Providing reliable Federal funding for passenger rail 
        service.

    The first two issues address the nature of intercity passenger rail 
service, the second two focus on how to produce and govern that 
service, and the last two address funding issues.
Targeting development and investment to short-distance corridors
    The Administration's bill would target investments in intercity 
passenger rail service to short-distance corridors with the goals of 
increasing speeds, increasing frequency, and improving the quality of 
the services offered. Short-distance corridors are those routes whose 
endpoints are less than 500 miles apart. This distance lends itself to 
services that can compete with the automobile for both leisure and 
business travelers and with air service if the trip times are low 
enough and frequencies of service are high enough.
    Because constraints on Federal and state budgets are likely to 
persist for many years, investments in these corridors by necessity 
must be made on an incremental basis. Track capacity, train equipment, 
and signaling and control improvements will have to be added as funding 
permits and in phases that gradually increase speeds, decrease travel 
time, and improve service quality. Realistic goals are to achieve 
eventual top speeds of 110 miles per hour, end-to-end travel times of 3 
to 4 hours, and 5 to 15 round trips per day in these corridors.
    Section 301 of the Administrations' bill proposes a capital 
investment program for these corridors that would match Federal capital 
funds to those raised by the states. Successful development of the 
corridors will require such a dedicated program with a separate funding 
allocation. Success, however, requires more than a program, it will 
hinge on identifying reliable levels of funding.
    Corridor services currently exist in the Northeast, in the Pacific 
Northwest on the Cascades route between Vancouver and Eugene, between 
San Diego and Santa Barbara on the Pacific Surfliner service, and 
between Chicago and Milwaukee on the Hiawathas. Examples of emerging 
service corridors are Chicago-Detroit and Chicago-St. Louis in the 
Midwest and Washington-Richmond and Richmond-Charlotte in the East.
Implications for long-distance routes of investment in short-distance 
        service
    There is no magic answer to the fundamental dilemma of corridor 
development versus long-distance service facing the Administration and 
Congress. Without a significant boost in funding from some source, 
whether Federal or not, investment in short-distance corridors is not 
possible without reducing funding for long-distance service. However, 
as we pointed out last spring, the long-distance trains have been the 
political glue that has held the Amtrak system together for the last 30 
years.
    One option that might provide some fiscal relief is the 
restructuring of some long-distance trains into corridor feeder 
services. Much of the territory and stations covered by the 17 long-
distance trains are also covered by short-distance corridors and trains 
today. In fact, on some long-distance trains, significantly fewer than 
half of the passengers travel the entire route from endpoint to 
endpoint. (See Attachment 2.) By redesigning train services that 
operate in the gaps between corridors, but not overlapping them, feeder 
services could continue to provide services to stations currently 
served by the long-distance trains and do so on more convenient, 
daytime schedules and likely on more frequent schedules. This 
restructuring can be accomplished over a period of years that would 
minimize transition costs and would allow for the growth of the 
complementary short-distance corridor services.
    Some long-distance trains are not well-suited for restructuring as 
corridor feeder services, particularly the trains from Chicago to the 
West Coast. To maintain services to the stations on these routes may 
require the indefinite continuation of operating subsidies. Corridor 
feeder services may require operating subsidies as well, but are likely 
to be less expensive to operate and generate more revenue resulting in 
lower losses and subsidy requirements.
    Restructuring most long-distance trains into feeder services 
mitigates the ``free rider'' problem in cost sharing with the states. 
If one state in the middle of a route refuses to contribute to the 
operating subsidy, bordering states may be required to bear an 
increased burden to maintain the service. Because most of the feeder 
routes would operate in only one state, funding responsibility and 
operating control would reside with that state alone.
Maintain the Northeast Corridor as an integrated railroad
    The Administration's bill proposes to divide activities on the 
Northeast Corridor among two companies, separating train operations 
from the maintenance and control of the infrastructure. Separating 
operations from infrastructure increases the risk that conflicts will 
arise between operations and investment because each company will be 
responding to different incentives that may not be reconciled. The 
result could be disruption to service and a decline in on-time 
performance. Outside the Northeast Corridor, operations and 
infrastructure are separated and system performance there is markedly 
worse than on the NEC.
    The fundamental goal of the Administration's proposed realignment 
is to facilitate the eventual transfer of control of the NEC to the 
northeast states. Maintaining the NEC as an integrated railroad, 
however, can achieve this goal just as well while also providing 
additional benefits. In particular, keeping operations and 
infrastructure integrated offers advantages of simplicity, performance, 
efficiency and risk.
    Simplicity. Realigning the NEC as an integrated railroad would 
merely involve reestablishing something similar to the old NEC 
Strategic Business Unit (SBU). A combination of the old Intercity and 
Amtrak West SBUs would constitute the nationwide passenger rail service 
provider.
    Performance. Consolidated control of infrastructure and operations 
would produce substantially better on-time performance based on current 
experience with on-and off-corridor results, (on-time performance in 
the 90 percent range versus 70 percent and below for intercity 
services).
    Efficiency. An integrated NEC provider of track maintenance, 
capital programs, operations, and dispatching is likely to be more 
efficient and less costly than two providers, each having a monopoly 
over a subset of these services.
    Risk. A bifurcated approach would require a fully functional 
oversight and control organization at the outset lodged in the NEC 
Compact to coordinate between operations and infrastructure. If the NEC 
Compact is delayed, there could be disruptions to smooth operation of 
the corridor.
Improving system governance through greater state control
    The Administration's bill proposes to vest primary control of 
intercity passenger rail services in the states. It also proposes to 
shift significant funding responsibilities to the states as well. We 
support this refocusing of decision-making authority onto the state 
level because a new relationship must be established among Amtrak, the 
Federal Government, and the states if higher speed, higher frequency, 
short-distance corridors are going to be successfully developed.
    Many interested parties have raised concerns that multi-state 
compacts will be needed for many of the routes currently operated and 
that, depending on the number of states involved, they will either be 
impossible to negotiate or unworkable in practice. This concern is 
overstated. Most corridor and feeder services will be primarily in one 
or two states. A few will extend to 3 states. Though not without 
potential difficulties, negotiating these compacts should not present 
an insurmountable obstacle to corridor development.
    The most complicated compact will involve the NEC states (nine 
states). Although the potential problems in developing a workable 
governance, operating, and funding structure are perhaps great, the 
potential benefits to the states are great as well from assuming 
control of the NEC. There should be sufficient incentive to reach a 
workable consensus on the NEC because the problems for these states for 
their commuter operations as well as intercity services would be severe 
without a rebuilt and efficiently functioning corridor.
    The Administration proposal models a Federal passenger rail program 
on the current transit program for New Starts. Under this approach, 
states would: (1) decide on the corridor service attributes such as 
speed, frequency, and quality, (2) choose who operates the service, and 
(3) negotiate with freight railroads to operate and invest in the 
services, and (4) apply for Federal capital grants for equipment and 
track investment.
    We have heard concerns about how complex and time-consuming the 
application and other processes might be that are developed to 
implement the program. One way of dealing with this issue is to tie the 
level of Federal requirements and control to the Federal funding 
requested for a project. As the Federal funding percentage exceeds 
certain thresholds, then additional criteria and procedures would 
apply, and where state and private funds exceed some percentage of a 
project's total cost, maximum local flexibility and minimum filing 
requirements would apply.
Funding the current system's legacy expenses, principally debt
    Adopting a new approach to organizing, investing in, and operating 
intercity passenger rail service as proposed by the Administration 
raises the question of what to do about the legacy expenses of the 
current system. Amtrak has long-term debt with amortization periods as 
long as 25 years that must be financed. In addition, Amtrak pays excess 
railroad retirement taxes (excess RRTA) because of the decline in 
freight railroad employment over the last 30 years that is unrelated to 
passenger railroad employment which has been essentially constant over 
the same period. Direct and separate Federal funding of these legacy 
expenses would facilitate the development and experimentation with 
alternative operating models and route structures. Otherwise, these 
legacy expenses, principally debt, will fall on new service providers 
and the states, reducing their inclination to compete for existing 
services and, in the case of Amtrak's debt load, saddle them with a 
burden they did not create.

   Long-term Debt. Because Amtrak requires Federal operating 
        and capital subsidies greater than its debt principal and 
        interest payments, these obligations are currently financed by 
        Federal funds. Just to service the current long-term debt and 
        capital lease obligations will require an average of $285 
        million per year through 2010. Because all current and future 
        Amtrak debt would likely be paid by the Federal Government, 
        Amtrak's ability to incur additional long-term debt should be 
        permanently frozen, except for refinancing opportunities that 
        lower interest expense and do not increase the outstanding 
        principal. Furthermore, because Amtrak borrows at higher 
        interest rates than the Federal Government, a one-time 
        appropriation that repays immediately any debt that can be 
        economically amortized would produce long-term Federal savings.

   Excess RRTA. Future retirement tax payments for any 
        passenger rail providers that would qualify today as excess 
        Railroad Retirement Tax Act payments should be funded through a 
        direct appropriation to the Railroad Retirement Board. The 
        estimated annual cost to Amtrak for excess RRTA is about $160 
        million per year. Direct funding would establish and maintain a 
        level playing field for all competitors to provide intercity 
        passenger rail services.
Securing a Federal consensus for consistent funding
    As we have noted before, the Federal quid pro quo to a stepped-up 
state funding role in passenger rail services should be the provision 
of some assurance to the states that past uncertainty concerning the 
levels of Federal funding would not recur. Investments in corridor 
development can proceed most efficiently where long-term decisions and 
multi-year investments can be made without the threat of a disruption 
in Federal funding.
    This is, perhaps, one of the toughest nuts to crack considering the 
tight fiscal constraints facing the Federal budget. Highway, transit, 
and aviation trust fund revenue projections are down and, as a result, 
those programs are likely to add new demands on the general fund over 
the next few years. Alternate funding arrangements, such as tax credit 
bonds, have not found favor. In spite of these difficulties, a reliable 
Federal funding commitment will likely be needed to generate state 
support for a new Federal-State financing partnership. A broad and 
committed consensus needs to be reached so that achieving the 
authorized funding levels and Federal capital funding commitments will 
be much more tractable in future budgets.
    Mr. Chairman, this concludes our statement. I would be pleased to 
answer any questions.
                              Attachment 1

                   Amtrak 2002 Ridership Distribution
------------------------------------------------------------------------
                                       Fiscal Year 2002
                     ---------------------------------------------------
                         Riders                   Revenue
                         (000)      % of Total     (000)      % of Total
------------------------------------------------------------------------
Long Distance Train
16--Silver Star               252         1.1%      $25,088         1.9%
17--Three Rivers              127         0.5%        9,863         0.8%
18--Cardinal                   74         0.3%        3,921         0.3%
19--Silver Meteor             248         1.1%       28,347         2.2%
26--Capitol Ltd.              146         0.6%       12,558         1.0%
45--Lake Shore Ltd.           288         1.2%       24,295         1.9%
48--Silver Palm               206         0.9%       18,262         1.4%
52--Crescent                  246         1.0%       25,287         2.0%
57--Pennsylvanian              76         0.3%        2,855         0.2%
63--Auto Train                202         0.9%       50,742         3.9%
25--Empire Builder            368         1.6%       39,717         3.1%
27--California                327         1.4%       36,521         2.8%
 Zephyr
28--Southwest Chief           256         1.1%       36,770         2.8%
30--City of New               159         0.7%       11,676         0.9%
 Orleans
32--Texas Eagle               129         0.6%       14,349         1.1%
33--Sunset Ltd.                97         0.4%       13,794         1.1%
34--Coast Starlight           446         1.9%       33,272         2.6%
                     ---------------------------------------------------
Total Long Distance         3,646        15.6%      387,315        30.0%
 
NEC
1--Acela Express/           3,214        13.7%    $ 364,150        28.2%
 Met.
5--Regional                 5,760        24.6%      298,788        23.1%
13--Clocker                 1,979         8.5%       18,867         1.5%
                     ---------------------------------------------------
Total NEC                  10,953        46.8%    $ 681,804        52.7%
 
Other Corridor
3--Ethan Allen                 39         0.2%      $ 1,726         0.1%
4Vermonter                     67         0.3%        3,759         0.3%
6--Twilight                   215         0.9%       13,291         1.0%
 Shoreliner
7/15--Maple Leaf/           1,241         5.3%       47,853         3.7%
 Empire
9--Downeaster                 245         1.0%        3,844         0.3%
14--Keystone                  949         4.1%       21,969         1.7%
40--Adirondack                 91         0.4%        4,116         0.3%
66--Carolinian                215         0.9%       11,328         0.9%
67--Piedmont                   44         0.2%          596         0.0%
20--State House               226         1.0%        5,656         0.4%
21--Hiawatha                  404         1.7%        6,689         0.5%
22--Wolverine                 300         1.3%        9,695         0.8%
23--Illini                     92         0.4%        2,886         0.2%
24--Illinois Zephyr            94         0.4%        2,339         0.2%
29--Heartland Flyer            53         0.2%          903         0.1%
35--Pacific                 1,725         7.4%       28,357         2.2%
 Surfliner
36--Cascades                  580         2.5%       13,004         1.0%
37--Capitols                1,080         4.6%       11,014         0.9%
39--San Joaquins              734         3.1%       17,620         1.4%
41--International              92         0.4%        2,774         0.2%
54--Kentucky                   21         0.1%          664         0.1%
 Cardinal
56--Mules                     144         0.6%        3,153         0.2%
65--Pere Marquette             60         0.3%        1,604         0.1%
XX--Special Trains &           98         0.4%        8,640         0.7%
 Buses
                     ---------------------------------------------------
Total Other Corridor        8,808        37.6%    $223,480         17.3%
 
Grand Total                23,407       100.0%   $1,292,600       100.0%
------------------------------------------------------------------------
Source: Amtrak's Fiscal Year 2002 Ridership and Revenue summary.

                              Attachment 2

                                       End-to-End vs. Corridor Passengers
                                             On Long Distance Trains
----------------------------------------------------------------------------------------------------------------
                                                            2000 Passengers
                     Train                      ---------------------------------------  % End-to-        %
                                                  End-to-End  Corridor\1\     Total         End      Corridor\1\
----------------------------------------------------------------------------------------------------------------
1 Auto Train                                         233,900      233,900      233,900         100%         100%
2 California Zephyr                                   33,362       72,198      382,002           9%          19%
3 Capitol Limited                                     62,481       16,698      145,196          43%          12%
4 Cardinal                                             3,631       16,087       74,479           5%          22%
5 City of New Orleans                                 39,433           --      200,682          20%           0%
6 Coast Starlight                                     26,174      277,299      505,098           5%          55%
7 Crescent                                             8,561       77,610      265,789           3%          29%
8 Empire Builder                                      40,307      155,159      433,404           9%          36%
9 Lake Shore Limited                                  67,264       99,326      300,989          22%          33%
10 Palmetto                                           28,148       70,524      217,865          13%          32%
11 Pennsylvanian                                          --       33,590       33,590           0%         100%
12 Silver Meteor                                      52,063       69,913      254,229          20%          28%
13 Silver Star                                        34,877      129,397      269,577          13%          48%
14 Southwest Chief                                    47,079        2,683      268,267          18%           1%
15 Sunset Limited                                     13,685        5,972      119,444          11%           5%
16 Texas Eagle                                         2,192       30,675      145,023           2%          21%
17 Three Rivers                                       20,599       55,947      133,206          15%          42%
----------------------------------------------------------------------------------------------------------------
Total Long Distance                                  713,756    1,346,978    3,982,740          18%          34%
----------------------------------------------------------------------------------------------------------------
1 Represents the number of passengers who get on and get off the train within the confines of a single corridor.
  Corridors include stations on existing Amtrak corridors and those on planned high-speed rail corridor routes.
Source: OIGs analysis of Amtrak's 2000 Origin/Destination station pair data.

