[Senate Hearing 108-932]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-932
 
         FUTURE OF INTERCITY PASSENGER RAIL SERVICE AND AMTRAK

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

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 29, 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 Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas                JOHN B. BREAUX, Louisiana
GORDON SMITH, Oregon                 BYRON L. DORGAN, North Dakota
PETER G. FITZGERALD, Illinois        RON WYDEN, Oregon
JOHN ENSIGN, Nevada                  BARBARA BOXER, California
GEORGE ALLEN, Virginia               BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
                                     FRANK 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 April 29, 2003...................................     1
Statement of Senator Burns.......................................    11
    Prepared statement...........................................    11
Statement of Senator Hollings....................................     3
    Prepared statement...........................................     3
    Article, dated April 21, 2003, from The Washington Post, 
      entitled ``Amtrak's Top Gunn; The No-Nonsense CEO Has 
      Revived a Railroad and Won Respect From Politicians and 
      Employees''................................................     5
    Article, dated April 26, 2003, from The Washington Post, 
      entitled ``Amtrak Chief Unveils Five-Year Plan; $8 Billion 
      Sought to Repair Infrastructure, Trains in Northeast''.....     9
Statement of Senator Hutchison...................................    10
Statement of Senator Lautenberg..................................    51
    Prepared statement...........................................    52
Statement of Senator Lott........................................    11
Statement of Senator McCain......................................     1
Statement of Senator Sununu......................................    54

                               Witnesses

Dittmar, Hank, Co-Director, Reconnecting America.................    85
    Prepared statement...........................................    87
Gunn, David L., President and CEO, Amtrak........................    38
    Prepared statement...........................................    42
Jackson, Hon. Michael P., Deputy Secretary, Department of 
  Transportation.................................................    11
    Prepared statement...........................................    16
King, Hon. David D., Deputy Secretary, North Carolina Department 
  of Transportation..............................................    67
    Prepared statement...........................................    70
Landes, Alan, Senior Vice President, Herzog Transit Services, 
  Inc............................................................    93
    Prepared statement...........................................    95
    Preliminary List of Contacts for Discussion of Amtrak 
      Privatization, Updated May 16, 2003........................   104
Mead, Hon. Kenneth M., Inspector General, Department of 
  Transportation.................................................    28
    Prepared statement...........................................    31
Pracht, Michael P., Chairman, Passenger Transportation Committee, 
  Railway Supply Institute, Inc..................................    99
    Prepared statement...........................................   100
Winner, John H., President, Harral Winner Thompson Sharp 
  Lawrence, Inc..................................................    78
    Prepared statement...........................................    80

                                Appendix

Capon, Ross B., Executive Director, National Association of 
  Railroad Passengers, prepared statement........................   111
Kerry, Hon. John F., U.S. Senator from Massachusetts, prepared 
  statement......................................................   109
Response to written questions submitted to Hank Dittmar by:
    Hon. Ernest F. Hollings......................................   144
    Hon. Frank R. Lautenberg.....................................   146
    Hon. John McCain.............................................   141
Response to written questions submitted to David L. Gunn by:
    Hon. Ernest F. Hollings......................................   129
    Hon. John McCain.............................................   121
    Hon. Ted Stevens.............................................   128
Response to written questions submitted by Hon. Ernest F. 
  Hollings to:
    Hon. David D. King...........................................   131
    Michael P. Pracht............................................   148
Response to written questions submitted to Alan Landes by:
    Hon. John McCain.............................................   146
Response to written questions submitted to Hon. Kenneth M. Mead 
  by:
    Hon. Ernest F. Hollings......................................   119
    Hon. Frank R. Lautenberg.....................................   121
Response to written questions submitted to John H. Winner by:
    Hon. Ernest F. Hollings......................................   137
    Hon. John McCain.............................................   133
Stoetzel, Jim, Vice President, Contract Operations--Rail, Connex 
  North America, Inc., letter dated May 5, 2003 to Sharon 
  Dashtaki, Missouri DOT.........................................   110


         FUTURE OF INTERCITY PASSENGER RAIL SERVICE AND AMTRAK

                              ----------                              


                        TUESDAY, APRIL 29, 2003

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:30 a.m. in room 
SR-253, Russell Senate Office Building, Hon. John McCain, 
Chairman of the Committee, presiding.

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

    The Chairman. Good morning. The Committee meets today to 
hear testimony on the future of intercity passenger rail 
service and Amtrak.
    During my years in Congress, I have participated in more 
hearings and debates about Amtrak than I can count, but hope 
springs eternal that today's hearing will mark the beginning of 
a bipartisan effort to develop a consensus on how to reform 
Amtrak and transition to a passenger rail program that meets a 
market demand and provides more value for the taxpayers.
    I commend David Gunn for his accomplishments over the past 
year as Amtrak's President. Thanks to his leadership, Amtrak 
has a credible business plan to carry it through this fiscal 
year with a realistic revenue and capital forecast. Mr. Gunn 
has been very candid about the mistakes that were made by 
Amtrak with the Acela project, the mail and express 
initiatives, and the sale and mortgaging of assets to generate 
cash. His candor and willingness to deal with problems head-on 
has earned him the respect of many traditional Amtrak skeptics.
    During a meeting I had with Mr. Gunn last January, he 
indicated that Amtrak would need about $2 billion annually in 
subsidies to bring equipment in the Northeast Corridor up to a 
state of good repair. I asked Mr. Gunn for a 5-year business 
plan in order for us to be able to assess what 5 years of 
additional subsidies would achieve and the outlook for Amtrak 
beyond that period. Mr. Gunn submitted that plan last Friday 
afternoon, and we will discuss it this morning.
    Amtrak is seeking a total of $8.2 billion in Federal 
funding over the next 5 years to operate the current network 
and restore equipment in the Northeast Corridor to a state of 
good repair. I cannot support an approach which further 
postpones reform and calls for operating the same trains over 
the same routes with millions more in operating losses and a 
continuing need for large infusions of capital from the 
taxpayers. But I do hope we can work with Mr. Gunn, the 
Administration and my colleagues to develop and enact a sound 
reform measure that can address some of the needs Mr. Gunn has 
identified while also implementing needed structural reforms.
    Let me cite my favorite train, the Sunset Limited, as an 
example of where and why change is needed. In 2001, the Sunset 
Limited, which operates between Los Angeles and Orlando, lost 
$347 per passenger, excluding depreciation. The entire year, 
the route carried 108,000 passengers, or less than 300 
passengers per day. Greyhound Bus Lines, by comparison, carried 
an estimated 1.5 million passengers between points served by 
the Sunset Limited, and the airlines carried 4.5 million 
passengers between those city pairs. And perhaps what I find 
even more startling is that four times as many people flew just 
between Los Angeles and Tucson as rode between all points 
served by the Sunset Limited. Where is the value in continuing 
to fund this train?
    Some like to argue that Amtrak is the sole means of public 
transportation for small-town America, but except in a handful 
of instances, this is not the case. A 1999 analysis for the 
Transportation Research Board found that of the 4,000 
communities nationwide with a population of between 2,500 and 
50,000, Amtrak was the sole means of public transportation for 
1.6 percent of those communities, 65 communities. Many more 
small communities rely on bus and air service than on Amtrak.
    Trains that neither meet a market demand nor provide a 
needed public transportation do not warrant millions of dollars 
in annual Federal subsidies. Furthermore, given budget 
constraints, is it sound policy to continue to fund uneconomic 
train routes that siphon off funds that might otherwise be used 
to develop economically viable service along short-distance 
corridors?
    Amtrak began operations in 1971 as a for-profit corporation 
and was to be free of all Federal support by 1973. We've been 
over and over this history, but it always bears remembering as 
we look at these multi-billion dollar requests for subsidies. 
Throughout its history, including between 1997 and 2001, Amtrak 
led Congress to believe that profitability, or at least 
operational self-sufficiency, was achievable. That was in 
testimony before this committee. If we're now to conclude that 
Amtrak will always run operating and capital deficits, our duty 
to the taxpayers is to ensure that service is operated as 
efficiently as possible to minimize subsidies. There should be 
a fair and open competition for Amtrak from private-sector 
companies. I've asked our witnesses to discuss in their 
testimony what must be done to foster such competition.
    Further, there needs to be equitable cost-sharing between 
the Federal Government, the states, commuter authorities on the 
Northeast Corridor, and others. Today's twisted policy has 
states contributing financial support for some of the most 
efficient trains on Amtrak's network, while states pay nothing 
for long-distance trains that lose $20 million, $30 million, 
$40 million, or even $50 million per year.
    I appreciate the witnesses for appearing today. I hope the 
testimony will help the Committee develop a reasoned consensus 
on the future of intercity passenger rail service and the basis 
for legislative change this year.
    Senator Hollings?

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

    Senator Hollings. Well, Mr. Chairman, thank you very much 
for the hearing. And if nothing's said at all, what we need 
do--let me first include my prepared statement in the record.
    The Chairman. Without objection.
    Senator Hollings. I appreciate it.
    [The prepared statement of Senator Hollings follows:]

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

    We are facing an important juncture where we must determine how to 
preserve passenger rail service in the U.S. and to maintain the 
solvency of Amtrak. We need long-term planning and support for 
passenger rail to address future passenger growth needs. We can look to 
rail to provide transportation alternatives and solutions. As we saw 
following the events of September 11, 2001, passenger rail serves our 
national security by providing an alternative to highway and air 
travel. Furthermore, passenger rail development provides a more fuel-
efficient transportation system thereby providing cleaner 
transportation alternatives and helping to reduce our dependence on 
foreign oil.
    During the past 50 years, strong Federal leadership and funding 
were essential to the development of the interstate highway system and 
our Nation's aviation system. It is time for the Congress to take the 
same strong leadership with passenger rail infrastructure as it did 
years ago when it provided funding to the interstate highway and 
aviation transportation systems. In the early 1970s when the private 
railroads begged the government to relieve them of the unprofitable 
passenger rail service, the Congress obliged and created Amtrak. 
Between 1971 and 2001, $25 billion was spent on passenger rail. However 
during that same time, over $570 billion of Federal funding was 
invested in highways and aviation. Only 4.2 percent of the $595 billion 
invested in transportation has gone to passenger rail service.
    Furthermore, these funding levels do not include spending during 
fiscal years 2002 and 2003, when over $48 billion was invested in the 
aviation industry and over $60 billion was spent on the highways. Nor 
do these levels include funding for the 50,000 employees who provide 
security for the aviation industry. The amount of funding that only the 
aviation industry has received during the last two fiscal years is 
almost double the funding that has been invested in passenger rail over 
the last 30 years. If passenger rail is to succeed, it must be a real 
Federal priority. We must recognize that, like the highway system and 
the aviation system, the passenger rail system cannot operate at a 
profit. We must invest in the development of its infrastructure using 
Federal dollars to support both capital and operating needs like we 
have done in the other modes of transportation.
    High speed passenger rail has proven to be effective between 
Washington, D.C. and Boston where Amtrak's Northeast Corridor relieves 
the pressures of congestion on highways and at airports, and provides a 
more balanced system of transportation alternatives. In fact, of the 
direct travel between New York City and Washington, D.C., more 
passengers travel on Amtrak trains than take the airport shuttles (53 
percent versus 47 percent). We are at a crossroads where we need to 
determine how we should invest in our passenger rail infrastructure in 
the Northeast and replicate its success throughout the rest of the 
country.
    There are those who argue that we can best achieve success if we 
restructure our passenger rail system through privatization. 
Privatization initiatives used in other countries are often touted as 
holding the secret to Amtrak's future success. However, none of the 
privatization schemes in other countries exactly fits the American 
situation. We must carefully examine any privatization proposal to 
ensure that privatization does not exacerbate Amtrak's delicate 
financial situation, or worse, do so at an unacceptable cost to safety 
and service.
    Furthermore, we must not be led to believe that the privatization 
of Amtrak will decrease the Federal cost of passenger rail. Many 
countries in Europe and in the Pacific Rim have highly successful and 
effective passenger rail systems. But every first-rate passenger rail 
system in the world--whether it is public, private or something in 
between--has been expensive for the country that uses it. Those 
countries with first-rate passenger rail systems have them because they 
have chosen to invest the funds necessary to build them and run them.
    For Amtrak, we have neglected to furnish a long term, stable 
funding source like we did for aviation, highways and transit systems. 
In fiscal year 2001, intercity passenger rail received less than 1 
percent of all transportation spending. Since the last authorization of 
Amtrak in 1997, only $2.8 billion has been appropriated of the $5.2 
billion authorized over the last 5 years. Without a major overhaul and 
Federal commitment, national passenger rail service will be a thing of 
the past.
    That is why I re-introduced The National Defense Rail Act, S. 104. 
This bipartisan legislation has over 30 cosponsors and is virtually 
identical to S. 1991 which was reported favorably by this committee 
last year by a vote of 20 to 3. This legislation provides a blueprint 
for the future of intercity passenger rail service in the United 
States. It provides for the development of high-speed rail corridors, 
which are the building blocks of a national passenger rail system, and 
it fully funds Amtrak operations. We have a world-class highway system, 
a world-class aviation system, and a world-class freight rail system. 
It is time that we have a world-class passenger rail system.

    Senator Hollings. If nothing's said at all, let's put in 
two articles, if you please, Mr. Chairman, April the 21st and 
one April the 26th in the Washington Post, about the 
outstanding job that David Gunn has done. We're very, very 
lucky, because I've been around here now going on 37 years, and 
this is the first individual I've really run into that knows 
railroads, is working around the clock, has cut the costs and 
cut some of those routes that you pointed out about that do not 
pay for themselves.
    And yet in lauding Mr. Gunn, we've got to give him some 
support. We've asked him, in a bill that we passed out of the 
Committee--we had a bipartisan series of hearings, a bipartisan 
bill--20 to 3, we reported it out. We never could get it up for 
consideration. There were always holds on the floor. But within 
that measure, we asked for a 5-year plan, and now we have it, 
from the best of the best, Mr. David Gunn. I hope we can move 
forward and not just turn--and continue, I should say, Amtrak 
as a debating society.
    When you talk of--you've got somebody on your staff, Johnny 
Inkslinger, and he sits down there and maps out miles and how 
many passengers and all that nonsense. And, the truth of the 
matter, here's a committee, that has funded Amtrak for over 30 
years at $500 million a year, not billions--$500 million a year 
for 30 years, and this same committee just 3 weeks ago voted 
$40 billion--$40 billion--since 9/11, for the airlines. We 
could give them another $3.5 billion, $1 billion, for not 
knowing how to operate an airline. They're just a bunch of 
bums. They're all going broke.
    I mean, if you want to get down here and start adding up 
miles and what's profitable in cost benefit and everything 
else, we can turn it into a debating society, and that's, 
unfortunately, what we've done. But then we're going to lose 
Mr. Gunn, and then we're not going to have a passenger rail 
system in this country.
    And that's the fundamental question for the Committee to 
decide. If they want a passenger rail system, one, 
privatization is totally nonsense; it's out of the question. We 
gave it to the private railroads after World War II, and they 
begged us in the early seventies, said, ``Yes, you take it, 
take the equipment, take the routes. We can't make money on 
it.'' We looked the world around, and we haven't found any 
passenger rail system that's ever made money. That's not to say 
we just throw money away, but the truth of the matter is a lot 
of the deficiencies and all that go such to the extreme that 
you have to mortgage the railroad station and those kind of 
things, and cut out the lights, we're the problem up here.
    We've got to get a comprehensive study/conservative plan 
for passenger rail. I favor it. It's not going to come through 
my backyard, but we need it in this country. I'll go along with 
the distinguished Chairman on trying to cut back on waste, 
where there are only three or four passengers or whatever it 
is, just to satisfy some political interest and that kind of 
thing. But, otherwise, let's don't come with all the little 
gimmicks because we can't get past Mitch Daniel, Mr. Jackson.
    I've worked with Secretary Mineta and with you and with the 
Administration, and, like I say, it has been bipartisan. And 
once we had a bill, I said, ``Mr. Gunn, you take it. You know 
railroads. Tell us what's wrong with the bill and what should 
not be in it or what should be added,'' and we did it. And 
we've got 32 cosponsors now. We're ready to go with a measure. 
But if we want to turn it into a debating society and picky, 
picky, picky--I'm quoting the President now about little picky 
things--then we could picky, picky, picky this one, too, I 
mean, and then not have a passenger rail service.
    So I appreciate very much the hearing and the witnesses 
here today, and I thank you, Mr. Chairman.

                  The Washington Post, April 21, 2003

 Amtrak's Top Gunn; The No-Nonsense CEO Has Revived a Railroad and Won 
                 Respect From Politicians and Employees

                            By Don Phillips

    The conventional wisdom on David L. Gunn used to be that he was 
skilled at fixing broken rail systems but lousy as a politician, a man 
who could wipe the graffiti off New York's subways but in time would 
always shoot himself in the foot.
    But now, as he approaches the end of his first full year as 
president and chief executive of Amtrak, Gunn's speed and decisiveness 
in getting the ailing national passenger railroad back on track have at 
least slowed the Bush Administration's determination to restructure it 
into far smaller form. He has won over some longtime Amtrak foes in 
Congress and especially among beaten-down Amtrak employees, some of 
whom have printed up ``Proud to Be Working Under the Gunn'' T-shirts.
    Gunn's warning last summer that Amtrak would shut down, and take 
some commuter services with it, unless it got more money left hard 
feelings in the Administration and some commuter agencies. But he has 
also given Amtrak's many critics what they wanted. The blunt talk, 
independence and quick action that got him pushed out of at least three 
other jobs earlier in his career may, at least so far, be the biggest 
things working for him at Amtrak.
    And if people do not like what he says or does this time, he has 
said, he can ``just go back to Nova Scotia'' and re-retire.
    When Gunn has had it with the battling and begging necessary to 
keep Amtrak alive, he wanders down from Amtrak headquarters into the 
netherworld of Union Station. When he did it for the first time, 
employees in the crew rooms and the tunnels were stunned--some said 
they had never even seen the previous president, George D. Warrington, 
let alone shot the breeze with him.
    ``Sometimes,'' Gunn says, ``I just need to go down and see a 
train.''
    Or, put another way, sometimes Gunn just is not terribly 
comfortable acting like a boss even though he has been one so many 
times.
    Gunn, 66, was born in Boston, the grandson of a ship captain, but 
his heart is in Nova Scotia. His family moved to Cape Breton when Gunn 
was a small child, and he keeps a home there to which he returns 
whenever possible. His Nova Scotia roots instilled an ethic that says 
hard labor is one of life's callings.
    ``Physical work is an honorable thing to do,'' he said. ``There's 
no honest job that's beneath you. If you want me to clean toilets, I'll 
clean toilets.''
    In Nova Scotia, ``stuffed shirts and big shots, they're not 
respected,'' he said. ``People are judged on their willingness to break 
a sweat.''
    Gunn has had a few opportunities to break a sweat at Amtrak.
    At least twice, he has been aboard trains that broke down and taken 
it upon himself to move passengers' luggage to other trains. He said 
his employees were perfectly capable of making the bigger decisions, 
and he could help best by doing some heavy lifting.
    In January, on a trip up the Northeast Corridor, Gunn took his 
first trip aboard Amtrak's private railroad car. Normally, Gunn insists 
on riding with the passengers. But on this trip, he and several 
officials used the private car to meet and entertain rail officials in 
New York State and Toronto.
    As the train roared up the corridor, snow swirled around his 
railcar's rear platform and coated the huge picture windows. At the BWI 
station stop, Gunn hopped up to look for a squeegee and shovel, only 
car attendant Lou Drummeter found them first.
    ``I'll take care of that, Mr. Gunn,'' Drummeter said.
    ``Oh, I can do that,'' Gunn replied. Drummeter ignored him.
    At each succeeding stop, it was more of the same. Drummeter came 
back earlier and earlier to take control of the implements, eventually 
hiding them so Gunn could not find them.
    As Gunn protested even more strongly at a New Jersey stop, the 6-
foot-plus Drummeter looked down at him and said, ``Mr. Gunn, this is my 
job security.'' Gunn plopped back into his chair as others in the car 
howled with laughter.
    ``I feel so useless,'' Gunn said.
    Early in his tenure at Amtrak, Gunn did away with most of the perks 
of his office, selling the executive limousine and SUVs and reassigning 
the drivers to the Amtrak police department. He refuses to work on a 
computer and will not wear a cell phone. He goes to work by public 
transportation.
    Despite an affinity for the working man and woman, Gunn can be a 
no-nonsense disciplinarian. He listens to subordinates, but when he 
reaches a decision, there is only one way: his. Last year, Executive 
Vice President Stan Bagley resigned over disagreements on cost cutting, 
a blow Gunn took personally because the two had initially hit it off 
well. Gunn later said he did not sleep the night after Bagley left.
    In mid-March, he caught a conductor smoking on board a train, a 
clear violation of the rules. After thinking about it overnight, he 
sent a letter to all employees reminding them of the policy and giving 
them an unmistakable warning: ``In retrospect, I should have acted more 
forcefully and I will in the future.''
    A lifelong bachelor, Gunn has, figuratively at least, been married 
to railroading and transit. Early in his career, he was effectively 
fired from the Santa Fe freight railroad after arguing with superiors 
over the pricing strategy for a Chicago-California train, the Super C, 
that was his creation. ``They told me, you either shut up or go away,'' 
he said.
    His first transit job was Operations Director of Commuter Rail for 
the Massachusetts Bay Transportation Authority, which he chose to leave 
after a new governor took office and he felt political pressure to 
depart. He went on to manage commuter systems in Philadelphia, New York 
and Washington before ``retiring'' in 1999 as General Manager of the 
Toronto Transit Commission. He was at home in Nova Scotia when a 
headhunter called about the Amtrak job.
    Gunn had once turned down the Amtrak presidency. But with a full 
career behind him, and after two years sitting at home, he had little 
to risk and could not resist one more challenge.
    ``I miss work,'' he said. Gunn's method of operation is always the 
same: Quickly determine how many people it takes to efficiently operate 
whatever he has just taken over, then get rid of the rest. Get a handle 
on the finances and then start cutting costs. Look for rule breakers 
and crooks, and make examples of them. Take symbolic steps such as 
getting rid of limousines. Talk straight and be open, even when it 
hurts.
    A comparison of his first years at Washington Metro and Amtrak are 
striking.
    Four days after taking over at Metro in March 1991, Gunn announced 
plans to cut 320 employees, 29 of them immediately. Three weeks after 
he took over at Amtrak last May 15, he announced a reorganization that 
would cut 300 management positions and reduce the number of vice 
presidents to 20 from 86. At last count, he had eliminated 988 employee 
positions, about 4.5 percent of the workforce.
    Four months after taking over at Metro, he announced that an 
investigation had uncovered mismanagement, impropriety, drug abuse, 
favoritism and waste among maintenance employees. At Amtrak, Gunn's 
lieutenants paid a surprise visit one night to a repair shop in Indiana 
and found some employees sleeping, goofing off and otherwise not doing 
their jobs.
    His passion for cleanliness won him national attention in the 1980s 
when he was president of the New York Transit Authority, where he 
largely succeeded in an initially ridiculed campaign to wipe graffiti 
off the subways. At Metro, he became popular with passengers partly by 
cleaning up buses and trains, and repairing and replacing aging rail 
cars. At Amtrak, he ordered a general cleanup that included selling or 
scrapping derelict locomotives and passenger cars.
    But at Metro, Gunn was considered a loose cannon. He revealed 
unpleasantries such as the maintenance investigation and insisted on 
complete management independence. Within weeks of taking over, he 
announced a reorganization of the staff without telling the board in 
advance. Worse, he followed the popular Carmen E. Turner, who knew how 
to work within the system. Gunn submitted his resignation in 1993 amid 
increasingly public criticism from board members.
    Still, even those at Metro who disagreed with his style leave 
little doubt that they respect him.
    ``If Amtrak can be saved, I think David Gunn has the skills to do 
it,'' said Washington consultant Beverly R. Silverberg, who resigned as 
Metro's chief spokeswoman in 1992 because she thought Gunn was too 
negative about Metro's problems.
    At Amtrak, Gunn enjoyed the advantage of having no positive image 
to defend. Despite insisting for years that Amtrak was on the ``glide 
path'' to self-sufficiency, Warrington had been forced to mortgage New 
York's Penn Station just to keep trains running.
    Auditors for the General Accounting Office and the Transportation 
Department's inspector general often shook their heads trying to make 
sense of Amtrak's books. In the last year before Gunn arrived, Amtrak's 
auditors refused to certify the financial results.
    Gunn spent months pushing his financial managers to produce 
meaningful, understandable numbers. He now releases a monthly financial 
report as voluminous as the Montgomery County phone book.
    Those books show that Amtrak, under Gunn, has weathered relatively 
well a general downturn in travel that cut deeply into revenue. For the 
fiscal year through the end of February, revenue was $62.9 million 
below budget. But operating expenses were $58.8 million below budget. 
For the first quarter, the figures had been even more dramatic--revenue 
$29.4 million below budget but expenses $40.8 million below budget.
    Some of the savings can be attributed to job cuts, but much came 
one increment at a time. Many of those increments came straight from 
Gunn's observations and his tendency to act immediately when he sees 
something he does not like.
    On one short trip to Florida, for example, Gunn discovered that in 
Miami--the terminating point for three Amtrak trains--the railroad was 
paying hundreds of thousands of dollars a year to have a switch engine 
and crews from CSX Transportation available 24 hours a day. The 
engine's main duty was to deliver those trains to a servicing facility 
and turn the southbound trains around for the trip back north.
    ``Why don't we just use the road locomotives to do that?'' Gunn 
snapped, referring to the engines that pulled the train down. ``This 
isn't rocket science.''
    But he has not cut blindly. In fact, Gunn has even rescinded some 
cuts.
    During a 10-day cross-country train trip, Gunn was bored seeing the 
same food every day and ordered that different menus be introduced each 
day in a repeating cycle. On another trip, a chef told him that spices 
had been axed from the supply lists in Amtrak's dining car kitchens as 
a cost-cutting measure. Chefs were generally buying their own spices. 
They do not have to anymore.
    ``It was stupid,'' Gunn said. ``You can't let service collapse. A 
dining car obviously spends a lot of money, but you've got to have 
it.''
    It is a ``myth,'' he said, that sweeping programs make an 
organization successful.
    ``Life is not like that,'' he said. ``You take a lot of little 
actions.''
    Gunn has long claimed that he does not ``do politics,'' and his job 
history seems to bear that out. But that does not mean he cannot be 
political when he wants to be.
    On June 5, just three weeks after taking his job, Gunn announced 
that Amtrak's financial condition was so bad that the system would have 
to shut down in July unless it received a $200 million loan within 
three weeks.
    The Senate Committee on Commerce, Science, and Transportation, 
headed by longtime Amtrak critic John McCain (R-AZ), sent along a 
series of questions.
    The next morning, Gunn handed Joe McHugh, his governmental affairs 
vice president, a yellow legal pad with a handwritten letter to include 
with the answers to McCain. The letter said that just about every 
McCain criticism of Amtrak over the years was true.
    After outlining a laundry list of problems he found, he wrote: 
``This is not a way to run a railroad and not the way I will run the 
railroad. Too many happy words have hidden some very dismal financial 
results.''
    McCain called Gunn's letter ``surprisingly refreshing.'' With 
McCain's support, Congress quickly appropriated $200 million to keep 
the wheels turning.
    During that same period, Amtrak was negotiating with the Bush 
Administration for a temporary loan. Deputy Transportation Secretary 
Michael P. Jackson demanded that Amtrak adopt a list of ``reforms'' as 
a condition of getting the loan. Gunn found some of the conditions 
unacceptable.
    On June 21, as the decision on a shutdown loomed, Gunn let drop 
almost matter-of-factly that any commuter trains run by Amtrak or that 
use Amtrak tracks or facilities would also have to shut down because 
there would be no dispatchers, train crews, maintenance crews or even 
liability insurance to keep them running. Suddenly the whole political 
climate changed. It was not just an Amtrak story anymore.
    Cities and states demanded action.
    Caught off guard, the Administration granted the loan and dropped 
the conditions that Gunn did not like.
    Jackson calls Gunn's tactic ``a source of friction'' that 
``frankly, has rebounded against him and has not been a positive thing 
for Amtrak.'' He said he had told Gunn that the Administration would 
find a way to keep Amtrak running, and ``no way was it fair to threaten 
a shutdown.''
    Nonetheless, Jackson has praised Gunn more in public forums such as 
Congressional hearings. ``He's tough and stubborn,'' Jackson says, 
``but then so am I.''
    The shutdown crisis made many in Congress more aware that some 
politically popular but money-losing routes were in danger of being 
discontinued, prompting it to pass a fiscal 2003 Amtrak budget with 
subsidies of a little more than $1 billion, virtually everything Gunn 
said it needed. Administration rhetoric has toned down, and President 
Bush has proposed $900 million for Amtrak in fiscal 2004. That is much 
less than the $1.8 billion Gunn says it needs but far more than any 
Administration has ever proposed.
    On the other hand, Gunn's tactics at least temporarily poisoned 
Amtrak's relationships with commuter agencies, some of whom have 
threatened to look for a company other than Amtrak to run their trains. 
Among those agencies was Virginia Railway Express.
    However, Pete Sklannik Jr., VRE's operations manager, said that 
Gunn has made up a lot of lost ground since then, and that VRE is now 
negotiating with Amtrak alone on a new contract.
    ``The [shutdown] tactic, in a strange way, brought us together,'' 
Sklannik said. Even as he has been so outspoken on other issues, Gunn 
has avoided being dragged into the perennial debate over what to do 
about long-distance trains, by simply refusing to say whether he thinks 
any of them are needed.
    He says it was a ``political decision'' to run them, and only 
Congress, through a political process, can decide whether to eliminate 
them. He will only say that they account for only a small part of 
Amtrak's financial problem, using only $300 million in yearly subsidies 
while the Northeast Corridor requires far more money.
    The Administration sharply criticized continued operation of long-
distance trains in its fiscal 2004 budget proposal, but that attitude 
seems to have been modified somewhat. In a House hearing in early 
April, where Gunn and Jackson sat together, Jackson adopted Gunn's 
approach, saying he believes the future of long-distance trains is a 
political decision.
    The Administration has said it wants to place the Amtrak-owned 
Northeast Corridor under a ``public partnership'' and turn Amtrak into 
a pure railroad operator that would be subject to competition. States 
would be expected to pay an increasing share of passenger-train costs. 
The Administration principles are generally in line with 
recommendations made last year by the Amtrak Reform Council.
    Gunn scoffs at the ideas other than greater participation by the 
states, which lays the groundwork for another battle with the 
Administration.
    ``He has a vision of the railroad that is not the vision of the 
Bush Administration,'' Jackson said.
    Jackson said that no matter how well Gunn runs Amtrak, ``I think 
Amtrak is still in a crisis,'' and something must be done.
    Thomas A. Till, former Staff Director of the Reform Council, said 
he thinks Gunn has ``done a very good job of cleaning up a big mess.'' 
But Till said Gunn's skills will not be enough to save the passenger 
train, and he is afraid Gunn's actions may persuade Congress to simply 
keep the status quo for a while.
    ``It would be unfortunate, but it's conceivable, given other 
priorities, that we could limp along with a patched-up Amtrak--what 
some people call ``kicking the can down the road.''
    Gunn now talks less of going home to Nova Scotia. At a 60th 
birthday party last year for Amtrak's Media Relations Director, Cliff 
Black, Gunn told Black he could not retire for another five years 
because ``I'll be here five years.''
    ``God willing and the creeks don't rise,'' he says, ``I'm not doing 
this to be a short-timer.''
                                 ______
                                 

                  The Washington Post, April 26, 2003

   Amtrak Chief Unveils Five-Year Plan; $8 Billion Sought to Repair 
                  Infrastructure, Trains in Northeast

                            by Don Phillips

    Amtrak President David L. Gunn yesterday unveiled an $8 billion, 
five-year passenger train recovery plan designed to halt deterioration 
in the Northeast corridor and to repair locomotives and cars.
    The detailed plan provides a stark look at the condition of the 
infrastructure between Washington and Boston. Among other things, Gunn 
said an engineering survey between New York and Washington found that 
more than 9,800 of the large steel poles that hold up the lines that 
provide power to the locomotive have foundations that are ``in 
trouble'' and must be shored up.
    Gunn's proposal, which is several thousand pages long, is by far 
the most detailed capital plan ever produced by Amtrak, giving exact 
budgets and schedules for thousands of projects. It envisions a Federal 
subsidy of $1.8 billion in fiscal 2004, gradually declining to $1.5 
billion in fiscal 2008 as capital projects come on line and Amtrak is 
able to operate more efficiently. The total Federal subsidy would be 
$4.5 billion in capital funding and $3.5 billion in operating 
subsidies. No new services would be added, unless states pay all costs.
    Congress has traditionally slashed Amtrak budgets below requests 
over the years. But there are indications that Congress is paying more 
attention to Gunn's requests than to those of most of his predecessors. 
In the current fiscal year, the Bush Administration requested $521 
million for Amtrak, but Congress approved $1.034 billion, just slightly 
less than Gunn requested.
    Gunn said that without that amount of money, deterioration would 
continue, and that would force Amtrak trains to slow down, ending high-
speed rail service in the one place in the United States where it is 
now available.
    ``If the capital plan is under-funded, then the whole thing falls 
apart,'' Gunn said at a press conference yesterday.
    Gunn said Amtrak spent an average of $1.5 billion a year more than 
its revenue between fiscal 1997 and 2002, by borrowing against assets 
such as New York's Penn Station. Amtrak now owns almost nothing 
outright and has more than $250 million a year in debt, Gunn said.
    Deputy Transportation Secretary Michael P. Jackson, who is also a 
member of the Amtrak board, said the plan is ``more meticulous, 
thorough and thoughtful than has been presented in the past.'' But he 
said it is ``incomplete'' because it fails to quantify many issues, 
mainly ``vulnerabilities'' such as looming requirements under the 
Americans with Disabilities Act. He also noted that Gunn says that new 
passenger equipment must be ordered after the end of this five-year 
plan, but he did not quantify the cost.
    Congressional reaction is expected to come quickly. Gunn will 
appear Tuesday before the Senate Committee on Commerce, Science, and 
Transportation, and on Wednesday he will address the railroad 
subcommittee of the House Transportation and Infrastructure Committee.
    Much of the work under Gunn's plan would be concentrated between 
New York and Washington, but some of the most urgent individual 
projects are north of New York, including the replacement of three 
major bridges in Connecticut.
    Two bridges in Maryland will need major repair work, including the 
bridge over the Susquehanna River at Perryville. The B&P tunnels south 
of Baltimore's Penn Station and a tunnel south of Washington's Union 
Station also will need major work.
    The plan also calls for replacement of dispatching centers and 
installation of modern signal and communications systems. The electric 
traction system would largely be rebuilt.
    However, the electric upgrades do not include a ``constant-
tension'' electric wire structure that would allow 150-mph speeds south 
of New York. Gunn said that could be added relatively easily later, 
after the structure has been strengthened.

    The Chairman. Thank you, Sir.
    I think the President's words were ``itty-bitty.''
    Senator Hollings. Itty-bitty, that's--excuse me. It's 
something like that. Itty-bitty.
    [Laughter.]
    The Chairman. Senator Hutchison?

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

    Senator Hutchison. Thank you, Mr. Chairman.
    Mr. Chairman, I think that we have allowed Amtrak to be 
nibbled to death by ducks, and we have starved them, and we 
have watched them have different general managers that come in 
and say, ``Yes, we're committed to a national system,'' and 
then by the end of their time, they're into just having a 
Northeast Corridor system for our country. And as I understand 
it, the new Amtrak strategic plan is $10 billion over 5 years 
to basically redo the Northeast Corridor of Amtrak and, once 
again, leave out the rest of the country.
    Now, I think we have got to stop just giving Amtrak a 
little bit here, making them come and beg for supplemental 
appropriations to stay in business, mortgage Penn Station to 
keep on operating. That is not ever going to produce a national 
railroad. And I really believe in a national railroad. I really 
want one.
    I want a national railroad that is a skeleton that goes 
across the top of America, down the West Coast, across the 
bottom of America, up the East Coast, and right down the 
middle, from Chicago to Dallas to Houston or San Antonio. I 
think that would be a national system, from which you would 
have, then, the capability to have a lot of offshoots, have 
State help for that, have consortia, have State groups, have 
local mass transit feed into these national skeleton systems. 
We could have a great system, or we could have a mediocre-to-
pitiful system, or we could do away with it.
    And I have come to the conclusion that we should either 
have a great system or do away with it. And I don't think a 
Northeast Corridor is worth it to the taxpayers of our country, 
because it is not a national system.
    So I think we need to find out from the experts here if we 
can have an Amtrak that is a national system, what it will cost 
to do it right, how we can deal with the railroads, some of 
which are cooperative and some of which are not. And I want 
something different, something bold, and something that has a 
chance to succeed.
    I've been in Congress 10 years, and all I've seen is just 
dribble, dribble, dribble, dribble, and nothing is different. 
So, Mr. Chairman, you have said all along that it should be 
zero. If I don't see a real chance--and I am the Chairman of 
the Surface Transportation Subcommittee, so this is my area of 
jurisdiction--if I don't see a chance for a successful national 
system, which I really do think we need and which I think would 
be very shortsighted to lose, then I'm going to be a convert to 
your position.
    But I hope that that is not what we do. I hope that we have 
a revenue stream. I hope that we have a plan. I hope that we 
make a commitment to a national system, because I think we need 
that alternative for real mobility in our country.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Burns?

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

    Senator Burns. Thank you, Mr. Chairman.
    In the essence of time, I'll submit my statement. I have a 
markup over in Energy here coming up pretty quick, and that's 
very, very important to us, too. But I just want to submit my 
statement and hear some of the testimony.
    Thank you very much.
    The Chairman. Without objection.
    [The prepared statement of Senator Burns follows:]

   Prepared Statement of Hon. Conrad Burns, U.S. Senator from Montana

    Thank you Mr. Chairman, I will keep my statement short and I would 
like to welcome the panel.
    The daily service provided by Amtrak is a vital means of 
transportation to the Montanans along the Northern tier of my state. So 
I have many concerns about the future of Amtrak--not only as a service 
provider to my constituents but also as a way for the rest of the 
Nation to see Montana from a different perspective.
    We all agree that Amtrak is an important means of passenger 
transportation across our Nation, and in some cases the only means. As 
a result, we need to provide Amtrak with the resources to become self-
sufficient and still remain within our budget restraints.
    Our Nation's rail service was the first mass transport of 
passengers and goods from the East coast to the West coast. It's hard 
to imagine that this replacement to the Pony Express and the stagecoach 
of the Old West is still one of the most efficient and underutilized 
forms of transportation in our country.
    Amtrak's financial problems are a barrier to eventual 
privatization. If Congress is unable to address those problems now, we 
are setting ourselves up for future problems that will dog us until we 
do address these concerns.
    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. Senator Lott?

                 STATEMENT OF HON. TRENT LOTT, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Lott. Thank you, Mr. Chairman, for having this 
hearing. I, too, want to hear what the witnesses have to say. I 
may have some comments or questions later, but I'd like to 
withhold at this time.
    Thank you.
    The Chairman. Thank you very much.
    We have Mr. Michael Jackson, who is the Deputy Secretary, 
U.S. Department of Transportation; Honorable Kenneth Mead, 
Inspector General, U.S. Department of Transportation; and Mr. 
David Gunn, President and CEO of National Railroad Passenger 
Corporation.
    Welcome to the witnesses. We'll begin with you, Secretary 
Jackson.

    STATEMENT OF HON. MICHAEL P. JACKSON, DEPUTY SECRETARY, 
                  DEPARTMENT OF TRANSPORTATION

    Mr. Jackson. Mr. Chairman, thank you very much for having 
me here today. Senator Hollings, members of the Committee, I'm 
grateful to have this opportunity to discuss the future of 
passenger rail service in America.
    I begin with the obvious that has been stated here today, 
Amtrak is in a state of crisis. It has been from its very 
beginning, and my prepared testimony provides some additional 
detail on this, and I shouldn't try to summarize that here 
before you. But the punch line is, is that we have this crisis, 
that taxpayers are providing huge subsidies, there's a $6 
billion capital backlog, a balance sheet laden with debt, a 
recent history of near bankruptcies, and more. And so in what 
follows, I'd like to talk about the path out of this mess.
    Before discussing intercity passenger rail and its future, 
I would like to join some of the Members who have spoken to 
David Gunn's stewardship in the last year at Amtrak. I think we 
have made significant progress. He is doing tangible and 
important work to bring business discipline and transparency 
into the operation at Amtrak. All that's welcome. The 
management team has a daunting challenge, and it has a good 
team working against those challenges.
    But recent management discipline and the new oversight 
authority granted in the new Omnibus Appropriations Act will 
not alone get us out of this crisis or alleviate three decades 
worth of problems at Amtrak, nor will the problems simply go 
away with a liberal dosage of more Federal funds. We have to do 
something different. Structural reform at Amtrak is really the 
only way to avoid having to return to this committee and to the 
rest of the Congress year after year after year with a series 
of surprises, ``Oops, we've got this problem.'' This is just no 
way to do business. I concur with the Committee's stated views 
on that issue, as well.
    In June of last year, Secretary Mineta spelled out five 
principles for the Bush Administration in what we will argue as 
a necessary framework for thinking about reform. Anticipating 
Congressional action on authorization sometime this year, the 
Administration has proposed funding of Amtrak in fiscal year 
2004 at a level of $900 million. I'll repeat today what the 
Department of Transportation said in announcing this figure. 
This is a budget proposal with a message, and the message is, 
we must reform Amtrak, we must look at the structure of how 
we're spending money on intercity passenger rail.
    Many of the central questions will involve money. Amtrak's 
management has produced a first draft of a plan which shows us 
spending or needing, just to sustain the system that we have, 
some $2 billion annually. There are a number of things that the 
Board of Directors have asked David and the management team to 
go back and provide additional details about what constitutes 
liabilities and risks to this plan which could cause those 
numbers to grow and, in some cases, grow very, very 
significantly. In addition, at the end of this plan that David 
has submitted, as it states, we face a huge investment 
potentially in rolling stock if we're going to continue to 
maintain the system we have. The trains that Amtrak has are 
old, and they will need replacement if we are going to simply 
operate with the same business model and the same network and 
infrastructure that we have rolling here today. So, there is a 
looming substantial investment just on the other side of that 
bar graph for the 5 years that you've already seen.
    The new authorizing legislation for intercity passenger 
rail will presumably also address the interests and the 
proposals that we have had placed before the Congress and the 
Administration for high-speed rail. For a while, Amtrak tried 
to intertwine its future with that of the multiple corridors 
around the country that were seeking an opportunity to build 
intercity passenger rail. It was a way of providing a political 
alliance that might throw enough money to make both of these 
entities, or both of these enterprises, possible. We need to 
disentangle and understand what we're being asked to invest in 
and look at high-speed rail, not to mention Maglev demands on 
the Congressional appropriation process.
    Some argue that it's inevitable that the Federal Government 
has to spend large sums of money to support intercity passenger 
rail. That's flawed logic and counsel that we can ill afford. 
In fact, Amtrak's core business design suffers from structural 
rot. It is bankrupt at the core and we need to look at the 
structure of how we manage intercity passenger rail.
    Consider, for example, the failed glide-path mandate that 
was given to Amtrak in the last reauthorization cycle. What 
happened, rather than producing operational self-sufficiency, 
is that Amtrak delivered stratospheric debt and pervasive 
financial legerdemain. We hocked our access rights to Penn 
Station and grew the debt at a significant pace in order to try 
to appear to be on this glide path. It was folly, but it was a 
result of the structural flaws in the way that we fund and 
structure and manage and operate intercity passenger rail. So 
rather than producing operational self-sufficiency, we had 
these other problems.
    Just think for a second about the failure to terminate 
long-distance rails. We basically have a network and a grid, a 
national grid, that was created more than 30 years ago, and it 
is simply not possible, apparently, for Amtrak, as an entity, 
as it's currently structured, to be able to address the 
question of what routes we should run and how we should price 
these in a way that prevents the type of subsidies that we've 
discussed here, Mr. Chairman, that you mentioned in your 
opening remarks.
    I think we have had a fragile political coalition that has 
nailed this together. There are obviously other factors that 
make it difficult to change. The labor termination costs, 
obviously, mean that, in the first year or two, you don't 
really find savings. So we have to look at the structure of how 
these problems intersect with each other and ask what to do.
    In fairness, I believe that many of the Members of Congress 
who voted in the last authorization for this reform board, this 
reform of Amtrak, thought that they would be delivering a 
company that could operate without Federal subsidies. And our 
problem, I think, is that we were insufficiently bold and 
fundamentally flawed in how we left the structure of Amtrak on 
the table at that point.
    So this Administration supports an authorization for a 
period of 6 years. I think it's going to take us a little bit 
longer than the previous term of 4 to get this right. We should 
not precipitously jump into a reform that imposes obligations 
and burdens that we cannot sustain. But, by the same token, we 
cannot do the same thing for the future.
    Intercity passenger rail, at the end of a 6-year 
authorization period, what would it look like? I'd like to just 
dwell for a moment on if we were going to try to reform what we 
have today, what would it look like by the time we got to the 
end? And in this time, we wouldn't just say, ``Hope you do 
something better and operationally self-sufficient, and see you 
at the end gate.'' Instead, we would put very specific gates, 
demands, and responsibilities on the system, and we would 
measure them and hold accountable our transition to a new way 
of doing business.
    So what does that new way of doing business look like? I 
think perhaps that's the most meaningful way for me to dig into 
what is, in fact, a very, very complex set of interlocking 
problems. First of all, intercity passenger rail would be an 
economically viable and meaningful mode of transport 
contributing to the overall transportation infrastructure in 
America. The Federal role in passenger rail, however, would be 
significantly different. It would look much more like the way 
that we manage our relations and our investments relative to 
the transit industry and operated by the Federal Transit 
Administration through its programs than it does today.
    The Federal Government would continue to define rail safety 
standards and to enforce those standards. We would provide 
capital grants to State governments and consortia of State 
governments that seek to operate intercity passenger rail. 
State government agencies would determine the level of 
passenger services needed, the price for such service, and they 
would contract with third-party operators, presumably with a 
restructured Amtrak operating company to operate at the 
beginning and through a significant portion of this 
reauthorization period, but ultimately would have the option 
for some competition, if the states chose to do so.
    For a period of years, the Federal Government would 
continue to supply a disproportionate amount of the capital 
needed to put our system in a sufficiently good state of repair 
to move forward in a coherent fashion. By the end of this 
reauthorization cycle, however, by the end of the 6 years, we 
would expect that State governments would provide at least 50 
percent of needed capital investment for all intercity 
passenger rail and any operational subsidies that would be 
necessary to continue to operate intercity passenger rail.
    The Federal Government would assume, over this period of 
time, new and expanded roles, particularly to support the 
formation of these corridor-based rail operating entities. The 
Administration will request continuation of the type of grant-
making and financial oversight that was provided in the Omnibus 
Appropriations Act in 2003. The Department, rather than Amtrak, 
would exercise its statutory authority to assign passenger rail 
operating rights to a single party--not multiple entities, but 
to a single party--at the request of a state.
    We don't propose to eliminate intercity passenger rail, but 
we do propose a comprehensive structural change to implement at 
a prudent pace spanning this 6-year period. Amtrak would be 
required to form a pure operating company, one that does, 
indeed, make a profit by providing excellent service for its 
government customers. It would be irresponsible to eliminate 
Amtrak altogether, but it would also be an equal folly to 
ignore the fact that what we have is in a persistent and 
thorough-going crisis.
    One cornerstone of this principle is to continue vital rail 
services while we implement these reforms. So I think it's 
important to understand that we have to unpack the problem of 
the Northeast Corridor in a meaningful way, and we have to look 
at the question of how you provide meaningful service around 
the rest of the country at the same time. But the ways of doing 
that will differ, I believe, because of the fact of the 
ownership by Amtrak and the Federal Government's equities in 
the Northeast Corridor. So we have to look at both. They're two 
related and intertwined problems, but separate exercises from a 
business-structuring point of view.
    We have to balance the interests of commuter rails and also 
of the freight railroads in this provision. If this model is 
embraced, I personally think that the Nation will see more, 
rather than less, intercity passenger rail, and I think that 
effective reform need not eliminate protections afforded by the 
Railway Labor Act, the Federal Employers Liability Act, FELA, 
and Railroad Retirement. I also think the transition can be 
structured in a way to be sympathetic to and supported by 
Amtrak's employees as we make this change.
    This is a very brief sketch of a very complex topic of 
where we end up. I would like to just do one other thing, which 
is to say, for a minute, a word about some key institutions 
that we would have to create to make this happen.
    First is a Northeast Corridor Federal/State compact. I'm 
not coming here today with a plan that says, ``Create it this 
way.'' The Administration's legislation will not say, ``It must 
look exactly like this and perform like this.'' I think we have 
to take a more modest step and put in the authorization 
legislation language that defines, with clarity and certainty, 
a process that will yield a Federal/State compact that can own 
and manage this important infrastructure. I don't think it's 
going to be easy to do this with a snap of the fingers, but I 
think it is possible to tackle problems like this and create 
this type of structure. I'd be happy to answer further 
questions about what we think that might look like.
    I would also, then, point out that, on the State side, we 
should stimulate the formation of regional rail-operating 
companies in one State and in multiple-state clusters to help 
manage intercity passenger rail. And, just like with transit 
appropriations and our transit management programs, State 
entities that can come to the table with a clear finance plan, 
with a plan to be operating in a self-sufficient fashion and 
with the disciplined and accounting tools necessary to convince 
the government that investment is a fair and prudent act.
    At Amtrak, we have to do a number of things to restructure 
and organize. We shouldn't do it overnight. We should do it in 
a steady and clear fashion. But we should do two things at 
least, and start doing those in the first year while 
maintaining the core structure that we have for that first 
year. And that is to create an NEC infrastructure company 
first. This would be a company that would take existing parts 
of Amtrak and then, in conjunction with the creation of the new 
Federal/State compact to operate the corridor, would provide 
the people, the skills, the experience, and the tools to 
operate the corridor under contract from the Federal/State 
partnership to this legally separate entity. I think we would 
start by a gradual division within Amtrak itself, and move to a 
separate and freestanding company, a for-profit business at 
some juncture during the period of the authorization. And, 
finally, we would take a corporation, call it Amtrak 
Operations, and make this the vessel to operate, on behalf of 
States and coalitions of States, the train service that this 
country chooses to make.
    It is important, in underlying both of these types of 
Federal, State, and private-sector structures, that we realign 
the incentives so that the private businesses are paid for by 
public entities who decide among multiple transportation 
priorities and make modal choices based upon the available 
funds and needs.
    So, in conclusion, Mr. Chairman, passenger rail is an 
important component of our national transportation 
infrastructure. Members of Congress committed to passenger rail 
need not mistake or fear that the conviction for structural 
reform is a Trojan Horse which hides a desire to explode 
intercity passenger rail. Quite the contrary, it is one that 
intends to make the possibility of intercity passenger rail 
work over the long haul.
    Some will disparage the call for route and branch reform, 
in part, because it's so difficult. The Bush Administration's 
proposals do not rely upon a quick fix, nor is the fix an easy 
fix, but it is a responsible choice to make structural reforms 
now and not to come back before this committee year after year 
after year with yet another crisis.
    There is, then, much work ahead of us. Secretary Mineta and 
his team look forward to providing the flesh on the bones of 
this testimony that I've laid out. I look forward to working 
with the Committee and answering any questions that you may 
have.
    Thank you very much.
    [The prepared statement of Mr. Jackson follows:]

   Prepared Statement of Hon. Michael P. Jackson, Deputy Secretary, 
                      Department of Transportation

    Chairman McCain, Senator Hollings, members of the Committee, I 
appreciate this opportunity to appear before you today to discuss 
Amtrak and the future of intercity passenger rail service in America.

I. Amtrak's Recurrent Crisis
    I begin with the obvious: Amtrak is an organization with profound 
financial difficulties. Its current budget request to Congress 
acknowledges that ``for over 30 years, Amtrak has lurched from one 
financial crisis to another.''
    Amtrak was created with the illusory expectation that it would soon 
achieve profitability. Instead, it became dependent upon ever-
increasing and now unsustainably large Federal appropriations. This 
dependency on Federal funds is pegged by Amtrak to be up to $2 billion 
annually for the foreseeable future \1\--with Amtrak's FY 2004 budget 
request up over 80 percent from the current fiscal year and over 250 
percent above FY 2001.
---------------------------------------------------------------------------
    \1\ Amtrak has requested $1.812 billion for FY 2004.
---------------------------------------------------------------------------
    The Department of Transportation (DOT) expects that each and every 
one of Amtrak's 17 long distance trains will this year lose money on a 
fully allocated cost basis, even excluding depreciation and interest. 
On a fully allocated cost basis including depreciation and interest (a 
more accurate measure of overall Federal investment), all of Amtrak's 
43 regularly scheduled routes lose money. Ten of its 17 long distance 
train routes have a net loss of more than $40 million per year. On a 
per passenger basis, the loss for long distance trains ranges from $131 
per passenger to $551 per passenger. Counting long distance and 
corridor trains together, Amtrak has 25 routes that DOT expects will 
this year require a subsidy of over 25 cents per passenger per mile of 
travel.
    Appendix 1 provides DOT's FY 2003 forecast of passenger revenue and 
expenses for all of Amtrak's routes, reflecting the most recent Amtrak 
business plan submitted to the Department. Appendix 2 provides more 
detail about the Department's implementation of our new statutory 
authority to require in FY 2003 that Amtrak live within its 
Congressional appropriation. We will continue to monitor Amtrak's 
performance and will provide updates to the Committee periodically 
throughout the remainder of the fiscal year.
    If anything, these route subsidy figures underplay the true 
financial difficulty that faces Amtrak. In order simply to meet 
payroll, Amtrak has for years also deferred long-term investment work, 
the true cost of which is not fully known. The DOT Inspector General 
estimates Amtrak's deferred capital investment backlog to be $6 
billion. Last week, Amtrak's Board of Directors received from 
management a first draft of staff's estimate of capital and operating 
needs for the next five years. The Board has requested that David Gunn 
provide additional detail about several considerable risks to the plan. 
The draft also identifies, but does not yet cost out, a need for large 
capital investments for replacement of old rolling stock within ten 
years. One thing is certain at this juncture: the present and future 
capital needs of Amtrak are another large potential liability.
    In addition, and animated perhaps in part by an aversion to 
declaring its failure to meet the operational self-sufficiency mandate, 
Amtrak's total debt grew from $1.7 billion in 1997 to $4.8 billion in 
2002. Figure 1 illustrates the growth in Amtrak's total debt.



    Because of this increased debt, naturally Amtrak's annual debt 
service has grown substantially, adding a large up-front cost to its 
business plan. Annual debt service requirements (principal and 
interest) are forecasted to be $278 million in FY 2004 (up from $111 
million in 1997). This means that debt service will consume over 15 
percent of Amtrak's requested FY 2004 appropriation of $1.8 billion. In 
short, Amtrak has leveraged its assets very aggressively.
    As you know, in each of the last two years, the Department of 
Transportation was obliged to take extraordinary measures to help 
Amtrak avert bankruptcy. We reluctantly allowed Amtrak to mortgage Penn 
Station in New York City in the summer of 2001 and provided Amtrak a 
$100 million loan under the Railroad Rehabilitation and Improvement 
Financing (RRIF) program in the summer of 2002. Last year's RRIF loan 
was further augmented by a $205 million emergency appropriation voted 
by Congress to prevent a fourth quarter shutdown at Amtrak. That 
narrowly averted shutdown not only would have stranded Amtrak's 
customers, but also would have affected hundreds of thousands of 
commuter rail passengers who rely on Amtrak's commuter support services 
and infrastructure.
    In what follows, I would like to outline the Administration's 
recommendations for passenger rail authorization.