                              Attachment 3

 
----------------------------------------------------------------------------------------------------------------
                                                     Administration's Bill
   Section         Account        Amtrak    OIG   ---------------------------   2008     2009     2010    6 Year
                                   2004     2004     2005     2006     2007                               Total
----------------------------------------------------------------------------------------------------------------
              Capital
104           Capital Backlog        252       --       --       --      350      400      500      600    1,850
               [100% Federal;
               Section 202
               Plans]
207/301       Capital Grants         675      600      600      650      350      400      500      600    3,100
               [100%--50%
               Federal; Section
               207 for 05/06]
                                --------------------------------------------------------------------------------
              Total Capital          927      600      600      650      700      800    1,000    1,200    4,950
               (except debt
               principal)
              [Section 301--          --       --       --       --       88      267      500      600
               States' Capital
               Match]
              [Section 301-           0%       0%       0%       0%      20%      40%      50%      50%
               States'
               Percentage
               Match]
              Operating
207/106       Long Distance          563      563      580      501      395      187       --       --    1,662
               Losses [Amtrak
               2005; PRSP
               thereafter]
207           Short-Distance         188      188      194      169       --       --       --       --      362
               Losses [Amtrak
               2005; PRSP 2006]
207           Multi-State             --       --        4        5        4       --       --       --       13
               Administrative
               Transition
207           Amtrak                                              2        2        2        2        2       10
               Administrative
               Expenses
103           NEC Compact             --       --        2       --       --       --       --       --        2
               Commission
105           Employee Buyouts        --       --       --       75       75       --       --       --      150
               [PRSP & PRIM]
                                --------------------------------------------------------------------------------
              Total Operating        751      751      779      752      476      189        2        2    2,200
               (except interest
               expense)
              NEC Operating        (144)    (144)    (146)     (88)       --       --       --       --    (234)
               Loss/(Profit)
              Amtrak Legacy
               Debt
207/206       Amtrak/PRSP            117      117      113       88      177      138      126      120      762
               Principal
206(d)        Additional              --       --       --                39      292      315      130      776
               Principal
               Paydown
207/206       Amtrak/PRSP            163      161      153      118      111      104       98       92      676
               Interest
206(d)        Interest Savings        --       --       --       --      (2)     (20)     (39)     (47)    (108)
               from Paydown
                                --------------------------------------------------------------------------------
              Total Debt             280      278      266      206      325      515      500      295    2,107
               Service
              TOTAL                1,814    1,485    1,499    1,520    1,500    1,503    1,502    1,497    9,023
              Amtrak Legacy         2004     2004     2005     2006     2007     2008     2009     2010    Total
               Debt
              Total Principal        117      117      113      118      207      168      156      150
              Total Interest         163      163      153      148      139      130      122      114
              NEC Compact
              Operating Profit       144      144      146      148      150      152      155      157      908
              Amtrak Legacy           --       --       --     (30)     (30)     (30)     (30)     (30)    (150)
               Principal
              Amtrak Legacy           --       --       --     (30)     (28)     (26)      (24     (22)    (130)
               Interest
              Compact Net            144      144      146       88       92       96      101      105      628
               Profit
----------------------------------------------------------------------------------------------------------------


    The Chairman. Thank you, Mr. Mead, and the Senate mark is 
1.35 and you say they've got 200 million rolled over from last 
year. Is that correct?
    Mr. Mead. Yes, sir.
    The Chairman. But yet the Administration has only asked for 
$900 million, Mr. Rutter. Where do you think that you and Mr. 
Mead differ here on the estimates of what level of 
appropriations are required?
    Mr. Rutter. I think the main difference is that our 
appropriation, or at least the President's budget for 2004, 
talked about a $900 million number and that any amount over 
that should be accompanied by concrete moves in the direction 
of reform. Frankly, the 2003 appropriation, which came out 
after the President's 2004 budget, contained many of those 
steps, and we believe that there are additional steps that the 
appropriators can take to move continuously toward this point 
away from the status quo.
    I would, however, note that that $900 million is 70 percent 
more than the previous year's request and is much higher than 
the last 3 to 4 years of the previous Administration's requests 
for Amtrak appropriations.
    The Chairman. Well, you have a point there. Mr. Mead, do 
you still think that Amtrak needs to restructure its debt?
    Mr. Mead. Oh yes.
    The Chairman. How do you do that?
    Mr. Mead. Well, I mean, it's a matter to some extent of a 
personal philosophy, but I think if you're going into a 
reauthorization period we're really going to try to make a 
difference. My own view is that you ought to freeze the debt, 
the Federal Government probably ought to pay it off, because 
frankly we're paying off the debt anyway and we can borrow 
money cheaper than Amtrak's interest rates. We could just pay 
it off.
    The Chairman. So we ought to just pay off their debt?
    Mr. Mead. Yes, as part of the reauthorization. I certainly 
wouldn't recommend you do it as part of the appropriations 
process. I think it should be part of a larger package. And I 
say that also because if we're going to be looking to the 
change in governance and structural change in Amtrak, and look 
to the states to take more responsibility and start governing, 
the states aren't going to be interested in picking up anything 
if you say, well, you're going to be saddled with debt to boot.
    The Chairman. You've observed as I have over the years by 
the way, I really regret that Yogi Berra ever made that comment 
about deja vu all over again because we all get real tired of 
hearing it, but over the years we've sort of had this same 
debate, this same discussion, and you have noticed many of 
their long-distance routes that have, as I mentioned in my 
earlier opening statement, as much as $400 per passenger 
subsidy. Is there any way that any of those long-distance 
routes in your mind, from your experience, are ever going to 
come close to any kind of reasonable cost per passenger?
    Mr. Mead. Some of them won't, but I believe there is a 
misconception about what a long-distance route actually is. If 
you stop and look across the United States and take the East 
Coast as point A and the West Coast as point Z, there are very 
few people that are actually going to ride from point A to 
point Z, but there are lots of people that will be going 
between intermediate points across the United States, and it's 
those intermediate points that hold a lot of promise that are 
called corridors. And that is what I think is a very important 
feature of the Administration's bill to invest in those, 
regardless of the State. In many states, such as Texas, there 
are corridors in Texas that could stand development.
    The problem is that when you're just relying on long-
distance trains, the train that's one train going across and it 
may show up at 3 a.m. in the morning. It's one train, it's 
really not maximizing the growth potential, but there are some 
in this country, Mr. Chairman, that the distances between one 
corridor and another exceed 500 miles, maybe 1,000 miles. 
Frankly, those people probably ought to consider getting on a 
plane.
    The Chairman. I think most of them . . .
    Senator Burns. We've got airplanes that show up at 3 in the 
morning. That doesn't solve any problems.
    Mr. Rutter. Mr. Chairman, if I could add to that.
    The Chairman. Please, Mr. Rutter.
    Mr. Rutter. The other thing that treating all long-distance 
trains equally is inaccurate because not all long-distance 
trains have the same characteristics, either their on-time 
performance or the kind of people who ride it. You have two 
members of your committee here who represent states served by 
the Empire Builder. The Empire Builder travels on BNSF freight 
ride-away and BNSF operates that train at about 80 to 90 
percent on time.
    The other thing that characterizes that particular route is 
that if you looked at between Minnesota and Chicago and North 
Dakota and Washington, you've got different characteristics of 
where people are traveling. People in North Dakota and Montana 
are mostly going between those two states or to Washington. 
Very few of those people go to Chicago. Similarly, Chicago to 
Minnesota, Minneapolis, that's where most of that traffic 
happens on that end. One of the things that could be possible 
is to look at bifurcating long-distance trains into shorter 
segments, serving those segments with coach service rather than 
more expensive sleeper service and particularly the Empire 
Builder is in a situation where it's the least avoidable costs 
aren't nearly as high as some of the other Western routes. So 
it's important to recognize that there are different 
circumstances for each of these particular services.
    The Chairman. Well, my time has expired but I'm afraid we 
may be headed in the same direction we have, and that's we'll 
give them enough money to limp along and the debt goes up and 
the operating losses continue and that's very unfortunate 
because at some point or another we're going to have to maybe 
never, maybe we won't ever have to make a touch decision. We've 
avoided those pretty well in some other areas. Senator 
Lautenberg.
    Senator Lautenberg. Thanks, Mr. Chairman. The thing that 
struck me is that we talked about when we heard from Mr. Mead 
about giving, limiting the funding to $1-1/2 billion above, 
that's certainly above where we are now, but it goes with the 
statement that says, minimize the capital to maintain 
reliability. And one of the things that we've done here is 
we've constantly minimized what it is that we put into the 
road, and I think the chairman just said the same thing and I'm 
inclined to agree with him. He didn't say quite what I'm going 
to say, but we are talking about kind of fisher-cut bait here, 
I mean, either we're going to put enough into the railroad at 
one time or over a period of a few years to bring it up to the 
kind of travel that people would like to see or just limp along 
as we see and not really do much.
    Chairman McCain and I a few years ago were in Brussels, 
Belgium, at the same time, and I headed for Paris where my trip 
was to continue and I got on a train and in an hour and 25 
minutes we went 200 miles. I don't think you could get an 
airplane there if you wanted to, and at what point does it take 
us to in this country to say, hey listen, when you get those 
distances that are 500 miles or less, there almost ought to be 
no dispute. Certainly between here and New York City, if we 
could get there in an hour and a half, an hour and 45 minutes, 
one could speculate but make some pretty optimistic guesses 
about how much rail service would be occupied, would be taken. 
Even now you get a cloudy day out here, a rainy day, and I 
usually use Acela if I can, it's crowded. People want to know 
the reliability of rail service is there.
    So I would ask if there shouldn't be a point, Mr. Rutter, 
that we say, look, I read the statement that then-Governor Bush 
about it being a Federal responsibility, Federal costs for 
capital and operations, and I can ask you what changed in his 
mind, I guess the job probably from being Governor out there 
and knowing you can't afford to do much about this, but there 
are those national causes. What should we do about you said 
refinance the debt in some way, Mr. Mead. Well, that's a nice 
idea but it's the how-to that's bothersome. If we're going to 
restructure the debt we're going to have to put a lot more 
money into it. So at what point do we face up to our 
responsibility and say that we want to get it done? Is the 
Administration allowing Amtrak to spend its funding to cure the 
same safety defect as it criticized Amtrak for, funding 
provided for Amtrak adequate to address all these safety 
concerns, Mr. Rutter?
    Mr. Rutter. Well, we're certainly one of the things I get 
to do is represent the Secretary on Amtrak's board, we regulate 
Amtrak from a safety perspective as well as advise the 
Secretary and the Administration on passenger rail policy. 
Getting back to I think part of your question on the amount of 
money, it's also much a matter of what are you going to spend 
that money on. When Mr. Mead talks about buying down debt, 
dollars invested toward that have serious and significant 
benefits in a present value situation now. If that has appeal 
to spend money on, rather than spending money on the status quo 
without any further change, I think the other thing that those 
dollars going toward of a different kind of system would be 
illustrated between the difference in what we were being asked 
to do when that letter that you quoted from, when Tom Downs was 
going to shut down the Eagle and said, we'd enjoy you picking 
up the difference, and the current Governor, Governor Perry, 
who's talking about resuscitating some plans for high-speed 
passenger rail, not where the Eagle goes, but where the most 
people in Texas are.
    I think that's one of the distinctions that we'd like to 
move toward in our proposal, which is to make investments in 
services that have the most potential for serving people.
    Senator Lautenberg. Well, I'd ask you this. I understand 
that the Administration has recently released the names of 
three people that it proposes to nominate to the Amtrak board. 
One is a long-time advocate of railroad privatization, the 
second is an experienced hand at working with companies headed 
into bankruptcy, and the third has a reputation as an outspoken 
business person, no experience whatsoever in the rail sector 
and perhaps has some conflict of interest in modes of 
transportation. So were these individuals selected by the 
Administration for the purpose of administering a coup de grace 
to the railroad once and for all?
    Mr. Rutter. Absolutely not, sir. First, let me talk about 
well, I'll get to the people we've named, then we'll talk about 
killing Amtrak. The people that we've named, the three that you 
mentioned, all have qualifications that speak to the kinds of 
qualifications set out in the statute for Amtrak's board, 
people who are familiar with business, with transportation 
services, and all three of those folks are very qualified. 
They're outspoken, they're going to speak their mind, but 
they're very bright, and we believe they're the kind of people 
that are going to help offer assistance to David and to the 
rest of the board members as we try to make Amtrak better.
    Finally, let me speak directly to the frequent not 
necessarily here but frequent accusations that this 
Administration is about killing Amtrak. If that were indeed our 
interest, we would have done that last summer. Amtrak was in 
dire straits, they were on the brink of bankruptcy. Instead of 
having them go bankrupt, our Administration came in with a $100 
million RIF loan and Congress came in with $200 million in 
supplemental appropriation, and we've worked with David and the 
Amtrak team to make sure that they're able to live within the 
means that Congress provided for them.
    It is not the Administration's proposal or its policy that 
passenger rail service go away. We'd like to make it better and 
the people that we will soon send paperwork up here for the 
three additional board members we believe are capable, talented 
people who are going to help make a positive difference in how 
Amtrak meets that need.
    Senator Lautenberg. And Mr. Rutter, we don't expect the 
negative difference to be the target, but this isn't an IQ 
test. I want to know whether these people have experience in 
passenger rail service. I want to know whether their business 
experience is appropriate for what is a quasi- government 
corporation and the responsibility of providing service. You 
look at what we spent for aviation and for highways and compare 
that to the monies and funds that we put into rail service. 
There is no comparison.
    Mr. Rutter. One more response to that. It's certainly as 
qualified or more qualified than some of the people that have 
served on the board in the past 2 or 3 decades. You look at Mr. 
Crandall, who knows about running a transportation business. 
You look at Mr. Hall, whose entire life has been about customer 
service, retail business, which frankly should be a concern of 
Amtrak's about what its passengers need.
    Senator Lautenberg. Well, we're not going to debate that 
here, I assume, Mr. Chairman. Mr. Crandall, you know, very 
capable guy. He opposed my stopping smoking in airplanes when 
he was smoking five packs of butts a day.
    The Chairman. Senator Smith.

              STATEMENT OF HON. GORDON H. SMITH, 
                    U.S. SENATOR FROM OREGON

    Senator Smith. Thank you, Mr. Chairman. I'd like to put an 
opening statement if I may.
    The Chairman. Without objection.
    Senator Smith. And I do want to note with appreciation 
Claudia Howells from Oregon who's come to testify on the next 
panel. I appreciate her coming here. Also, gentlemen, I'm quite 
mindful as a former State legislator that every time an Oregon 
State budget was made we had a big Amtrak issue and we would 
put millions of dollars into it to keep it going to do our part 
of it, and I know the State of Washington does the same. In 
other words, the states value the service. I'm also mindful 
that many states don't pay anything for it and I'm wondering if 
there isn't something that can be fairly done to share the 
burden. If it's a value, why don't they participate? And 
resources are scarce, but if it means something, why does the 
Federal Government pick up all for some and not all for others?
    Mr. Mead. I think that point is well taken. I view 
intercity passenger rail much like the highways, much like the 
airports, that the states ought to have more to say about what 
happens. I think one problem with this bill though is that it 
comes before you with no money in it. And when you say, well, 
such sums as are necessary, you say, well, what that may mean 
to one person may mean something quite different to another. 
And the other is that this whole problem with Amtrak actually 
began, well, many years ago, but it started coming to a head 2 
years ago and now the Federal budget situation is quite 
different than it was a couple years ago. We have more Federal 
obligations and the State fiscal crisis, as Senator Lautenberg 
was saying, I don't know if it's the worst since the Great 
Depression, but it's almost the worst fiscal situation facing 
the states since the Great Depression.
    And you have that, the confluence of the Federal situation 
and Amtrak and it's hard to go to the states at that point and 
say, well, we want some money, we want you to belly up and 
contribute something too. But I do think they have to pay their 
fair share, but we need to look very closely at this bill in 
terms of the phase-in period and the size of the capital match. 
On the capital match issue, sir, I'd point out that over the 
years different transportation programs have had different 
matching levels. This bill proposes 50 percent. The highway 
program, when you were starting the interstate, I think it was 
90 percent at that point. Now for most highway programs it's 80 
percent. In transit I believe it's 50 or 60 percent. Airports 
it's even different. So I think Congress has some flexibility 
there on the exact match to require.
    Senator Smith. But it's prospective, it's not a part of 
this bill that states would have to contribute if they want to 
continue?
    Mr. Rutter. Well, no actually. Part of this bill is to do 
two things that meet or at least respond to the situation that 
Oregon, Washington and California have particularly seen. And 
that is, one, that those states have made substantial 
investments in increasing and improving passenger rail. It's 
been responded to by lots of passengers, but they've done so 
without a Federal partner, any Federal dollars. Our bill would 
create a capital partnership where the Feds and the states 
would be able to participate in that.
    And the other point that you made is that there ought to be 
some degree of equity among states for that operating subsidy. 
No State should get for free what other states choose to pay 
for.
    Senator Smith. And do you find when the states are involved 
like Oregon, California, Washington, that you have a better 
system?
    Mr. Rutter. I think that one of the things that informed 
our bill was the success that's happened on the West Coast, and 
it's happened not at high speeds of 110 or so, it's happened 
with frequencies, it's happened with reliability, which 
resulted from investments made in the freight infrastructure, 
and it's happened with new and newer rolling stock, all of 
which have meant that it's much more patronized, as Mr. Mead 
has talked about, the number of Amtrak passengers who are on 
shorter corridor distance.
    Senator Smith. Thank you. That's a very helpful update. 
Another update I would appreciate, Mr. Chairman, is on the 
Pioneer Line that Amtrak used to run between Boise actually it 
used to go from Chicago to Portland, Oregon but now from Boise 
to Portland and my understanding of that was actually, well, 
not a money maker, it was far better for Amtrak than many of 
the lines that are still running. I wonder if you can give me 
an update as to what the status is of that. Is there still a 
consideration of a freight passenger rail component? Is there 
anything happening on the Pioneer Line?
    Mr. Rutter. Not that I'm aware of. One of the things that 
would certainly be possible, and Ms. Howell's from Oregon, 
would certainly be able to talk about, one, the difficulty that 
they've just gone through keeping the service they have, and 
that's they're contributing where maybe some other states 
aren't. But to the extent that that lift for a Portland to 
Boise service may not be huge, that's certainly something that 
this bill would anticipate that those two states could make 
that choice jointly together.
    Senator Smith. Thanks, Mr. Chairman.
    [The prepared statement of Senator Smith follows:]

  Prepared Statement of Hon. Gordon H. Smith, U.S. Senator from Oregon
    Thank you Chairman McCain. I appreciate you for holding this 
hearing on a very important issue to my State of Oregon and our 
country.
    Oregon is fortunate to be served by two Class I freight railroads, 
19 shortlines, and Amtrak. As this hearing considers the 
Administration's legislative proposal for restructuring intercity 
passenger rail service and Amtrak, one area of improvement I would like 
to see is more equitable participation by all the states in supporting 
Amtrak. In the Pacific Northwest, the states of Oregon and Washington 
provided $16.5 million in operating support in 2002.
    In addition, according to Amtrak, since 1992, Amtrak, the states of 
Washington and Oregon, and their freight partners have committed more 
than $600 million in track and signal upgrades, train equipment and 
station improvements on the Pacific Northwest Rail Corridor. Many other 
states with Amtrak service, however, contribute nothing. As we debate 
the future of Amtrak, I hope we can devise a system whereby all states 
make a fair contribution to supporting intercity passenger rail 
service.
    I would like to extend a special welcome to one of my constituents 
who is testifying today--Ms. Claudia Howells from the Oregon Department 
of Transportation's Rail Division. I look forward to hearing your views 
regarding Oregon's partnership with Amtrak and how the rest of the 
country can learn from Oregon's experience.
    I would also be interested from all the witnesses on how we can 
encourage more states to contribute financially to an intercity 
passenger rail system that benefits the traveling public.
    Thank you, Mr. Chairman.