II. Authorizing Intercity Passenger Rail Anew
    Before discussing the future of intercity passenger rail in more 
detail, I'd like to say a word about the team that is managing ongoing 
operations at Amtrak. Since arriving at Amtrak almost a year ago, David 
Gunn has worked with the Amtrak Board of Directors to reduce operating 
expenses, de-layer management, improve customer service, address the 
numerous material weaknesses identified by Amtrak's auditors, instill 
financial discipline, and provide Congress and the Administration with 
more accurate and timely financial data. David and his management team 
have achieved meaningful improvements.
    Having represented Secretary Mineta on the Amtrak Board for the 
past two years, I have been impressed with David's work and candor, 
even when we have occasionally and respectfully disagreed. David has a 
daunting task, but he and his team have made progress worthy of honest 
praise.
    Recent management discipline and new oversight authority, however, 
will not alleviate the ongoing crisis of three decades at Amtrak. Nor 
will the problems at Amtrak simply go away with a more liberal 
application of dollars drawn from the Federal treasury. The status quo 
organization cannot stretch to resolve these and other inherent 
weaknesses with which Amtrak has struggled to live. Structural reform 
of intercity passenger rail is needed.
    Principles of Reform. Last June, Secretary Mineta spelled out five 
principles that the Bush Administration argues should be part of any 
successful reform of intercity passenger rail service. He said we must:

   Create a system driven by sound economics.

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

   Require that Amtrak transition to a pure operating company.

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

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

    Anticipating Congressional action on authorization later this year, 
the Administration proposed funding for Amtrak in FY 2004 at a level of 
$900 million. Today I repeat what DOT said when announcing the 
Administration's FY 2004 funding request for Amtrak. This is a funding 
level with a message: Amtrak must undergo significant reform.
    Money Alone is Not the Answer. Many of the central questions of the 
authorization will be financial, beginning with consideration of the 
enormous annual Federal subsidies--some $2 billion a year over the next 
five years--proposed by Amtrak. But even this proposal does not 
liquidate Amtrak's capital backlog. Nor does Amtrak's request include 
money for the multi-billion dollar high-speed rail projects advocated 
by others. In fact, as part of its loan to Amtrak last year, the 
Department prohibited further speculative outlays by Amtrak to support 
future high-speed rail projects. Amtrak agreed to these provisions.
    The new authorizing legislation for intercity passenger rail 
service will presumably also address the Federal Government's role and 
funding commitments--if any--relative to high-speed rail and Maglev. 
When the whole picture is laid on the table, the potential cost is 
stunningly large.
    Some argue it is inevitable that the Federal Government must 
endlessly pay giant subsidies for passenger rail. Around the globe, 
they note, passenger rail typically loses money. Amtrak is today a 
giant passenger rail system spanning thousands of miles. Ergo, it is 
said, the Federal Government surely must spend Brobdingnagian sized 
buckets of money for Amtrak.
    This is flawed logic and counsel we can ill afford. It fails to 
recognize adequately that the vast size of our Nation and its 
population distribution make for a passenger rail market in the United 
States unlike virtually all other nations.
    In fact, Amtrak's core business design suffers from structural rot. 
For decades, the Federal Government has embraced perverse incentives 
that consistently impel Amtrak to make irrational business decisions. 
Consider, for example, the failed experiment in the last authorization 
regarding the so-called ``glide path.'' Rather than producing 
operational self-sufficiency, Amtrak instead delivered stratospheric 
debt and pervasive financial legerdemain. To look at Amtrak's dilemma 
more sympathetically, one could say that from the beginning Amtrak has 
tried to balance an ill-defined public service mandate with a clear 
statutory requirement to operate as a for-profit enterprise, never 
satisfying either.
    Just take the issue of whether to modify or actually terminate long 
distance routes. Even though the evidence shows staggering subsidies 
for long-distance rail, Amtrak has not made even modest changes to its 
long distance route structure in over 30 years. Why? Because we are 
told that the labor protection costs would, for several years, be 
equivalent to the cost of continued operations. More importantly, even 
raising this issue begins to unravel the fragile political coalition 
that has supported Amtrak's ever-growing annual subsidies. Imagine the 
impact upon our Nation's economy if other businesses faced similar 
structural and political impediments that prevented them from 
implementing any service changes.
    So, more money alone is not the answer. What to do? In short: 
embrace a new business model for passenger rail. And because meaningful 
change will be difficult, we should be willing to implement needed 
reforms at a deliberate, but measured pace. In fairness, I believe that 
many Members who voted for the last authorization of Amtrak thought 
they were doing just that. In retrospect, that legislation was 
insufficiently bold and fundamentally flawed to the extent that it 
relied upon Amtrak to reform itself.
    Passenger Rail Authorization. The Administration supports an 
authorization period of six years rather than four. This will give us 
time fully to implement needed restructuring in one authorization 
cycle. Perhaps it is useful to start first with a summary of where we 
hope to end up in those six years.
    Intercity passenger rail would become an economically viable and 
strategically effective mode of transportation supporting numerous 
successful rail corridors nationwide. The Federal role in passenger 
rail would, however, be reformed and strengthened to mirror much more 
closely the current Federal program supporting mass transit.
    The Federal Government would continue to define rail safety 
standards and enforce them. The Department of Transportation would 
provide capital grants directly to states and interstate consortia of 
states operating passenger rail. State government agencies would 
determine the level of passenger services needed, the price for such 
service, and they would contract with third-party operators to provide 
long-distance and corridor trains. The same program would apply to 
legacy long distance routes, current and new corridor services--at 
higher speeds or not. To the extent that states' service choices 
require operating subsidization, state governments would be required to 
provide that subsidization, no later than a specified date to be 
determined but within the new authorization cycle.
    For a period of years, the Federal Government would continue 
disproportionately to fund the capital backlog for certain passenger 
rail projects. By the end of the authorization cycle, however, state 
governments would provide at least 50 percent of needed capital 
investment for all intercity passenger rail service.
    The Federal Government would assume several new or expanded roles, 
particularly to support the formation of corridor-based rail services. 
The Administration will request continuation of the type of grant 
making discipline and oversight that was incorporated into the Omnibus 
Appropriations Act of FY 2003. The Department, rather than Amtrak, 
would exercise statutory authority to assign passenger train operating 
rights to a single party to operate intercity rail in a given corridor. 
Of course, such rights would be allocated to Amtrak exclusively in the 
first year of the new authorization period, and presumably throughout 
much of this transition period.
    We do not propose to eliminate Amtrak, but we do propose 
comprehensive structural changes to be implemented at a prudent pace 
spanning the entire six-year period of the next authorization cycle. 
Amtrak would be required to form a pure operating company--one that 
does indeed make a profit by providing excellent service for its 
government customers. It would be irresponsible to eliminate Amtrak 
altogether, but it would be an equal folly not to reform a corporation 
suffering such a persistent and thoroughgoing crisis.
    One cornerstone objective is to continue vital rail services while 
implementing fundamental reform. The future of the Northeast Corridor 
(NEC) should be preserved and nurtured by a new governance structure 
that can be sustained for the long haul. The Administration will have 
very specific proposals about a process to create this new governance 
structure, and its ultimate performance characteristics. But we start 
from the conviction that, because of the complexity of this matter, the 
pending authorization should specify only the process for creating such 
a new institution or compact, rather than attempting to impose at the 
outset a specific organizational structure. An appropriate mechanism 
would then be included within the Congressional legislation that will, 
in turn, yield the new governance structure prior to expiration of the 
authorization cycle.
    We must balance carefully the interests of each of the states 
served by intercity passenger rail. The needs of commuter rail systems 
and the freight railroads are also essential equities that must be 
served fairly by the new partnership formed by the states and the 
Federal Government to own and operate intercity passenger rail.
    When this model is embraced, I personally think that the Nation 
will likely see more rather than less passenger rail service. Effective 
reform need not eliminate protections afforded by the Railway Labor 
Act, the Federal Employer's Liability Act (FELA) and railroad 
retirement. I also think the transition can be structured to make 
supporters of Amtrak's employees, ensuring that the reformed businesses 
retain good jobs that are more secure.
    This is a very brief sketch of what the Administration thinks is 
achievable for reforming Amtrak by the end of FY 2009. Without 
summarizing all details of the transition path that would yield these 
results, it is important to say a bit more about several key 
institutions that would make this happen.
    The NEC Federal-State Compact. The Administration's proposal would 
create a new legal entity, a Federal-State compact to operate the NEC 
spine infrastructure under a 99-year lease from the Department of 
Transportation. It would likely take at least two years to put the new 
organization into place, during which period Amtrak would be required 
to begin its own transformation. The new NEC Compact would annually 
apply for and receive capital grants from the Department for corridor 
investment.
    It would have the authority to enter private debt markets to 
finance NEC improvements. The NEC Compact would, with the Department of 
Transportation, develop a business plan to alleviate the capital 
backlog of projects needed to place the NEC in reasonable shape.
    For most, if not all of the period of the pending authorization, 
the NEC Compact would contract with the NEC Infrastructure Corporation, 
an offshoot of the current Amtrak organization (see below) to maintain 
and operate the NEC in support of intercity passenger rail and commuter 
rail services on the corridor. At the same time, the NEC Compact would 
contract with Amtrak Operations to run the corridor trains.
    By the end of the authorization cycle, and periodically thereafter 
as determined by the new organization, the NEC Compact would be 
required to solicit competitive bids to operate the infrastructure and 
to operate its intercity passenger trains. Because the Federal 
Government would continue to own the corridor infrastructure, it would 
continue to play a role in the governance of the compact for the life 
of the lease.
    State and Regional Rail Operating Companies. The Administration's 
proposal would authorize multi-state interstate compacts to operate 
intercity rail in areas served by access to freight railroad tracks. 
Either individual states or Regional Rail Operating Companies (RROCs) 
formed for this purpose could apply for and receive capital grants from 
the Department for corridor modernization. They would also have the 
authority to enter private debt markets to finance capital 
improvements.
    The states and RROCs would contract initially with Amtrak 
Operations for corridor and long distance rail services. After a 
transitional period to be determined, such entities would be required 
to solicit competitive bids to operate intercity passenger trains 
supported by Federal funds. The Federal role relative to these entities 
would ultimately be similar to the Federal Transit Administration's 
relationship with local transit authorities. In the transitional 
period, the Federal Government would have an additional role of 
facilitating the formation of such entities, including perhaps awarding 
of organizational funding grants, at the request of states.
    Restructuring Amtrak. The initial year of the new authorization 
cycle would, in the Administration's proposal, continue the existing 
basic legal and operating structure of the National Passenger Rail 
Corporation (Amtrak). The Administration advocates immediately 
increasing the size of Amtrak's Board by six persons to improve 
corporate governance and allow the Board adequately to staff the 
Committee structure needed to provide appropriate management oversight.
    Some functions, such as management of certain existing principal 
and interest payments on Amtrak's legacy debt, would, after a 
transition period of at least one year, be assigned to newly created 
structures that facilitate the statutory reform. For purposes of this 
testimony, I would like to highlight the Administration's 
recommendation to create two new organizations from within Amtrak as 
currently structured.

        NEC Infrastructure. The NEC Infrastructure Company would be a 
        private company under contract to the NEC Compact to perform 
        maintenance and manage the capital investment backlog program 
        on the NEC. Both maintenance and capital work are performed 
        with its own workforce as well as through the selection and 
        oversight of contractors. It would be composed largely of the 
        Chief Engineer's functions and workforce from the old Amtrak.

        Amtrak Operations. Amtrak Operations would be a private company 
        that operates long-distance and corridor passenger service and 
        maintains passenger equipment under contract to the states. 
        Service provided is determined solely by the states and all 
        operating equipment is either provided by the states or by 
        Amtrak Operations, as negotiated in agreements between Amtrak 
        Operations and its customers. It would be composed largely of 
        the intercity train operations and equipment maintenance staff 
        of the old Amtrak.

        As with the NEC Infrastructure functions, Amtrak Operations 
        would, for a period, still enjoy its current monopoly status to 
        operate intercity passenger rail service. In time, however, 
        Amtrak Operations would compete in the marketplace to provide 
        such services. As such, it ultimately should be entirely 
        independent of direct Federal Government grants. States or 
        RROCs operating intercity passenger rail with Federal 
        assistance would be required to seek competitive bids of 
        appropriate duration for rail operations.

    Having announced today these broad details of the Administration's 
approach to the pending authorization of passenger rail, the 
Administration looks forward to further near-term dialogue with 
Congress and other key parties prior to finalizing details of our 
intercity passenger rail legislative proposal in the coming weeks.
    Conclusion. Passenger rail is an important component of our 
Nation's transportation infrastructure. We stand ready to work with 
Congress and the states in the upcoming authorization to create an 
intercity passenger rail system that is driven by sound economics, 
fosters competition, and establishes a long-term partnership between 
states and the Federal Government to sustain an economically viable 
system.
    Today there are at least two competing approaches to dealing with 
the Amtrak problem. On the one hand, serious colleagues believe that 
the best way to save intercity rail is to drop back, and spend the next 
four years stabilizing Amtrak as it currently exists in the hope that 
it can somehow gather enough political support for the substantially 
larger investment Amtrak would need to survive. On the other hand, the 
Bush Administration, the Amtrak Reform Council and numerous others have 
concluded that true structural reforms are needed, and needed now.
    Members of Congress committed to passenger rail need not mistake or 
fear this latter conviction. It is not advocated by this Administration 
as a Trojan Horse aimed at abolishing passenger rail. Instead, it is 
animated by a fair desire to make some form of passenger rail service 
viable for the long term.
    Some will disparage the call for root and branch reform in part 
because it is so difficult. The Bush Administration does not propose a 
quick fix. Indeed, not even a simple fix. But securing true structural 
reform is the only worthy solution for addressing such a persistent and 
important public policy dilemma.
    There is, then, much work ahead as Congress digs deep into these 
issues. Secretary Mineta and his team also look forward to working with 
Congress to assess and implement long-term solutions to the recurrent 
crises that plagues intercity passenger rail. I would be pleased to 
respond to any questions you may have.









    Appendix 2.--Managing Amtrak's Financial Performance in FY 2003
    In February 2003, the Congress passed the Omnibus Appropriations 
Act, which put in place tools aimed at yielding greater financial 
accountability at Amtrak. Past Congresses have by law directed that the 
Federal Railroad Administration (FRA) provide funds appropriated for 
the benefit of Amtrak to the corporation without the oversight and 
controls that accompany other such grants made by the Department. The 
Omnibus Appropriations Act for FY 2003 provides for oversight with 
teeth, placing the relationship between DOT and Amtrak on a footing 
similar to the oversight DOT exercises with respect to other 
transportation modes.
    The Omnibus Appropriations Act provided a total of $1.043 billion 
in funds for Amtrak in FY 2003. The law directed the Secretary of 
Transportation to disburse Amtrak's appropriated funds in quarterly 
grants. Amtrak is to receive a total of $519 million for operating 
expenses, $293 million for capital expenses along the Northeast 
Corridor Mainline, and $231 million for general capital improvements.
    For the first time, however, the law gives the Secretary both the 
responsibility and the authority to review and approve Amtrak's 
requests for funding. Amtrak must provide a detailed financial analysis 
and revenue projections for each of its long distance train routes. We 
have gone further and obtained this data for all routes. Additionally, 
the law requires Amtrak to provide the Secretary with a detailed 
business plan for the entire fiscal year, explaining how it will live 
within its appropriation.
    I am pleased to report that on April 9, 2003, the Department 
approved Amtrak's business plan for the remainder of FY 2003 and 
executed the Amtrak grant agreements contemplated by the Omnibus 
Appropriations Act. In doing so, DOT unambiguously communicated to 
Amtrak and its Board the following requirements: this year there will 
be no Federal loans or loan guarantees, no ``creative financing'' by 
Amtrak, no gimmicks, no shutdown drama, no threat against commuter 
operations, and no kidding--Amtrak will live within the budget that 
Congress appropriated. Any financial upside must be allocated to 
bolster what will be an anemic year-end cash reserve. Any revenue loss 
or additional expense must be offset within budget by requiring 
Amtrak's management to make decisions about which expenses to cut or 
which capital projects to defer.
    We have read the law, and listened carefully to those Members who 
have spoken on the new Amtrak appropriation language, and this is what 
we understand Congress wants. DOT wants the same. To that end, we will 
monitor Amtrak's condition monthly, and will be working with Amtrak to 
help it meet the targets laid out in its business plan. DOT will 
provide monthly reports to Congress on Amtrak's progress. We expect to 
provide Amtrak's fourth quarter grant in early July, but if necessary 
at that point we can gate disbursements on a monthly basis to ensure 
fidelity to the bottom line of Amtrak's business plan. Let me be clear 
about DOT's role under the law. Amtrak itself retains its daily 
management responsibilities; DOT will provide oversight and enforce 
accountability.
    Of course, no plan is perfect, and we fully expect that Amtrak may 
need to make minor adjustments along the way. While we think the 
business plan is flexible enough to withstand normal business-related 
fluctuations in revenue and expenses, in these times it certainly does 
not accommodate the effects of any catastrophic terrorist events. At 
this time, the Department is not aware of any such credible and 
specific threat regarding Amtrak. Barring such an event, we believe it 
is possible that, with Amtrak's cooperation, we can accomplish the 
objectives you set out in the law.
    The following provides more detail about part of this year's Amtrak 
grant process.
    The Omnibus Appropriations Act for FY 2003. Amtrak's appropriation, 
$1.043 billion, is divided into the three categories shown in Table 1. 
Acting through the Federal Railroad Administration (FRA), the 
Department had already transferred to Amtrak thus far in FY 2003 just 
over $407 million in funds that were appropriated under a series of FY 
2003 continuing resolutions. Amtrak has allocated those funds to 
operations, capital expenses along the Northeast Corridor Mainline and 
for general capital expenses. Those funds must be credited against 
grant amounts specified in the Act to compute the net amounts remaining 
to be obligated this year. That calculation is shown below.

                                    Table 1.--Amtrak's FY 2003 Appropriation
----------------------------------------------------------------------------------------------------------------
                                                       Total FY 03        Funding Provided
                     Purpose                          Appropriation         Through CRs           Net Grant
----------------------------------------------------------------------------------------------------------------
Operations                                                $518,607,000         $256,494,000         $262,113,000
NE Corridor Capital                                        293,082,500           73,285,000          219,797,500
General Capital                                            231,485,500           77,355,000          154,130,500
----------------------------------------------------------------------------------------------------------------
    Total                                                1,043,175,000          407,134,000          636,041,000
----------------------------------------------------------------------------------------------------------------

    As mentioned previously, the Omnibus Appropriations Act for FY 2003 
also established a number of specific requirements, in addition to 
those normally associated with the making of a DOT grant. Following 
preliminary staff discussions with Amtrak, the Department began to 
implement the statutory requirements with a letter from FRA 
Administrator Allan Rutter to Amtrak dated March 10, 2003, specifying 
how we interpreted the new law and detailing the financial and 
operating information we would expect to receive from Amtrak. On March 
14, 2003, Amtrak submitted its initial Grant Application, which 
included its proposed business plan.
    FRA staff reviewed the specifics of this plan with Amtrak in 
several meetings, both in Washington and in Philadelphia. After these 
meetings, Amtrak submitted to FRA a revised grant application and 
business plan on March 27, which was subsequently modified slightly and 
approved by Amtrak's Board. This revised business plan has been 
reviewed by FRA staff as well as staff of the Department's Office of 
Inspector General, Office of General Counsel, and Office of Budget and 
Programs.
    DOT will shortly compile and deliver to this committee a full 
package containing the approved Amtrak business plan, the approved 
grant agreements, associated documentation and required certifications 
by Amtrak and the Secretary of Transportation.
    Amtrak's FY 2003 Business Plan. Amtrak's business plan provides 
Amtrak's estimates of the revenue and expenses related to its 
operations during FY 2003 and the assumptions on which the estimates 
are based. The business plan also provides a project-by-project 
description of Amtrak's planned FY 2003 capital program, with a 
description of each project's goal, the work to be accomplished with FY 
2003 funding, schedules and cost estimates.
    Compared to Amtrak's initial FY 2003 budget, the current business 
plan reflects more conservative assumptions of revenue, lower capital 
expenditures, and, most importantly, a contingency fund. Under this 
business plan, Amtrak forecasts cash operating expenses (including 
interest expense but excluding depreciation and other post-retirement 
benefits) of $2.875 billion, of which a portion would be funded by the 
Federal grants provided under the Act. The plan also details the 
application of the funds designated in the Act to be expended on 
capital projects meeting the Generally Accepted Accounting Principles 
(GAAP) definition of capital. Finally the plan provides for unforeseen 
contingencies by identifying projects that could be deferred if 
necessary to conserve funds.
    Long Distance Trains. The Omnibus Appropriations Act for FY 2003 
requires that the Secretary shall approve funding to cover operating 
losses on Amtrak's long distance trains only after receiving and 
reviewing grant requests for each specific long distance train route, 
and that each such grant request must be accompanied by a detailed 
financial analysis and revenue projection justifying Federal support. 
As mentioned above, we required such data for all routes and the core 
data are aggregated in Appendix 1.
    In approving third quarter funding for the current system of long 
distance trains, the Department did not endorse, either explicitly or 
implicitly, the notion that any particular route is necessary or should 
be preserved for the long term. We believe that subject should be 
assessed more comprehensively in the coming Amtrak authorization 
process. For now, it should be pointed out that the current Amtrak 
route structure is largely an historical artifact left over from the 
operating decisions made by individual private railroad lines long 
before Amtrak existed. We believe that some of those business decisions 
of well more than 30 years ago may no longer be relevant or 
sustainable, and that decisions on service levels should be made in the 
context of a comprehensive strategy for the future of passenger rail 
service in this country.
    Reserve for Commuter and State-Contracted Service. The Omnibus 
Appropriations Act for FY 2003 requires that the Secretary and the 
Amtrak Board of Directors shall ensure that sufficient funds are 
reserved to satisfy Amtrak's contractual obligations for commuter and 
intercity passenger rail service. We have interpreted that requirement 
as a direction from Congress that, in the event of budget shortfalls, 
Amtrak's commuter and state-supported operations take precedence over 
providing other service. We understand that this provision was included 
specifically to prevent Amtrak from threatening a shutdown of commuter 
and state-supported services, as it did last year.
    In the short term, we have determined that the best means to assure 
that Amtrak continues to provide these services is to see that Amtrak 
has sufficient funds to operate through the end of the fiscal year. To 
that end, we have requested and received from Amtrak a commitment to 
achieve monthly cash balance requirements that should assure sufficient 
liquidity to the end of the fiscal year. If business plan targets are 
not met, however, Amtrak has formally certified that it is responsible 
to devise and implement alternate actions that will meet these 
requirements. There is little margin for error in the months ahead for 
Amtrak and its cash balance at the beginning of the next fiscal year 
will be low.
    Reporting. The Omnibus Appropriations Act provides that no later 
than June 1, 2003, and each month thereafter, Amtrak shall submit to 
the Secretary of Transportation and the House and Senate Committees on 
Appropriations a supplemental report regarding the business plan, which 
shall describe the work completed to date, any changes to the business 
plan, and the reasons for such changes. We have implemented that 
requirement in the grant agreements by providing that Amtrak will 
report its actual results in comparison with the revised business plan 
on a monthly basis to FRA, using standard reporting templates that FRA 
requires for all other recipients of Federal funds.
    The grant agreements also provide that Amtrak will notify FRA as 
soon as it becomes aware of significant variances from the business 
plan for long distance trains, other operating expenses, and various 
capital expenses. Amtrak must obtain FRA's prior written approval to 
exceed the approved budget for individual projects, and will be 
required to provide detailed justification for proposed revisions, 
identify the implications of non-approval on operations, and identify a 
funding source for the proposed change.

    The Chairman. Thank you very much.
    Mr. Mead?

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

    Mr. Mead. Yes, thank you, Mr. Chairman.
    The subject of today's hearing is the future of intercity 
passenger rail service and Amtrak. In the past, I think these 
futures have been intertwined to the point of being one and the 
same. I hope that this discussion this year does not get bogged 
down in, or defined as, simply what to do about Amtrak. That 
has not been a fruitful focus in the past. And I'm taking you 
all the way back to Graham Claytor, the president of Amtrak, 
Tom Downs, President of Amtrak, President Warrington, and now 
Mr. Gunn.
    I think everyone will be better served by focusing on what 
we want passenger rail service in this country to be, how we 
are going to produce it and govern it, and how we are going to 
fund it. Over the last year, it has been my view that Amtrak's 
president, Mr. Gunn, Secretary Mineta, and the gentleman to my 
right here, have really worked diligently to improve cost 
controls and achieve expense savings at Amtrak, and they've 
brought more order to its accounting and financial statements.
    But let's not make any mistake about it. These are positive 
steps, but they are not going to solve the fundamental problem. 
The fundamental problem here is that the current Amtrak model 
is broken, and pinching pennies alone is not going to make this 
model work. You are not going to be able to save your way out 
of the Amtrak issue. What intercity rail needs to be is, first 
and foremost, not what it is today. It's the overall approach 
to designing, governing, and funding this system, and the 
outcome of that process, that's broken and must be addressed in 
the reauthorization. The status quo pleases no one. It's going 
to require significant increases in funding just to maintain 
the status quo, and it will not meet the mobility needs of the 
country in the years ahead.
    Well, what is the status quo? Well, it's a system that 
limps along, never in a state of good repair, and perpetually 
one, two, or three steps from the edge of collapse. In the end, 
Amtrak, in effect, has been tasked to be all things to all 
people, and it's insufficiently funded to be satisfactory to 
anyone.
    I've been testifying on Amtrak matters for almost 10 years, 
5 of them at GAO, 5 of them at the Department, and it seems to 
me that some years you could almost just change the date on the 
prepared statement and the message would essentially be the 
same. This year, I think we're on the brink of doing something 
different. Why? Because for the last 2 years, we've come within 
days of the collapse of the entire railroad.
    The result we have today, though, is a system that's nearly 
$5 billion in debt. I have some slides--I think you have some 
slides in front of you. It has a cover like this. The slide 
shows the overall debt of about $5 billion. And it shows, also, 
that the debt service on it is going to consume about $250 
million. That's over 25 percent of the budget request for 
Amtrak.
    This is a system, also, that, except for a handful of 
routes, continues to suffer operating losses on all services 
offered. In fact, the fully allocated losses on some trains, 
including depreciation and interest, comes very close to $500 
per passenger. And in 2001 and 2002, Amtrak experienced its 
highest operating losses ever, of more than $1 billion. And you 
can see that depicted on this chart, too.
    And despite incurring record levels of debt since 1997, 
which is when they started on the glide path, and also how an 
illusion was created that the glide path was being met, that we 
were on track, the way that was done was they borrowed against 
assets and borrowed money. And that way it looked as though 
you're on a glide path. Until the end, there was nothing really 
left to mortgage.
    Well, despite all this, the system needs about $6 billion 
to address the backlog of state-of-good-repair investments. And 
I stress backlog, because backlog refers to bringing things 
that we already have into a state of good repair, not for 
improvements.
    The news is not all bad, though. Slide number 3 shows 
systemwide ridership and revenue have been on an upward trend 
over the last 5 years, reaching record levels in the last 2 
years. Both the Northeast Corridor and the Amtrak West 
ridership increased about 24 percent between 1997 and 2002. 
Intercity ridership has remained essentially flat.
    OK, so enough on the numbers and what the status quo is and 
so forth. What do we want passenger rail to be? I've gone back 
and we've tried to reflect on what's needed to--what do we need 
to do to passenger rail if we are to avoid status quo outcomes? 
Well, if you're going to avoid status quo outcomes, Amtrak's 
going to require, if it remains as it's currently structured, 
about $2 billion per year. I think that's a fairly good working 
number. And that $2 billion a year is going to go to operating 
and capital subsidies for the foreseeable future for just what 
you have now.
    The Chairman. And that's not counting what would be 
required as far as replacement of existing equipment, is that 
correct?
    Mr. Mead. Yes, sir.
    Now, for the last 4 or 5 years of that glide path, people 
were talking about trying to get that number of $500 or $600 
million that they were giving them down to $200 million. So you 
can see, this $2 billion figure is considerably more, by 
several magnitudes.
    I think change is needed. Otherwise, we're going to 
continue to see a continuation of too much system for too 
little capital investment. I think for the $2 billion that 
would need to be spent on a steady-state Amtrak system, a 
refocused Federal program could provide significantly better 
service to a greater number of passengers. I think we can get 
more bang for the buck. First, though, let me deal with two 
other approaches that we have heard. I know they're on the 
table.
    One is to end completely the Federal role in intercity 
passenger rail service and leave all service decisions, all 
funding, to the states. That may be appealing, from a Federal 
budgetary standpoint, but it ignores the mobility needs of 
congested regions of the country, and it places far too great a 
burden on already strapped State budgets.
    Another option is to reduce the demand on Federal funds by 
eliminating all the long-distance trains. There is a myth here. 
The elimination of all these long-distance trains might 
eventually save you about $300 million or more. That's after 
you get to the labor protection and all that. It doesn't come 
close, though, to solving the $2 billion problem, and it 
ignores the fact that operations outside the Northeast Corridor 
have been the glue that has held the system together by a 
frayed shoestring. And it is that glue that has been 
responsible for pumping millions of dollars into that Northeast 
Corridor.
    I think a better option for the future of intercity 
passenger rail service would have the following attributes. 
Federal capital grants, both to the states and the Northeast 
Corridor. Improved mobility in short-distance corridors through 
higher-speed and higher-frequency service. I think these long-
distance trains could be redesigned as feeder services that 
would connect on a once-a-day or more-frequent basis to the 
endpoints of the corridors. But in between, you would have more 
frequent service.
    I think the states need to decide on service attributes and 
select the operator. That could very well be Amtrak, but for 
the time being, though, I think it would be disruptive and too 
complicated to say Amtrak should not have responsibility for 
the Northeast Corridor.
    For the successful development of higher-speed, higher-
frequency, short-distance corridors, there's going to have to 
be a strong partnership between the Federal Government and the 
states, and you're going to need a multi-year transition period 
that's going to be necessary to develop the institutional 
arrangements to pull that off.
    Fundamentally, the states would be given more control and 
authority. They would not be obliged to look automatically at 
Amtrak to make all the calls as they are now. You also would 
need a secure Federal funding source so you don't go from year 
to year, and 1 year they say, ``Well, here's some money''; the 
next year, they say, ``We're not giving you any money.'' You 
need something that's stable and continuous. Another thing we 
would do is, we would freeze and amortize Amtrak's long-term 
debt.
    Amtrak requires both operating and capital subsidies that 
are greater than its debt, principal, and interest payments. We 
are--the Federal Government, that is--in effect, we are paying 
the subsidies; and, in turn, we're paying the interest and 
principal on this debt. And we have the incongruous situation 
today where a government that can borrow money at 4 percent for 
10 years is paying 7 percent or more on Amtrak debt of the same 
or lesser duration. Penn Station, the mortgage that was taken 
out there, I think that's around 9 percent. Because we're going 
to pay for that debt anyway, the Federal Government ought to 
retire that debt, where it's economic to do so, in one lump sum 
appropriation, and clear the decks of this debt.
    You've heard of the RRTA, which is the excess Railroad 
Retirement Tax Act payments. There has been a continuing 
dispute over who should pay those and in what amounts. I think 
that ought to be funded through a direct appropriation to the 
Railroad Retirement Board and be done with it.
    The Chairman. How much is that?
    Mr. Mead. I think that's about $160 to $200 million a year.
    The Chairman. Per year, forever.
    Mr. Mead. Yes, sir.
    So it just seems to me that we are at a point with 
intercity passenger rail where we're going to have to make some 
decisions or we're going to be spending summer after summer 
after summer going through Amtrak, a collapse of Amtrak.
    That concludes my oral statement, sir.
    [The prepared statement of Mr. Mead follows:]