    The Chairman. Senator Dorgan.
    Senator Dorgan. Mr. Chairman, thank you. Mr. Rutter, as I 
understand the Rail Investment Reform Act, which the 
Administration has proposed, the long-distance trains would 
operate with 100 percent of the operating costs of those trains 
being guaranteed by the states in which it operates?
    Mr. Rutter. At the end of that authorization period. It 
wouldn't start immediately.
    Senator Dorgan. So 100 percent of the operating costs and 
50 percent of the capital, correct?
    Mr. Rutter. It would be 100 percent of that operating 
subsidy. That's a pretty big difference, the difference between 
revenues and expenses, which differs by route.
    Senator Dorgan. But long-distance trains, by and large, are 
not profitable, is that correct?
    Mr. Rutter. That's true.
    Senator Dorgan. And so----
    Mr. Rutter. And nor do we pretend that they ever will be.
    Senator Dorgan. I understand. And so the losses that exist 
on the long-distance trains are not offset by, for example, 
profits on a heavily populated Eastern Corridor, which is 
circumstantial where you have a national system? Instead you 
take pieces of this apart and separate them and you say there 
shall be a Northeast Corridor and there shall then be long-
distances trains in states involved in paying the operating 
losses of those trains and then states also paying 50 percent 
of the capital costs, do I have that right?
    Mr. Rutter. At the conclusion of that authorization cycle 
that's how it would work.
    Senator Dorgan. And tell me how long the phase-in, when is 
that conclusion of that cycle?
    Mr. Rutter. Our bill sets out a 6-year pace and certainly 
as Mr. Mead has mentioned, there are those who would question 
the speed with which that happens, and certainly that's a 
conversation that we'd be happy to have with Members of this 
Committee and the House, as long as we're moving toward away 
from the status quo and toward a better future.
    Senator Dorgan. But isn't this a philosophy that says, 
look, to the extent that there are trains out there, the Empire 
Builder being one, as part of our rail passenger service that 
are losing money, the Federal Government's going to have 
nothing to do with that, 50 percent of the capital costs, but 
otherwise we're going to have nothing to do with that. If 
somebody wants to run them, God bless them, we don't have any 
interest in it. And the reason I ask that question is 
philosophically I think it would have been much more up-front 
if we just say, the Administration does not believe in 
subsidizing long-distance trains. We believe that we ought to 
have a Northeast Corridor, which likely would be self-
sustaining, I assume, and then the long-distance trains, we 
don't want anything to do with them really, if somebody else 
wants to cover the losses, let them do it, but our philosophy 
is not to do that. Why would you just not say that because 
that's what your bill is?
    Mr. Rutter. Well, our bill is trying to put passenger rail 
in the same position that we have for other surface 
transportation programs, which is the Federal Government is a 
capital partner and that operating and maintenance expenses are 
primarily a responsibility of States. That's how we do 
highways, that's how we do transit. There can be arguments 
about the level of capital participation and there can be 
probably some talk about how you transition from where we are 
now to where that would be and how fast do you get there?
    Mr. Mead. You know, very substantial parts of what people 
think of as long-distance routes today, the Administration, if 
I'm reading the bill correctly and I think I am, does see an 
interest in and that's where they want to put up capital money, 
and I think that's really important.
    Senator Dorgan. Well describe that to me. Describe where 
those routes would be.
    Mr. Mead. Well, you could take a long-distance route, take 
Chicago to Los Angeles.
    The Chairman. Try Orlando to Los Angeles, that's my 
favorite.
    Mr. Mead. Orlando to Los Angeles, OK, we take Orlando to 
Los Angeles.
    Senator Dorgan. Well, don't take too much time, I only have 
5 minutes.
    Mr. Mead. I'll be real quick. There are few people that are 
going to go from end to end, get on that train in Orlando and 
ride it all the way to Los Angeles, but there are lots of 
cities in between. In some instances, 400 or 500 miles separate 
those two cities. Those two cities would be eligible for 
funding as a capital grant to develop corridor service. Right 
now, the service they get is that long-distance train coming 
through going all the way across country and yet those two 
communities could probably sustain or may very well be able to 
sustain additional frequencies, and that's why the capital 
program in the bill, I think, has some merit. But the 
Administration would not be funding the whole route all the way 
from Orlando to Las Vegas.
    Senator Dorgan. I'm much more interested in the operating 
costs and the operating subsidy in the bill. I've often asked 
the question if we did not describe the interstate highway 
system of a national system, who would have decided to invest 
the money that was needed to be invested to build an interstate 
highway from Fargo, North Dakota to Beech, North Dakota, which 
travels through a substantial part of our State where there are 
very few people living and yet we build an entire interstate 
highway through North Dakota, through Montana. Why? Because we 
are bridge states in which that piece of the interstate highway 
is every bit as important as every other piece of that highway 
in this country.
    And the same is true, exactly the same thing is true, as 
between Rugby, North Dakota, and Williston, North Dakota with 
Amtrak. You simply can't stop Amtrak at Fargo, North Dakota and 
decide to pick it up again in Helena, Montana, going to Seattle 
unless you're going to airlift that locomotive and the cars. I 
mean, it is implausible, you just can't do that. So my point is 
that what you've described here is a system that I think says 
we don't want to subsidize any long-distance trains and we know 
from the start that long-distance trains require subsidy, we 
know that. You're taking tons of metal across this country on a 
track and we know it takes money, so we have decided as an 
affirmative matter to subsidize that over the years.
    I'm perfectly comfortable with that. I want it to be 
effective and efficient but I'm perfectly comfortable because 
we subsidize everything else in transportation. So let me just 
ask this question. We know that you proposed this at a time 
when State governments are financially flat on their back and 
there isn't a ghost of a chance in my judgment for you to, just 
as you could not have with George W. Bush back in 1996, you 
won't now convince those Governors to spend money they don't 
have to subsidize long-distance trains. And even more than 
that, my understanding of the way this would work is you'd have 
to have groups of States, all of which would agree to meet that 
subsidy to get, and probably two of seven states would say no, 
five say yes, and you don't have an opportunity then to run 
that train and provide the operating loss or the subsidy for 
the operating loss.
    So, Mr. Chairman, I appreciate the support not the support, 
I should say the testimony--of Mr. Rutter and Mr. Mead, but I 
end this questioning exactly where I began with my statement. 
This is a plan that says, let's abandon the Federal support for 
long-distance trains. It is exactly moving in the wrong 
direction, exactly in the wrong direction.
    And, Mr. Mead, you might say in the long run, or Mr. 
Rutter, you might say in the long run wouldn't it be nice to be 
able to provide some State support? Sure, that would be nice in 
the long run, but the fact is, this railroad, this Amtrak, will 
either live or die in the short and intermediate run and the 
fact is this proposal comes at a time when you don't have a 
ghost of a chance of connecting the dots to keep long-distance 
trains running with your plan. And there are a lot of folks in 
this country that are going to be disadvantaged by this and I 
think it takes an important part of our transportation system 
and renders it inoperative at a time when we really need it.
    The Chairman. Mr. Rutter and Mr. Mead, would you care to 
respond?
    Mr. Rutter. Well, first off, we do continue to plan for and 
look at the Federal Government having a responsibility and an 
ongoing partnership with states to provide dollars for capital 
assistance. The other thing that I'd say is that we've done an 
awful lot of outreach with a lot of States, State DOTs, the 
Governors' offices, and they share your concerns about long-
distance trains. They've said that about 60 or 70 percent of 
your bill, Mr. Rutter, is OK, but don't ask us to do that.
    I would I mention that to show that we've actually talked 
to folks and we've heard that same thing. The other part of 
that though is that most of the states are also quick to note 
that what our bill proposes at a 50 percent capital 
participation rate is 50 percent more than they have now, which 
is zero. We think that the Federal Government ought to be a 
capital partner with states in making investments in places 
that they choose.
    The Chairman. Mr. Mead, do you want to respond?
    Mr. Mead. I believe that the long-distance train issue, I 
think, has been overblown a bit and it isn't my job to carry 
the Administration's water anywhere and I wouldn't do that. But 
I think it might be beneficial, just as we have with the 
highway reauthorization, is to sit down and look at every, each 
situation. For example, you're pointing to some specific 
situations. I can't respond to those right now because I'm not 
familiar with them all, but it does seem to me that the future 
of intercity passenger rail is going to rise or fall on how 
much people use passenger trains in this country and the 
quality of the service and the on-time performance of it and 
how well the capital infrastructure is, and if we don't pay 
attention to that because we're focusing on the preservation 
simply of long-distance trains, I think the future of passenger 
rail is going to down the tubes and I'd hate to see that 
happen.
    The Chairman. Well, I thank you both and I appreciate you 
coming here and testifying and we'll be seeing you again. Thank 
you.
    Our next panel is Mr. David Gunn, who is the President and 
Chief Executive Officer of the National Railroad Passenger 
Corporation, and Ms. Claudia Howells, the Rail Division 
Administrator of the Oregon Department of Transportation. Mr. 
Gunn, welcome back before the Committee.
    Mr. Gunn. Thank you, sir.
    The Chairman. Please proceed.

   STATEMENT OF DAVID L. GUNN, PRESIDENT AND CHIEF EXECUTIVE 
                        OFFICER, AMTRAK

    Mr. Gunn. I haven't been here as many times as Mr. Mead but 
I----
    The Chairman. I hope you never have to.
    Mr. Gunn. I don't think I'd want to. Mr. Chairman and 
Ranking Member, Hollings, and distinguished Members of the 
Committee, I want to thank you for the opportunity to testify 
today on the hearing on the Administration's proposal for 
Amtrak reauthorization. In the interest of time, I have 
submitted written testimony.
    The Chairman. Without objection, your full statement will 
be part of the record. You, too, Ms. Howells.
    Mr. Gunn. And I will just make a brief statement if that's 
permissible. If you look at the Administration's proposal, 
there are a number of things that I think are troublesome. The 
idea of engaging in a debate about the future of Amtrak I think 
is laudable, but this specific proposal, I think, has a number 
of practical problems in it. It requires a series of very 
complicated actions and the time lines provided in the proposed 
legislation I think are very inadequate. For example, you would 
expect the Amtrak management to create 3 Amtraks in 6 months 
and I think that that is just administratively very, very 
ambitious if not impossible.
    The other problem that I have with the proposal is that 
there is no mention or no specific funding provided for in this 
bill, and I disagree with the philosophy personally on the 
long-distance trains, but that set aside you have a proposal 
that is very ambitious.
    The Chairman. What is your philosophical difference on 
long-distance trains?
    Mr. Gunn. I think they are a national service, that they 
should be provided to these communities. I have ridden most of 
them. In fact, I'm going to be on the Empire Builder next week, 
and I find that these trains in the rural areas actually are 
used, the ridership is growing, and that they are an important 
service to rural areas. But the proposal contained in the 
Administration's legislation is just impractical, that's my 
point, and it is impractical particularly when you look at the 
condition that Amtrak is in.
    I mean, we are struggling to regain fiscal discipline and 
control, which I think we're doing. We have an enormous backlog 
of deferred maintenance throughout the system, which we're 
trying to overcome, and to try to run trains and engage in this 
sort of reform, to have Amtrak management do both things I 
think is very, very unwise. So with that I'll turn it over to 
my compatriot here.
    [The prepared statement of Mr. Gunn follows:]

  Prepared Statement of David L. Gunn, President and Chief Executive 
                            Officer, Amtrak
    Mr. Chairman, Ranking Member Hollings, and distinguished members of 
the Committee, thank you for the opportunity to testify at today's 
hearing on the Administration's proposal for Amtrak reauthorization.
    I have read the Administration's proposal. Let me give you my 
general observations about their plan and approach. I want you to know 
that the testimony I am presenting today reflects comments I shared 
with the Board of Directors and employees shortly after the plan was 
unveiled.
    I realize that the Administration's proposal is one of several 
bills and in many respects the reauthorization discussion is in its 
early stages. While I have strong concerns about the Administration's 
plan, I appreciate their intentions through their bill to play an 
active role in the debate. As you know, Allan Rutter is not only the 
Secretary's representative to the Board, but he also provides 
regulatory oversight on a number of fronts as it relates to our 
operations, not the least of which is the responsibility for managing 
our Federal grant. He has been a good member of the Board and has been 
fair to us in his other roles. Therefore, I wish I could offer more 
positive views on the Administration's proposal.
    In short, I believe that the timelines set are unrealistic and the 
overall approach is unworkable. As you know, the timelines in the bill 
start with passage of the legislation and extend for six years.
    The Amtrak board is given six months to prepare a transfer plan. As 
I understand it, this requires creating three independent companies:

   Residual Amtrak

   Passenger services operating company

   Infrastructure company

    At the end of the first year, the transition must be complete and 
the companies incorporated, which would require articles of 
incorporation, by-laws, changes in board structure, and additional 
management changes.
    Also at the end of the first year, you would have to have contracts 
for service to have been negotiated between the entities. I believe 
this would be a very complex, and needlessly distracting, undertaking.
    Simultaneously, with the above mentioned activities, and by the end 
of year one, a proposal for an interstate compact for service and 
maintenance of the Northeast Corridor would have to be presented to the 
eight Northeast states and the District of Columbia. This arrangement 
would in essence be controlled by the Department of Transportation 
through a new Northeast Corridor Compact Commission. My reading of the 
proposal left me in some doubt as to what will occur if the Compact is 
not formed. One could infer that absent the compact the Administration 
would have to propose and submit to Congress new legislation to provide 
for the continuation of NEC service--intercity, commuter, and freight.
    What is clear is that at the beginning of year two, there would be 
three aforementioned companies: Residual Amtrak; Passenger Services 
Operating Company; and Infrastructure Company.
    The legislation provides for the Federal Government to fund capital 
grants to overcome deferred maintenance in years three to six, but only 
if the Northeast Corridor Compact is formed.
    It is not clear who would advocate for the ongoing funds necessary 
to run service and the costs for the creation of these new entities. It 
is also not clear how this funding would be obtained, but presumably it 
would be through the appropriations process but without any specific 
levels of funding authorization for appropriations. All of this occurs 
with a $50,000 voluntary severance available to existing Amtrak 
employees.
    As I indicated to the Board in my summary of the bill, one can 
appreciate the enormity of the task that would be at hand. The Amtrak 
Board will be attempting to run a railroad, which is in serious 
physical difficulty. There is apparently no attempt to address deferred 
maintenance until year three. All the while, Amtrak will be losing 
skilled hourly workers and a significant portion of management to the 
severance arrangements or resignations. The Board will be responsible 
for the operation, safety, and reliability of a company whose assets 
are deteriorating and whose organization is in turmoil. Key existing 
vacancies and newly created positions will have to be filled in the 
surviving companies while the Board will have to continue to address 
existing financial control issues by a finance department that could be 
in chaos. Furthermore, every decision the Board makes would be subject 
to approval by the new Asset Transition Committee of the Department of 
Transportation to ``ensure'' that the pubic interest is being served.
    There are many other provisions in the proposed legislation 
concerning:
    long distance routes; liquidating real estate; debt; exclusive 
rights; common stock and preferred stock, etc. In particular, this bill 
will radically alter the relationships between Amtrak and commuter 
authorities who will have to pay substantially more for access to the 
corridor. Additionally, it proposes stringent new financial standards 
for long distance trains that will result in the extinction of all long 
distance trains within three years of enactment if not sooner. 
Eventually, any route that survived the test would go on the auction 
block for privatization.
    As I said, I realize that the reauthorization of Amtrak is no easy 
task and there are many different ideas for reforming Amtrak. I also 
know that none of this will happen overnight. So, I am proceeding to 
carry out the capital and operating budgets, which were approved by the 
Board. I recognize that large organizations tend to be resistant to 
change. It is easy to be critical and sometimes it is human nature to 
resist change. I am not being critical for the sake of being contrary. 
But I do not believe that the Administration's plan is workable.
    The closest parallel would be the privatization of British Rail, 
which began in 1993, and the separation of their operations and 
infrastructure maintenance. In that case, it took years to accomplish 
and it consumed billions of dollars in government funding. For 25 years 
the NEC states and Amtrak have worked to improve capacity, reliability 
and utility for rail passengers. One of the key reasons for its success 
is that Amtrak largely controls the infrastructure and operations on 
the NEC.
    I will say that I do agree with the Administration's proposal that 
states ought to pay operating support for services that they request 
and that there be Federal matching funds for states for capital 
investments.
    Before I conclude, I want to say a word or two on some of Fiscal 
Year 2003's highlights and give you some preliminary year-end figures. 
For the first time since 1995, we did not have to seek emergency 
funding or borrow money to cover our costs and get through the year. 
Despite the war, blackout, hurricane and weak economy, Amtrak finished 
the year with an all-time high ridership record. We expect to record 
nearly 24 million trips, breaking the record of 23.5 million in 2001. 
Similar to the rest of the travel industry, our ticket revenues will 
fall short of last year and budget. We expect that our revenues will be 
about 6 percent below last year and 10 percent below plan. We have made 
substantial progress overhauling damaged and wrecked cars returning 22 
cars to service (when I came to Amtrak we had about 110 wrecked and 
damaged cars, so we have chipped away about 20 percent of the total), 
and we have successfully replaced 40 miles of wood ties with concrete 
ties and replaced old rail with new rail where needed. We have undercut 
an additional 22 miles of rail. We also have exited the express 
business and eliminated two routes.
    As we look ahead, what is clear to me is that the railroad is in 
desperate need of investment for both plant and equipment. In the 
absence of any reauthorization legislation, I am moving forward with a 
capital plan and reforming Amtrak's internal structure. No matter what 
happens, work on both fronts must occur. The work we have begun this 
year is work that would have been done no matter which plan is adopted 
and has set the foundation for Fiscal Year 2004, the first year of our 
five-year capital plan that, with adequate funding, will bring the 
railroad to a state-of-good-repair.
    Again, thank you for the opportunity to testify and I look forward 
to responding to your questions.

    The Chairman. Welcome, Ms. Howells.

STATEMENT OF CLAUDIA L. HOWELLS, ADMINISTRATOR, RAIL DIVISION, 
              OREGON DEPARTMENT OF TRANSPORTATION

    Ms. Howells. Thank you. For the record, my name is Claudia 
Howells. I'm the Administrator of the Oregon Department of 
Transportation, Rail Division, and I very much appreciate the 
opportunity to be here today. It's very flattering that so much 
is said about the Cascades service and indeed it has been very 
successful.
    To give you a little bit of an idea of where we've grown in 
actually a very short time, in Oregon alone, and our service by 
the way runs from Eugene, Oregon, to Vancouver, British 
Columbia, in Oregon alone in 1993 with only the Coast Starlight 
we handled 25,000 riders. This most recent year I'm sorry, 2002 
we handled 120,000 riders. The entire corridor, including the 
Coast Starlight, this year will handle very nearly 1 million 
passengers in a part of the country that is not all that 
heavily populated.
    Our customer satisfaction is very high and we think that 
there's really no magic in why that's true. We have frequent 
train service, we'd like to have more frequent train service, 
we have reliability, we have clean and modern train equipment. 
Most of the time, if we get someone riding our trains they come 
back again and again.
    It has been a very difficult struggle though for our state. 
As Senator Smith pointed out, every legislative session has 
been a struggle to maintain our operating support and it's not 
because Oregonians don't support rail, it's simply that we have 
to compete with the most essential of State services. We have 
received no capital funds for improvements in the corridor 
since an initial infusion of Federal dollars in 1993.
    I'm here to tell you today that without some level of 
financial partnership with the Federal Government very, very 
soon we will not be able to sustain service, which would be 
very sad given the support that we have. We will certainly not 
be able to grow service or even explore the notion of restoring 
operations like the Pioneer, which I actually think could be 
viable if we could actually get back there again.
    There are some good things about S. 1501 and even about the 
growing level of discussion about passenger rail. It's good 
that intercity passenger rail is recognized as a transportation 
mode and part of the national transportation system. We also 
agree that there needs to be a State role in the development 
and management of the passenger rail system. And finally, most 
important to us, recognizes the need for State and Federal 
partnership in funding capital investments in passenger rail 
corridors.
    We are concerned though about the notion that privatization 
or competition or actually anything you want to call it is 
something that we can actually work with, certainly given the 
short time-frame within the bill, or that it actually deals 
with some very sticky issues that we as partners with Amtrak 
fully understand. We could not have begun the Cascades without 
the legal and the institutional framework that Amtrak provides. 
Transferring the responsibility of the states or coming up with 
the notion of multi-State compacts sounds pretty good 
theoretically, but it could present significant legal, 
political, and financial challenges to States, particularly 
when looking at regional multi-state, or in our case multi-
national, rail systems.
    Compacts among multiple political entities will not be 
easy. There are also the issues such as access to freight lines 
and something that I really want to emphasize, the insurance of 
insurance and liability as well as how you manage a system with 
multiple political governing bodies. I have no doubt that 
managing a cross-border system will require some form of 
separate rail authority, which of course will be another level 
of bureaucracy and will unlikely save money.
    Some of you apparently have heard about our recent 
experience with contracting for a limited passenger service as 
part of our Lewis and Clark bicentennial events. We learned a 
lot of things from that experience, even surprising us. One of 
the things we actually learned was that we didn't save any 
money. We had an excellent short-line operator. We had 
wonderful ridership, in fact ended the season with 88 percent 
capacity filling the seats. Our revenues were very strong and 
we still ended up having to come up with privacy subsidy to 
meet the operating deficit.
    By the way, we contracted with Amtrak for the reservation 
and ticketing system, which worked extremely well, and in fact 
most of our passengers went through that system either on the 
Website or through the call-in system, and I think if we would 
not have had that we would have had a much more difficult time 
in selling tickets.
    We had some illusions about our ability to run systems on 
our own. I don't think we do anymore. I think we thought we 
could save money and what we've discovered is running a 
railroad costs pretty much the same thing no matter who runs 
it, whether it's privately owned or publicly owned. There are 
just some things about running trains that are pretty much the 
same no matter how you do it.
    For us, whether it's a private entity or a public entity 
there are some things we just simply have to have. We need 
funding for rail infrastructure, we need funding for rail 
equipment, and we need to recognize that the people who work on 
board trains need to be fully qualified and well-skilled. 
Railroading is still a very responsible and very dangerous 
business.
    We also support the continuation of the long-distance 
trains and I think you've heard a number of reasons why. The 
Coast Starlight within the corridor functions as part of the 
schedule, but it also provides a needed link to many 
communities in southern Oregon. The Empire Builder, oddly 
enough and I thought the ridership numbers were interesting 
from Portland, most of the travelers from Portland are actually 
going to Chicago and not going to points in between. This was 
actually also true on the Pioneer. Given our own experience, we 
actually think long-distance trains could increase ridership, 
decrease public subsidy, if in fact they could be run reliably 
with modern equipment and in a fashion very much like they way 
we run our Cascades Corridor.
    Again, I thank you very much for the opportunity to be hear 
today and I am of course available for questions.
    Thank you.
    [The prepared statement of Ms. Howells follows:]

Prepared Statement of Claudia L. Howells, Administrator, Rail Division, 
                  Oregon Department of Transportation
    My name is Claudia Howells, Administrator of the Oregon Department 
of Transportation Rail Division. In that capacity, I am responsible for 
the planning and development of Oregon's passenger and freight rail 
initiatives, as well as for railroad, rail transit and crossing safety 
oversight and regulation, in partnership with the Federal Railroad and 
Federal Transit administrations.
    I am here today to testify on the Passenger Rail Investment Reform 
Act (S. 1501), and I very much appreciate being given this opportunity.
Background on Oregon's Passenger Rail Program
    Oregon began state funded train service in 1994, as part of a 
Pacific Northwest Corridor Initiative. In 2000, we added one state-
funded roundtrip train, bringing the total round trips between Eugene 
and Portland to three round-trip trains, including Amtrak's Coast 
Starlight. We also fund Amtrak Thruway Motor Coaches, providing 
connections to the State of Washington's additional train frequencies. 
In 2002, the state funded corridor trains and buses, exclusive of 
Amtrak's long distance train, carried 120,000 passengers. The entire 
Pacific Northwest Corridor, including the Cascades and the Coast 
Starlight, carried nearly 1,000,000 people. For a system that has been 
in existence for not quite ten years in a part of the country that is 
generally viewed as being in love with automobiles, we believe this is 
extraordinary.
    Public support is solid. Nearly every major newspaper in Oregon, 
even some survey communities outside the corridor, strongly support the 
growth of passenger rail, the continuation of state funding, and the 
continuation of Amtrak. They also stress the need for Federal support.
    State funding for our program is very fragile. We managed, again, 
to maintain barely adequate funding levels and secured a small amount 
of funds for capital investment, but only because of extraordinary 
support from our governor and key members of our legislative assembly.
The Passenger Rail Investment Act
    The Passenger Rail Investment Act clearly recognizes successes like 
the Cascades, as well as new service in other states. We are very 
encouraged that the discussion about passenger rail is getting beyond 
the discussion of what to do about Amtrak. S. 1501 establishes that 
intercity passenger rail is an essential part of the Nation's 
transportation system; that it should be treated like all of the other 
transportation modes and that the states and the Federal Government are 
legitimate partners in the management and development of passenger 
rail. S.1501, as well as other proposals, suggest very real progress.
    We are also flattered that the Pacific Northwest Corridor has been 
touted as a model for passenger rail development. I need to tell you 
though, that it has not been easy, and we are now at the point, despite 
our success, that if we as a state have to continue to fully support 
both capital and operating expense, Oregon will likely be the first 
casualty.
Passenger Rail Funding
    As S. 1501 recognizes, we need a stable, reliable Federal 
contribution as exists with all other modes. There also needs to be 
parity among the states. Oregon, like Washington, California and 
Oklahoma, fully pays for our trains. Other states pay only part, or in 
some cases, none of the operating costs. While we are very sensitive to 
the need for an adequate transition period for those states that 
currently benefit from full Federal funding, Oregon cannot continue to 
fully fund the trains on our own in the interim.
    More critical is capital investment. After a one time Federal 
appropriation in 1991 of $20 million dollars, we have received no 
Federal funds to improve the railroad infrastructure. As tenants on a 
private railroad, we must be good partners able to make the 
improvements necessary to allow critical freight traffic to move 
efficiently. This is not a theoretical issue. In 2000, Union Pacific 
Railroad permitted a second train without Oregon making the needed 
capital improvements. The resulting train interference causes operating 
problems for both the passenger and freight trains on a daily basis.
    S. 1501 proposes a 50-50 match, equivalent to the match ratio now 
required for projects funded through the FTA. We have serious concerns 
about that proposal. States will always look to invest state dollars 
where the Federal share is the greatest, particularly in hard economic 
times. If rail projects are forced to compete with 80-20 or 90-10 
federal-state match ratios, as is typical with highway projects, we 
will have a difficult time competing when dollars are scarce.
Privatization of Amtrak
    We strongly caution against a rush toward privatization. Oregon's 
recent experience with contracting private passenger rail service as 
part of the Lewis and Clark Bicentennial Commemoration events has shown 
us there are risks in privatization. We were very lucky. We have a high 
quality and cooperative short line operator, who operated the trains 
very, very effectively. We contracted with a separate local food 
vendor, who could not have done a better job. We had outstanding 
ridership, ending the season with 88 percent of the seats for the 
season sold. We did not save money. It is wishful thinking to suggest 
that privatizing passenger rail service will cost less than Amtrak.
    Competition could have benefits, but third party operators also 
cause us concern. Yes, there are very good third party rail operators, 
but those of us in the railroad business know many dreamers and 
schemers who would likely bid on routes. Many states have legal 
requirements to accept the lowest bid. In the railroad business this 
could be disastrous. The Class I railroads' concerns about this issue 
are legitimate. Railroading is not for amateurs.
Governance and Multi-state Compacts
    The Pacific Northwest is touted because Oregon, Washington and 
British Columbia appear to exist as an operating entity. In fact, there 
is no formal compact. We exist only because Amtrak exists. Multi-state 
compacts are very difficult to develop. Even simple reciprocity 
agreements often take years, because, by law, these compacts must be 
approved by legislative bodies. The drafters of the U.S. Constitution 
understood full well that interstate commerce should not be left to the 
states. Imagine, if you will, a similar requirement for the maintenance 
and operation of the Interstate Highway System.
    Is it possible? Perhaps, but it will take time and money to address 
the myriad of legal issues that such compacts necessarily raise. 
Furthermore, it would likely require a new bureaucracy, something like 
a multi-state port authority, to actually operate, or contract for 
operations of the trains.
Long Distance Trains
    Two long distance routes, the Coast Starlight and the Empire 
Builder, serve Oregon. For reasons that sometimes elude even me, 
ridership continues to grow. It tells me that despite years of neglect 
these trains still serve a purpose. It is easy to talk about how much 
these trains lose, how much they are subsidized, but the reality is 
that the long distance system over-all recovers nearly half of the 
operating costs through passenger revenues. That is very good when 
compared to most other forms of public transportation.
    It is easy to target the long distance trains, but we fully agree 
with Mr. Gunn. Eliminating the long distance trains will not solve the 
``Amtrak problem,'' and may actually make it worse. Transferring the 
responsibility to the states makes as much sense as transferring the 
responsibility of the interstate highways to the states.
    Having now had the experience of being involved with successful 
passenger rail service, I believe that the long distance trains could 
increase ridership and reduce the level of public subsidy, but it will 
take some investment. The long distance train equipment needs to be 
modernized. We need to make investments in the track system to improve 
on-time performance and ride quality. We need to look at certain 
corridors to increase frequencies, and in those cases look to the 
states for partnership. As we have learned from the regional trains, 
more frequencies mean more riders which over-all reduces the per 
passenger level of public support. We need to invest in stations, not 
only historical buildings but new stations, and in a way that will 
generate economic development in those communities.
    Rejuvenating the long distance train system provides a tremendous 
opportunity to reinvest in rural America and sustain what in many 
places is the only transportation link beyond roads.
Amtrak
    As a state partner, I would be less than truthful if I said we and 
Amtrak had a perfect relationship, but I can also tell you that without 
Amtrak, the Cascades would never have happened. Amtrak has provided the 
legal, operating and institutional framework that is necessary to run a 
railroad. I have confidence that David Gunn has provided a new 
direction that is refocusing the railroad in the direction it needs to 
head.
    There are issues with Amtrak as it exists today. The Amtrak Board 
needs better geographic representation. Part of our success in the 
Pacific Northwest has been our ability to put our stamp on the service 
we pay for. We need to be able to select our own local food and 
beverages, develop our own marketing strategy and determine our own 
color schemes. While that may sound trivial, it is just the kind of 
thing that sustains the local constituencies needed to support local 
funding.
    But for all of Amtrak's flaws, may I suggest that it would be far 
easier to fix what is wrong with Amtrak than to start from scratch.
Why Intercity Passenger Rail?
    Our ten years in developing passenger rail has made some things 
very apparent.
    There is the obvious. Passenger rail offers a transportation 
alternative for those who cannot or choose not to drive or fly. The 
real dividends go far beyond that.

   Passenger rail, and railroading generally, provides solid 
        family wages jobs.

   Rail infrastructure improvements are as valuable to the 
        economy as any other construction job. For every million spent, 
        19 family wage jobs are created.

   Passenger rail capital investment will reduce the cost of 
        time delays for freight and reduce transportation costs for 
        American producers.

   Station improvements, beyond construction jobs, generate 
        economic development and increase property values.

   A commitment to passenger rail would likely encourage more 
        rail equipment companies to locate in the U.S. providing both 
        jobs and competition.
What States Need
    States need:

   Federal funding for capital investment consistent with 
        funding for other transportation projects.

   Operating funding equity.

   Control over capital projects.

   Equity among rail passengers nationwide.

   A stable, adequately funded rail service provider.
Conclusion
    In closing, I want to emphasize that Oregon needs a Federal partner 
now. Oregon is not alone. Many states began planning and development 
when the High Speed Rail Act was passed as part of ISTEA. It has been a 
promise not kept.
    What are we talking about it terms of funding? In Oregon, we could 
have a high quality passenger rail program, with five round trips a day 
matching eight roundtrips in Washington for a total investment of $350 
million dollars. $100 million for track improvements, $100 million for 
train equipment, $100 million for highway-railroad grade crossing 
improvements, and $50 million for building or restoring train stations. 
These are investments with long term economic, environmental and social 
benefits that will last along time.
    Thank you for your consideration and the opportunity to testify 
before you today.

    The Chairman. Thank you very much, Ms. Howells, and thank 
you for your perspective. It's very helpful to us as we 
consider these challenges we face.
    Mr. Gunn, everybody applauds, and I among them, your new 
leadership and your new efforts and your renewed commitment to 
being forthcoming and candid with the Members of Congress as 
well as the riding public as the challenges that we face, and I 
appreciate the job you're doing. But let me tell you why I 
remain a little skeptical, not of you but of Amtrak. The 
project for Acela was to be $1.6 billion, it's now $2.86 
billion. I understand that on any given day there will be 20 
trains in the fleet, any given day 7 of the trains are out of 
commission. According to Amtrak, a few trains are always 
undergoing maintenance, a few more need to be inspected, a few 
more working fine and held in reserve in case one of the 13 
trains running that day breaks down and needs a replacement.
    Within the military, if only a little over 60 percent of 
any piece of equipment was functioning on a daily basis we 
would call it a national scandal. But here's kind of the 
anecdote that interests me: Amtrak spokesman led a visitor on a 
tour of Acela on a recent afternoon and he showed off a new 
lavatory door on one train. The old ones did not close 
properly. Some early customers of the premier service would 
find themselves exposed in lavatories that they thought 
incorrectly were locked. The situation inspired Amtrak's 
president, David Gunn, to proclaim in exasperation last year to 
the Washington Post, ``You'd think after 170 years of 
railroading you could have a crapper door that works.''
    You know, the interesting thing though is what follows, Mr. 
Gunn. Bombardier has a sober response. If you're going to use 
that, said some Bombardier spokesman, David Slack, know that 
that design is not the original design Bombardier and Alstom 
came up with, that was a design change that Amtrak requested. 
So there's, you know, it's a pretty clever statement and it got 
a lot of attention, a crapper door that works, which would then 
lead one to believe that people had built the train, but yet we 
also find out that maybe that change that caused the crapper 
door not to work was a change that was requested by Amtrak 
itself.
    So we get into layers and layers here that make one at 
least skeptical, if not cynical, about the future of Amtrak. 
Acela time after time I mean, I don't need to tell you because 
I'll be glad to show you the congressional record executives at 
Amtrak sat there and looked me right in the eye and said, we 
are on the glide path to economic self-sufficiency. And I said, 
how could that possibly be? I guess we should have put them 
under oath because then maybe there should be some perjury 
charges brought, but everybody knew. It was a dirty little 
secret. Everybody knew that Amtrak was not and will never be on 
a glide path to economic self-sufficiency.
    So if I don't take everything you say on its face value, 
Mr. Gunn, I hope you can appreciate that. And I guess my first 
question is, what is the future of Acela? Are you going to 
continue to have 7 out of 20 trains stopped? Are you going to 
continue to have, as Mr. Rob Simmons says, it's totally bogus, 
it's not a high-speed train, says U.S. Rep Rob Simmons, who 
sits on the House Transportation, because the trains run from 
Washington to New York in about 2 hours and 15 minutes, about 
15 minutes faster than the older, less expensive Metroliners? 
What is our prospect on the Acela issue since that seems to 
have been, in the view of some, the crown jewel of what Amtrak 
was going to be all about?
    Mr. Gunn. Well, first of all, let me just say that I think 
that Amtrak, in terms of our ability to you're really talking 
about our ability to manage the railroad I think this year 
we've done fairly well. We've made some mistakes in the past, 
there's no question mistakes were made, but if you look at this 
year's results, I think we're making real progress and I'd be 
happy to go through that with you, but this is the first year 
you haven't had a budget crisis. We're coming out of this 
year----
    The Chairman. Excuse me, I think you said that if you don't 
get more money that you're going to have to shut down Amtrak. 
That seems to me you're facing a rather significant crisis.
    Mr. Gunn. I did not say that we would have to shut down 
Amtrak. I said that--what I have said in the past is that $900 
million would be a shut-down number.
    The Chairman. That's what I mean, yes.
    Mr. Gunn. That I said, and that's merely math, the 
operating subsidy is 500
    The Chairman. I wasn't questioning your prediction. I'm 
just questioning your statement that everything's going fine.
    Mr. Gunn. I didn't say it's going fine, Senator, but what 
I'm saying is that if you look at results, where we are today, 
we have come in on budget or under budget. We have, as the IG 
said, we have cash in the bank, we're coming out of the year 
with cash in the bank. Ridership is going to set a record 
throughout the system. We have revenues in August are getting 
stronger gain and they are exceeding last year's revenues----
    The Chairman. Excuse me again, I don't mean to be rude. I 
was just handed by the staff that you're 363,563 less than last 
year as of July.
    Mr. Gunn. I'm sorry, in terms of?
    The Chairman. Metroliner and Acela Express.
    Mr. Gunn. No, I'm talking system ridership. It's the long-
distance trains where the ridership is up and on the corridors 
in the West. The Acela and Metroliners are down but the 
regionals are up. If you look at the total, ridership for 
August was 7.3 percent systemwide above last year.
    The Chairman. Again I hate to interrupt, but it says the 
NEC total is 303,362 down.
    Mr. Gunn. I talked about system ridership, Senator. I'm 
talking about systemwide including long-distance trains. NEC is 
just the Northeast Corridor. System ridership is up 7.3 percent 
over last year. I'll be happy to go.
    The Chairman. Thank you.
    Mr. Gunn. But you've got to look if you just look at Acela 
and Metroliner, they are down, but the regional trains in the 
corridor are up. The corridor's basically flat, but the growth 
is occurring in the long-distance trains and on the corridors 
in California and in the Northwest. But the thing that I think 
we've also been demonstrating, I hope to you and to others, is 
that we have our costs under control. We're actually our wages, 
salaries, overtime, and fringes in 2002 were less than 2001, in 
2003 they'll be less than 2002 and we're budgeting them flat 
basically next year. So we're not going to declare a dividend, 
but we're making progress.
    The thing that I'm proudest of is that we have made some 
real progress, I think, in beginning to attack the deferred 
maintenance. Despite all of the problems we have, we will have 
rebuilt seven of our AM-7 electric locomotives this year. We 
will have rebuilt more than 20 wrecked and damaged cars. We are 
restoring heavy overhauls of our long-distance cars and Amfleet 
cars, which serve both the corridor and some long-distance 
trains. We're going back to a 90-day inspection cycle and we 
have 2,500 fewer employees, and we did that's half of that is 
the MBTA.
    So I don't want to say that we're out of the woods, that's 
not what I'm saying, but I think we've made progress, and I 
think when it comes to the Acela----
    The Chairman. Could I--I'm sorry I have to interrupt you.
    Frank I think we've got just a couple of minutes left in 
the vote.
    Senator Lautenberg. No, please finish up. I'll submit my 
questions in writing.
    The Chairman. OK.
    Senator Lautenberg. But I'm interested in the response to 
your question.
    The Chairman. OK, go ahead.
    Mr. Gunn. Let me just--then I'll finish real quickly on the 
maintenance piece then go to the Acela. But on the corridor, on 
the engineering part, we have installed, as of last week we had 
installed more than 130,000 ties, we have converted 40 miles of 
timber track to concrete, upgrading the speed on one piece, one 
22-mile piece, from 60 miles an hour to 125. I mean, what we 
have done, I think, is we have demonstrated that we are able to 
carry out complex maintenance activities under budget. We've 
really made some progress with the controls we've put in.
    Now, this is looking at it from my point of view, the 
operating point of view, but we will, I think, come out of--if 
we get half a break next year, if we get the kind of funding 
that the IG talked about--we will make a real dent in the 
deferred maintenance in plant and equipment. And it won't make 
it perfect, but it will give you time to figure out what to do 
with Amtrak, because obviously this debate is not going to be 
settled.
    The risk we run is if we don't get a chance to do some of 
this essential maintenance work, and it's all nuts and bolts, 
there's nothing sexy about it, you run the risk of having some 
really severe service disruptions, and whether it's long-
distance or whether it's the corridor. We really are playing 
with time here if we don't put some money into the nuts and 
bolts of the system while we debate where we're going. And 
that's been my plea is that I think the cheapest thing we can 
do in the short-run is to give us enough money to replace the 
worn rail, to fix some of the electrical problems and rebuild 
our car fleet, the existing car fleet, don't buy new cars, just 
the car fleet.
    The Chairman. Thank you. We'll be submitting some questions 
to you for the record, including the status of your lawsuit 
with the Bombardier people as to how you expect that to come 
out. We thank you for being here today, and again, everyone 
applauds your leadership. I hope you understand my skepticism 
from time to time. Thank you very much for joining us, Ms. 
Howells. This hearing is adjourned.
    [Whereupon, at 4:05 p.m., the hearing was adjourned.]

                            A P P E N D I X

          Prepared Statement of Hon. John D. Rockefeller IV, 
                    U.S. Senator from West Virginia
    Thank you, Mr. Chairman, for holding this hearing on Amtrak's 
plans. I believe it is imperative for Congress to be realistic about 
the future of Amtrak. I have been a consistent supporter of Amtrak 
during my time in the Senate, and despite the efforts of the Amtrak's 
current leadership to cut costs and improve performance, I believe that 
the Administration's proposed funding is completely inadequate to meet 
the needs of this critical national service.
    Many Americans directly depend on Amtrak for their transportation 
needs, and every American indirectly benefits from the rail system's 
operation. Every passenger taking the train represents one fewer car on 
our Nation's highways, and that brings decreased congestion, cleaner 
air, and reduced maintenance costs for these roads, saving all 
taxpayers money. In addition, rail service provides a critical element 
of choice in transportation. In our country, it is essential that we 
have options built into our transportation system to ensure that 
neither accidents, nor natural disasters, nor terrorist strikes will 
impede our ability to transport people and goods. Congress should be 
increasing Amtrak's funding and easing restrictions, instead of 
hobbling it with impossible objectives and reducing funding to the 
point where it cannot survive.
    I say very respectfully, Mr. Chairman, you are well aware that 
there is no passenger rail system in the world that earns a profit. 
Repeated Congressional efforts to privatize Amtrak will not change that 
fact. For decades, Congress has neglected to authorize the funds 
necessary to maintain the capital and equipment that are necessary for 
a world-class rail system. This neglect has come at the cost of 
reliable service and high-speed trains which are standard in much of 
Europe and Asia. We must stop dismissing Amtrak as a failing business 
and begin recognizing it as a crucial national asset. We must see that 
the nearly $6 billion required for backlogged capital improvements is 
provided. Congress devotes, correctly I believe, considerable resources 
to maintain our Nation's highways, which are a model for the world to 
admire. We rightly spent billions of dollars to ensuring the continued 
viability of our national air transportation system after the events of 
September 11. Amtrak is the only major method of transportation without 
a dedicated revenue stream to invest in necessary capital maintenance 
and upgrades.
    I am a proud co-sponsor of The National Defense Rail Act. This bill 
will provide $2.8 billion annually in funding to Amtrak, which would 
allow them to not only continue operating, but also to make critical 
and necessary infrastructure improvements. The Administration's 
proposal should be recognized for what it is: a death sentence for 
Amtrak. Before Congress even considers privatizing our national 
passenger rail system-with the inevitable results being reduced 
service, congested highways, and dirtier air--we should remedy the 
problems we have caused through decades of pretending that Amtrak can 
and should operate as a for-profit business.
    Thank you.
                                 ______
                                 
               Prepared Statement of Hon. John F. Kerry, 
                    U.S. Senator from Massachusetts
    Mr. Chairman, I want to thank you for holding this hearing and 
thank the witnesses for coming to testify. We convene today to discuss 
the state of intercity passenger rail and the administration's reform 
legislation, introduced in the House as the Passenger Rail Investment 
Reform Act. We also need to address Amtrak's budget, which I believe to 
be inadequate. It is important to note that Amtrak's budget will likely 
be resolved in the absence of a reauthorization bill. Including a line-
item in an appropriations bill to cover Amtrak has become a bad habit. 
As I stated in April, this is no way to do business. We need to pass 
the Holling's reauthorization bill and send a message to the 
administration that there is wide-spread support for passenger rail in 
both Houses. Finally, we need to address the four vacancies on the 
Board of Directors that have the potential to stifle management 
decisions at Amtrak.
    Let me begin by addressing the administration's bill. I have come 
to the conclusion that the President's proposal is untenable. Instead 
of investing in Amtrak through budget increases and infrastructure 
improvements, the President wants to break the railroad apart into 
three separate entities, two of which would be run privately, and force 
states to pick up the entire bill for operations and half of all 
infrastructure projects. It is an attempt to abdicate responsibility 
for providing a national rail system, and its premise is so unrealistic 
that no one other than the bill's drafters believe it could work. 
Indeed, it is the brainchild of an administration that opposes Amtrak 
and wants to undermine any hope for a state-of-the art national 
passenger rail system. Given that the bill creates new bureaucracies, 
and that most states are struggling financially in the worst economy in 
a generation, passage of this bill would mean the end of Amtrak as we 
know it. I strongly oppose this bill and I urge my colleagues to oppose 
it as well.
    Although this legislation is unlikely to pass the Congress, it 
alters the debate on Amtrak's budget by providing ammunition for 
members that dislike the railroad. Mr. Chairman, the facts surrounding 
Amtrak's budget are clear. For the past two years David Gunn has 
requested what he believed to be the minimum amount that Amtrak would 
need to operate. Last year he requested $1.2 billion for FY 2003, and 
received $1.043 billion. This year he requested $1.8 billion, and 
though the Transportation Appropriations bill has not yet passed the 
Senate, one can assume that the final figure will be considerably less. 
The House passed bill included only $900 million for Amtrak, while the 
Senate Appropriations Committee included $1.34 billion in its bill. 
However, when the bill comes to the floor I will support Amtrak's $1.8 
billion request. It is important to reiterate that this figure 
represents only what the railroad needs to operate under current 
conditions, without any improvements to service or infrastructure. 
Amtrak's long-term viability can only be achieved through comprehensive 
legislation and a commitment from the Executive Branch.
    Finally, I would like to address the vacancies on the Amtrak Board 
that have left it without a quorum. Although the three remaining 
members have formed an executive committee which allows for decision 
making, it is imperative that those vacancies are filled as soon as 
possible. Amtrak needs a full board of directors to run effectively, 
and a delay in filling these positions will impair its management 
structure. In recent weeks major news outlets have suggested that the 
President has three nominees ready to send to the Senate. Although I 
will withhold judgement on these nominees until they have the chance to 
testify, I suspect that they were hand-picked by the administration to 
help implement its ill-conceived plan for Amtrak.
    Mr. Chairman, I believe that a substantial investment in Amtrak 
will create jobs, reduce pollution, and provide Americans with a 
reliable transit alternative to driving or flying. There is bi-partisan 
support for Amtrak on the Commerce Committee, and I hope that 
translates into passage of the Holling's reauthorizaton bill and a 
better future for passenger rail. Thank you.
                                 ______
                                 