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

    Mr. Chairman, Senator Hollings, and members of the Committee:
    Thank you for inviting us here today to discuss the Future of 
Intercity Passenger Rail Service and Amtrak. In the past, those futures 
have been intertwined to the point of being one and the same. Going 
forward, that may no longer be the case. We hope that the policy debate 
concerning the future of passenger rail does not get bogged down in or 
defined as ``What to do about Amtrak''. That has not been a fruitful 
focus in the past and all parties, the public, the Congress, and the 
Administration, will be better served by focusing on what we want 
intercity passenger rail service in this country to be, how we are 
going to produce and govern it, and how we are going to fund it. With 
those decisions in hand, the role that Amtrak can play in that future 
will be more readily apparent.
    Over the last year, Amtrak's president and the Department have 
worked diligently to improve cost control and achieve expense savings 
at Amtrak and have brought more order to its accounting and financial 
statements. These efforts need to continue. In addition, the Department 
has been given more authority to oversee and control Amtrak's adherence 
to its budget, ensuring that it operates within the Federal funding 
provided.
    Although these are positive steps, they are not going to solve the 
fundamental problem: the current Amtrak model is broken and pinching 
pennies alone won't make this model work. What intercity rail needs to 
be is, first and foremost, not what it is today. By that we are not 
singling out any particular aspect of the current system. It is the 
overall approach to designing, governing, and funding the system and 
the outcome of that process that is broken and must be addressed in 
reauthorization. The problems extend beyond funding to questions of who 
makes the decisions about and who controls the provision of service, 
including commuter services. The status quo pleases no one; it will 
require significant increases in funding just to maintain it; and it 
will not meet the mobility needs of this country in the years ahead.
What is the Status Quo?
    Despite multiple efforts over the years to change Amtrak's goals, 
its structure, and its funding, the result always seems to be a status 
quo that is the product of inevitable budgetary compromises. These 
compromises over the years have produced a system that limps along, 
never in a state of good repair, and perpetually one, two, or three 
steps from the edge of collapse. These dire straits have been repeated 
time and again over Amtrak's history. In the end, Amtrak has been 
tasked to be all things to all people, but insufficiently funded to be 
fully anything to anyone.
    The result today is a system that is awash in debt, nearly $5 
billion worth, and which will consume more than $250 million in annual 
Federal funding merely to service that debt.
Figure 1



    It is a system with a backlog of state-of-good-repair investments 
that has reached at least $6 billion. Finally, this is a system that, 
except for a handful of routes, continues to suffer operating losses on 
all services offered. In fact, the fully allocated losses on some 
trains (including depreciation and interest) can exceed $500 per 
passenger. For the company as a whole, cash operating losses have 
averaged $600 million for the last 6 years and are estimated to range 
between $700 million and $800 million over the next 5 years.
Figure 2



    But the news is not all bad. Over the last few years, in spite of 
manufacturing delays and some early operational problems, the Acela 
Express trainsets have been introduced to general acclaim and have 
affirmed and improved Amtrak's position as the leading carrier (rail 
and air) in the Northeast Corridor (NEC). In fact, systemwide ridership 
and revenue have been on an upward trend over the last 5 years, with 
record passenger revenue and ridership levels in the last 2 years. Both 
NEC and Amtrak West ridership increased 24 percent between 1997 and 
2002. However, during this same period, Intercity ridership has 
remained essentially flat.\1\
---------------------------------------------------------------------------
    \1\ Intercity trains are all corridor and long-distance trains that 
operate outside the NEC and the West Coast.
---------------------------------------------------------------------------
Figure 3



    In addition, Amtrak has aggressively pursued other sources of 
revenue that are complementary to the provision of passenger service. 
These include mail and express service, operation of commuter services, 
maintenance services for other railroads, and rental income for use of 
its infrastructure. These non-passenger revenues have generally been 
increasing as a percentage of total revenue and were about 41 percent 
of operating revenue in 2002.
    Going forward, if we are to avoid status quo outcomes in which 
capital funding is continually starved, Amtrak would require, if it 
remains as currently structured, close to $2 billion per year in 
operating and capital subsidies for the foreseeable future. Amtrak will 
likely require about $750 million per year in cash operating subsidies. 
This consists of about $350 million for the operating self-sufficiency 
gap that has persisted for the last several years and the approximate 
annual costs associated with interest expense ($160 million), excess 
Railroad Retirement Tax Act payments ($160 million) and progressive 
overhauls ($80 million).\2\
---------------------------------------------------------------------------
    \2\ Progressive overhauls are annual overhaul costs that are 
expensed rather than capitalized.
---------------------------------------------------------------------------
    To this $750 million, add about $750 million that is required for a 
general capital program needed to maintain the current system just in 
its current state. Finally, another $500 million could and would likely 
need to be spent to begin addressing the system's backlog of capital 
investment, about two-thirds of which is in the NEC.
    But the current Amtrak system has never generated the necessary 
political support to fully fund its operating and capital needs, and it 
is not clear that it can do so in the future. Change is needed. If not, 
what we are likely to see is the ugly status quo of too much system for 
too little capital investment.
    So, if the status quo isn't working and is unlikely to be 
satisfactory over the next few years, what are our options? Where 
should we go with intercity passenger rail service?
What Do We Want Passenger Rail To Be?
    Clearly, one possible approach is to end completely the Federal 
role in intercity passenger rail services and leave all service 
decisions and 100 percent of the funding to the states. While this 
approach may seem appealing from a Federal budgetary standpoint, 
especially with large deficits looming, it ignores the mobility needs 
of certain congested regions of the country and the benefits that 
passenger rail may provide. Although these problems exist on local and 
regional levels, there is a national economic interest in assisting 
mobility that is the foundation for the Department's transit, highway, 
and aviation programs.
    Another option is to reduce the demand on Federal funds by 
eliminating all long- distance trains. Although this might eventually 
save $300 million or more (after labor protection and other shut-down 
costs are amortized), it does not come close to solving the $2 billion 
funding dilemma. Furthermore, in the past, the long- distance trains 
have been the political glue that has held together support for 
intercity passenger rail and Amtrak. Elimination of these trains, 
without a clear plan for improving mobility through a restructured 
Federal program, would likely lead to a continuation of a status quo, 
limp-along Amtrak.

A System Based on Restructured Federal/State/Private Roles and Focused 
        on Corridor Services
    A better option for the future of intercity passenger rail service 
lies in improving mobility in short-distance corridors around the 
country (not just in the NEC), and in restructuring long-distance 
services to complement these corridor services. It is in short-distance 
corridors that the Federal Government and the states should focus their 
investments to increase speeds, increase frequency, and improve the 
quality of the services offered. For the $2 billion that would need to 
be spent on a steady-state Amtrak system, significantly better service 
to a greater number of passengers is possible through a refocused 
Federal program that gives the states more control and authority.
    Partnerships Among States and the Federal Government. For the 
successful development of higher speed/higher frequency, short-distance 
corridors, there must be a new relationship established between the 
Federal Government and the states. An option is a transition to a 
Federal passenger rail program that is modeled more on the current 
transit program. This transition would likely require a number of years 
for institutional arrangements to be developed among the states (such 
as multi-state compacts) and for funding arrangements to be completed.
    This approach would involve Federal capital grants to the states 
for investment in short-distance corridors where states would have a 
more defined and consistent role in determining what services are 
provided and by whom. The states might choose to contract with Amtrak 
to operate these services or seek bids from alternative operators. 
States would also decide on the service attributes such as speed, 
frequency, and quality.
    The NEC is the only corridor that involves more than three states 
(nine states). Thus, it will be a challenge to develop a workable 
governance, operating, and funding structure. This is likely to be the 
case whether this structure is a redefined Amtrak, a Federal/State 
Compact, or some other form of organization. If the resulting 
organization separates the control of operations from that of 
infrastructure, we caution that the recent experience in Great Britain 
underscores the dangers associated with establishing a commercial, for-
profit entity to operate the infrastructure. Allowing an infrastructure 
company to operate ``like a business'' may mean relinquishing control 
over how certain expenses are cut or which capital investments are 
made. An infrastructure company that is focused on its bottom line may 
make decisions that are in its best interest financially, but they may 
affect the safety or efficiency of rail service operations.
    States would also take the lead in engaging the freight railroads 
in the funding and operations of these corridors. The majority of these 
corridor services will operate over the track of privately owned 
freight railroads and, therefore, any partnerships must include the 
freight rail owners. Productive relationships and dispute resolution 
mechanisms need to be forged that assure cooperation in improving the 
track infrastructure and timely operation of the improved corridors.
    With control comes funding responsibilities and the states should 
be expected to provide capital funds to match in some proportion the 
Federal grants. Ultimately, these corridors should be self-sufficient 
from an operating (not necessarily capital) standpoint, either through 
farebox collections or through state and local subsidy. Operating 
losses might initially be shared as they are now between the Federal 
Government and the states. Currently, states provide about $138 million 
in operating support to Amtrak for corridor trains and provide capital 
funds on a project-by-project basis.
    Secure Federal Funding Sources. The Federal quid pro quo to a 
stepped-up state funding role in passenger rail services should be the 
elimination of the ``Perils of Pauline'' approach to Federal funding. 
Investments in corridor development can proceed most efficiently where 
long-term decisions and multi-year investments can be made without the 
threat of a shut-down in Federal funding. A secure Federal funding 
source will likely be needed to cement this new Federal-State 
partnership.
    Redesign Long-Distance Trains to Complement Corridor Services and 
Minimize Operating Losses. The current long-distance services should 
transition to a role of complementing corridor services. This 
restructuring can take a number of forms, from the combination of 
parallel or overlapping services to the elimination of endpoint service 
on routes. For example, on some long-distance trains today, 
significantly fewer than half of the passengers travel the entire route 
from endpoint to endpoint. These trains could be redesigned as feeder 
services that would connect on a once-a-day or more frequent basis to 
the endpoints of corridors. By operating in the gaps between corridors, 
but not overlapping them, these feeder services could continue to 
provide services to coach passengers currently served by the long-
distance trains and do so on more convenient, daytime 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 corridor services.
    The alternative of simply shifting the responsibility for 
subsidizing the operating losses on long-distance routes to the states 
could encounter problems from states in the middle of the route that 
choose not to contribute. Restructuring long-distance trains into a 
feeder service that connects to the higher speed/higher frequency 
corridor services would solve this problem. Because most of the feeder 
routes would lie in either one or two states, any decision by the 
states not to subsidize and, therefore, not to operate the service 
would reflect the perceived lack of benefits to their citizens.
    Freeze and Amortize Amtrak's Long-term Debt. Because Amtrak 
requires both operating and capital subsidies greater than its debt 
principal and interest payments, these obligations are, in effect, 
funded by Federal subsidies. This creates the incongruous situation in 
which a government that can borrow at 4 percent for 10 years is paying 
7 percent or more on Amtrak debt of the same or lesser duration.\3\ 
Because all current and future (if it were permitted) Amtrak debt would 
likely be paid by the Federal Government, Amtrak's ability to incur 
long-term debt should be permanently frozen, and all debt that can be 
economically amortized immediately should be funded in a one-time 
appropriation. This will minimize the cost to the taxpayers of these 
outstanding liabilities.
---------------------------------------------------------------------------
    \3\ Amtrak pays more for its debt because its default risk is 
greater than that of the Federal Government.
---------------------------------------------------------------------------
    Direct Appropriation to the Railroad Retirement Board of Excess 
RRTA. To simplify and clarify future funding of passenger rail 
services, any portion of future retirement tax payments for 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. This will establish and maintain a level 
playing field for all competitors to provide corridor services.
Amtrak's Operating and Financial Performance Since 1997
    Today, Amtrak provides intercity passenger rail service over a 
network of more than 22,000 route miles and serves more than 500 
stations in 46 states. It owns about 730 route miles between Boston, 
Massachusetts, and Washington, D.C., and in the state of Michigan. In 
other parts of the country, Amtrak operates over track owned by freight 
railroads. Many of Amtrak's routes are corridor operations that run 
through a maximum of three states \4\ and are generally about 100 to 
500 miles in length. Amtrak also operates 17 long-distance trains that 
traverse multiple states, include sleeper and dining car service, and 
travel more than 750 miles.
---------------------------------------------------------------------------
    \4\ The Acela Express/Metroliner and Acela Regional are the only 
routes characterized as corridors that have stops in more than three 
states. Acela Express/Metroliner stops in nine states and the Regional 
stops in six states.
---------------------------------------------------------------------------
    Operating Needs. Since receiving in December 1997 \5\ its mandate 
to achieve operating self-sufficiency by December 2002, Amtrak has 
improved passenger revenues and ridership, up about 39 percent and 16 
percent, respectively. However, expense growth has more than kept pace. 
Consequently, Amtrak's operating and cash losses have increased and 
Amtrak is farther from operating self-sufficiency now than it was in 
1997. Amtrak recorded an operating loss of $1.15 billion for 2002,\6\ 
$352 million more than in 1997. Amtrak's cash loss for 2002 was $631 
million, $82 million more than in 1997. (See Figures 2 and 3.)
---------------------------------------------------------------------------
    \5\ Amtrak Reform and Accountability Act (ARAA).
    \6\ Based on Amtrak's Audited FY 2002 Consolidated Financial 
Statements.
---------------------------------------------------------------------------
    To cover the gap between its operating losses and Federal and State 
funding, thereby creating the appearance of meeting its ``glidepath,'' 
Amtrak incurred debt and sold assets. For example, in 2000, Amtrak 
entered into four separate sale and leaseback transactions for which it 
received $124 million in cash and $791 million in interest-earning set-
aside deposits to be applied against the lease obligations. In June 
2001, Amtrak mortgaged a substantial portion of improvements located at 
Penn Station in New York for cash proceeds of nearly $300 million. In 
2002, Amtrak received a $100 million loan for general capital purposes 
from the Department of Transportation as well as $205 million through 
supplemental appropriations.
    As a consequence of Amtrak's external financing of its cash losses 
as well as new train equipment and related maintenance facilities, 
total debt and capital lease obligations increased by $3.1 billion, 
from $1.7 billion in 1997 to $4.8 billion in 2002, representing an 
overall increase of 178 percent (see Figure 4).



    Amtrak's annual debt service during this same period grew from $111 
million to $233 million. For FY 2004, Amtrak projects its debt service 
payments will increase to $278 million. It is also important to note 
that Amtrak's heavy debt load was acquired during a period when Amtrak 
received Federal operating and capital grants, as well as other Federal 
assistance totaling $5.27 billion, or more than $1 billion annually 
(see Table 1).



    Capital Needs. The $1 billion in annual Federal assistance during 
the past 5 years was insufficient for Amtrak to maintain its system in 
a steady state. While improvements were made to the north end (New 
Haven to Boston) for the introduction of high-speed rail service, and 
new high-speed rail equipment and facilities were acquired, the general 
state of Amtrak's infrastructure and rolling stock continued to 
deteriorate.
    The continual deferral of investments needed to renew and replace 
infrastructure and equipment has created a huge backlog of capital 
projects that threatens current and future service reliability. In the 
Northeast Corridor, Amtrak provides service over bridges, through 
tunnels, and on electric traction systems that are well past their 
useful lives and consequently more expensive to maintain. The high-
speed, high-density, and mix of diverse users (Amtrak, commuter, and 
freight) in this operating environment magnifies all types of problems, 
especially those related to infrastructure. Amtrak expects that these 
problems will continue to grow and eventually require reductions in 
service and speed if not soon addressed.
    Based on our assessments of Amtrak's financial performance and 
requirements over the past 5 years, Amtrak needs approximately $750 
million annually for a basic capital program that will maintain its 
assets in the current state. However, this amount will not address the 
deferred capital investment needs. If the decision were made to keep 
the current structure, we estimate Amtrak would need to spend about 
$500 million annually for an extended period (perhaps as long as 15 
years) on infrastructure and rolling stock to eliminate the backlog of 
capital investment.
    The length of time and, therefore, total investment are somewhat 
indefinite because key decisions need to be made on whether major 
assets will be refurbished, overhauled, or completely replaced. For 
example, do we completely rebuild or replace bridges and tunnels, such 
as the Baltimore tunnels, or do we merely refurbish components and 
perform moderate upgrades to extend their useful lives for several more 
years? Should we repair selected components of the catenary system from 
Washington to New York or should it be replaced in its entirety?
    The total magnitude of capital needs will be in the billions of 
dollars depending on the future vision regarding desired capacity, 
reliability, and trip times in the corridor. One thing we know for sure 
is that without major reinvestment, Amtrak or an alternative operator 
will experience significant negative effects on its operations, 
although neither we nor they can predict with any certainty the timing 
or severity of the breakdown.
    Amtrak's Financial Performance in 2003. We are encouraged by 
improvements David Gunn has made since his appointment as President and 
Chief Executive Officer of Amtrak, such as management streamlining and 
workforce reductions in the hundreds, and a willingness to provide more 
comprehensive operating and financial information to DOT and Congress. 
However, positive operating and financial results for 2003 remain 
elusive in a difficult travel environment due to the war in Iraq and 
heightened terrorism alerts at home. Systemwide ridership decreased a 
little less than one percent during the first 6 months of 2003 from 
11.5 million to 11.4 million. Some of the additional contributing 
factors were a slower than expected economic recovery and poor on-time 
performance.
    Amtrak's overall operating revenues decreased $117 million while 
expenses remained flat for the first 6 months of 2003 compared to the 
first 6 months of 2002. This resulted in an operating loss of $666 
million, an increase of $120 million over the 2002 operating loss of 
$546 million for the same time period. Amtrak's cash loss for the first 
6 months of 2003 was nearly $374 million, an increase of about $64 
million over its cash loss of $309 million in 2002. We note that 
Amtrak's 2003 approved budget included a forecast cash loss of about 
$355 million, which means it is off budget by about $19 million. Thus, 
despite the fact that events outside Amtrak's control, such as the war 
in Iraq and the slump in business travel, negatively affected passenger 
revenues, strong oversight by the Department and Amtrak's close control 
of operating expenditures this year has enabled it to stay relatively 
close to its budget.
    Amtrak's current authorization has expired and many questions 
remain about the future of intercity passenger rail in the United 
States. The question of what kind of system is best for the country is 
inextricably intertwined with the question of how much the country is 
willing to pay for such a system.




    Mr. Chairman, this concludes our statement. I would be 
pleased to answer any questions.
    The Chairman. Thank you for that upbeat assessment, Mr. 
Mead.
    [Laughter.]
    The Chairman. Mr. Gunn, welcome.

     STATEMENT OF DAVID L. GUNN, PRESIDENT AND CEO, AMTRAK

    Mr. Gunn. Thank you. After that performance, Nova Scotia 
looks very good.
    [Laughter.]
    Mr. Gunn. Chairman McCain and Ranking Member Hollings and 
other members of the Committee, I want to thank you for the 
opportunity to appear here today.
    Obviously, my perspective on Amtrak is different than my 
two colleagues on my right. I tend to view it from the ballast 
level; they tend to view it from 20,000, 30,000 feet. And so my 
perspective is quite different.
    And, when I got here on May 15--and, by the way, I have 
written testimony, which I'll submit to the record and I won't 
bother reading it, I'll just make a few comments and then we 
can get on with discussion.
    When I arrived here on May 15 of last year, Amtrak--it 
became obvious to me that the company was in serious trouble, 
and we actually faced insolvency. And the physical plant and 
equipment was in very poor condition. But on top of that, there 
were some serious managerial problems. The organization was 
poorly defined, and it was top heavy, and it was not focused on 
the day-to-day running of the railroad.
    So the immediate goal that we had last summer was, first of 
all, solvency for Amtrak. I mean, we were faced with a fiscal 
crisis, a real one. But the other problem was to get ready for 
the future and to put in place the financial controls and the 
budgeting systems that would allow us to begin to manage 
Amtrak. And we set a goal for ourselves, during that period of 
time, to have in place, by October 1, a zero-based budget and 
what I call a ``functional organization,'' which is--
``functional'' means, by ``function,'' like transportation, 
mechanical engineering--with which to manage the corporation.
    Now, we did that. And, so far, the results are--I don't 
want to say encouraging. ``Encouraging'' and ``Amtrak'' don't 
go together, perhaps. But, actually, expenses in 2002, we 
finished 2002 with lower expenses than the prior year, and 
we'll finish 2003 with lower expenses than 2002. And we've 
also, within the funding that we've been given, we've started 
rebuilding wrecked and damaged cars, out-of-service cars. We 
should have about 15 back in service by May. We will have--our 
track-laying system train will be back in service next month. 
So, basically, we think we've been able to make a modest shift 
of resources into the process of trying to restore the physical 
plant and the equipment for Amtrak.
    And, in terms of financial controls, we closed our books 
for 2002 6 months earlier than last year, which we think is a 
major accomplishment, and we now furnish our board with income 
statements, balance sheets, according to GAAP, every month, 
about 3 weeks after the close of the prior month. So we've made 
some progress.
    Thanks to those of you on the Committee, a number of you, 
particularly Senator McCain and Senator Hollings, they 
advocated that we put together some sort of a 5-year plan to 
give you a sense of where we're going. We have done that. We've 
prepared a very detailed analysis of what it takes to restore 
the existing system, both Northeast Corridor and long-distance 
trains, the national system, back to a state of good repair. 
It's a very practical, pragmatic, no-frills approach, but it's 
based upon a detailed assessment of all of our assets.
    For example, substations. I'll use a Northeast Corridor 
example. But you go into a substation, you can say, ``It's an 
old substation. Rebuild the substation.'' We didn't do that. We 
said, ``Go into the substation, and you replace a transformer, 
you replace breakers.'' In other words, it's not a complete 
rebuilding of the railroad, but it gives you a solid 
foundation.
    And for 2004, we're requesting the $1.8 billion, and that's 
broken down between capital and operating, $1.044 billion for 
capital and $768 million for operating. And, in that, we plan 
to start repaying the loan to DOT. We want to get that off our 
books. And every time I see Michael, he asks me if I'm ready to 
pay the loan back. But we do want to pay that loan back.
    The plan that we've put forward has no new borrowing, for 
the reasons that I think are obvious from Mr. Mead's testimony. 
There's no expansion of service. We're just trying to stabilize 
the existing system and to try to get the trend of operating 
expenses and deficit to be trending downward.
    When you look at reform--and obviously, based upon what was 
said here, there is a--I think everybody feels we need reform. 
The problem is that ``reform'' is not defined, and ``reform'' 
means different things to different people. And there are a 
number of myths that I'd like to just tick off that people 
should be cognizant of when they're talking about reform. And 
Mr. Mead mentioned one of them. But I'll go through my list of 
myths.
    First of all, there's a myth that developed among the 
states that Amtrak was a source of Federal funding. And it's 
not. We were never funded to provide Federal funding for State 
actions. In other words, we tried to support State activities 
where they wanted to build a corridor, but we were never funded 
to do that.
    The second myth is that Amtrak can be profitable. I think 
that has pretty well been dismissed. But I think that anybody 
that thinks that rail passenger service is going to be 
profitable is barking up the wrong tree.
    Myth three is that the private sector is dying to take over 
our services without a subsidy. I think they'll take it over 
with a subsidy; but to be a railroad and actually operate on 
their own without government investment in either capital or 
operating support is a myth.
    Long-distance trains, myth four, are the problem. I think 
my colleague on my right said that that is not the problem. The 
Amtrak problem is much bigger than that.
    Myth five, Amtrak labor costs are the problem. Our wage 
rates are not the problem. We're not like the airlines. We do 
have productivity issues, which we're going to address in the 
upcoming negotiations, but it's a very different situation than 
the airlines.
    Myth six, the Northeast Corridor is profitable. It's not 
profitable, and I submit it will never operate without subsidy, 
particularly massive capital infusions.
    And the last myth is perhaps the most--has been the most 
damaging, and that is that there's a quick fix called 
``reform,'' and if we just struck the right definition of 
reform, we would solve the Amtrak problem. And I would submit 
that it's going to be much more difficult and it's going to 
require a lot more effort than merely coming up with a quick 
reform, and I think that the Deputy Secretary's discussion 
indicated that this is a pretty complicated problem.
    You're going to turn your attention, Congress is going to 
turn its attention, to reauthorization. And what you have in 
front of you, what we've tried to give you, what the 
management's tried to give you and give the board, is a 5-year 
strategic plan which is less than $2 billion a year. It starts 
off at $1.8 billion and cycles down to $1.4 billion--$1.48 
billion, I think it is. And, by the way, that's not a glide 
path; that's just the way the numbers came out.
    Because at the end of that period--I think it's within 10 
years, not right at the end of the period--you're going to have 
to deal with replacing equipment, and, at that point, the need 
for capital will grow. But I would say that our plan indicates 
that you can stabilize the system and keep it in its current 
form for about a $1.5 billion a year after you've brought it 
back to a state of good repair. But that's the existing system.
    The plan that you have, I think, is practical, it's 
pragmatic, and I think that no matter what reform is decided 
upon, the items that are in that budget need to be done. If you 
look at the details in that project and actually flip through 
it, whether you're looking at the cars or the locomotives or 
the infrastructure, it is capital maintenance that needs to be 
done. And whatever the reform is that comes out of this 
process--and I have my own idea as to what it should be, but 
whatever it is, the items that we have laid out to be done that 
need to be done are real, and they have to be done or we're 
going to have some really serious problems.
    At the end of the period, if this plan that we have put 
forward is undertaken, I think you'll have a railroad that 
will--it will run; it won't be a crisis. And assuming we can 
maintain the managerial control we have now, it'll be 
predictable what's going to happen. You'll have good data. And 
we now give you--on a regular basis, we give you, I think, good 
reporting. It'll get better as time goes on. But you'll have a 
railroad that you can actually reform. If we don't do something 
in the near-term, and my focus is near-term, we're not going to 
have a railroad to reform.
    So I would plead with you to take seriously what we have 
put forward as a 5-year plan. It is not an expansionary plan, 
but it's what's needed to have the foundation for whatever 
comes after.
    And are there risks in this plan? Yes. The biggest risk is 
under-funding the plan, because if you under-fund the capital 
plan, there are going to be physical consequences. And I think 
if you look at what's in the plan, that statement will be self-
explanatory.
    There's a risk in the plan. We've assumed productivity 
gains through our negotiations. I can't guarantee you we're 
going to get them, but I think that we should make progress in 
that area.
    Will the recession continue? You know, a deficit's a 
product of expenses and revenue. I think we'll come out of it. 
Passenger ridership is growing again. We're taking some actions 
that I think will improve the revenue picture.
    And the last risk, which I just wanted to put out on the 
table, is the risk for the high-speed train sets that we 
currently operate. They are still proving very troublesome. 
We're making service most days with most trains, but they are 
proving troublesome. And I think the consortium, which is 
Alstom and Bombardier, that manufactured them--they designed 
them, they manufactured them, and they also maintain them, 
which is a--they are having a great deal of difficulty with 
those trains. And someone said, ``They're not like French wine; 
they don't get better with age.''
    [Laughter.]
    Mr. Gunn. But anyway, we're doing fairly well with them, 
and the passengers like them, but they are a very serious 
problem and concern for us.
    In conclusion, I think the plan that we're giving you for 
the 5 years is probably the lowest-cost option, and it's 
certainly the least disruptive. And it's the lowest-cost 
option, because what it does is it gives you a railroad that 
can run, that will have minimal operating deficit--there will 
be an operating deficit, but the way we're spending the money, 
you will have a more efficient operation--and it'll give you 
time for reform, whatever that turns out to be. So I would make 
the plea that, over the immediate future, we've got to give 
Amtrak some stability, in terms of funding and direction so 
that we can get on with the business of trying to keep body and 
soul together.
    Thank you.
    [The prepared statement of Mr. Gunn follows:]