         Prepared Statement of Frank J. Busalacchi, Secretary, 
                 Wisconsin Department of Transportation
    On behalf of Governor Jim Doyle and the state of Wisconsin, thank 
you for the opportunity to submit this written testimony to the U.S. 
Senate Committee on Commerce, Science and Transportation at its hearing 
on Amtrak and intercity passenger rail issues.
    I am privileged to serve as Secretary of the Wisconsin Department 
of Transportation, an agency that has responsibility for all modes of 
transportation. Governor Doyle is a strong supporter of intercity 
passenger rail development as a part of a comprehensive multimodal 
transportation program. The Governor's new economic development 
initiative, Grow Wisconsin, recognizes the need to invest in rail and 
all modes of transportation. Both he and I call on the Federal 
Government to provide sufficient funding to Amtrak and to enhance the 
national passenger rail system.
    Wisconsin, along with the state of Illinois, has supported the 
Amtrak Hiawatha Service between Milwaukee and Chicago since 1989. We 
have partnered with Amtrak and the Federal Government to steadily 
improve this important mobility and economic development link to 
Chicago. Last fall, working with Amtrak, we increased the number of 
frequencies from six to seven round trips. The Hiawatha is now the 
busiest line in the Nation outside of California and the Northeast 
Corridor. It also has the best on-time performance in Amtrak's system.
    This summer, the Hiawatha Service posted double-digit percent 
increases in ridership compared to last year's counts. In June, July 
and August of this year, Amtrak averaged over 1,320 passengers per day 
for the corridor. Customers were attracted to the service's 
reliability, as over 95 percent of Hiawatha Service trains arrived on-
time so far this year. Recent surveys document customer appreciation 
for the trains' fast trip time (89 minutes) and availability of service 
(seven daily round trips).
    Wisconsin is partnering with the Federal Government to make 
continued improvements in the Hiawatha Service. With the support of 
Senator Herb Kohl, the state of Wisconsin is constructing a new 
passenger rail station at Milwaukee's General Mitchell International 
Airport and is rehabilitating and redeveloping the Amtrak Station in 
downtown Milwaukee. The village of Sturtevant is preparing to construct 
a new depot to replace its existing station--again with federal funding 
support.
    In addition to the Hiawatha, connectivity to the Amtrak national 
system is also provided by the Empire Builder Service. The Empire 
Builder serves the Wisconsin cities of Milwaukee, Columbus, Wisconsin 
Dells, Tomah, and La Crosse and provides connectivity from Wisconsin to 
the Pacific Northwest and points along the way.
    The Hiawatha Service and all other intercity passenger rail routes 
are threatened by a lack of Federal funding for Amtrak. Congress needs 
to provide Amtrak with sufficient funding to maintain existing 
operations and address basic capital needs. Cuts in Federal funding 
could jeopardize this vital transportation service in Wisconsin.
    The Intercity Passenger Rail Report released earlier this year by 
the American Association of State Highway and Transportation Officials 
(AASHTO) documents over $17 billion in capital needs over the next six 
years for state-sponsored passenger rail improvements in all parts of 
the country. This national report highlights the Midwest Regional Rail 
Initiative, a nine-state plan for a 3,000-mile high-speed rail system 
hubbed in Chicago. In Wisconsin, this plan extends high-speed service 
from Milwaukee to Madison and the Twin Cities.
    With improvements we have already made, I believe the Milwaukee-
Chicago Corridor can serve as an anchor for future high-speed rail 
development in the Midwest. A high-speed extension of Amtrak's Hiawatha 
Service to Madison would be an effective demonstration of state-of-the-
art passenger rail service. Preliminary engineering and environmental 
work has already been completed for this project and it is ready to go. 
However, we absolutely need a major Federal funding share to make this 
a reality.
    A long-term Federal capital funding program is needed to advance 
intercity passenger rail service throughout the United States. Funding 
is needed for capital investments in new equipment and infrastructure 
improvements. These capital investments are needed for increased 
frequencies, speeds, and passenger amenities, as well as for improved 
schedule reliability in the face of heavy freight traffic.
    Such a program must include a mechanism to insure that funding can 
be reliably provided over multiple years. Like other major 
transportation infrastructure projects, passenger rail corridor 
improvements can take several years and new equipment can take up to 
three years from order date to delivery.
    States are willing to pay their fair share, but we believe the 
capital program should be modeled on the Federal highway and transit 
programs, which have statutory 80/20 federal/state cost shares. States 
have developed a great deal of experience in delivering major 
transportation infrastructure projects under existing Federal 
transportation programs and states should be responsible for passenger 
rail project selection and project management. Until the capital 
program investments for enhanced service are fully in place, the 
Federal Government should share the cost of operations with the states.
    These concepts provide what I believe to be a basic framework for a 
new federal-state partnership to move America's passenger rail system 
into the 21st Century. Some of these concepts are reflected in S. 1501, 
the Administration's ``Passenger Rail Investment Reform Act.'' While 
the S. 1501 recognizes that a national capital program is needed for 
infrastructure and equipment, there are a number of problems with the 
bill from Wisconsin's perspective.
    First, S. 1501 turns over the financial responsibility for Amtrak's 
long distance service to the states. This is unacceptable and 
unworkable, given the interstate nature of long distance trains like 
the Empire Builder, which runs from Chicago through Wisconsin to the 
Pacific Northwest across eight states. These long distance trains 
provide connectivity between regional corridors and provide an 
integrated national network. They should remain a Federal 
responsibility. It is difficult to envision the formation of a compact 
made up of eight diverse states reaching from the Pacific Ocean, across 
the Rocky Mountains, the Great Plains, and into the heart of the 
Midwest. It was for such undertakings that our founding fathers 
originally envisioned the need for a Federal Government. More 
pragmatically, the current fiscal condition of state governments across 
the country prevents even the consideration of such a concept.
    Wisconsin DOT also has concerns about the capital program 
envisioned under the bill. A 50/50 federal/state grant share for 
capital funding is not consistent with other Federal capital programs 
for transportation. A level playing field is needed for the equitable 
development of all transportation modes.
    Most importantly, the lack of a specific authorizing amount for the 
capital program in the bill suggests a lack of Administration 
commitment to fully fund the program. The bill is structured so as to 
require the passage of an annual appropriation for the program, which 
does not assure funding for multi-year projects. Witness the Amtrak 
appropriations process where historically appropriations have barely 
been 50 percent of authorized amounts. As I noted previously, AASHTO 
has identified $17 billion in passenger rail capital needs over the 
next six years.
    Finally, the bill assumes that the states will begin providing 50/
50 capital cost share funding for equipment on all existing Amtrak 
operations. This includes long distance and state-supported services 
such as the Hiawatha Service in Wisconsin. Currently, this is solely a 
Federal responsibility. If this responsibility were to revert to the 
states, the cost implications could be significant. For example, the 
two train sets operated by Amtrak on the Hiawatha Service Chicago-
Milwaukee corridor are in need of replacement at a cost that could run 
over $20 million per set.
    S. 1501 does recognize the important role of the states in the 
provision of transportation services in the United States. However, the 
federal/state partnership as envisioned by the Administration tilts the 
responsibility for passenger rail service too far in the state 
direction, given the fundamental interstate nature of intercity rail 
service. The bottom line from a public policy perspective is that since 
intercity passenger rail service is not that dissimilar from the 
interstate highway system, it should be funded using a similar federal/
state funding model.
    I appreciate this opportunity to share our views on this important 
national transportation issue. Wisconsin and other states throughout 
the country stand ready to continue this dialogue as we move together 
towards an enhanced national passenger rail system.
                                 ______
                                 
Prepared Statement of Henry Hungerbeeler, Director, Missouri Department 
                       of Transportation (MoDOT)
    We are encouraged the administration's bill encourages competitive 
bidding and recognizes the importance of a national capital investment 
program for infrastructure and equipment.
    However, there are many concerns with the bill that make it less 
than optimal for Missouri.
    First, the operating burden for the national passenger rail system 
is being placed on the states. The national passenger rail system 
provides national transportation utility. Missouri does not have the 
resources to participate in a state compact to operate and fund its 
national routes, specifically the Texas Eagle and the Southwest Chief, 
in addition to the state supported route between St. Louis and Kansas 
City. Missouri does not have a dedicated funding source for passenger 
rail, and from 1979 through June 2003 has provided $67,900,005 from the 
state's general revenue to provide service between St. Louis and Kansas 
City.
    The bill provides for only fifty percent Federal funding for 
equipment on existing routes; currently 100 percent of this cost is 
provided at the Federal level.
    The bill provides for funding only half the capital cost for 
passenger routes. This is not consistent with the assistance provided 
to other modes of transportation.
    There is no authorizing amount for the capital program, leaving 
states to question the actual commitment to passenger rail.
    Missouri has experienced other very significant issues not directly 
related to capital and operating costs in providing passenger rail 
service. Trackage fees and access rights between Amtrak and the host 
railroad are not extended to other passenger rail providers. In 
addition, the bill does not address the freight railroad infrastructure 
needs. Another significant and costly item is providing insurance to 
the host railroad equivalent to the total indemnification currently 
provided by Amtrak.
    Although Missouri is encouraged the administration is addressing 
the national passenger rail system, the importance of a national system 
and the necessary financial commitment for operating and capital costs 
are not recognized. We also believe other significant issues such as 
trackage fees and insurance should be addressed.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. John McCain to 
                             David L. Gunn
FY 2004 Funding
    Question 1. Mr. Gunn, you have been quite adamant about your 
request for a $1.8 billion appropriation for Fiscal Year 2004. How 
would a $900 million appropriation force a shut down if the repayment 
of your $105 million government loan is again postponed and Amtrak has 
a $200 million capital carryover?
    Answer. Amtrak will require $744M to support operations in FY04 and 
an additional $126M for debt service payments not included in 
operations. At a $900M appropriation level, that leaves only $30M for 
capital investment. The Northeast Corridor infrastructure alone is not 
sustainable at that level. As the infrastructure deteriorates, the 
maintenance costs increase dramatically. This is exactly the position 
Amtrak finds itself in today. In addition, a significant portion of the 
mandatory maintenance required to run the fleet will be completed along 
with the capital overhaul program. If sufficient capital were not 
available to complete the overhauls, the maintenance would be still be 
required and would increase operational expenses well beyond the $900M 
funding level. The infrastructure and equipment is old and in many 
instances verging on failure. It is only a matter of time, absent an 
adequate level of investment, before a failure occurs that will shut 
down some or all of the Northeast Corridor.
    The capital carryover from the FY03 appropriation was $108 million, 
not the $200 million referred to above. The $108 million carryover is 
obligated and projected to be spent by the end of December 2003.
FY 2003 Financial Results
    Question 2. Mr. Gunn, you mentioned in your statement that Amtrak 
will report record ridership for Fiscal Year 2003 of nearly 24 million. 
With a subsidy of $1.05 billion, that works out to a cost of $43.75 for 
every passenger carried. If Congress were able to increase your 
appropriation next year to the level you have requested, how many 
additional passengers does Amtrak expect to gain?
    Answer. Your question is a red herring. I have requested $1.8 
billion for Amtrak for Fiscal Year 2004 to prevent the imminent 
deterioration of the system to a point where Amtrak could no longer 
operate a safe and/or reliable service. As you know, the $1.8 billion 
would begin to address the tremendous backlog of capital maintenance 
projects that has developed over the years primarily due to Congress's 
refusal to sufficiently invest in Amtrak as well as the fantasy of 
operational self-sufficiency that Congress required Amtrak to follow in 
its 1997 reauthorization. If Amtrak were to receive the funding that I 
have requested in our five year plan, we would return the railroad back 
to a state of good repair. I presume that more travelers would then 
choose to ride our trains because we would be able to provide a more 
reliable and efficient intercity passenger rail service.

    Question 3. Again, you have stated that Amtrak will report record 
ridership for Fiscal Year 2003. But what happened to Acela ridership, 
our $3 billion dollar investment? Through July (10 months of Amtrak's 
fiscal year), ridership was down 364,000 riders, and revenue was down 
12.4 percent compared to the same period last year.
    Answer. There are several factors that contributed to Acela's 
ridership downtrend in FY03 when compared to FY02. First and foremost, 
the poor economy--underscored by an unemployment rate of at least 6 
percent for most of 2003 and the highest unemployment rate in nearly a 
decade-caused a 12 percent reduction in total travel (by all modes) in 
the northeast region versus the 2001 high water mark, and a 22 percent 
reduction in total business travel (by all modes) in the northeast 
region versus the 2001 business travel high water mark. Acela's 
ridership is nearly 90 percent business travel, and as such, sensitive 
to economic fluctuations. Despite these adverse market conditions, 
Acela ridership was only 8.6 percent below FY02. Consequently, Amtrak's 
air-rail market share (based on Jan-March 03 which is the most current 
quarter available) is 53 percent in the NY/DC market and 36 percent in 
the NY/Boston market vis-a-vis pre-Acela (1999/2000) Amtrak shares of 
36 percent and 18 percent, respectively.
    Secondly, continuing reliability issues around the Acela trainsets 
have also contributed to some FY03 ridership losses. Because of the 
unpredictability of the equipment, not only was Amtrak unable to run 
the full complement of service that was originally planned for FY03, 
but we actually ran 7 percent fewer departures in FY03 than in FY02 
(Acela/Metroliners combined 10,898 FY03 departures vs 11,651 FY02 
departures), most of which affected the NY/DC segment where demand is 
highest. Also, the equipment's performance contributed to Acela's FY03 
OTP of 71 percent, a full eight point reduction from FY02's 79 percent. 
However, Acela's ridership losses due to service/equipment issues were 
not all lost to Amtrak, as many of these trips diverted over to 
Regionals. As you noted from the monthly ridership and revenue reports 
sent to your committee, the Acela ridership loss through July was 
364,000 riders. However, Regional ridership increased by 184,000 riders 
during the same time frame as many Amtrak customers shifted to the 
Regional trains that, in FY03, were punctuated by good reliable 
service, with many if not more departures than Acela, and less 
expensive fares.
    And lastly, FY03 was characterized by several events-all external 
to Amtrak-which had negative consequences on all modes of domestic 
travel, including Acela: the war, the February blizzard in the 
northeast, the August power blackout, and September's Hurricane Isabel.

    Question 4. Given that you expect Amtrak to report record ridership 
for Fiscal Year 2003, does that mean we can also expect another record 
for operating losses? Through July (10 months of Amtrak's fiscal year), 
Amtrak's loss was already over $1 billion and was $178 million worse 
than the same period last year.
    Answer. Amtrak's preliminary net loss (net loss without adjustment 
for depreciation, OPEB's or state capital payments) for FY03 was $1.2 B 
or $113M worse than for FY02. As stated above, this was driven by the 
$152M revenue shortfall resulting from the poor economy and from other 
events in FY03 external to Amtrak, which negatively impacted all modes 
of travel.
    However, operating expenses were $46M favorable to FY02 primarily 
due to staff reductions and reduced discretionary spending. This 
improvement would have been even greater if it were not for higher 
costs resulting from accounting treatment changes in FY03 for certain 
mechanical activities previously classified as capital expenditures.
    Versus recent history, FY03 results were approximately $3M better 
than FYOl results and $34M better than plan.
Administration's Intercity Rail Plan
    Question 5. You mention in your statement that your testimony 
reflects comments you shared with the Amtrak Board. Does your statement 
today represent the views of the Board or your personal views?
    Answer. The statement that I offered represents my views on the 
Administration's proposed plan for Amtrak. I shared these views with my 
Board of Directors and they were aware that I would testify before your 
Committee on this subject. I do not know whether my views are shared by 
some or all of the remaining members of Amtrak's Board.

    Question 5a. Once the new Board is put in place, will the views 
Amtrak presents on Capitol Hill be those of the Board (even if the 
Board strongly endorses the Administration's plan)?
    Answer. If the new Board wishes to make its collective views known 
on Capitol Hill, the appropriate Amtrak representatives will present 
those views when and where it is appropriate to do so.

    Question 5b. If the new Board should vote to initiate restructuring 
internally, including making changes to Amtrak's route structure, would 
you comply with the Board's actions?
    Answer. If the Board, after review of all of the facts and 
information available, exercises its fiduciary responsibility to the 
Corporation and determines that a change to Amtrak's route structure is 
appropriate, the President and CEO, whoever that is, would be obliged 
to carry out those wishes. The Board is the governing body of Amtrak 
with full authority to make such decisions.

    Question 6. Amtrak has been critical of privatization. But under 
Federal law (section 24301 of Title 49 of the U.S. Code) isn't Amtrak a 
``for-profit corporation'' and ``not a department, agency, or 
instrumentality of the United States Government''? What, then, does the 
Administration's plan privatize which you find so alarming?
    Answer. Yes, you are correct in that Amtrak was created in 1971 to 
be a private corporation organized under the laws of the District of 
Columbia. My criticism of ``privatization'' relates not to the question 
of whether Amtrak is a government entity or private corporation, but 
rather to the questions of whether Amtrak or any other intercity 
passenger rail carrier can make a profit, in the traditional sense of 
the word private. Let me be clear about one thing: intercity rail 
service will never again be profitable in the traditional sense of the 
word. There will always be a need for subsidy. The decision then falls 
on who is that subsidy to be paid to.

    Question 7. Why do you believe the plan would ``radically alter the 
relationships between Amtrak and commuter authorities''?
    Answer. I'm glad the question is asked. Transferring operational 
control of the Northeast Corridor from Amtrak to eight states that 
provide commuter rail services over the Corridor (plus the District of 
Columbia) would be, in my view, a disaster. Since 1976, Federal policy 
has recognized that the important national interest in developing and 
maintaining high speed rail service between Washington and Boston would 
be best served if Amtrak, the operator of that service, was also 
responsible for operational control and maintenance of the Northeast 
Corridor. This arrangement has worked well for all parties. High speed 
rail service was firmly established and improved between Washington and 
New York, and more recently extended to Boston. At the same time, the 
number of commuter trains operating along the Northeast Corridor has 
more than doubled. To the best of my knowledge none of the states to 
who this control would migrate to, have endorsed this approach. In 
fact, most have ardently opposed such a change.
    Today much of the Northeast Corridor is at capacity. If control of 
the Corridor, and primary responsibility for funding it, is effectively 
shifted from a single entity responsible to the Federal Government to 
local commuter authorities, those commuter authorities will (quite 
understandably) favor their own services, and local rather than 
national interests, when it comes to allocating peak hour capacity, 
determining priority of trains, and making decisions regarding 
infrastructure investments and maximum speeds.
    Finally, the Administration's plan would not provide any funding to 
address urgent deferred maintenance needs until the third year 
following enactment, and there is no indication of what level of 
Federal funding would be provided to address these needs or future 
capital requirements.

    Question 8. I understand that Amtrak told the Amtrak Reform Council 
several years ago that Amtrak would separate operations from 
infrastructure on an accounting basis so that Amtrak could better 
identify the costs relating to the Northeast Corridor. Why has this 
never been done? Are you willing to begin accounting separately for the 
Northeast Corridor infrastructure for the new fiscal year?
    Answer. At ARC's request, Amtrak worked to develop a methodology to 
delineate operations from infrastructure. I understand that data was 
shared with the ARC at that time. Since then, the ARC has ceased to 
exist and management has changed at Amtrak. Since I have started at 
Amtrak we have made public information about the company's financing 
and internal structure well beyond what was provided before. Last year, 
Congress through the appropriations process required that Amtrak 
receive its funds from the FRA through a grant process, which we have 
done. This requires a significant amount of detailed reporting. I think 
the information about what we spend and where we spend it is clear and 
available.

    Question 9. Does Amtrak have any restructuring plan of its own or 
does Amtrak simply plan to continue operating the same trains . . . 
over the same routes . . . with millions more in operating losses . . . 
forever?
    Answer. Forever is a long time but during the past year and a half, 
Amtrak has:

   Undertaken a major management restructuring resulting in 
        2,400 less employees;

   Implemented major financial reforms that have taken the 
        company from the verge of bankruptcy and recently enabled it, 
        for the first time since 1995, to complete a fiscal year 
        without borrowing or obtaining emergency funding to cover 
        operating expenses;

   Developed a Strategic Plan that details the investments that 
        are required to bring its infrastructure and equipment to a 
        state of good repair; and

   Refined its long distance train operations (eliminating two 
        trains) in connection with the rationalization of its mail and 
        express business;

   Undertake a number of large maintenance projects designed to 
        begin restoring a state of good repair on platform equipment.

    Significant future changes to Amtrak's route structure would 
require:

   Policy direction from Congress through reauthorization; and

   Funding to cover the significant startup and/or shutdown 
        costs of restructured routes.

    Question 10. For some time, Amtrak insisted that it owned very few 
stations. I believe the number cited was less than 20. But when 
pressed, Amtrak finally provided the Committee a list showing that it 
still owns over 100 train stations. Wouldn't it make sense for station 
ownership, maintenance, and even the manning of the stations to be a 
local responsibility? After all, the airlines don't own and operate the 
airports.
    Answer. Amtrak serves 519 stations, of which it owns 82 buildings 
or shelters. An additional 53 stations that Amtrak owns are exclusively 
served by commuter trains and are leased to state DOT's, local transit 
agencies and others. Most of these are in Pennsylvania. The leases 
require that the local agency assume full responsibility for 
maintenance and improvements. Most of the station structures that 
Amtrak owns were conveyed to the company by predecessor railroads. 
Nonetheless, Amtrak supports the principle that stations should be 
locally owned and maintained, with the exception of large stations that 
incorporate office space or other support functions; that generate 
revenue through the lease of retail space to offset operating expenses, 
or that require skilled, safety-trained maintenance staff in some 
close-quartered, high traffic environments. An obstacle to the transfer 
of station buildings to local ownership is the lack of dedicated 
funding, similar to funding mechanisms in the airline industry, that 
could be used to as a source for state and local improvements to 
stations.

    Question 11. In your view, could any of the long distance trains be 
converted to linked corridors that could attract more riders and lower 
operating losses along the lines of Mr. Mead's suggestion? For example, 
could the Texas Eagle be transformed into linked corridors between 
Chicago and St. Louis; St. Louis and Little Rock; Little Rock and Ft. 
Worth; and Ft. Worth and San Antonio?
    Answer. Amtrak strongly supports the development of short distance 
corridors. Several of the current long-distance routes could, over 
time, form the basis for the development of connected corridors. 
However, as is demonstrated by the successful corridor development 
efforts in California and elsewhere, developing such corridors requires 
significant capital investment in freight railroad infrastructure, 
equipment, and equipment maintenance facilities, as well as funding for 
operating subsidies.
    It is also important to note that converting long distance trains 
into short distance trains covering segments of the same route would 
serve only a small portion of the passengers who utilize those long 
distance trains, and therefore would increase operating losses. Most 
passengers on long distance trains are taking relatively long trips 
that are not confined to points within a single short distance 
corridor.
    Ridership patterns on the Texas Eagle illustrate this. During 
FY2002, the Eagle carried an average of 246 passengers per trip. Of 
these passengers, 54 per trip took trips confined to the Chicago-St. 
Louis segment, an existing state-supported ``corridor'' on which Amtrak 
operates three round trips per day. However, on average, only 29 of the 
192 passengers (15 percent) south of St. Louis took trips that both 
began and ended within one of the ``corridors'' suggested in the 
question. The other 85 percent took trips that crossed corridor 
boundaries. None of these ``through'' passengers, who provide the vast 
majority of the trains' revenues, would be served unless the four 
``linked corridor'' trains connected with each other. However, such 
connections would require middle of the night arrivals and departures 
at corridor endpoints that would defeat efforts to develop additional 
short distance ridership.

    Question 12. Could you provide the Committee a detailed explanation 
of Amtrak's potential labor protection exposure due to restructuring 
and the specific events that trigger labor protection. For example, 
when Amtrak cut the Kentucky Cardinal at Indianapolis, was any labor 
protection obligation incurred?
    Answer. Predicting potential labor protection exposure is difficult 
in general, but in particular absent specifics on what future 
restructuring proposals might provide both with respect to service 
changes and employment opportunities for employees.
    Amtrak has two (2) labor protection scenarios. The first is the 
arbitrated labor conditions which replaced Appendix C-2 pursuant to the 
terms of the Amtrak Reform and Accountability Act of 1997. The trigger 
in this labor protection is train or route discontinuance below ``tri 
weekly'' service. The second is labor protection for shopcraft 
employees who are adversely affected by a transfer of work across 
seniority districts or abolishment closure of shops.
    Labor protection was triggered for employees associated with the 
Kentucky Cardinal, south of Indianapolis, when this route was 
discontinued. Three (3) employees were certified as protected and, 
since none lost employment, they are eligible to file for income loss 
only, if any, during their protection period. One employee has two 
years' protection; two have three years' protection. This is because 
the Kentucky Cardinal was a very small operation and its elimination 
had very little impact on our workforce.

    Question 12a. Are all Amtrak union employees subject to labor 
protection, or are there some exceptions? Please be specific as to the 
employees involved, their number, and what different severance 
provisions may apply.
    Answer. All agreement-covered employees are subject to the labor 
protection due to train or route discontinuance below ``triweekly.'' As 
of the end of August, the number of employees so covered was almost 
18,000.
    Shopcraft employees working primarily in the maintenance of 
equipment function are subject to the transfer of work across seniority 
district lines (and abolishment/closure of shop rule). As of the end of 
August, the number of employees so covered was 5,000.

    Question 13. In a follow-up question from the full Committee's last 
hearing on Amtrak, I asked ``If Amtrak is able to use its Federal 
subsidy to cover overhead, how can there be fair and open competition 
with the private sector?'' Your response began with the statement that 
``The current statutory scheme is not intended to create 'fair and open 
competition' between Amtrak and private entities that wish to operate 
selected intercity passenger rail services currently operated by 
Amtrak''. If other companies ready, willing, and able to operate 
intercity service, why should they not be able to compete with Amtrak 
on a fair and open basis?
    Answer. As stated in the prior Amtrak response quoted in the 
question, a number of statutory changes would be required to create 
``fair and open competition'' between Amtrak and other entities that 
wish to operate intercity rail passenger service, including:

   Making all such entities subject to Railroad Retirement 
        taxes, as Amtrak is; and

   Giving these entities the same statutory access rights that 
        Amtrak possesses to use tracks and facilities owned by freight 
        railroads and regional transportation authorities.

    Question 13a. Is Amtrak opposed to competition?
    Answer. No.
Northeast Corridor High-Speed Rail Project
    Question 14. What is the status of Amtrak's litigation with 
Bombardier and what progress has been made to settle the lawsuits 
through mediation?
    Answer. After litigating issues relating to the proper forum for 
the case for the past two years, Amtrak is currently at the beginning 
of the litigation process with Bombardier. In addition, since May of 
2003, the parties have been engaged in mediation in an effort to settle 
the disputes among the parties. A stay on litigation was agreed to by 
the parties to permit them to focus on settlement efforts. To date, no 
settlement or resolution of disputes has been reached though we 
continue to talk among the parties. The stay on litigation between the 
parties was set to expire on November 3, 2003 but was extended through 
to January 2, 2004.

    Question 14a. What evidence can you provide that Amtrak is 
participating in mediation in good faith?
    Answer. Due to a confidentiality arrangement between the parties, 
Amtrak is not permitted to disclose the details of the mediation 
sessions or to reveal or opine on the positions of the parties therein.
    That said, I am confident that Amtrak has acted with the utmost of 
good faith. We have expended considerable time and resources and 
devoted effort at the highest levels within Amtrak to resolve the 
disputes between the parties.

    Question 15. What is the current status of the Northeast High-Speed 
Rail Improvement Project and when, if at all, does Amtrak expect to 
meet the goals of this project (particularly the 3 hour trip time from 
Boston to New York City)?
    Answer. All construction for the Northeast High-Speed Rail 
Improvement Project (NHRIP) on the Amtrak-owned portion of the Boston-
to-New York line has been completed except for the following:

    Boston-New Haven

   Replacement of Niantic Moveable Bridge (entire new 
        structure)-In Amtrak 5-year Capital Program. Environmental 
        documentation complete, RFP for design advertised.

   Replacement of Thames River Moveable Bridge (moveable 
        bascule span being replaced with new vertical lift span)--In 
        Amtrak Capital Program. Environmental documentation and design 
        complete. Construction scheduled for summer 2004.

   Guilford (CT) Sidings-Tracks 3 and 4. Track 4 is under 
        construction and scheduled for completion by December 2005. 
        Construction of Track 3 has been deferred in accordance with 
        our agreement with Connecticut Department of Transportation to 
        alter Shore Line East commuter service patterns, making 
        completion of the siding unnecessary at this time.

   Switch heaters for some industrial tracks. Amtrak has 
        proposed an alternative method.

   Minor catenary installations, primarily on secondary tracks 
        in the Boston commuter territory. Much of this work is planned 
        for completion in coordination with other non NHRIP projects to 
        minimize track outage related delays.

   Advanced Civil Speed Enforcement System (ACSES): All ground 
        installations complete for Phase I. Coordinating final cut-
        overs for ACSES in commuter territories with completion of on-
        board equipment installations to commuter equipment. Phase II 
        under development. The manufacturer is reviewing certain design 
        elements found to be underperforming in Phase I prior to 
        initiating Phase II installation.

   Shell Interlocking (New Rochelle, NY). Design complete and 
        procurement underway. Estimated completion by 2008.

    Hell Gate Line (New Rochelle, NY to Harold Interlocking in Queens, 
NY)

   Manor Interlocking-Construction scheduled for FY 2005.

   Catenary and Catenary Pole Replacements--Scheduled for 
        completion by FY 2007

   Curve Modifications -Included in catenary replacement 
        program

   Direct Track Fixation over Hell Gate Bridge--Scheduled for 
        FY 2008

    The 56-mile portion of the Boston-New York route between New Haven, 
CT and New Rochelle, NY is operated and controlled by Metro North 
Railroad. Amtrak is currently paying Metro North $15-20 million per 
year towards the following projects:

   New Haven Station-All construction complete

   Stamford Station--Scheduled for completion December 2003

   Catenary (overhead wire) Replacement-Multiyear program 
        underway

   Bridge Replacement Projects-Multiyear program underway.

   Curve Speed and Signal Improvements -Coordinated with 
        catenary and bridge replacements

    The work that remains to be done on Metro North is significant in 
terms of both scope and the funding required from both Metro North and 
Amtrak. Amtrak is unable to predict when Metro North will complete it.
Running Times
    As part of the development of the high-speed service, Amtrak 
prepared a projected three hour Boston-to-New York schedule (two hours 
and 45 minutes trip time, plus 15 minutes of recovery time for en route 
delays) using a computer program known as a 'TPC' (Train Performance 
Calculator). The TPC was prepared based upon the planned NHRIP 
infrastructure improvements (including improvements on the Metro North 
portion of the route), four intermediate station stops, and the 
equipment performance specifications developed by Amtrak that bidders 
on the train set procurement were required to satisfy.
    Current schedule times (approximately three hours and 25 minutes 
for trains making the planned four stops) do not achieve the three hour 
goal. The primary reason for this are (i) failure of the equipment to 
meet specifications, which is the subject of litigation between Amtrak 
and Bombardier, the equipment manufacturer, (ii) the projected 
infrastructure improvements times on the Metro North segment that have 
not been completed, and (iii) inadequate funding to complete certain of 
the infrastructure projects listed above on the Amtrak-owned portion of 
the route that would eliminate or reduce speed restrictions.
    Completion of the remaining projects that impact speeds on the 
Amtrak-owned portion of the Boston-to-New York route will reduce 
running time by approximately three minutes. Completion of the 
remaining work on the Metro North segment will permit additional 
reductions in running time that have not yet been quantified or 
negotiated with Metro North. Because the high speed train sets do not 
meet specifications, achieving the three hour goal would require 
equipment modifications.

    Question 16. Amtrak claimed that this project would provide $180 
million in net income to its bottom line and help the Corporation 
achieve operational self-sufficiency. What have been the actual 
financial results of this project?
    Answer. In early 1998, Amtrak forecast the following results for FY 
2001-2002's Northeast Corridor High Speed Rail versus 1997's existing 
Northeast Corridor:

   Gross incremental revenue of $290 to $300M

   Debt service of $45 to $55M

   Incremental operating expenses of $50M

   Net incremental benefit of $180 to $200M

    For FY2002 Amtrak's Northeast Corridor performance to these 
measures was:

   Gross incremental revenue of $287M

   Debt service of $34M

   Incremental operating expenses, utilizing the FRA 
        definition, of $37M

   Net incremental benefit of $216M

    Question 17. Amtrak claims it has recently adopted various ``best 
practices'' for managing future infrastructure projects. What best 
practices have been adopted and how will they improve project 
management?
    Answer. For major construction programs performed by outside 
contractors, Amtrak uses the management model that was developed for 
the $900 million Fire and Life Safety project in the six tunnels in New 
York. The business model incorporates normal best practices in the 
development and management of large scale construction projects.
    The project scope is developed by the effected stakeholders 
including but are not limited to commuter agencies, Federal Railroad 
Administration, municipalities, and civil emergency response agencies. 
The program office estimates the cost of the project and develops a 
cost and resource loaded schedule. When approved, the project is 
submitted for design and the stakeholders review these designs. When 
design is final a project manager is assigned, risks are identified, a 
base line schedule developed and the budget is then finalized. The 
project manager is solely responsible for management of all 
contractors, the project scope, schedule and budget. The project 
manager reports project progress and performance utilizing DOT 
acceptable earned value methods and systems to the program office on a 
monthly basis. All budget variances are tracked and explained, along 
with areas of concerns being identified for resolution.
    Professional construction management firms (CM) are employed for 
day-to-day project management. Their compensation varies with the 
results they achieve. They can earn no profit, if a project goes 
poorly, or double their standard profit, if a project goes very well. 
For the CM to double its profits, the total cash cost of the project 
including the CM fee must be substantially below the original cost 
estimate.
    The Fire & Life Safety Program Office has direct oversight on all 
projects and is staffed with a program director, finance manager, 
project integration manager, contracting officer, document control 
officer and an independent auditor. This office reports monthly to all 
stakeholders on program performance, project performance and financial 
performance. This office maintains all construction and commercial 
documents and is responsible for stakeholder interface.
    A separate report is available on the current financial and 
completion status of the F&LS program.
    For projects performed by Amtrak forces, Amtrak has implemented a 
new planning and project management system for 2004. For the 
approximately 500 projects planned for 2004, the system consists of a 
clear scope of work, detailed cost estimates, a project schedule and 
monthly cash flow estimates. A project manager is responsible for the 
project from estimate to close out. Project monitoring consists of 
weekly reporting of physical progress and cost as well as a comparison 
of projected final cost vs. budget. Monthly reporting consists of the 
same reporting as weekly, plus explanations of cost and schedule 
variances and a review of schedule and projected cash flows. The 
combination of clear project scope, detailed estimates and weekly 
monitoring give Amtrak Engineering a strong control over in-house work.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. John McCain to 
                            Kenneth M. Mead
    Question 1. Mr. McCain. Mr. Mead, what did the Nation get for its 
$8.4 billion investment in Amtrak over the past six years? Amtrak's 
ridership only increased 14 percent over this period and its operating 
losses soared.
    Answer. Of the $8.4 billion, $6.2 billion came from the Federal 
Government and $2.2 billion was secured through external borrowing. 
Operating expenses, including RRTA payments and debt principal, 
consumed $3.8 billion of the Federal funds. The remaining $2.4 billion, 
along with the $2.2 billion in borrowing, was spent on capital 
investment in infrastructure and equipment. This investment enabled 
implementation of high speed rail service on the Northeast Corridor 
including electrification of the track from Boston, Massachusetts to 
New Haven, Connecticut, and acquisition of the Acela train sets and 
maintenance facilities. Other capital investment during this period 
included improvements in conventional services in the Pacific Northwest 
and California and acquisition of two Talgo train sets being used in 
the Pacific Northwest. While unable to address its growing backlog of 
capital needs during this period, Amtrak did maintain a minimum 
reliability of service over the system.
    Finally, between 1998 and 2003, Amtrak's cash operating loss 
increased by $118 million, $77 million of this came from increased 
interest expenses from the external borrowing of $2.2 billion to 
supplement its capital investment.