     Prepared Statement of David L. Gunn, President and CEO, Amtrak

    Chairman McCain, Ranking Member Hollings, and members of the 
Committee, I thank you for the opportunity to appear today to discuss 
the future of Amtrak, the company's FY04 funding request and the broad 
strokes of our five-year capital plan.
    When I arrived at Amtrak on May 15 of last year, the corporation 
was in serious trouble. Amtrak faced insolvency. Sometime in July, we 
would miss our payroll. The physical plant had been allowed to 
deteriorate. Heavy maintenance of cars and infrastructure had ceased 
several years ago--over 100 cars were wrecked or damaged and out of 
service. Fiscal controls were inadequate. We would be unable to close 
our books for FY01 until September of the following year. There was no 
regular reporting of financial results. The organization was poorly 
defined and did not lend itself to effective decision-making. Amtrak's 
management was top heavy--84 people had ``vice president'' on their 
title. The budget process was ineffective, and there was no control 
over staffing. Our credibility as an organization was in tatters.
    Our immediate goal in June and July 2002 was to secure funding to 
allow us to survive into FY03. However, at the same time, we had to lay 
a prefoundation for the future. The Board of Directors and I set a goal 
to have in place by October 1 a functional railroad organization, a 
zero-based budgeting process, and public reporting of financial and 
physical results. We also began focusing on controlling expenses. We 
were successful--we secured a loan from DOT and a supplemental 
appropriation from Congress that allowed us to make it through the end 
of the year and avert a transportation crisis. We entered FY03 with an 
appropriation from Congress which was essentially zero based and which 
focused available resources on beginning the rebuilding process, as 
well as controlling expenses. Highlights of the events of the past ten 
months are contained in the exhibits you have before you.
    Expenses at the railroad are dropping as the result of many 
actions, while maintenance activity is increasing. We have redirected 
resources into basic maintenance and restored vital programs. We are 
rebuilding wrecked, out-of-service cars and should have 15 cars back in 
service by May. To bring our passenger equipment to a higher state of 
reliability and utility, we have restored the overhauls of cars 
simultaneous with their four-year inspections. On the infrastructure 
front, our track-laying system train will be back in service in May 
after sitting idle for a number of years, and it will be removing aged 
wooden ties and replacing them with concrete ties which creates greater 
road bed stability and better ride quality. In addition, concrete ties 
last about 3 times longer than wooden ones and so you immediately cut 
recurring maintenance costs with each concrete tie you put in. With a 
thousand fewer people now versus 12 months ago, we are doing all this 
with a smaller budget, and we are doing it effectively. We have a long 
way to go, but it is a start.
    We have closed our FY02 books, six months earlier than last year 
and I will make them available to you very soon. Our Board receives 
complete GAAP financials, three weeks after the end of each month--
which you receive as well. Barring forces beyond my control--we plan to 
make our budget for FY03, although our cash situation will be perilous. 
In any event, we must restore our working capital--a necessary 
requirement for any business.
    Earlier this year we sent to Congress our Board approved FY04 
funding request for $1.812 billion of which $1.044 billion would be 
spent on capital investment and $768 million for operating support. 
Earlier this month I testified before the House Appropriations 
Subcommittee on Transportation, Treasury to this effect. The capital 
investment would be used to continue the restoration of our fleet to 
improve reliability, service and revenue, fulfill our statutory 
mandates, and make critically needed infrastructure investments to the 
existing national system and the Northeast Corridor--which we own. 
There is no new borrowing assumed in this budget, nor any expansion of 
service. We have seen a reduction in our total costs from FY01 to FY02, 
and we expect the trend to continue from FY02 to FY03. Regarding the 
future, I realize that many are unhappy with Amtrak, and usually every 
discussion ends with the call for reform. Unfortunately, there is 
little agreement on the nature of reform. What is needed, no matter how 
we define this reform, is a detailed plan which deals with the legal, 
financial, and physical realities of Amtrak. The progress we are making 
so far is the result of a plan--many small steps that already and will 
ultimately continue to improve our service and financial results. It 
will not make us profitable; it will make us better. There is no 
single, simple solution to the Amtrak problem. One cannot be developed 
overnight--it will take time and thought. I guarantee you though, the 
problem will be a lot easier to deal with if my approach is successful 
and the railroad is in a state of good repair.
    The only way to bring discipline to large organizations like Amtrak 
is to build a tight structure, hire and retain competent managers, and 
institute a strict budget process. My philosophy for managing includes 
five basic tools:

   an organization with minimum layers, individual 
        accountability for specific functional areas, organization 
        charts documenting the chain of command and all authorized 
        positions;

   clear goals and objectives;

   an operating budget based on monthly staffing levels;

   a detailed multi-year capital budget; and

   a monthly financial reporting and performance reporting for 
        specific responsibility centers and projects.

    With these five tools in place, you can manage. They also keep you 
honest. For too long Amtrak did not have a process that created 
internal accountability, and the annual funding provided by Congress 
has always left it close to the edge. So it is no wonder why the 
problems we have had are both significant and recurring. Even with 
tighter management and better financial accounting, there are still big 
risks. However, through better management, we will be able to avoid 
these recurring financial crises, which divert attention from the real 
problems and decisions which need to be made.
    Clearly, over the next few years, we must define the reform we want 
and develop a detailed plan to achieve it. We have already instituted 
several reforms but in considering reform, I would ask you to bear in 
mind the following myths that are prevalent in some circles:

    Myth No. 1--Amtrak can be profitable.

   No national rail passenger system in the world is 
        profitable. Without public subsidy, there will be no passenger 
        rail transportation systems in the United States.

    Myth No. 2--The private sector is dying to take over our services.

   Remember why we were formed. We are what is left of a once 
        privately run enterprise.

    Myth No. 3--Long-distance trains are the problem.

   This is perhaps one of the biggest myths. If on a fully 
        allocated basis you might start to save significant amounts of 
        money after a number of years. Focusing on this problem is not 
        going to save Amtrak. This approach is a red herring.

    Myth No. 4--Amtrak is a featherbed for labor.

   Our wage rates are about 90 percent of the freight industry 
        and are even lower when compared to transit. Wages are not the 
        problem; generating a higher level of productivity, that is the 
        challenge. It is management's duty to seek such improvement.

    Myth No. 5--The Northeast Corridor (NEC) is profitable.

   The NEC may cover most of its above-the-rail costs, but it 
        is an extremely costly piece of railroad to maintain. 
        Railroads, both passenger and freight are extremely capital 
        intensive. The NEC is not profitable and never will be. Sure, 
        private groups might be interested in having it, but they would 
        take it only with the promise of massive capital infusions.

    Myth No. 6--There is a quick fix--reform.

   The word reform is like catnip to those interested in a 
        quick fix to Amtrak. If the answer were quick and easy, we 
        would have solved the problem long ago. What needs to be done 
        is to tightly manage the company and its finances and begin to 
        make incremental but critical improvements to plant and 
        equipment. As I stated before--there is no silver bullet.

    At some point, Congress will turn its attention to the 
reauthorization of Amtrak, and it will be in this venue that the future 
of passenger rail service will be decided. In the year that I have been 
here, I have been struck by the amount of attention that Amtrak 
generates without real progress occurring in addressing the long-term 
funding problems that everyone knows exist. I realize that Amtrak is 
partly to blame for this paralysis of action; recurring crises distract 
us from the central issues that should be discussed. I know that Amtrak 
for too long had been engaged in the charade of pleasing its detractors 
by endorsing the concept of self-sufficiency. Let me be clear, however, 
that despite the best management that could be brought to this 
railroad, without support for a realistic investment over the next few 
years, we will always remain on the edge and the problem will grow 
worse, risking a real disaster either physically and/or financially. 
The lack of a detailed policy will soon produce unwanted consequences.
    You have before you Amtrak's five-year strategic plan. I believe it 
is both a practical and pragmatic plan that shows what needs to be done 
and what can be accomplished with a consistent level of funding from 
FY04 through FY08. We will stabilize Amtrak and bring the railroad up 
to a state of good repair. If fully executed, our equipment will be in 
good condition--and on regular maintenance cycles which means improved 
reliability and utilization, and the backlog of critical needs to our 
Amtrak infrastructure will be significantly reduced. Regardless of what 
policymakers decide is the future for Amtrak or rail passenger service 
in the United States, I would argue that the steps outlined in the 
five-year plan are essential and would have to be done in any case. The 
first down payment on that plan would be in FY04.
    Our plan also represents the least expensive and least disruptive 
course of action for the Congress. Unfortunately, in the past few 
years, a troubling pattern has emerged of creating new oversight 
responsibilities as a substitute for a real discussion on the issue. 
This is a ``mugs game,'' a distraction with no real benefit to anyone 
unless the goal is to interfere with this company reaching fiscal 
stability and a state-of-good-repair. Repairing and improving this 
railroad is the Board's and my immediate goal and is in everyone's 
interest. We have a five-year plan that will accomplish this, and I am 
asking for your support and leadership as we move forward. I would urge 
you to consider this plan in the broader context of Amtrak's 
reauthorization where it really should be done and end this stutter-
step practice of reforming Amtrak through the annual appropriations 
process. Whatever you ultimately decide to do, I would argue that what 
is proposed in the plan will have to be done in any event and it will 
be the least costly option. The railroad must be stabilized and the 
asset improved--regardless. Taking these steps will provide clear 
guidance, goals and objectives that will help all of us to avoid these 
regular and recurring crises that have become so tiresome. If we fail 
to take these steps now and address these issues, the results could be 
disastrous.

    The Chairman. Thank you, Mr. Gunn.
    Mr. Jackson, when can we expect to receive a plan and 
legislative proposal as you outlined in your testimony today?
    Mr. Jackson. We don't have the full details hammered out 
yet. We'd like to take this time, after having outlined the 
detailed skeleton of what this legislation looks like, to 
consult with the Committee. I've already asked Freight Rails 
and Labor and others to be invited to the table and to come in 
and talk about the fine points of the details. So we expect 2 
or 3 weeks' worth of those types of consultations, after which 
we'll finalize the draft that we have going and get it up to 
you as soon as possible.
    The Chairman. Meaning a month, 2 months, 6 months?
    Mr. Jackson. No, I would say our shot is less than 2 
months, but we will need a little bit of time, I think, to have 
the benefit of a consultation and try to see how much consensus 
we can build around the details. We'd like to start with this 
committee and have those conversations, as well.
    The Chairman. Mr. Mead, last week, Amtrak released audited 
financial statements for 2002. The statement improved 
significantly over the prior year because Amtrak eliminated an 
accrual for a retroactive wage increase and lowered 
depreciation expense by lengthening the assumed useful life of 
its assets. Were those reasonable adjustments?
    Mr. Mead. Yes, I think they were reasonable adjustments. I 
want to say a word about the financial opinion. This year was 
an improvement because they came out with the opinion in April. 
You know when we got the opinion last year? It was in 
September. If you tried that in most businesses, you get de-
listed from the stock exchange. You ought to be getting your 
opinion on your financial statements out not too long after the 
close of the financial period to which the financial statements 
pertain. And so while April is an improvement, I think you 
really need to have that within 2 or 3 months of the close of 
the fiscal year.
    The Chairman. Several proposals for managing the Northeast 
Corridor have been advanced by private-sector companies. Based 
on your concerns about establishing a for-profit 
infrastructure, do you think we ought to have those proposals 
considered?
    Mr. Mead. Not for the foreseeable future. That's my 
personal opinion. I can't speak for the Administration.
    Why do I say that? It's because who, in their right mind, 
would take on the Northeast Corridor in its current condition? 
You need billions of dollars to bring it up to speed. They're 
not going to do--they may take it on, as Mr. Gunn says, they 
may take it on if you were to give them these billions of 
dollars and get it in a state of good repair. Once you get the 
Northeast Corridor in a state of good repair and be able to use 
your high-speed trains to really perform at high speed, then 
that would be the time that you could play these other options, 
such as privatizing, or whatever, on the table, but not before 
then, and I don't see that happening in the foreseeable future, 
sir.
    The Chairman. Mr. Gunn, in 2001, Amtrak retained the 
consulting firm McKinsey and Company to perform a strategic 
analysis at cost of $10 million. They recommended that Amtrak 
operate short-distance and new higher-speed corridor trains on 
a for-profit basis, operate long-distance trains on a 
subsidized basis, and prepare for privatization. Do you agree 
with this McKinsey strategy?
    Mr. Gunn. No, I think--well, I had real problems with the 
whole McKinsey approach.
    The Chairman. You had real problems with what?
    Mr. Gunn. With their approach, with the way they dealt with 
the company. And, as I said, I view this much more from the 
person trying to go from where we are today to a little better 
position in the next 12 months, and I think that their 
recommendations missed the mark on what some of the internal 
problems were with Amtrak, in terms of organizational 
structure, accounting, and the like.
    They made a bunch of recommendations for reform, which are 
added to the ones that you'll hear today, and I don't think 
they made--to me, they were not something Amtrak could 
implement. Now, they may make sense politically, but, from an 
Amtrak-management point of view, there's nothing I can do with 
them. What I can do is deal with the reality of the company 
that I run.
    The Chairman. So we blew $10 million, then.
    Mr. Gunn. I wouldn't have spent $10 million--it's actually 
$12 million, I think.
    [Laughter.]
    Mr. Gunn. But I wouldn't have spent the $12 million on 
that.
    One of the things I've done is to try to basically get rid 
of as many of the consulting projects that we had internally--
and I think they're mostly gone. And the 5-year plan that we 
put forward is done by people at Amtrak, Amtrak employees, the 
people who actually maintain the cars and equipment, and that's 
the way I prefer to operate. And if they can't do it, you get 
rid of them and get somebody who can. But I don't believe you 
pay $12 million for somebody to come in to tell you how you 
should run the company.
    The Chairman. You've heard me discuss the Sunset Limited. 
According to GAO, it lost $347 per passenger in 2001. That's 
why I cannot comprehend why you don't believe that long-
distance trains are a part of the problem. But you were quoted 
in a newspaper article entitled ``Amtrak Committed to Long-
Distance Trains,'' where you said, `` `Should there be a Sunset 
Limited? That's a political decision,' Gunn said in an 
interview with a Lake City reporter, but he left little doubt 
where he stands on the issue. As long as he is Amtrak's 
president, Gunn said, `The Sunset Limited is no more endangered 
than the whole system.' ''
    Mr. Gunn. Because----
    The Chairman. Do you really mean that, Mr. Gunn?
    Mr. Gunn. Yes, sir, I do.
    The Chairman. So there will be no elimination of any route, 
because it's a, quote, political decision?
    Mr. Gunn. No, sir. We have eliminated several routes 
already. They were the Kentucky Cardinal and the Pennsylvania. 
Now, they were put on for mailing express service, they were 
not part of the national system, and they have been eliminated. 
Well, one train was turned into a New York/Pittsburgh train, 
and the piece that went to Chicago was abolished.
    No, my feeling is this. I believe in the national network. 
I think that the Federal Government has an obligation to 
provide a national rail system. I think it's clear that they 
provide a national highway system, they provide a national 
airline system----
    The Chairman. But we don't build highways that aren't used, 
Mr. Gunn.
    Mr. Gunn. Well, but our trains are actually used. The 
Sunset Limited is--I don't want to give you the wrong 
impression--it's not an empty train when you ride it.
    But my point is twofold. One, we have a national system. 
And as the president of Amtrak, I have a choice. I can spend my 
time doing the doable--which is what I have been trying to do, 
putting in fiscal control, fiscal discipline, driving costs 
down--or I can engage in a political debate over--which will 
become a political debate--over eliminating long-distance 
trains. Now, if I do that, one, I will consumed; two, I don't 
believe that I should--I believe in the long-distance network, 
so I don't, personally, want to do it; but, second, it won't 
save any money.
    One of the benefits of the grant process that we have with 
DOT now is--we were forced to do a direct-cost analysis of the 
trains. When you do that, the Sunset Limited loses about $12 
million a year. That's on direct costs. That's what happens if 
you just eliminate the Sunset Limited. In order to get that, 
you've got to go through the labor-protection costs, which are 
going to take--and notification--which is going to take you a 
couple of years. So I have a company that--well, actually, this 
month, in April, we--at one point, we were down to 3 days' 
cash. And if I spend my time fighting a train--pick any long-
distance train--and that becomes the issue, it's strictly the 
appearance of the thing; I won't save any money, and I'll be 
diverted from doing what I think is paying off and paying 
dividends for the taxpayer and for Amtrak and for its 
passengers and employees.
    The long-distance train network, if you want to save the 
money that one of these two gentlemen mentioned, the $300 
million that the long-distance network loses, you have to 
abolish the whole network, and that is a political decision. I 
mean, I really think it would be presumptuous of me to do that. 
Plus, I don't believe it should be eliminated.
    So I really think that there has to be--if you're going to 
eliminate the long-distance trains, you're going to have to 
fund them for 2 or 3 years without service, and there has to be 
a commitment from the Federal Government because of labor 
protection. I mean, that's the facts of life. And there's 
nothing that I can gain for Amtrak in the short-run by picking 
on routes of the basic national system.
    The Chairman. Well, I know of no business model that 
doesn't call for the elimination of money-losing parts of their 
business, Mr. Gunn, and they--whether it's $300 million or the 
$547 million that DOT's announced----
    Mr. Gunn. It's the whole system, though, Senator.
    The Chairman. Mr. Gunn, you cannot convince me that any 
business is run efficiently by keeping the least efficient 
parts of their business, particularly when their business is 
hemorrhaging money in an incredible fashion. And saying that 
it's a political decision, sir, in my view, is an abrogation of 
your responsibility, so I'm very, very disappointed.
    Senator Hollings?
    Disgraceful.
    Senator Hollings. Well, Mr. Chairman, come now.
    I think that we have had----
    The Chairman. No, let's not ``come now.'' We've had 
billions and billions and billions and billions of dollars 
spent, and we won't even eliminate one route that's subsidizing 
$347 per passenger. Let's come now, Mr.----
    Senator Hollings. Well, good, and we might do that. I don't 
know. I haven't been in specifically on that particular issue. 
But I have to say that the testimony that we have had, in 
general, is outstanding. And I know my good friend, Secretary 
Jackson, has to give the Mitch Daniel structural reform--he's 
still studying, and his testimony about structural rot and all, 
you have to act like you just came to town. You've been in town 
for 2\1/2\ years. I've been beseeching you, on behalf of the 
Congress, year in and year out for the last 2\1/2\ years, month 
in and month out.
    All you've come forward is principles, more study, and 
structural reform, and you go right to Mr. Mead, the 
controller, and he says it's under-funded. And you go right to 
Mr. Gunn, and he says it's under-funded. What he's really 
attested to is to stabilize, for the next few years, but not to 
really give what--and this is the best testimony we've had--
what Senator Hutchison has said, and that is that we have a 
national system.
    Now, what we have on course after the 2\1/2\ years, we've 
got a bill. I introduced it in January. There are 32 
cosponsors. If we had a vote this morning, we could vote it out 
of the Committee. I've got enough votes to do that. But the 
idea is not political. The idea is to get it done.
    And Senator Hutchison is the Chairman, and, Senator, I'll 
yield to you. You take over the bill or let's get together with 
Mr. Mead and Mr. Gunn and get the 5-year plan and see what 
alterations realistically to take care of the concerns of the 
Chairman that we're just not throwing the money away and 
everything else of that kind. But let's get your bill with our 
cosponsors and everything else and let's put something out and 
get something done.
    You have exactly what I want. I want a national system. And 
I'm listening, incidentally, I think it was the day before 
yesterday, I heard Secretary Rumsfeld in Iraq or over there 
somewhere, and he said, ``We're going to build a railroad over 
Iraq.'' And I said, ``Egads.''
    [Laughter.]
    Senator Hollings. That's the first time I've ever heard 
anybody from the Cabinet in this Administration say we're going 
to rebuild the railroad. I've been trying to get them to say 
so. Of course, the trouble is, he's going to do it in Iraq.
    [Laughter.]
    Senator Hollings. Let's get it done here in the United 
States, Senator, and let's all get together and work this thing 
out.
    I apologize, Mr. Chairman, I've got another hearing I've 
got to attend.
    But I want to thank the witnesses, because you've hit the 
target. I mean, you all have studied it, and we've been back 
and forth on this thing, and we've got the Congressional 
support now. They're ready to go. And let's see what changes 
Senator Hutchison and others want to make and work together, 
and let's get something out.
    Thank you.
    The Chairman. I thank you, Senator Hollings. And I'm sure 
you understand that we'd like to get the--I'm sure Senator 
Hutchison agrees--that we'd like to get the proposal from the 
Administration, as well as part of this process.
    Senator Hollings. Well, our trouble is, as part of the 
process we've been waiting for 2\1/2\ years. That crowd doesn't 
want to spend money. The OMB says, ``Not a red cent for 
Amtrak,'' and that's their position. I mean, we can understand 
that, Mr. Chairman, most respectfully.
    The Chairman. Thank you, sir.
    Senator Hutchison?
    Senator Hutchison. Well, thank you, Mr. Chairman. And I 
really thank you, as well, Senator Hollings, because I do want 
to have a bill, and I want it to meet the Chairman's criteria 
and my criteria, which is we do it right or we don't do it at 
all.
    And I have to say that I am in disagreement with the 
statement of the Chairman. By the standard that he just issued 
to you, Mr. Gunn, we wouldn't build half the highways that are 
Federally funded. We've built highways in West Virginia and 
Pennsylvania and Kentucky that have practically no one using 
them, or maybe a few people using them, but if you put them to 
the test of whether they've paid for themselves with highway 
funds, they wouldn't meet the test. In aviation, we haven't 
made distinctions. We've deregulated, and many routes have been 
eliminated, but we still have other routes that are subsidized. 
I mean, I just think you can't put Amtrak to a different test 
from the rest of transportation.
    We have to make a decision in this country. Are we going to 
have public transportation that includes highways for 
automobiles and buses, trains, and aviation? I think we do. I 
think it is a government responsibility, and I think we need to 
do it right, and I think it's part of commerce and business in 
our country. And not one transportation system meets the 
business criteria that it can make it without any government 
spending. They all have government spending.
    So why don't we make Amtrak an equal part of our multimodal 
system and do it right. That is my first choice. However, if we 
aren't going to do it right, I think it is throwing good money 
after bad.
    I want to bring up another view, because I do agree with 
the Chairman that we need to have a bill that has 
Administration input, and we do need to have your fleshed-out 
details on just what a separate operating unit would produce. 
And I think any part of an Amtrak reform has to include either 
a privatization option or some requirement from the freight 
railroads that they meet a certain standard.
    I wonder why the Sunset Limited is losing so much money. 
Could it be that they are 6 and 8 hours late because some of 
the railroads on the route don't cooperate? Could it be that if 
we had the same attention to the other routes and the 
cooperation of the freight railroads, that these would be 
reliable? Is it any wonder that people who call to make 
reservations for the summer and are told that the long-haul 
routes may be eliminated in May or June are going to make 
alternative plans? And what does that do the revenue of that 
line? We never recovered from the last time we said that we 
were going to eliminate the routes, and then at the last minute 
we come in and we don't eliminate them. But how many 
reservations have we lost that we never get back?
    So if we're going to give Amtrak a chance, it has to have a 
real chance. So let me ask you this question. There is another 
proposal out there--I have met with some of the people who are 
looking at it--that we would deed the Amtrak lines from the 
Northeast to an entity that would issue bonds. It would be a 
private entity--public/private--but it would be a private 
entity that would issue bonds to upgrade and maintain the rail 
in return for which we would have leases that would allow them 
to repay their debt, and the leases would be from the Amtrak 
operating unit.
    Is that something that you think we could pursue to get the 
government out of the maintenance operation and into 
operational operations, which would put the Northeast Corridor, 
hopefully, in a better situation? And there seem to be willing 
people to look at this. So I'd like to ask the three of you if 
you think that is an avenue that we could pursue if we're going 
to really reform Amtrak.
    Mr. Jackson?
    Mr. Jackson. I think that the right way to think about the 
process here is that capital investment and the solution is an 
important thing to accommodate a structure to. So is it a 
silver-bullet solution? No.
    And the word ``privatization'' is, I think the wrong word 
to think about, in terms of the corridor, because I believe 
that we ought to have a public ownership of the corridor 
contracting out to private entities to operate it in the most 
efficient fashion. And that would, in our Administration's 
proposal, include initially contracting out to the Northeast 
Corridor infrastructure company that is peeled off from Amtrak 
in due course. But it would also, in due course, accommodate 
private-sector investments that would be duly reviewed by the 
public entity created to operate this, and I believe that there 
is a role for making this operate more effectively with those 
types of private-sector proposals to help manage that asset. 
So----
    Senator Hutchison. Including letting them go into debt in 
return for some kind of revenue stream?
    Mr. Jackson. I think that we should absolutely----
    Senator Hutchison. It would be the repair and maintenance?
    Mr. Jackson.--consider those types of proposals. An entity 
created to operate the corridor should solicit every creative 
financial mechanism that is, you know, out there for assessment 
and review.
    Senator Hutchison. Mr. Gunn?
    Mr. Gunn. I think you've raised a good issue. You mentioned 
the freight railroads and the conditions of the freight 
railroads. While Amtrak--everybody's focusing on Amtrak--if you 
look at what's going on in the railroad industry in general, 
they're in very serious trouble, financially. I mean, their ton 
miles are going up, their revenue per-ton-mile is going down, 
gross ton miles per freight-train hour is dropping, which is 
a--what's happening to them is, they're not generating enough 
money to pay for the capital they need to operate that plant. 
And I think whatever arrangement we make with corridors or 
long-distance trains, where you're operating over the freight 
railroads, you have companies that are in very serious trouble. 
I mean, the----
    Senator Hutchison. Well, let me ask you this, then. If 
that's the case----
    The Chairman. The Senator's time has expired.
    Senator Hutchison. Could I just----
    The Chairman. Senator Lautenberg?
    Senator Hutchison.--finish that thought, please?
    The Chairman. The Senator's time has expired.
    Senator Lautenberg?