    Question 2. Mr. McCain. Mr. Mead, your statement notes that only 16 
percent of Amtrak's passengers rode the long-distance trains in 2002, 
and that the long-distance trains accounted only for 30 percent of 
Amtrak's revenue. What percentage of Amtrak's operating loss is 
associated with the long-distance trains?
    Answer. Based on the estimated 2003 fully allocated costs developed 
by the Federal Railroad Administration in coordination with Amtrak, 
approximately 76 percent of Amtrak's fully allocated operating loss 
(excluding depreciation and interest) is associated with the long-
distance trains. However, two issues affect this percentage. First, the 
only service that shows an operating profit without state operating 
subsidies is the Acela/Metroliner service. If this profit is excluded 
and the calculation is made only on conventional service, long distance 
makes up 69 percent of the loss. (See attachment). Second, state 
contributions to the corridor services are included in the fully 
allocated loss calculations creating the impression that the cost of 
operating these services is actually less than it really is. Also, it 
should be noted that it is not likely that discontinuance of the long 
distance services would save an amount equal services would need to be 
borne by the remaining routes.

    Question 3. Mr. McCain. Mr. Mead, you recommend against separating 
Amtrak's train operations nationally from the Northeast Corridor 
infrastructure. Is your concern that there needs to be centralized 
decision-making on the Corridor about operations and infrastructure, 
and if so, can't this be accomplished in a manner that would still 
allow for some degree of separation? Would your recommendation preclude 
subcontracting out maintenance, train operations, and other services?
    Answer. We recommend that the Northeast Corridor be maintained as 
an integrated railroad. Operations in the rest of the country may be 
split off and operated separately. With regard to the Northeast 
Corridor, some or all operations could be subcontracted as the 
competition for such subcontracts may yield savings. The point, we 
believe, is that management of the infrastructure and operations on the 
Northeast Corridor be maintained in a single entity.

    Question 4. Mr. McCain. Mr. Mead, help put into perspective the 
cost of the Administration's proposal to the states. How does the $1.2 
billion funding responsibility in the Administration's plan compare to 
what cities and states spend annually on transit?
    Answer. Transit funding in 2001 (the most recent full year for 
which data are available) is broken down as follows:

                                             FV 2001 Transit Funding
                                                 [$ in millions]
----------------------------------------------------------------------------------------------------------------
                     Funding Source                          Operating           Capital             Total
----------------------------------------------------------------------------------------------------------------
Passenger Fares and Other                                         $9,319.5               $0.0           $9,319.5
----------------------------------------------------------------------------------------------------------------
Local Funds                                                        7,393.3            4,345.1           11,738.4
----------------------------------------------------------------------------------------------------------------
State Funds                                                        5,127.3            1,011.1            6,138.4
----------------------------------------------------------------------------------------------------------------
Federal Funds                                                        231.7            6,354.0            6,585.7
----------------------------------------------------------------------------------------------------------------
Total                                                            $21,528.8          $11,710.2            $33,239
----------------------------------------------------------------------------------------------------------------
Source: 2001 National Transit Profile

    Local and state sources provided nearly $18 billion in funding for 
transit in 2001. Thus, the $1.2 billion is less than 7 percent of the 
local and state funding for transit in 2001.

    Question 5. Mr. Mead, what implications would restructuring some 
long-distance trains into corridor feeder services have for capital 
costs?
    Answer. Restructuring some long-distance trains into corridor 
feeder services is likely to decrease capital costs for those services 
while capital costs for corridor services are likely to increase. Long-
distance train capital costs will decrease as dining, baggage, and 
sleeper cars are retired rather than maintained and rebuilt. However, 
to realize the full potential of the corridor services, capital 
spending for infrastructure and rolling stock will likely need to 
increase to improve transit times and frequencies.

    Question 6. Mr. McCain. Mr. Mead, in your statement, you suggest 
that some long-distance trains may need to be funded indefinitely 
because they are not conducive to being restructured as feeder service. 
My concern, in addition to the high operating losses on these trains, 
is that this approach would treat those trains differently and frankly 
more favorably. Can't we find a way to treat all the states and all of 
the trains the same way for purposes of cost-sharing?
    Answer. Choosing to retain some of the long-distance services for 
national interests and fund them at the Federal level is clearly a 
policy decision that should be made in the context of reform and 
reauthorization. In my opinion, it is appropriate to ask states to 
directly contribute to services in which they can decide the frequency 
and amenities and that clearly serve their constituents. It does not, 
however, make sense to ask them to carry the entire burden or to fund a 
service over which they have little or no control and only minimally 
serves their constituents. If restructuring of some of the long-
distance routes is successful (losses are reduced and ridership 
increases) and states see the benefits of focusing on corridor 
development, it is possible that restructuring other long-distance 
routes could be re-considered.

    Question 7. Mr. McCain. Mr. Mead, I'm not sure I agree with your 
suggestion that the complexity and detail requirements for an 
application for capital funding should depend on the amount of funding 
being requested. Wouldn't this encourage states to segment major 
projects into small pieces that might understate the significance of 
the overall project and the larger project's total price tag?
    Answer. We would not support such segmentation. We believe 
regulations could be written that prohibit such manipulation of the 
application process and that provide strong Federal oversight of it.
                               Attachment

          Estimated Fully Allocated Contribution/(Loss) FY 2003
                             [$ in millions]
------------------------------------------------------------------------
     Amtrak Route        Excludes         Amtrak Route        Excludes
---------------------- Depreciation ----------------------- Depreciation
                       and Interest                         and Interest
         (1)          --------------          (1)          -------------
                            (2)                                  (2)
------------------------------------------------------------------------
Corridor Routes                      Long Distance (LD)
                                      Routes
1 Acela Express/              $69.7  1 Silver Star               ($30.1)
 Metroliner
2 Ethan Allen Express         (2.7)  2 Three Rivers               (33.9)
3 Acela Regionai/            (50.0)  3 Cardinal                   (12.8)
 NEDNermonter
4 Twilight Shoreliner        (15.2)  4 Silver Meteor              (20.6)
5 Maple Leaf                  (4.6)  5 Empire Builder             (45.4)
6 The Downeaster              (5.1)  6 Capitol Limited            (23.5)
7 Clocker Service             (6.3)  7 California Zephyr          (52.9)
8 Keystone Service           (17.9)  8 Southwest Chief            (68.3)
9 Empire Service             (35.3)  9 City of New Orleans        (17.7)
10 State House               (13.0)  10 Texas Eagle               (29.0)
11 Hiawathas                 (11.0)  11 Sunset Limited            (34.5)
12 Wolverine                 (17.6)  12 Coast Starlight           (37.6)
13 Lllini                     (1.7)  13 Lake Shore Limited        (40.6)
14 Illinois Zephyr            (2.2)  14 Palmetto                  (29.7)
15 Heartland Flyer              1.4  15 Crescent                  (32.8)
16 Pacific Surfliner         (18.4)  16 Pennsylvanian             (24.9)
17 Cascades                  (10.4)  17 Auto Train                (12.4)
                                    ------------------------------------
18 Capitols                   (6.3)  Total Long-Distance        ($546.6)
                                      Trains
19 San Joaquins              (11.0)
20 Adirondack                 (3.3)  LD % of Total                   76%
21 International              (2.1)  LD % of Total Excl              69%
                                      ACELA/Metroliner
22 Kentucky Cardinal          (7.5)
23 Mules                      (1.0)
24 Pere Marquette             (1.4)
25 Carolinian                 (3.3)
26 Piedmont                   (0.5)
------------------------------------
   Total Corridor          ($176.5)
 Trains
------------------------------------------------------------------------

                                 ______
                                 
   Response to Written Questions Submitted by Hon. John B. Breaux to 
                            Kenneth M. Mead
    Mr. Breaux. Mr. Mead, the Administration's proposal shifts half of 
the capital costs and all of the operating costs to the states where 
passenger rail will be operated.
    Question 1. Has your office conducted any studies or surveys to 
calculate what it will cost a state to maintain passenger rail in their 
state?
    Answer. Each state will ultimately need to define the level of 
service it requires and then work with Amtrak or other operators to 
determine the cost of that service. To do this type of analysis at this 
point in time would require too many assumptions regarding the 
appropriate level of service and the costs. For these reasons, we have 
not performed such an analysis.
    That having been said, the Federal Railroad Administration (FRA) 
worked with Amtrak earlier this year to estimate the fully allocated 
contribution/(loss) for each Amtrak route for Fiscal Year 2003.\1\ 
Based on those fully allocated estimates, the shorter distance corridor 
trains were projected to lose a total of $177 million excluding 
depreciation and interest and long distance trains were projected to 
lose a total of $547 million excluding depreciation and interest. 
Although FRA did not report these costs on a state by state basis, the 
following table shows some examples of the fully allocated costs for 
corridor trains that operate within one or two states and those that 
operate over the Northeast Corridor.
---------------------------------------------------------------------------
    \1\ These calculations were included as Appendix 1 in the Deputy 
Secretary of Transportation's, Michael Jackson, statement before the 
Commerce, Science, and Transportation Committee, U.S. Senate, April 29, 
2003.

      Table 1.--FY 2003 Estimated Fully Allocated Net Profit/(Loss)
                    Excluding Depreciation & Interest
------------------------------------------------------------------------
  State(s)/ Corridor                Train               ($ in millions)
------------------------------------------------------------------------
NEC                     Acela                                      $69.7
------------------------------------------------------------------------
NEC                     Regional                                  (50.0)
------------------------------------------------------------------------
NEC                     Clocker                                    (6.3)
------------------------------------------------------------------------
CA                      Capitols                                   (6.3)
------------------------------------------------------------------------
CA                      Pacific Surfliner                         (18.4)
------------------------------------------------------------------------
CA                      San Joaquins                              (11.0)
------------------------------------------------------------------------
NC                      Piedmont                                   (0.5)
------------------------------------------------------------------------
IL/MI                   Pere Marquette                             (1.4)
------------------------------------------------------------------------
OK/TX                   Heartland Flyer                              1.4
------------------------------------------------------------------------
IL/WI                   Hiawathas                                 (11.0)
------------------------------------------------------------------------

    A summary of FRA's projected FY 2003 fully allocated costs for all 
of Amtrak's trains is included as an attachment. We have not developed 
a mechanism to allocate the operating and capital costs of any of these 
services on a state-by-state basis.

    Question 2. Mr. Breaux. Mr. Mead, how will states be able to judge 
whether it is feasible for them to join a multi-state compact or to 
commit to financing passenger rail within the state?
    Answer. A state's determination of feasibility will be dependent 
upon what continuing service it wants, how much it can afford, and what 
benefits will be achieved. If the benefits outweigh the costs, the 
states will either fund the service themselves or join a multi-state 
compact.
    Attachment
                               Attachment

          Estimated Fully Allocated Contribution/(Loss) FY 2003
           Excluding Depreciation and Interest ($ in millions)
------------------------------------------------------------------------
                                 Amtrak Route            FY 2003 Contr/
                        ------------------------------       (Loss)
                                                      ------------------
                                      (1)                     (2)
------------------------------------------------------------------------
Corridor                 1 Acela Express/Metroliner                $69.7
                         2 Ethan Allen Express                     (2.7)
                         3 Acela Regional/NED/                    (50.0)
                          Vermonter
                         4 Twilight Shoreliner                    (15.2)
                         5 Maple Leaf                              (4.6)
                         6 The Downeaster                          (5.1)
                         7 Clocker Service                         (6.3)
                         8 Keystone Service                       (17.9)
                         9 Empire Service                         (35.3)
                         10 State House                           (13.0)
                         11 Hiawathas                             (11.0)
                         12 Wolverine                             (17.6)
                         13 Illini                                 (1.7)
                         14 Illinois Zephyr                        (2.2)
                         15 Heartland Flyer                          1.4
                         16 Pacific Surfliner                     (18.4)
                         17 Cascades                              (10.4)
                         18 Capitols                               (6.3)
                         19 San Joaquins                          (11.0)
                         20 Adirondack                             (3.3)
                         21 International                          (2.1)
                         22 Kentucky Cardinal                      (7.5)
                         23 Mules                                  (1.0)
                         24 Pere Marquette                         (1.4)
                         25 Carolinian                             (3.3)
                         26 Piedmont                               (0.5)
                        ------------------------------------------------
                            Total Corridor Trains               ($176.5)
 
Long Distance            1 Silver Star                           ($30.1)
                         2 Three Rivers                           (33.9)
                         3 Cardinal                               (12.8)
                         4 Silver Meteor                          (20.6)
                         5 Empire Builder                         (45.4)
                         6 Capitol Limited                        (23.5)
                         7 California Zephyr                      (52.9)
                         8 Southwest Chief                        (68.3)
                         9 City of New Orleans                    (17.7)
                         10 Texas Eagle                           (29.0)
                         11 Sunset Limited                        (34.5)
                         12 Coast Starlight                       (37.6)
                         13 Lake Shore Limited                    (40.6)
                         14 Palmetto                              (29.7)
                         15 Crescent                              (32.8)
                         16 Pennsylvanian                         (24.9)
                         17 Auto Train                            (12.4)
                        ------------------------------------------------
                            Total Long-Distance                 ($546.6)
                          Trains
------------------------------------------------------------------------

                                 ______
                                 
         Written Questions Submitted by Hon. John B. Breaux to 
                           Hon. Allan Rutter
    The Administration's proposal would require states to substantially 
increase their financial support of Amtrak. I suppose the logic is that 
those states that wish to have passenger rail service should have to 
pay for it. States are facing serious budgetary constraints as their 
tax bases erode in a soft economy and as the Federal Government 
provides less and less support for all sorts of public programs. In 
fact, the Alabama state legislature recently voted to reduce its 
funding by 18 percent, meaning that funds for school textbooks, for 
healthcare, and for police patrols will be substantially reduced. 
(Washington Post, ``Alabama Lawmakers Cut Budget 18 percent,'' 
September 26, 2003). Alabama is not alone in this budget battle; 
Louisiana is also facing these difficulties.

    Question 1. How does the Administration expect that states who are 
having to cut funds for things like health care, education, and police 
protection are going to find additional funds for passenger rail?
    The Administration's proposal would necessitate the formation of 
state compacts to maintain passenger rail service along corridors that 
travel through the states in the compacts.

    Question 2. What advantages are to be gained from having a 
passenger rail system that is comprised of several disparate rail 
corridors rather than one, consolidated national system?

    Question 3. What happens in the formation of the state compacts 
when one state along the corridor refuses to join the compact? Wouldn't 
this system give some states the incentive to refuse to participate in 
a corridor compact simply to pressure its neighboring states into 
picking up the whole tab for the costs of operating a rail corridor 
that benefits all of the states on the corridor?
    The witness did not respond.
                                 ______
                                 
      Written Questions Submitted by Hon. Frank R. Lautenberg to 
                           Hon. Allan Rutter
    Question 1. You sit on the Board of Amtrak and represent the 
Secretary of Transportation. Do you agree with the approach that Mr. 
Gunn is taking in terms of stabilizing the railroad? Or is there 
something you feel he could be doing better?

    Question 2. Administrator Rutter, you are the Nation's top safety 
enforcer for our railroads. Is a $900 million Federal appropriation for 
Fiscal Year 2004 adequate to address all of the safety defects cited by 
FRA inspectors? If not, which of Amtrak's operations/infrastructure 
will be most vulnerable to safety defects? How much does Amtrak need to 
spend on capital maintenance and improvements to ensure a safe railroad 
operation?

    Question 3. I understand that the Administration has recently 
released the names of three people that it intends to nominate for the 
Amtrak Board. Were these individuals selected by the Administration for 
the purpose of sitting on the Board to oversee the dismantling and 
break-up of the carrier? Were they selected for their acceptance of the 
Administration's vision of Amtrak?
    The witness did not respond.

                                  [all]

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