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

    Senator Lautenberg. Mr. Chairman, I don't know whether 
we're distributing time on some formula, but----
    The Chairman. We'll have a second round, if necessary.
    Senator Lautenberg. Will that include the same amount of 
time as the Chairman took in his questioning?
    The Chairman. We'll go by the clock, I say to Senator 
Lautenberg.
    Senator Lautenberg. Yes, the clock was red.
    The Chairman. The clock beginning, please.
    Senator Lautenberg. Yes, the clock was red, sir, for a long 
time, and I'm seeing a little bit red here today myself.
    I've known Mr. Gunn a short time, but I've known his record 
for a long time. A long time. MTA and other places. And I may 
have differed with you occasionally on a policy matter. But I 
want to say I haven't seen you do anything disgraceful. Because 
you exercised your judgment and you spoke up for it? There's no 
disgrace in that, Mr. Gunn. Do it, and do it forcefully.
    We're tackling a subject here in a manner that, frankly, I 
think, is disgraceful. Give me one example, Mr. Jackson, if you 
would, of where going private was an answer to a government 
problem. Was it in, for instance, the baggage handlers that 
work at the airport? Did we like what government was doing in 
those cases, or government supervision was--I'm sorry, private 
supervision was doing there?
    Mr. Jackson. In the case of baggage handlers, the Congress 
decided to make that a public function, but we couldn't have 
ever gotten the transition to the private baggage handling, 
from the private baggage to the public to work without 
substantial cooperation and help from the private sector. We 
used smart, good people in both the public sphere and the 
private sphere to do the job, and that's exactly what the 
Administration is proposing here.
    Senator Lautenberg. Well, to me, it is sort of backwards. I 
mean, here we're talking about--the other day we talked about 
privatizing parts of FAA, and now we're talking about dumping 
the whole Amtrak infrastructure. And the fact of the matter is 
that no one is looking at the end game here. We see lots of 
businesses--and I come from the world and I know what I'm 
talking about--that hold onto branches that lose money 
constantly because it's part of a total infrastructure for the 
company, that they have to supply a service whether they like 
it or not. You can't always peel off that which you don't like.
    We spent a ton of money on the military, and we saw the 
results in Iraq. We saw technology operating as it never has 
before, and we saw a really small--except for those families 
that had to endure loss of life or loss of health or loss of 
well-being. It's because we spent the money. We didn't get a 
return on it until quite late in the game. And that's the job 
of government; not to throw away money, but to spend it where 
you know it's a vital service.
    We have essential air service here. New Jersey doesn't get 
any essential-air-service benefit, but we do it. New Jersey 
sends down--and the Chairman corrected me at a previous 
meeting--$1.65 for every dollar we get back from the Federal 
Government. The Chairman issued a challenge. The fact is that 
the Chairman's reference was to transportation only; I'm 
talking about overall funding. Arizona gets $1.15 for every 
dollar it sends down. New Jersey sends down $1.67 to get back 
its dollar.
    We are a United States of America. That means all states. 
That means that we all have to help one another, whether it's a 
flood or a drought or an earthquake. We all have to help out. 
And I'm not begging for help for New Jersey and New York. I'm 
saying that a balanced transportation system may benefit some 
at one time and others less at another time.
    And when we opened the airport here, the Washington 
National Reagan Airport, to flights from longer distances, it 
wasn't by unanimous consent. It was by a description of the 
need to extend the mileage beyond that which originally the 
compact had.
    Look at the experience of the U.K. Look at the experience 
of other countries, and see what happened. Whether we like it 
or not, this country is going to have a railroad, and it may 
not cover the distance that it covers now. But I assure you, 
between the major cities of our country, there is no other way. 
In the New York/New Jersey area, it costs $8 billion a year 
just for the cost of congestion--lost fuel, lost time, et 
cetera. It doesn't go into anybody's pocket that's of benefit.
    And so, Mr. Chairman, with all due deference--I have great 
respect of the Chairman of this committee--we do differ 
occasionally, as may be noticed.
    I would ask unanimous consent that my full statement be 
included in the record as if read.
    The Chairman. Without objection.
    [The prepared statement of Senator Lautenberg follows:]

            Prepared Statement of Hon. Frank R. Lautenberg, 
                      U.S. Senator from New Jersey

    Mr. Chairman,
    Today's hearing is immensely important because we will be 
considering the present and future status of passenger rail service in 
our country. What role should passenger rail service play in a 
national, intermodal transportation system? How should we fund it? What 
is Amtrak's future?
    Amtrak has its fierce defenders and its equally fierce detractors. 
I am one of its fierce defenders because I believe that the passenger 
rail is a vital component of our national transportation system. In 
rural towns across America, passenger rail may be the only option for 
intercity travel for many people.
    In the Northeast, we rely heavily on Amtrak's high-speed service 
between Boston and Washington, D.C. The Northeast Corridor serves 
cities with four of the Nation's seven most congested airports: Logan, 
LaGuardia, Newark, and Reagan National. Amtrak carries more passengers 
between New York and Washington than all of the airlines combined and, 
unlike airline passengers, rail travelers are able to stop in Trenton 
and Newark, New Jersey, and in other places along the way.
    As our cities and suburbs continue to swell with people, our roads 
and airports become more and more congested. I think the prudence of 
increasing our investment in another way to move people--passenger 
rail--has become more and more obvious. But like the salesman often 
says, if you don't buy now, the price goes up tomorrow. Do we want to 
wait until we back ourselves into a no-win situation? Here in the 
Northeast, the first part of the country to become densely populated, 
we faced congestion problems long ago, and passenger rail service 
became a mainstay.
    New President and CEO David Gunn is clearly doing a fine job 
stabilizing Amtrak. He has reduced costs and is aggressively trying to 
bring the infrastructure and equipment into a good state of repair. He 
does not have an easy job, and I commend him for his take-charge 
attitude and accomplishments to date.
    But it is up to Congress and the Administration to make fundamental 
policy decisions about the roles of passenger rail service in general, 
and Amtrak specifically. While we should be concerned with its day-to-
day operations and efficiency, we also need to be thinking about the 
big picture. Where is Amtrak going to be in five years? Or 10 years? In 
this post-9/11 environment we have a new perspective about the national 
security interest in ensuring that there is more than one way to get 
from here to there, and this includes passenger rail.
    Some people claim that privatization is the answer; that the 
private sector can do things cheaper, better, and more efficiently. 
Privatization is not always the best answer. Sometimes, it's not an 
answer at all. I would remind my colleagues that Congress created 
Amtrak in 1970 to bail out the private sector because it couldn't 
provide passenger rail service at a profit.
    Even though Amtrak is a truly national passenger rail service, some 
opponents see it as a parochial interest solely in the Northeast. Even 
if that were so--and it is not--I will conclude my remarks with the 
following observations:
    First, we are the United States of America. One of the things that 
unite us is our intermodal transportation system. New Jersey doesn't 
benefit from programs like Essential Air Service (EAS), but I support 
such programs because they help tie in other parts of the country to 
us.
    Second, on a related note, the Northeastern States serve as an ATM 
for the rest of country. We have 21 percent of the Nation's population 
but pay over 25 percent of the taxes. In Fiscal Year 2001, for 
instance, for each dollar the taxpayers of Massachusetts, New York, and 
Delaware sent to Washington, they got back 84 cents in spending. For 
Connecticut's taxpayers, the return was 67 cents. For my taxpayers in 
New Jersey, it was 65 cents.
    All in all, the 60.5 million people who live in the Northeast paid 
$496.4 billion in Federal taxes, but received just $386.5 billion in 
Federal spending in 2001. That extra $110 billion went to other parts 
of the country. What that means is that people in the Northeast 
disproportionately paid for the grain subsidies that benefit the 
Midwest, the cotton and rice subsidies that benefit the South, and the 
hydropower, irrigation, timber, mining, and grazing subsidies that 
benefit the Mountain and Southwestern States.
    We Northeasterners do this because that is the price of our Federal 
system--a system that has worked exceedingly well for all Americans for 
over 200 years now. I look forward to hearing from our witnesses today 
and I look forward to working with the Members of this prestigious 
Committee to come up with creative ideas for ushering passenger rail 
service into a new era.

    The Chairman. Senator Lott?
    Senator Lott. Mr. Chairman, I apologize that I have been in 
and out this morning. I'm very interested in this area. And I 
have, over the years, discussed this with all three gentlemen 
at the table and with the Chairman, and I've had a lot of mixed 
emotions. I do think, as others have probably said here, we've 
got to make a basic decision. Do we want a national rail 
passenger system or not? And if so, are we willing to pay for 
it?
    I've had to eat my words, because I basically said, when we 
passed this program 5 or 6 years ago, to Senator McCain on the 
floor, ``We're going to make this thing work. We're going to 
make it pay for itself or, you know, we're not going to support 
it.'' Well, I'm crawfishing off of that. I admit it.
    I don't know. I ask myself sometimes, is it because I'm 
romantically involved here? I just love the concept of having a 
diverse transportation system that includes a national rail 
passenger system. I do think we need it. If we're going to do 
it, though, we're going to have to admit what the costs are and 
be prepared to deal with that.
    I think we've got a good strong leader in Mr. Gunn. I 
appreciate the job he's doing. Unfortunately, he tells us the 
good, the bad, and the ugly, and we don't like to hear the bad 
and the ugly part of it. But I think that's the kind of guy he 
is, and he's trying to get the thing straightened out. And I 
do, of course, like the Chairman of the Board, John Robert 
Smith, of Meridian, Mississippi, who is committed to trying to 
do this thing in the right way.
    I don't know exactly what Senator Hutchison said, but--and 
if this is just going to be a Northeast Corridor, well, let's 
just make it a Northeast Corridor and be done with it, decide 
how we're going to deal with that. But I don't think my 
constituents want that. We want the Northeast Corridor to be a 
viable system; but we've seen, time and time again--we do need 
it, but I do think there are some benefits to a national 
system.
    I apologize for not being able to actually ask some very 
critical questions at this point, but since I don't exactly 
what's been said or what's been asked, I'll defer at this time.
    I am going to be looking forward to working with the 
Chairman of the Subcommittee and the Chairman of the full 
Committee to make some decisions of what we are going to do in 
the future. I personally think we need it and need to continue 
it, and then I think we need to deal with the realities of what 
it's going to cost.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Sununu?

               STATEMENT OF HON. JOHN E. SUNUNU, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Sununu. Thank you, Mr. Chairman.
    Let me begin by saying, Mr. Gunn, I think you've done a 
good job. I think you've been aggressive. I am at least 
familiar with your experience, and it is impressive. I think 
you're the right person in the place at this time. And you 
began by talking about the things that you've done that are 
good, that are strong--better plans, better auditing, better 
analysis. You've put together an exhaustive assessment of what 
you want to do over this 5-year period with $8 billion, and I 
would hope that if anyone were asking the government for $8 
billion, they'd have a pretty good plan of how they were going 
to spend the money.
    But what you are effectively saying is, ``If you give me $8 
billion, you can trust me to spend it well, to invest it as 
well as possible, and, at the end of this 5-year period, I'll 
give you a system that's no longer in crisis and that only 
requires a subsidy of a $1.5 billion a year going forward.'' 
Now, based on current ridership numbers, and even if you 
inflate them a little bit, that is an average subsidy of $50 
per passenger in the system 5 years from now. Now, that may be 
a dramatic improvement over the current situation, but I don't 
think that that's really a program that will incite confidence 
in the taxpayer or committees that, at the end of the day, 
we'll really have something that has a clear sense of purpose 
and mission and, arguably, some economic rationale.
    Now, I hesitate to use the word ``economics,'' because 
everyone might leap to the conclusion that that means we're 
talking about having Amtrak be profitable, and this is not a 
debate over whether or not we provide some subsidies to 
passenger rail at the Federal or the State or even the local 
level. We've got transit programs, we've got all kinds of 
subsidies out there. Yes, we have a highway program, and we 
subsidize small airports and rural airports. This is not a 
debate over whether we subsidize the system.
    I think, first and foremost, this is a debate and a 
discussion over whether or not there's the level of economic 
rationale in these figures and in this system today, and 
hopefully 5 years from now, that we would expect, as 
policymakers, and that the public would expect.
    To that point, I think the Chairman's question about these 
long-distance routes is very important, and it is not enough 
simply to say, ``Well, we believe, in principle, that a 
national system is a good idea, it's somehow a good thing, so 
we're going to stick by all of these numbers.'' And I won't run 
down all of the subsidy levels on the long distance, but they 
are enormous. And the Sunset is just the tip of the iceberg. 
It's not enough just so say, ``In concept, we think a national 
system is good,'' because if you make that statement in 
principle, then you're effectively saying, ``Well, we'll 
support a national system, no matter what the cost. No matter 
what the economic impact on the taxpayer, on consumers, we're 
willing to support a national system.'' And I don't think 
that's necessarily the position you're taking.
    But I think we have to at least look at the economics so 
that we understand the scope of the subsidy and what we are 
putting the taxpayer on the hook for. And there's no getting 
away from the fact, even with this aggressive plan, which we 
might say is the best plan we've ever seen for Amtrak, at least 
put on the table as a public entity, it still puts the taxpayer 
on the hook for $1.5 billion per year in perpetuity, period. 
And it doesn't even address the debt situation.
    You went through a series of myths. One of the myths you 
talked about was the myth of labor costs, that this is a myth 
that this is a problem. But then when confronted by the subsidy 
rate of $348 per passenger subsidy for the Sunset Limited, your 
rationale for not being able to do something about that 
specific question were the labor costs and, in particular, what 
do you call it--the labor protection that would be required. 
You can't say that the labor issue is a myth, that labor is a 
problem, but the reason we can't get rid of a route is because 
of the labor protection cost. So, you know, I'd like you to 
address that point and talk about whether or not these labor 
protection costs really are an economic problem within the 
system.
    You've got time.
    Mr. Gunn. Labor protection costs are not a cost unless you 
get rid of the train, so that's--obviously, if you're getting 
rid of the train, it is a cost. When I was referring to labor 
costs, what I said was related to an ongoing operation, and I 
said that the problem at Amtrak is not so much the wage rates 
is, we have some work rules which I think could be changed and 
which will give you greater productivity.
    So all I was suggesting is that people will make the 
analogy between Amtrak and an airline. Well, it's different, 
because our wage rates are very different from the airline 
industry. Our problem, in terms of productivity, I would 
submit, is much more in terms of work rules. And in the plan 
that we've given you, that assumes that we will make 
significant progress with our labor organizations in terms of 
work rules and productivity.
    The labor protection piece is--I mean, that's only a cost 
if you're getting rid of the train, so that's why I didn't--it 
doesn't affect----
    Senator Sununu. Well, I appreciate that, but I think it is 
a significant cost. It is an opportunity cost. It's an 
obstruction to reform, to evolution, and to modifying the 
system.
    One final question. I would like to hear a little bit more 
about the mortgaging of Penn Station, because there's no other 
public entity that I know of that has gone out and basically 
borrowed money against public assets. And we can talk about the 
interest-rate differential. But, for Amtrak, as an entity, to 
go out and mortgage public assets that are, again, owned by the 
public, is stunning.
    What is the size and the scope of the debt that now exists, 
obligations that are held against public assets, like Penn 
Station?
    Mr. Gunn. Well, first of all, let me just say that that 
happened prior to my arrival. I would not have proposed it. I 
think it was a bad decision. And we are not mortgaging any 
additional assets at this point, and we don't plan to.
    I believe they got $300 million for that, wasn't it, Ken? I 
think it was $300 million. The debt on Amtrak's books, on our 
balance sheet, is $3.7, $3.8 billion.
    Senator Sununu. And, to be clear, the 5-year plan that you 
have really doesn't address pay-down of that debt, a swap-out 
of that high-interest debt, or--it just deals with paying the 
legal requirements on principal and interest.
    Mr. Gunn. That's right. But, actually, the debt--the 
interest rates peak this year, and they'll drop. And if you 
look--if I could show you the income statement, you'll see the 
interest charges dropping. But it'll be a number of years 
before we're really out of that.
    The only debt we're repaying, proposing to repay, is to 
begin repaying the $100 million loan that we got from DOT last 
summer. That--I think we should build that into our budget, at 
least in part, to pay that back, and start that in 2004.
    Senator Sununu. Thank you, Mr. Chairman.
    The Chairman. Senator Hutchison?
    Senator Hutchison. Yes, before our time runs out, I would 
like to finish a thought with you, Mr. Gunn, and that is, if 
the railroads are in bad financial condition and, therefore, 
unable to be cooperative with the right-of-way on the track, 
would it be worth it to a railroad to donate right-of-way next 
to its track, let Amtrak build track so that it would have the 
full usage of it, not having to buy the right-of-way, making it 
hopefully more economical, and then Amtrak could have total 
control of its routes and its tracks? Would that be something 
that would be worth looking at? Might it alleviate the 
situation with the railroads and give us a chance to have a 
system that would be on time and better served?
    Mr. Gunn. Well, obviously, the railroads would decide what 
they could donate to us, but I think that the cheap--forgetting 
for a minute whether they donate or don't donate, the cheapest 
solution for giving Amtrak and freight a good ride may well be 
something that's less expensive, and that is just adding some 
additional sidings and crossovers and so forth.
    For example, on the Sunset Limited route, you couldn't 
propose building a right-of-way for one train. I mean, that 
would be very uneconomic. But you could say, on some of these 
routes, that there is a public benefit, for both freight and 
passenger, if we can solve some of the bottlenecks and 
constraints.
    And I would suggest that what you do depends upon the 
route. In other words, there are some routes where there's no 
room, and so if you want passenger service, you have to build a 
separate right-of-way, if you want good, reliable, frequent 
passenger service. But there are other routes where you can 
make--for example, Portland, Seattle--where you can make 
modifications--and if you have a willing railroad--you can make 
modifications to the existing track structure and--the layout, 
the number of passing sidings, and so forth--and you can 
provide the added capacity at a pretty reasonable cost, much 
less than building a separate track.
    So you have to, sort of, base the solution on the problem 
you're trying to solve. There's no cookie--I can't give you a 
cookie-cutter answer to that. But there are some areas where 
you need more track; other areas, you just need some additional 
passing sidings.
    Senator Hutchison. But one of the reasons that I believe it 
is so important that we make the right decision here is that it 
would be impossible to buy right-of-way to build new tracks. We 
have to deal with the right-of-way that is already there, and I 
don't--I just don't know the cost-benefit analysis to the 
railroad, but I think it is certainly worth looking at asking 
them for the donation. And maybe you start with what you're 
proposing; you look at the worst problems, and you try to do 
bypasses on their right-of-way with their consent and see if 
that is helpful to them, as well, so that it is a win both 
ways. And I think that should be part of any kind of long-term 
plan that we would put in place. Because I know the Sunset 
Limited or the Texas Eagle or any of these other routes that 
are 5 and 6 and 8 and 10 hours late routinely are not going to 
have a chance to succeed. So that was my question.
    My last question would be to Mr. Mead, back on my original 
question. Do you think that either what Mr. Jackson proposed, 
contracting out to private companies and let them do debt, or 
selling the trackage to a private company, let them issue debt 
to maintain, with the return lease that would be to help them 
pay for the repairs and maintenance that they're making--would 
that be any kind of a feasible alternative?
    Mr. Mead. In the Northeast Corridor, I think the tab is 
simply too large for the immediate-term. I think in the 
immediate-term, there needs to be an infusion of capital to the 
Northeast Corridor.
    Can you borrow it? The problem with borrowing it is that 
the amount that you'd have to borrow--you know, the investors 
would expect a return over a reasonable period of time, and 
that return would have to come from the people that use the 
corridor; either that, or the Federal Government would have to 
pay, and it would be a very substantial amount of money.
    I think that the concept that you offer is workable once 
you are in a reasonably good state of repair. But really 
there's no way of cutting it, other than to say that if we want 
the Northeast Corridor to be in a state of good repair, it's 
going to take some big money.
    Senator Hutchison. Mr. Gunn, I would like to ask you to 
help us by showing us where bypasses like that might make a 
significant difference in the system, and then let's discuss 
if, in the overall, that would make a difference in a long-
range plan. I'd like to have that as part of our 
considerations.
    And I would like to work with you, Mr. Jackson, as well as 
the other members of this committee, to have a bold plan in our 
reauthorization, and that would be my goal this year.
    Mr. Jackson. Senator, if I could just say--and then also to 
the point that Senator Lautenberg made--it's important to 
understand the Administration is not proposing privatizing the 
Northeast Corridor. We are proposing to create a government 
entity to manage it in a more coherent fashion and to give us 
some stability over the long-haul to manage what is a very, 
very important transportation asset.
    Senator Hutchison. I understand. There was a difference in 
your concept and what I was putting forward.
    Mr. Jackson. Yes, ma'am.
    Senator Hutchison. But it might work the same way if you 
had the private contracting, and they would then be able to 
finance in their own way. They'd have to make the business 
decision.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Finally, Mr. Mead, I guess I would ask you to comment on 
the rather Orwellian situation that labor costs are not a 
factor unless you try to impose efficiencies, i.e., cancel a 
route, and then labor costs then become a factor. What's the 
situation here that dictates that bizarre situation?
    Mr. Mead. Well, under the rules, if you are to terminate a 
route and the labor on it, they're entitled to be paid a 
certain amount of money. I don't have the details of the exact 
arithmetic here, but it's very substantial.
    I didn't mean to suggest, when I was talking about the 
long-distance trains, that that $300 million figure was not a 
problem. It is. What I meant to say, absolutely exact, is that 
anybody that thinks that getting rid of that $300-million 
problem is going to take care of the problem that we have with 
Amtrak, that is wrong. And that is what I meant by the $300 
million problem.
    The labor-protection issue, it's got a lot of dollars 
attached to it. It probably would require a change in the law.
    The Chairman. My staff tells me we changed the law to make 
it 5 years on contracts.
    Go ahead, Mr. Gunn.
    Mr. Gunn. Just to--what happened was, originally there 
were--labor protection was in the law, and Congress, in one of 
the reauthorizations----
    The Chairman. 1997, I believe.
    Mr. Gunn. Yes. It dictated that--or they told Amtrak they 
had to negotiate labor protection, which produced the same 
result, because we ended up in arbitration. But we did drop the 
protection one year.
    And the way the protection works----
    The Chairman. So it does not require a change in the law?
    Mr. Gunn. Pardon?
    The Chairman. It doesn't require a change in the law.
    Mr. Gunn. No, sir. It's a negotiated agreement.
    But labor protection starts with an employee who has 2-plus 
years, and they get 6 months' pay; and it goes up in increments 
to an employee with 20-plus years gets 60 months, or 5 years' 
pay. And it's a little more complicated than that, because it 
provides that the employees have to exercise bidding and 
bumping rights, which means you not only have the protection, 
but you end up with a tremendous amount of movement of 
employees throughout the system. So it basically obviates any 
savings from taking off a train until you've gone through this. 
And it is--looking at our workforce, I mean, our workforce is 
probably, average, 15 years. I mean, you're looking at--at 15 
years, you're looking on it--if that's the average, it's 36 
months, or 3 years.
    The Chairman. So you've--not you, but it's been effectively 
negotiated that any cost savings which would be dictated by a 
reduction in routes would, therefore, be prohibitively 
expensive because of labor costs. It's a strange way of doing 
business.
    I thank the witnesses, and I appreciate the----
    Did you want to--go ahead. Go ahead, please. Senator 
Lautenberg?
    Senator Lautenberg. Yes, thanks very much, Mr. Chairman.
    I wanted to pursue something that Mr. Jackson said in his 
last remarks, and that is that conceptually when we're looking 
at a government-created corporation, who owns the corporation? 
The Federal Government?
    Mr. Jackson. Well, it would be a--ownership of the 
infrastructure would be owned by the Federal Government, by 
statute, is what we would propose from the Administration, but 
it would be operated and sustained in a compact between the 
Federal Government and the states.
    Senator Lautenberg. Well, wasn't that where the Government 
was going when, in 1970, they stepped in to Amtrak to create 
Amtrak as a national passenger rail service company; and the 
forecast, as I read it, was that it would get itself on a pay-
as-you-go basis within fairly few years. That was 33 years ago. 
Was that a government corporation that then was created?
    Mr. Jackson. No, it was intended to be a private 
corporation, and that business model failed. That's why I would 
argue that what we need to do is put in place a new business 
model. We're acknowledging that the experience of 30 years has 
suggested that this corridor cannot be operated without the 
infusion of some public funds. And so the question is, who pays 
those funds, how much are they, and how do you structure that 
infusion?
    Senator Lautenberg. That's the crystal ball we're looking 
at. It's----
    Mr. Jackson. Trying to look at it, and David is trying to 
give us----
    Senator Lautenberg. So what gives you hope that a new 
structure, which is so similar to the 1970 creation, will be 
any different? Will we be out of the subsidy business, in terms 
of the Federal Government?
    Mr. Jackson. I don't think so.
    Senator Lautenberg. No? Well, what's going to make it 
better?
    Mr. Jackson. The difference is, is that when Congress 
created Amtrak, they thought that Amtrak would be a privately-
owned for-profit company that would come in and, after a very 
short period, sweep away all the need for public investment in 
the infrastructure and operating subsidies.
    Senator Lautenberg. OK, but----
    Mr. Jackson. And what we've said is, is that doesn't work, 
and so we need to get the Federal Government bolted together 
with the affected States and try to find a mechanism that 
allows us ownership as a government for the long-haul and 
contract out operations, but not the ownership of it.
    Senator Lautenberg. Mr. Gunn?
    Mr. Gunn. One caveat I'd add to what's being discussed, is 
that if, in fact, you're going to set up a separate corporation 
for the corridor, you'd better be sure that the operating 
responsibility and the maintenance responsibility rests in the 
same body. You do not want to follow the British example of 
separating track from the people who run the trains. It doesn't 
work very well, and the best proof in this country is the 
problems we have where we run on somebody else's track, and we, 
sort of are living proof of the problems you have.
    So if you're going to set up a separate corporation, you'd 
better make sure, or I would recommend you make sure, that that 
corporation have both operating and maintenance responsibility, 
and not separate the two.
    Senator Lautenberg. So it'll look a lot like its first 
cousin, which is Amtrak now.
    Mr. Gunn. That's right.
    Senator Lautenberg. Yes. So the prospect of lots of money-
saving and all that and no, or very few, subsidies of a 
relatively small amount is not part of that thinking, huh?
    Mr. Jackson. Well, I think it will continue to require 
subsidies to make the corridor work. As David said in his 
testimony, it's a myth that the corridor makes money. It 
doesn't. It won't. And so the question is, who pays and how 
much? What can we afford?
    David has proposed a plan of some $2 billion a year, which 
is disproportionately focused on providing the needed Northeast 
Corridor operation, but I think that plan has vulnerabilities 
which can come back to bite us and not to mention which is the 
potential need to recapitalize much of the rolling-stock 
infrastructure of the railroad, to look at ADA required, 
statutorily required, investments which are not in the business 
plan, to look at required investments in other facilities and 
to assess the type of vulnerabilities that he mentioned 
relative to the Acela fleet, which could be a significant 
financial burden.
    So we're saying, build a structure. Understand that we want 
to try to produce something that will allow us to manage it in 
the long-haul.
    Mr. Mead. And I think a major difference, Senator 
Lautenberg, especially outside the Northeast Corridor, would be 
that the states would have much more to say about where those 
trains, that we presently know as long-distance trains, where 
they go between City A and City B and City C with increasing 
frequency, rather than focusing on a cross-country train. And I 
think part of the essence behind the proposal is to give 
capital grants to States. States would be in the driver's seat, 
so you don't have Amtrak making all the decisions for the 
entire United States.
    Senator Lautenberg. Right, but does that differ from 
highway funding, that--it has a much larger revenue base, but 
the fact of the matter is that the states are making decisions 
in cooperation with the Federal Government about where these 
things lead us----
    Mr. Jackson. Not, exactly. It looks much more like the way 
we do all the rest of transportation--Federal transit grants, 
Federal highway grants--where the states are in the driver's 
seat of gating the demand for projects and making enough of an 
investment in them that they have a financial stake in the 
process. Right now, the Federal Government just drives up and 
drops Brobdingnagian-sized buckets of cash on the Amtrak and 
intercity passenger rail problems. That's not a good enough way 
to go forward.
    Senator Lautenberg. Right, but if they're being asked to 
consider investing in rail service, and over here it's paid for 
largely by taxpayer money, and up there it's largely paid for 
by taxpayer money, the revenues from those sources go into the 
equation. But what's the incentive to go ahead and build 
trackage if not enough people take it to where you have a 
majority, like you have in the automobile? And it's a question 
of whether there's leadership that's willing to say, hey, this 
country, in order to get out of the pollution problem, the 
congestion problem--the costs for congestion across the country 
are some $80 billion a year. Does that ever get reckoned into 
the calculation that you have to make on whether or not you 
continue to build rail services? And there are lots of 
corridors besides the Northeast Corridor that look pretty 
appetizing for----
    Mr. Mead. But Amtrak has no incentive to really focus on 
these other corridors that you're speaking of. What they have--
and the frequency of service in those corridors--what they have 
an incentive to focus on is keeping those cross-country routes. 
Where I think the contention I would make is that, in between, 
the states have cities that they want to have service to. But 
right now, Amtrak doesn't have any incentive to do that.
    Mr. Jackson. Well, it's worse. Amtrak has every incentive 
not to make rational business decisions, as the Chairman was 
talking to, so we have to create a structure that imposes some 
degree of rationality, and the states and the Federal 
Government have to have a partnership to work on that. And 
it'll look a lot like the way we do----
    Senator Lautenberg. These going-out-of-business sales have 
enormous costs.
    Thanks, Mr. Chairman.
    The Chairman. Senator Sununu?
    Senator Sununu. Thank you, Mr. Chairman.
    I would just pick up on that point and emphasize I don't 
see engaging the states in a partnership as a going-out-of-
business sale. I think it makes good policy sense to have them 
participate. I certainly don't believe that there's no 
leadership at the State level, or interest in transit, or 
intercity train operations at the State level.
    Coming from a New England State where there is now some new 
and growing service that is, in part, a partnership between 
Amtrak and New England Passenger Service, it's headquartered 
out of Maine, I think they've done a fair job to start the 
service. But it's clearly a partnership where the states are 
committed to providing some of the support for both the 
infrastructure and the operating subsidy. We'll see how it 
goes, but there's clearly an interest. There's leadership at 
the State level. And I don't think that the suggestion that the 
states don't care about passenger rail should be used to oppose 
any proposal that's put forward by the Administration or anyone 
else.
    Mr. Mead, I want just a little bit of clarification on a 
couple of points you made. I appreciate your earlier 
clarification, that you weren't trying to dismiss $300 million, 
but you did say that $300 million isn't going to solve the 
problem.
    Two points. First, I look at the allocated loss. On long 
distance, I see it as $550 million. We don't need to quibble 
about whether it's $300 million or $550 million. It's a 
significant amount of money. But if you use, sort of, the 
rationale that it won't solve all the problem as a reason for 
not entertaining wholesale reform of these long-distance 
routes, then you're going to just sit around and wait for the 
$1.5 billion silver bullet. Now, I don't think that's where 
you're coming from, but I certainly want clarification.
    Yes, if you have a $1.5 billion problem, you can't solve it 
with just a $300- or $400- or $550-million reform, but that's a 
start, isn't it?
    Mr. Mead. Yes, sir. And I appreciate the opportunity to 
clarify.
    Let me take a cross-country route or what we know with the 
long-distance route. And take that route--say it's a thousand 
miles long. That thousand-mile route goes from point A to 
point, say, E. OK? In between points A and E are points B, C, 
and D. I'm saying it makes more sense to focus on the traffic 
between points A and B and back to A and back to B because 
they're from two city locations, and it doesn't make sense to 
focus on going from point A to point E. And the states have the 
vested interest in that going back and forth from point A and 
B----
    Senator Sununu. And I don't disagree--that's an important 
point that you make. I don't disagree with it, conceptually. I 
mean, you seem to be making an argument for the focus on 
corridor activity A to B instead of the long-distance activity 
A to E, and I think that's very much along the concerns that 
have been expressed by the Chairman earlier. But you also said, 
in some of your opening comments, that long distance, the long-
distance subsidy, was the glue that held this network together.
    Mr. Mead. That's right.
    Senator Sununu. Now, it seems to me that the statement you 
just made and the concerns about this $550 million operating 
subsidy are at odds with, somehow, these A-to-E trains, these 
long-distance trains, being the glue that holds the system 
together.
    Mr. Jackson. Well, Senator, it's even worse. The amount of 
glue that you need is a lot more than we're talking about here, 
because this gets into--it's not a small point--about how you 
define what these trains cost us to run. David's numbers are 
avoidable costs. The numbers that I would suggest, that are in 
our testimony, that you ought to look at is the fully allocated 
contributions, which is depreciation and interest, in which 
case long-distance trains are an $826 million idea.
    Senator Sununu. And I don't want to get into a--yeah, I 
love cost accounting as much as the Chairman does, I'm sure.
    [Laughter.]
    Senator Sununu. So I don't want to go down that route.
    My point was simply that the losses are significant, and I 
can understand that policymakers may argue that they want a 
full national service out of principle--I talked about that 
point earlier--but I'd see no factual basis for the argument 
that somehow the long-distance trains are an essential glue 
that hold the whole system together and that you can't have 
viable, strong corridor service or intercity service without 
long-distance trains.
    Mr. Mead. You're absolutely right. But the point is, the 
political glue is different from the essential glue, and I can 
tell you----
    Senator Sununu. I appreciate that you did not use the 
phrase ``political glue.'' We all get to revise and extend, and 
I won't disagree with your final point, and we don't have to go 
down the political road at the moment.
    Mr. Mead. Can I make one other point on a question you 
asked earlier that Mr. Gunn, I think, responded to? Your 
question had to do with a payment of the interest on this debt.
    Senator Sununu. With the payment of principal and interest, 
yeah.
    Mr. Mead. Yes. That comes out of a subsidy. You give a $1 
billion subsidy to this railroad; about a quarter of it is 
going to go to debt.
    Senator Sununu. And the reason I brought that up was to 
emphasize that at the end of this, you know, thoughtful 5-year, 
$8 billion plan, we've reduced the principal only marginally, 
if that, the $100 million to transportation, but the interest 
rates--it sounds like, contractually, they go down slightly, 
but you still have, effectively, the same lump-sum $3.7 
billion.
    Mr. Gunn. No, it goes down.
    Senator Sununu. It goes down to--how much will the 
principal be?
    Mr. Gunn. I don't have the number in front of me. It goes 
down a fair amount, because you're paying principal and 
interest.
    Senator Sununu. OK. I would really hope that someone in 
this room does know, because--what it would be after 5 years. 
It's kind of an important issue.
    Mr. Gunn. Mr. Mead might know.
    Mr. Mead. This 5-year plan we've been studying--by law, we 
have to review Amtrak's strategic plans, and this 5-year plan 
was dropped on us on, basically, the eve of the Congressional 
hearing. It is a very lengthy document, and we really haven't 
had time to analyze it. And I would want to get back to the 
Committee before standing up and saying, ``Yes, the debt's paid 
off.'' And I believe the Department feels likewise on that.
    This has been a history with Amtrak, a dropping--we would 
issue--for example, we'd have a strategic business plan from 
Amtrak, and they would have a $300 million item in there called 
``to be determined.'' We report to the Congress and say there's 
a $300 million hold here on ``to be determined,'' and they need 
to be filled. And then Amtrak will come out with another plan, 
and the ``to be determined'' would shift around.
    So I want time to review the 5-year plan. I have confidence 
that Mr. Gunn has put it together in a meticulous fashion and 
so forth, but I need a little time to look over this document.
    Senator Sununu. Mr. Chairman, I'm pleased that we've had 
this testimony today. It's been thorough testimony and 
professional testimony. I don't think we've had as thorough a 
look at the system and what the next 5 years might look like, 
certainly not since I've been in Congress, which has only been 
6 years.
    But I must say, this is--at the end of 5 years, it's sort 
of the same structure, the same system, the same incredible and 
economically fantastic subsidies for certain long-distance 
routes. It really doesn't provide any fundamental change in the 
system. And while we may feel great about the management team 
that we have, I'm concerned that, you know, the bulk of the 
Congress is just going to look at this year after year for the 
next 5 years, put their finger to the wind, come up with the 
right number that seems to sort of enable them to go back home 
and say, you know, Amtrak's a good thing. I support it, and I 
push for an extra $100 million this year to make sure that we 
could sort of keep on track with this plan, but without 
addressing the implications, the fundamental implications of 
the way this is structured, these enormous cost commitments and 
debt service that's been saddled on the current management, and 
I'm not very optimistic.
    Thank you, Mr. Chairman.
    The Chairman. Mr. Gunn, you should be allowed the 
opportunity to respond. Please go ahead.
    Mr. Gunn. Thank you, sir.
    First of all, its $722 million worth of debt is paid off 
during this period.
    I would just like to say that obviously there's a----
    The Chairman. Would you repeat that again?
    Mr. Gunn. I said during our plan----
    The Chairman. Yes.
    Mr. Gunn.--it includes the paying--debt-service principal 
is $722 million. In other words, the plan that we've given you 
includes paying off the debt that shows up in the----
    Senator Sununu. You take it from $3.7 billion down to 
approximately $3 billion.
    Mr. Gunn. That's still a lot of money.
    But what I would like to say is--make a plea. You know, I 
view this from, as I said, a slightly different perspective 
than my compatriots here, and I have a--there's a sense of 
urgency that I feel, in terms of the physical conditions on the 
plant and equipment that we operate with. And it's clear to me 
that defining the plan for reform is going to take some time. 
It's going to be--it isn't going to happen quickly. And what I 
would say--the risk we run--and I think everybody agrees, we 
run some things that should be preserved. Now, I think they all 
should be, but that's my personal opinion.
    The Chairman. You think--would you repeat that? You think 
that every route ought to be preserved.
    Mr. Gunn. I said that's my personal opinion, that the 
national----
    The Chairman. Well, your personal opinion matters when you 
are the head of the organization, Mr. Gunn. That's quite a 
remarkable statement.
    Mr. Gunn. I believe there should be adjustments in them, 
but that the basic structure should be maintained.
    But having said that, my plea is that the--we're going to 
lose the system if we don't have some stability over the next 
few years while this reform is put into place, whatever it is. 
So we do run the risk of losing the high-speed operation on the 
Northeast Corridor, as well as we run the risk of driving the 
operating deficit through the roof by having the equipment in 
bad shape.
    So my plea is that we've got to focus on the reality of the 
situation as well as the goal of reform, and I--that is my 
plea, that we have to preserve--at least some of these services 
have to be preserved, and it is going to take money, and what 
is shown in this plan are the specific steps that you have to 
take to do that.
    And it is--I think it's a conservative plan. I mean, I 
think it's--Ken will look at it, and I'm sure he'll have some 
comments. But it's a very, very pragmatic plan. It's not a 
flight of fancy. And we did try to cover all our bases, 
including repayment of debt.
    So that's my plea.
    The Chairman. Well, Mr. Gunn, we appreciate the work you're 
doing. We know it's very difficult. We think you have been very 
forthcoming about the realities of the difficulties that Amtrak 
faces.
    But I must say, it's almost an oxymoron to say you want 
stability--i.e., maintain business as usual--while reforming. I 
don't see how those two match up. Reform means eliminating 
waste and inefficiency, and if you want, quote, stability, 
which means, in your personal opinion, you want to keep every 
route and every practice, then I see nothing but an unending 
hemorrhaging of red ink.
    So, look, I understand one of the reasons why you're having 
to say it, because you would alienate a certain constituency by 
canceling certain routes. But you've got to step up. You've got 
to step up and impose efficiencies in this organization. And to 
say that, quote, maintain stability--i.e., status quo--and 
reform at the same time doesn't get it.
    And I speak from a many, many year perspective on this 
issue and many, many, many hearings on this issue where we've 
had Amtrak people come before this committee saying that they 
want to maintain stability. Well, that stability has cost the 
taxpayers billions of dollars.
    You can respond if you would like. Please.
    Mr. Gunn. Yes, sir.
    Well, my point would be that if you told me that by--at the 
end of 5 years, we're going to have all the long-distance 
trains gone, we could obviously take the steps necessary to 
realize the----
    The Chairman. Let me just correct you again. I'm not saying 
eliminate all long-distance routes. I'm saying eliminate waste 
and inefficiency wherever it exists. And there's a compelling 
argument that when you're having to run a route that's 
subsidized $347 per passenger, it seems to me at least that 
should be scrutinized rather than tell a reporter, quote, 
``that's a political decision.''
    Mr. Gunn. Well, but whatever the route structure is going 
to look like, and forget whether it's all of them or just half 
of them or one train, to get those savings, you have to make a 
conscious decision that you're going to fund the termination 
cost. I mean, that's a fact of life that we may not like it, 
but it is a fact of life.
    The Chairman. You have said in your testimony you will be 
having negotiations with labor, just like the airlines are 
having negotiations with labor, as we speak, to change a lot of 
the featherbedding rules that have come into being. You act 
like you are a helpless bystander, Mr. Gunn.
    Mr. Gunn. No, not on----
    The Chairman. You are not.
    Mr. Gunn.--not on the work-rule issue.
    Mr. Sununu. May I ask a question about----
    The Chairman. Those are negotiated, Mr. Gunn.
    Mr. Gunn. I agree that the work-rule issue is a priority 
for the board and for management. My point is----
    The Chairman. Of which I think you are a part.
    Mr. Gunn. But that's our priority. I agree with you, that 
those should be a focus. My point on the labor protection is, 
you don't--if the goal is to get rid of trains, I suspect that 
the negotiation to get rid of labor protection would be pretty 
tough.
    The Chairman. The goal is not to get rid of trains; the 
goal is to get rid of waste, inefficiency----
    Mr. Gunn. And that's----
    The Chairman.--overlapping management to make it an 
operation. And to say, again--we're talking past each other, 
obviously, Mr. Gunn--but for you to say, it's a, quote, 
political decision and say that you won't--don't want to get 
rid of a single route means that you--it seems to me you're not 
committed to that proposition.
    Senator Sununu. May I ask a question just at this point?
    The Chairman. Go ahead.
    Senator Sununu. I just want to be clear. Don't you believe 
that if you made a decision to eliminate a route that was being 
subsidized to the tune of $200 per passenger--do you have any 
concern that Congress would somehow refuse to provide the 
funding necessary to cover the 2-year or 3-year or whatever the 
termination cost might be? Do you have any reason to believe 
that having made a tough decision, that Congress wouldn't 
provide you with the appropriation necessary to fulfill 
contractual obligations?
    Mr. Gunn. The history of this corporation is that that's 
happened, for whatever reason. I mean, when we--we're to the 
point, this month, where we had 3 days' worth of cash left, 
where our working capital, our ratio of--current ratio was .29. 
I mean, the fact of the matter is that we now have a--the 
Northeast Corridor, which almost everyone seems to think should 
be preserved, is in a state where it needs massive amounts of 
capital to bring it back to a state of good repair. I mean, 
that's the fact. So----
    Senator Sununu. But that doesn't really answer my question. 
My question was, what evidence do you have to believe that--if 
you made an important managerial decision, that Congress 
wouldn't provide funds to support that? And I understand that 
you have capital costs and these other costs, et cetera, but, 
you know, we've----
    Mr. Gunn. You can't fund us in isolation. In other words, 
you don't fund a bit and a piece of the budget. That doesn't 
work that way.
    Senator Sununu. That's my point exactly. So, you know, you 
make the decision, you have certain costs, certain termination 
costs, and you'd say to Congress, ``I've made the tough 
decisions, I've enacted these reforms, and here's what it's 
going to save in the long-term, and here's what it costs in the 
short-term.'' I mean, I think that's among the most powerful 
arguments that you can make. But you've answered the question. 
I appreciate it.
    The Chairman. I thank the witnesses. I'm sure we'll be 
seeing you again. Thank you very much.
    [Laughter.]
    The Chairman. The next witness is the Honorable David King, 
Deputy Secretary of the North Carolina Department of 
Transportation; Mr. John Winter, President of Harral Winner 
Thompson Sharp Lawrence; Mr. Hank Dittmar, who is the Project 
Director of the Great American Station Foundation; Mr. Alan 
Landes, who is the Senior Vice President of Herzog Transit 
Services; and Mr. Michael Pracht, who is the Chairman of 
Passenger Transportation Committee.
    Please come forward.
    I want to thank the witnesses for their patience. 
Obviously, this has been a very interesting hearing. So I'd 
like to begin with Mr. King, Honorable David King, who is the 
Deputy Secretary of the North Carolina Department of 
Transportation. Again, I appreciate the patience of the 
witnesses, and we'll begin with you, Mr. King. Mr. Secretary.

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

    Mr. King. Thank you, Mr. Chairman.
    My name is David King, and I'm representing 24 states who 
collectively comprise the States for Passenger Rail Coalition. 
We've been in existence for several years, and our mission has 
been to try to establish a Federal partnership for rail 
infrastructure investment that mirrors the Federal investment 
in other modes of transportation.
    Collectively, our states have committed, in the past or in 
the future, up to $4 billion already, so the State contribution 
is already there. In the time allocated this morning, I'd like 
to make several points and then make a modest proposal, which I 
believe to be consistent with most of what we have heard as a 
group as we've talked to other stakeholders and most of what we 
heard earlier this morning.
    First, there are numerous examples of successful 
partnerships between State DOTs and Class I railroads on rail 
infrastructure investment--those investments have been made 
with companies like Norfolk Southern, CSX, Burlington Northern 
Santa Fe, the Union Pacific, and so forth--for projects that 
benefit passenger rail primarily, but also have a significant 
freight benefit, and that is why the freight railroads have 
participated in those partnerships.
    Second, there is a significant amount of business community 
support for the kinds of corridor investments that States are 
interested in. The Chicagoland Chamber has been very vocal and 
busy in the Greater Chicago area for the Midwest service that 
you probably are aware of that would connect Chicago with a 
number of hub cities in the Midwest, upper Midwest. And 
chambers such as Eugene, Oregon; and Cleveland, Ohio, have been 
very active and energized. And I'm very proud of the work of 
the Southeastern Economic Alliance, which is a 15-chamber-based 
group led by the Atlanta Chamber that has been very supportive 
of the kinds of corridor investments we want to make in the 
Southeast with the leadership of the Atlanta Chamber. These 
chambers and business leaders are involved because they think 
it's in their economic interest to be involved in supporting 
intercity rail passenger service as another mode to get around 
on the short-distance trips in the Southeast and nationally.
    Third, there is a history of State DOTs being in the 
infrastructure business. As has been referenced earlier, we 
have collectively built an interstate highway system on a 
Federal/State partnership model. States know how to do project 
planning through the National Environmental Policy Act process, 
and you cannot underestimate the amount of time and effort it 
takes to go through that process in order to be ready to build 
projects that meet Federal environmental and community impact 
standards.
    And we've got a number of projects which are ready to go 
today. A recent report by the American Association of State 
Highway and Transportation Officials documented over $17 
million worth of work that needs to be done over the next 6 
years.
    Fourth, there's an economic case to be made for these 
corridor investments. And I should parenthetically say that 
while a lot of the discussion in the first part of the morning 
is about a national system, yes or no or how much, most State 
effort is focused on the corridor level. In my case, it's 
Atlanta to Washington. In the Gulf Coast States, it's Central 
Texas to Atlanta or Jacksonville. On the West Coast, I think 
those systems are obvious. And I've already mentioned the upper 
Midwest and the Chicago system. So we're really not talking 
about the national connectivity issues that you spent a good 
deal of time on this morning.
    The economic case is that these are short-haul trips in the 
sub-400-mile market connecting, to use Mr. Mead's example, the 
``A''s and the ``B''s, and the ``A''s and the ``C''s, and not 
necessarily the ``A''s and the ``E''s. In the case of the 
Southeast Corridor, the Atlanta-to-Washington market is 
probably an air market for most people. However, between 
Atlanta and Greenville-Spartanburg, between Greenville-
Spartanburg and Charlotte, between Charlotte and Greensboro, 
and Raleigh and Richmond, you've got a number of trips that are 
not good air trips and are ideal rail trips.
    Finally, there is public support. Poll after poll documents 
that. In one recent example, the Ohio State University poll 
found that 80 percent of all Ohioans favored developing high-
speed rail. And, importantly, and this is remarkable to me, 
twice as many Ohioans favor high-speed rail development as 
those who favor expanding highways and airports.
    Finally, our proposal, a modest proposal, and it may not 
pass Senator Hutchison's test of being bold enough, but in the 
interest of getting something on the table, we propose that the 
Swift Rail Development Act be reauthorized and extended in its 
reach to include a deployment category, authorizing funds for 
new infrastructure equipment and stations, using a combination 
of tax-credit bonds and general funds. We further propose that 
U.S. DOT set up a $500 million equipment pool that would allow 
an economic order of off-the-shelf high-speed rail equipment 
that is capable, fully compliant with the Federal Railroad 
Administration requirements, and a proven technology that will 
buy minutes and buy reliability and buy safety for us just as 
surely as improving track and signals will; that the U.S. DOT 
administer these programs based on economic viability, and the 
states are perfectly prepared to meet the economic test and be 
subjected to economic criteria; that those projects that would 
be proffered would be completed with their environmental and 
preliminary engineering work and that they have the support of 
the host railroads. And we think we can deliver projects in 
those categories.
    Finally and quickly, we have in our written testimony, 
which I hope will be entered into the record, Mr. Chairman----
    The Chairman. All will be, thank you.
    Mr. King.--suggested that the U.S. DOT be directed to 
develop mechanisms for the transfer of certain passenger 
terminals and associated rail facilities currently owned by 
Amtrak to shared access areas so that it would facilitate 
competitive proffering of proposals by multiple operators in 
certain corridors without blockages being--be able to put into 
the system via Amtrak's control stations. We would ask that the 
Congress direct U.S. DOT to develop a methodology to assess and 
allocate costs for public access to privately owned rail 
corridors, which is where we will be in the short-term--we will 
be sharing corridors with the private Class I railroads--and 
that we look at reform of liability in a surgical manner that 
allows us to control our cost of insurance.
    All of those things set a context which allows a more 
efficient Amtrak, which is disciplined by the forces of 
competition, and we think will provide a better service and we 
could go shopping among Amtrak and other operators for superior 
service to what we have today.
    Thank you, Mr. Chairman. We look forward to working with 
the Committee subsequent to today, hopefully to develop, based 
on the all the ideas that you've heard today, something that 
might allow us to move forward.
    [The prepared statement of Mr. King follows:]

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

    Mr. Chairman, my name is David King, I serve as Deputy Secretary 
for Transit in the North Carolina Department of Transportation and 
Chairman of the States for Passenger Rail Coalition.
States for Passenger Rail Coalition
    The States for Passenger Rail Coalition is a grass roots 
organization of state departments of transportation. North Carolina is 
one of 24 states in the coalition. Our growing membership is drawn from 
around the country and includes states with existing passenger rail 
service as well as those in the planning and development stage. Large 
states and small states, we span the continuum of partisanship, varied 
interests and geography. A map of the Coalition members is attached. We 
are quite a diverse group and we are a national group. Our strength is 
that we are a bottoms-up initiative, created and supported by the 
states because we share a common goal.
    Included for the docket for today's hearing is a copy of the States 
for Passenger Rail Coalition's National Passenger Rail Policy 
Statement, adopted August 25, 2002 and a copy of a January 27, 2003 
letter from the Coalition to the Chairman and Ranking Minority Member 
that included recommendations for establishing an intercity passenger 
rail funding program as well as recommendations for Congress to 
consider in determining the ongoing operating funding needs for Amtrak.
    Following the tragic events of September 11, 2001, many citizens 
had their first travel experience with our national rail passenger 
system and they were glad it was available. They also have first-hand 
knowledge that our national rail passenger system is in need of major 
capital investment in order to assure reliability and to have travel 
times that are auto and air-competitive. Rail passenger service is now 
a national security issue as well as a mobility and economic 
development issue.
    One of the lessons learned over the past few years as we have 
endeavored to improve rail passenger service is the value of taking 
incremental steps to improve existing infrastructure. Many of our 
nation's bold new rail passenger initiatives have fallen by the wayside 
as economic analysis determined that they were not the best investment 
of public dollars, or when they could not muster the requisite 
political will to succeed.
    By contrast the States for Passenger Rail Coalition can now point 
to numerous examples of public private partnerships that yield real-
world results. Progress is being made through programs of State, local 
and private investments in:

   California, Washington State and Oregon in partnership with 
        Burlington Northern Santa Fe

   Wisconsin and New York in partnership with the Canadian 
        Pacific

   New York, Florida, Virginia and North Carolina in 
        partnership with CSX Transportation

   Delaware, Ohio and North Carolina in partnership with 
        Norfolk Southern

   Oregon and Illinois in partnership with Union Pacific

    These are all very real projects that add capacity and reliability, 
and enhance the safety of our national rail network of freight and 
passenger services. The projects also provide employment and create 
jobs at a time when public investments are needed to energize our 
economy.
    Not only are the Class I railroads now acting in their own 
enlightened self interest, increasingly our broader business leadership 
has joined the public efforts to improve the rail mode. For example, 
the Southeastern Economic Alliance (SEA) is formed of 15 chambers of 
commerce advocating for a business-oriented approach to high-speed rail 
development in order to accommodate our projected growth, and ensure 
the Southeast performs as a cohesive economic region.
    The SEA has completed an independent analysis of the business case 
for high-speed rail development in the Southeast. Their analysis is 
consistent with the Federal High Speed Ground Transportation for 
America report and numerous state studies which concluded that public 
investment is necessary to upgrade existing infrastructure and that 
reliable, high quality, travel time competitive rail passenger service 
connecting cities with economic interests will allow operators of such 
services to make a profit.
    A similar effort has been undertaken by The Chicagoland Chamber of 
Commerce, which has organized the Midwest Business Coalition for High-
Speed Rail representing chambers in the nine states that are a part of 
the Midwest Regional Rail Initiative.
    Grass roots organizations around the Country are beginning to 
coalesce in support of development of improved intercity passenger rail 
service. Examples include the Eugene Area Chamber of Commerce in Oregon 
that has developed their own report on the benefits of increase 
passenger rail service and its impact to the local business community. 
The Chamber has used this piece when visiting the Legislature and they 
have been active in spreading the word on the positive benefits for 
Eugene. The Cleveland Chamber of Commerce and other Ohio economic 
development groups are working with the State to analyze, in greater 
detail, the economic impact of constructing the Ohio & Lake Erie 
Regional Rail--Cleveland Hub system.
    Our business leadership is not motivated because they are merely 
fans of rail transportation, nor do they simply advocate for more 
government. Rather, their impetus comes from a hard-nosed business 
analysis that our current transportation system has a serious weakness, 
and that weakness hampers our ability to compete in world markets.
States Are Ready To Move Forward, Now
    I want to assure the Committee that many states are ready to begin 
implementing a high frequency, high-speed rail passenger network now.
    States are making innovations in highway-railroad crossing safety, 
passenger equipment design and manufacturing, and in railroad signaling 
systems. States renovate existing and construct new multi-modal 
stations and help attract new development to our inner cities. States 
are making investments in commuter, intercity and high-speed rail 
systems that serve state, multi-state and national interests. States 
make these investments in concert with local communities and commuter 
agencies, with Amtrak and the freight railroads, and with adjoining 
states. However, the Federal Government should not expect the states 
alone to build a national high-speed rail system. States need Federal 
leadership and a strong Federal funding partner to more fully undertake 
this task.
    Development of a high quality, high-speed intercity passenger rail 
network can help mitigate congestion. Development of high-speed rail 
transportation will help stimulate economic growth by creating new jobs 
and by increasing mobility. Development of a national system of high-
speed rail is predicated on having a program of public-private 
investment that includes the active participation of states and the 
Federal Government.
    Our State Departments of Transportation (DOTs) are experienced and 
capable of constructing large-scale projects. The DOTs, in partnership 
with the freight railroads, have the capability to plan and manage a 
major, new program of rail infrastructure improvements using existing 
relationships. No new laws would be required to implement this program.
    Many of our member states have completed preliminary engineering 
and environmental work and are ready to begin projects now. Many States 
have available ``shelf plans'' for incremental high-speed rail 
development and are investing significant state and private funds now; 
but we need a viable Federal funding partner to continue and expand 
such efforts.
    The Intercity Passenger Rail Transportation report recently 
released by the American Association of State Highway and 
Transportation Officials' (AASHTO) Standing Committee on Railroad 
Transportation (SCORT) fully documents state passenger rail development 
initiatives and activities. The AASHTO SCORT report identifies $17 
billion in state sponsored intercity passenger rail projects needing 
funding over the next 6 years and $60 billion in needs over the next 20 
years. The report also demonstrates that states are active participants 
in such projects, with over $4 billion invested or currently committed 
to these projects.
Investments in Rail Make Economic Sense
    Our needs are not without an economic argument. For example:
    The Ohio and Lake Erie Regional Rail--Cleveland Hub Study suggests 
that the rail system could create a $1 billion increase in Ohio 
property values and increase the state's annual income by $256 million.
    An economic and fiscal impact analysis conducted for North Carolina 
reported that the investment to develop and operate high-speed rail in 
North Carolina would:

   Enhance tax revenues in an amount nearly equal to the 
        construction cost outlay, with the majority of these enhanced 
        tax revenues recurring.

   Operating revenues would exceed the total of operating and 
        maintenance expenses thus providing a basis for profitable 
        operation.

   Create 30,000 construction and 19,000 long-term jobs 
        yielding billions in income over the useful life of the 
        project.

   Help leverage and attract significant additional economic 
        growth.
The Public Supports Rail Investment
    While we do not recommend a program based on polling, it is 
instructive to consider the following recent data:

   A Washington Post survey indicated that a substantial 
        percentage of Americans would increase Federal funding for 
        improved rail passenger service.

   In a survey of ten major cities more than sixty-five percent 
        of the respondents felt that investment in high-speed rail 
        passenger service was an appropriate use of public monies.

   In a recent poll of rural, suburban and urban households in 
        North Carolina and Virginia, the majority of the respondents 
        believed that high speed rail would help reduce air pollution 
        and reduce traffic congestion, and be more relaxing than travel 
        by either automobile or air. Nearly seventy percent responded 
        that they would use a high-speed rail service.

   A majority of residents of South Carolina indicated a 
        favorable response for development of high-speed intercity 
        passenger rail service.

   Seventy-seven percent of Wisconsin residents surveyed in a 
        statewide poll stated they were likely to use the train if the 
        planned nine-state Midwest Regional Rail high-speed network 
        becomes available to them.

   An Ohio State University poll found that eighty percent of 
        all Ohio adults support the state's efforts to develop 
        passenger rail service, and twice as many Ohioans favored 
        developing high-speed rail services than expanding highways and 
        airports.

   A public opinion poll in New York State revealed that 
        eighty-two percent of registered voters believe that having an 
        improved and modernized intercity passenger train service 
        throughout New York State is just as or more important than 
        having good highways and airports. The same poll showed that 
        seventy-seven percent of registered voters would support or 
        strongly support investment of State funds to improve intercity 
        passenger train service for trips of 75 miles or more.
The States for Passenger Rail Coalition Proposal
Support for Rail Transportation Security
    The States for Passenger Rail Coalition support the rail 
transportation security provisions of the National Defense Rail Act, 
Senate 104. Already states are working with the Transportation Security 
Administration, the Federal Railroad Administration, Amtrak, the 
freight railroads and armed forces as well as state emergency response 
teams to identify threats, develop training and coordinated responses 
to protect our national security. The States urge the Congress to 
expeditiously adopt legislation to help address the security needs of 
the rail industry.

Support Modest New Capital Investment
    In light of the substantial and long term intercity passenger rail 
funding needs highlighted by AASHTO and others, the States for 
Passenger Rail Coalition proposes that initial capital funding should 
be provided immediately to ``ready to go'' state sponsored projects 
that will demonstrate nationally the benefits of enhanced intercity 
passenger rail service.
    To accomplish this, the States for Passenger Rail Coalition asks 
that the Congress amend the Swift Rail Development Act of 1994 (49 
U.S.C. 26101 et seq.) and extend its authorization to include a 
deployment category and authorize capital funding for new 
infrastructure, equipment and stations.
The States for Passenger Rail Coalition recommends that Congress:

   Authorize $500,000,000 in tax credit bonds and $100,000,000 
        in general funds in Fiscal Year 2004

   Authorize $600,000,000 in tax credit bonds and $200,000,000 
        in general funds in Fiscal Year 2005

   Authorize $700,000,000 in tax credit bonds and $250,000,000 
        in general funds in Fiscal Year 2006

    The Secretary USDOT would approve tax credit bonds projects that 
are economically viable, have completed the requisite environmental and 
preliminary engineering work, have the support of the host railroad and 
where non-Federal matching funds are available.
    This re-authorization of the Swift Act would provide the means for 
the Federal Government to partner with the states and the freight 
railroads to make sorely needed infrastructure investments. These 
large-scale construction projects require contract authority to enable 
multi-year programming. This program will help accelerate projects in 
states with emerging corridors where the planning work has not been 
completed.

Further, the States for Passenger Rail Coalition recommends that 
        Congress:

   Authorize the USDOT to create a pool of twenty-five, Tier I 
        compliant, non-electric, tilt-equipped trainsets with 
        locomotives. The equipment pool would be acquired and 
        administered in association with the states and it would 
        provide a significant new public-private partnership 
        opportunity. Authorize $500,000,000 in general funds to acquire 
        and manage the equipment pool. States will be responsible for 
        the on-going operations, maintenance and associated costs.

   Increase guaranteed funding for grade crossing safety 
        improvements under Section 1103(c) to $30,000,000 annually for 
        fiscal years 2004, 2005 and 2006. These funds would be in 
        addition to the ``Section 130'' grade crossing safety program 
        over which this committee has jurisdiction.

   Provide Federal funding to fully develop mechanisms for the 
        transfer of passenger terminals and associated rail facilities 
        currently owned by Amtrak into shared asset areas serving 
        intercity passenger rail, commuter rail, local transit and 
        other uses. A Federal agency such as USDOT or a consortium of 
        Federal, state and local agencies could assume ownership. This 
        would relieve Amtrak of the non-Amtrak operating costs 
        associated with these facilities, provide for enhanced revenue-
        sharing opportunities and provide a financial basis to address 
        capacity and efficiency improvements necessary for a world-
        class passenger rail system.
        Washington Union Station provides a good example where this 
        approach makes sense. USDOT would be authorized $300,000 in 
        general funds to fully develop mechanisms and future costs to 
        implement this section.

   Direct the USDOT to conduct such studies as may be necessary 
        to develop a method to assess and allocate the relative costs, 
        impacts and public and private benefits, including those 
        accruing to freight railroads, resulting from this program of 
        infrastructure investments.

   Direct the USDOT to conduct such studies as may be necessary 
        to develop a method to assess and allocate the costs of public 
        access to privately owned freight rail facilities, taking into 
        consideration the value of both the public and private 
        investments in and use of the facilities.

   Liability is a major concern of all parties, and an 
        equitable and fair solution is needed. Amend the Amtrak Reform 
        and Accountability Act of 1997 (Pub. L. 105-134, Chapter 281, 
        Section 28103) to cover all defendants. This action will 
        protect the public while also significantly reducing insurance 
        costs to the operators of commuter and intercity passenger rail 
        services.

The States for Passenger Rail Proposal Brings Together the Interests of 
        Many Diverse Groups
    A new Federal program, in partnership with the States, of 
investment in improved passenger rail passenger service is consistent 
with:

   Secretary Mineta's principles to create an intercity 
        passenger rail system that is driven by sound economics, 
        fosters competition, and establishes a long-term partnership 
        between states and the Federal Government to sustain an 
        economically viable system.

   The National Governor's Association Rail Transportation 
        Policy (EDC-16) which states that . . . ``the most critical 
        need is a new, separate, stable, and dedicated Federal funding 
        program to fund capital investments--infrastructure and 
        equipment--to maintain and enhance regional passenger rail 
        service. . . .''

   The American Association of State Highway and Transportation 
        Officials (AASHTO) Standing Committee on Railroad 
        Transportation (SCORT) Intercity Passenger Rail Transportation 
        report findings that investment in rail is justified, 
        especially in corridors, and that . . . ``most importantly, 
        what is needed is a strong Federal-funding partnership.''

   The American Public Transportation Association's principles 
        for funding rail passenger service which state, in part, . . . 
        ``a similar commitment [to that made by the Federal Government 
        in aviation and highways] is necessary in the rail passenger 
        service industry, especially given national security needs, and 
        the growing need to complement air and roadway service. . . .''

   The Association of American Railroads by partnering to make 
        grade crossing safety improvements, advocating for liability 
        reform, and calling for an independent and objective assessment 
        of reasonable and customary fees in exchange for public access.

   The Coalition of Northeastern Governors (CONEG) policy 
        statements on the need for a strong and consistent Federal 
        partner in providing policy leadership and sustained funding 
        for intercity passenger rail, and its report entitled The 
        Northeast and Mid-Atlantic States: Investors in Intercity 
        Passenger Rail That Serves the Region and the Nation.

   The U.S. Conference of Mayors, which has identified 
        development of high-speed passenger rail service as a top 
        priority.

   Amtrak President David Gunn's recent assertion that he 
        planned to present the Administration and the Congress with a 
        five-year capital plan that brings the railroad up to a state 
        of good repair and which includes an appendix of state-led 
        capital investments in improved intercity passenger rail.

   The High-Speed Ground Transportation Association's 
        Principles for High-Speed Train Development to provide Federal 
        financial support by . . . ``preserving the existing network of 
        passenger rail service and developing new services in 
        partnership with state and local government, the private sector 
        and Amtrak as appropriate in each corridor. . . .''

    In addition to this new Federal state partnership to invest in 
improved intercity passenger service, the States for Passenger Rail 
Coalition strongly endorses the AASHTO Statement on Stability for 
Intercity Passenger Rail, adopted February 24, 2003. This statement 
calls on the Congress to provide short-term stability for at least two 
years by providing operations and capital funding required for Amtrak, 
and to provide leadership in the policy debate so that the long-term 
viability of our national rail freight and passenger system can be 
assured.
    Taken together these legislative proposals form the basis for a new 
future for intercity passenger rail. We are proposing to achieve this 
future on an incremental basis, creating the pre-conditions for a 
competitive marketplace, allowing Amtrak to accelerate its transition 
to a true operating company, and strengthening the national 
transportation system.
    Thank you for the opportunity to present these proposals.

                       Supplementary Information



  States for Passenger Rail Coalition--National Passenger Rail Policy 
                               Statement
1. Passenger rail service is essential to the nation
   An enhanced intercity passenger rail system is an important 
        mobility alternative, especially for regional corridors, in the 
        face of increasingly congested highway and aviation systems.

   The events of September 11 and their impact on 
        transportation reinforce the importance of passenger rail 
        service as an essential part of the national transportation 
        network.

   States support investment in new passenger rail systems and 
        incremental improvements in regional passenger rail corridors 
        to expand ridership, with increased speeds, and additional 
        frequencies on routes.
2. Federal funding in partnership with states is essential for 
        passenger rail
   States have taken, and will continue to take, a lead role in 
        the planning and development of new, expanded and enhanced 
        regional passenger rail corridor services. However, the states 
        cannot fully program and implement these systems without a 
        Federal-state funding partnership similar to existing highway, 
        transit and aviation programs.

   The most critical need in this partnership is a dedicated 
        Federal funding program to fund capital investments--
        infrastructure and equipment--to maintain and enhance regional 
        passenger rail service.

   Given a strong Federal funding mechanism, the states are 
        willing to provide a fair cost-share for capital investment in 
        new, expanded and enhanced regional passenger rail services.

   Some corridor services are expected to achieve operational 
        self-sufficiency upon full implementation. At the same time, 
        the states will need transitional operating support from the 
        Federal Government while plans and projects are being built and 
        during start-up periods for new services.

   Long distance train service provides interconnectivity among 
        regional corridors and essential services to communities along 
        the way. Federal participation in long-distance interconnected 
        routes shall be 100 percent.
3. States need to assume key institutional roles in passenger rail 
        development
   The states need to play a significant role in the 
        implementation of any future Federal funding program. In 
        particular, states seek a strong role in project selection and 
        project management that builds on the expertise already 
        developed in this area.

   States have partnered with Amtrak for the operation, 
        development and financial support of existing corridor 
        services. The states have a large stake in the successful 
        restructuring of Amtrak, and need to be closely involved in 
        these discussions.

   Partnerships also must be developed with the Nation's 
        freight railroads to address their concerns.
                                 ______
                                 
                        States for Passenger Rail Coalition
                                                   January 27, 2003
Hon. John McCain and Hon. Ernest F. Hollings,
Commerce, Science, and Transportation Committee,
Washington, DC.

Dear Senators McCain and Hollings:

    The States for Passenger Rail Coalition (SPRC) represents 23 state 
departments of transportation and is devoted to promoting and enhancing 
intercity passenger rail service in the United States. This year will 
be critical for U.S. transportation policy as the 108th Congress will 
address both the reauthorization of the Transportation Equity Act for 
the 21st Century (TEA-21) and the reauthorization of Amtrak funding.
    Our coalition strongly supports the inclusion of a multi-year 
funding program for intercity passenger rail equipment and 
infrastructure in the reauthorization of TEA-21. SPRC also seeks full 
and stable Federal funding to support a national, interconnected, 
intercity passenger rail network. The coalition seeks a continued 
Federal funding partnership to address passenger rail operating costs 
in recognition of the emerging budgetary crises facing virtually all 
states.
    We suggest that Congress consider the following in developing an 
intercity passenger rail capital funding program for inclusion in the 
TEA-21 reauthorization package:

   The capital program should provide Federal funding to states 
        for passenger rail infrastructure and equipment improvement 
        projects.

   The intercity passenger rail capital funding program should 
        be modeled on existing Federal-state funding partnerships in 
        Federal highway, transit and airport programs. The Federal-
        state cost share should be consistent with other modes and not 
        place passenger rail development at a disadvantage.

   The passenger rail capital program should be structured in a 
        manner that will not adversely impact funding for the other 
        existing modal programs.

   The program should be structured to provide a significant 
        role for the states in such areas as project selection, project 
        development, and project management.

    Congress should also address the ongoing operating funding needs of 
a national and interconnected intercity passenger rail network. In 
doing so, we suggest Congress consider the following:

   Current Amtrak operations should not be allowed to suffer or 
        collapse because of short term funding needs.

   Congress should provide at least $1.2 billion in funding for 
        Amtrak during FY 2003 to prevent a short-term financial crisis 
        that will adversely affect current operations.

   Congress should provide a Federal-state operating cost-
        sharing program for state supported routes as it structures the 
        Amtrak Reauthorization package.

   This Federal-state operating cost-sharing program should 
        include a transition period for states to make necessary 
        budgetary adjustments.

    These recommendations by the states to the 108th Congress are based 
on the recognition that intercity passenger rail development is an 
increasingly important strategy for mobility and economic development. 
An enhanced passenger rail system is an important mobility alternative 
for regional corridors in the face of increasingly congested highway 
and aviation systems.
    The mobility provided by enhanced passenger rail service has 
significant state economic development benefits. Rail service provides 
increased regional access for state population centers and tourism 
destinations and supports downtown development around passenger rail 
stations. The introduction of passenger rail service provides an 
additional public transportation option for communities without 
commercial air service. The events of September 11 and their impact on 
transportation further reinforce the importance of passenger rail 
service as an essential part of the national transportation network.
    Federal funding for passenger rail is needed to respond to real 
mobility needs identified by states in all regions of the country. In a 
survey of its members, the American Association of State Highway and 
Transportation Officials (AASHTO) has documented $17 billion in capital 
needs for state sponsored intercity passenger rail improvement projects 
over the next 6 years and nearly $60 billion in needs over the next 20 
years. Many states have already completed engineering studies and 
required environmental documents. These projects are ready to proceed 
and only lack a Federal funding partner.
    Virtually all Federally designated intercity passenger rail routes 
connect major city pairs in multiple states. From the public policy 
perspective, Federal funding is justified for interstate passenger rail 
transportation, much like the interstate highway system. Unfortunately, 
passenger rail is the ``orphan mode'' at the Federal level. There is no 
dedicated Federal funding program for intercity passenger rail like 
that which exists for highways, urban transit and airports. To help 
remedy this problem, the states are willing to pay their ``fair share'' 
for passenger rail development in a Federal-state partnership modeled 
after these existing Federal transportation infrastructure development 
and improvement programs. The Federal Government should continue to be 
responsible for projects of national interest that are beyond the 
financial means of individual states.
    Adequate and stable funding for intercity passenger rail operations 
must be provided. In these times of budgetary constraint at the state 
level, there are limits to what states can contribute. It is important 
that Amtrak Reauthorization include explicit provisions for a Federal-
state operating cost sharing program.
    These recommendations only provide a broad outline of the Federal 
funding needs for intercity passenger rail development in the United 
States. The states wish to work closely with Congress as it proceeds 
with structuring the details of both TEA-21 and Amtrak Reauthorization.
            Sincerely,
                                                David King,
                                                             Chair,
                                                    North Carolina DOT.

                                              Ken Uznanski,
                                                        Vice-Chair,
                                                  Washington State DOT.

                                              Randall Wade,
                                               Secretary/Treasurer,
                                                         Wisconsin DOT.

    The Chairman. Thank you very much.
    Mr. Winner?

STATEMENT OF JOHN H. WINNER, PRESIDENT, HARRAL WINNER THOMPSON 
                      SHARP LAWRENCE, INC.

    Mr. Winner. Yes, good morning, Mr. Chairman.
    Thank you for inviting me to address the Committee today 
regarding the future of Amtrak and intercity rail services in 
the United States.
    I believe that both freight and passenger rail 
transportation are vital to the U.S. economy. And I should 
point out that I use Amtrak's Northeast Corridor services 
regularly. And it has been my experience, as a passenger, that 
the Amtrak's train service there is very good.
    Now, you've asked me whether there are alternatives to the 
existing structure of intercity passenger services in the 
United States and whether private companies would be willing 
and able to operate these kinds of services. And the short 
answer to those question is yes. One need not look outside the 
United States to see some of the alternatives. State and local 
governments have been providing commuter services using a wide 
range of public and private service providers.
    But if you look beyond the United States, there's a variety 
of approaches to providing intercity passenger rail services, 
some of them relying on private companies, and some using State 
entities. In Europe, in particular, governments are facing the 
increasing costs of rail passenger transport by adopting new 
methods and structures to provide rail passenger services 
through private enterprise in a competitive framework.
    Now, there are a lot of private companies that have 
experience and the skill needed to operate intercity passenger 
trains. For example, in the United States, major railroads--
CSX, BN--there are a lot of them--they operate thousands of 
trains each day, and they're more than qualified to be private-
sector operators of passenger services, and some of them are 
already doing it.
    In addition to that, there are a lot of other private 
companies providing such operations. We'll hear from Herzog, 
who operates three services--could be four--here shortly.
    There are a number of others. Connex, with some 30,000 
employees and annual revenues of $2.5 billion, operates part of 
the EuroStar TGV train. Connex U.S. is part of a team that has 
recently won the bid to operate commuter services in Boston. 
And National Express Group is an example, with 30,000 staff and 
annual revenues of about $2 billion, operates in Australia and 
it also has bus operations in the United States. There are a 
lot of companies like this operating passenger service, 
including the Go Ahead Group, Virgin Trains, VIA, which is the 
largest urban transport provider in France. Together, companies 
like these operate thousands of trains every day, and I'm 
certain that many of them, given the opportunity to operate 
profitably, would be willing and able to provide intercity 
train services in the United States. This does not imply, of 
course, that all, or even any, U.S. passenger trains can be 
operated without government support of some type.
    Now, Americans commonly ask me, ``Why can't the United 
States have the kind of trains they have in Europe?'' And 
they're often surprised to find that many European rail 
services are provided by these private operators I have just 
been talking about. One would think that in the United States, 
the home of free enterprise and the largest market economy in 
the world, private enterprise would be a preferred method for 
providing public services where it's economically feasible.
    Now, most reform proposals involve obtaining greater value 
for money from intercity rail passenger subsidies through some 
form of contracting out or franchising train services. Rather 
than discuss all the different kinds of methodologies here, I 
would like to limit my discussion to the use of the private 
sector to provide these kinds of services.
    There are lots of reasons to involve private-sector 
operators for intercity rail transport. Using private operators 
to replace Amtrak on some routes could have these benefits. 
First of all, there would be a more transparent determination 
of the costs and of the ridership of each of the services, so 
you could find the really uneconomical trains. Generally 
speaking, what we've found around the world is that private 
operators provide better service quality and they're more 
customer-oriented.
    We have improved efficiency and productivity. Productivity 
improvements of something like 40 percent are common when we 
see these things. Lower costs. Cost reductions typically are in 
the range of 20 percent. Surprisingly enough, there is improved 
safety. Contrary to popular belief, private-company operation 
of train services generally results in a greater emphasis on 
safety. Even in the U.K., train safety measures have improved 
threefold from pre-reform periods. One of the major public 
benefits of private participation is the ability to employ 
private rather than public capital. Private entities take the 
risks and enter into their own debt.
    U.S. intercity rail passenger services operate in a complex 
environment with a lot of stakeholders and competing interests. 
And while there are a lot of benefits from greater private-
sector involvement, there are likely to be some problems, as 
well. We've already heard about the labor and union 
difficulties. There's a potential for increases in railroad 
retirement costs if employment shifts out of Amtrak into 
something else. That needs to be addressed. There's a much more 
complicated operating environment, which could impair rail 
freight services, and that will require some close consultation 
with the private freight railroads.
    There's a potential challenge to private property rights 
for the infrastructure owners that will require some fairly 
delicate handling, because that is the basis of competition for 
the private railroads.
    There's still a problem of coordinating an integrated 
national network, if there is one. It'll be more difficult if 
you employ a lot of different private operators. In a mixed 
public-private program, you have to work to get the incentives 
right. That's a problem they had in the U.K. where the 
incentive programs encouraged the wrong kind of behavior.
    Amtrak has changed greatly since its founding in 1971. 
While it's met the objective of lifting the burden of 
passengers' losses from freight railroads, it's also required 
more than $26 billion in government subsidies. If intercity 
passenger services are to continue, rolling stock assets must 
be replaced, infrastructure must be renewed, and all of these 
things represent a significant investment. And currently, too 
little money pays for too many services and too little 
investment.
    A reform of Amtrak is overdue. The recommendations for 
restructuring developed by the ARC last year are a place to 
start. The approach talked about today by Transportation 
Secretary Jackson is also a very good place to start. More 
rapid involvement of the private sector is a reasonable course 
of action. One thing is certain; if you wish to rely on the 
private sector to own and operate intercity rail passenger 
services, I think many private companies would be interested in 
participating.
    Thank you.
    [The prepared statement of Mr. Winner follows:]

           Prepared Statement of John H. Winner, President, 
              Harral Winner Thompson Sharp Lawrence, Inc.

    Good day Mr. Chairman and members of the Committee. Thank you for 
inviting me to address the Committee regarding the future of Amtrak and 
of intercity rail passenger services in the United States. My name is 
John H. Winner. I am President of Harral Winner Thompson Sharp 
Lawrence, Inc., a management consulting firm specializing in the rail 
industry. We have worked worldwide with commercial railways, transit 
authorities, transport industry investors, industry suppliers, 
financial institutions, and governments on strategic, financial, and 
operational issues related to rail transportation. I have over 30 years 
experience in the rail industry and have managed rail passenger and 
freight assignments all over the world. My work has taken me to many 
countries in Western, Central and Eastern Europe, South America, the 
Asia-Pacific region, the former Soviet Union, the United Kingdom, 
Canada, and, of course, the United States.
    I want to state at the start of my testimony that I believe that 
both freight and passenger rail transportation are vital to the U.S. 
economy. I use Amtrak's northeast corridor services regularly. It has 
been my experience, as a passenger, that Amtrak's Acela service is 
excellent. It provides what an intercity rail passenger service 
should--comfort, speedy service, reduced congestion and air pollution, 
safety, convenient mobility. Such services have the potential to reduce 
the need for more public investment in highways and airports.
    The Committee has asked me whether there are alternatives to the 
existing structure of intercity passenger services in the United States 
and whether there are private companies willing and able to operate 
such services. The short answer to these questions is ``yes.'' One need 
not even look outside the United States to see some of these 
alternatives: state and local governments have pursued many different 
ways to provide commuter services using a wide range of public and 
private service providers. Beyond the United States, we find a variety 
of approaches to providing intercity passenger rail services--some 
relying on private companies and some using state entities. In Europe, 
in particular, governments are facing the increasing costs of rail 
passenger transport by adopting new methods and structures to provide 
rail passenger services through private enterprise in a competitive 
framework.
    Many private companies have the experience and skill needed to 
operate intercity passenger trains.

   In North America, all major railroads (CSX, BNSF, UP, NS, 
        KCS, CN, CP), multi-billion dollar enterprises operating 
        thousands of trains each day, are more than qualified private 
        sector operators. Some of them already operate commuter 
        services.

   Connex, a subsidiary of Vivendi, is one of the largest 
        private passenger transport groups in the world with some 
        30,000 employees and annual revenue of some $2.5 billion. 
        Connex-U.S. has recently won a bid to operate commuter services 
        in Boston.

   VIA GTI is the largest urban passenger transport supplier in 
        France and provides urban and suburban rail passenger services 
        throughout Europe.

   National Express Group, which employs about 30,000 and has 
        annual revenue of more than $2 billion, operates part of the 
        EuroStar TGV service, intercity passenger services in the U.K., 
        urban and commuter services in Australia, and has bus 
        operations in the U.S.

   FirstGroup, with some 45,000 employees and $2 billion in 
        revenue, operates intercity, urban and suburban services 
        internationally.

   Ariva, with 15,000 staff and revenue of about $2 billion, 
        provides intercity and suburban services in the U.K. and The 
        Netherlands.

   Stagecoach, with 32,000 employees and more than $2 billion 
        in revenue, operates intercity services in the U.K. and has 
        rail equipment leasing operations.

   Throughout the world, many other private companies provide 
        intercity train services.

    Together these companies operate thousands of trains each day. I am 
certain that many of them, given an opportunity to operate profitably, 
would be willing and able to provide intercity train services in the 
United States.
    This does not imply that all, or even any, U.S. intercity passenger 
trains can be operated without government support. Indeed, very few 
intercity rail passenger services are privately operated and financed. 
But, public support of privately provided goods and services is common 
in market economies. Many public services are provided by private 
companies operating at a profit, including garbage collection, highway 
maintenance, sewer and water services, toll roads, air traffic control, 
and commuter-rail services. Private companies provide security 
services, build F-16s, build and operate mass-transit systems, and 
provide a wide range of other products and services that are often not 
profitable without the government as a customer. Public funding and 
private operation of intercity rail passenger services should not be 
considered unusual.
    People commonly ask: ``Why can't the United States have the kinds 
of trains they have in Europe?'' They are often surprised to find that 
many European train services are provided by private companies. They 
would probably be surprised to find that European governments are 
working desperately to introduce private sector participation in 
intercity rail and freight services as a means to control costs, 
increase rail market share, and introduce the use of private capital to 
fund rail services. They might also be surprised to find out how much 
European taxpayers pay to subsidize some these services and the 
infrastructure over which they operate.
    One would think that in the United States, the home of free-
enterprise and the largest market economy in the world, private 
enterprise would be the preferred method for providing public services 
where economically feasible.

Private Operation of Intercity Passenger Trains
    Intercity rail passenger services require a number of different 
activities--developing schedules, determining the price of a ticket, 
marketing and advertising the service, taking reservations, providing 
equipment, operating stations, providing on-board staff, driving the 
train, cleaning and repairing stations and rolling stock, . . . etc. 
Private train services can separate and group these activities many 
different ways. Private participation is often improperly lumped under 
the term ``privatization,'' but should generally be categorized across 
a range encompassing contracting, franchising, and privatization. The 
differences between categories may be defined by how many activities 
are performed by the private sector. Here is how I would define the 
activities within these categories.

Contracting
    In contracting, private company is hired to perform some of the 
activities associated with providing public services, such as providing 
drivers, on-board staff, and perhaps station staff. Typically, 
scheduling, reservations, marketing, advertising, and most asset 
ownership remain with the government agency.
    Usually, the service has an image which is separate from that of 
the operator and managed by the government agency. A contractor 
typically operates the train, provides and manages on-board and station 
staff, and may be responsible for cleaning stations and rolling stock, 
servicing equipment, collecting ticket revenue, and, perhaps managing 
some customer service functions (lost and found, help, complaints, 
etc). An operating contract covering these kinds of functions is 
typically short term--say two to four years. The length of the contract 
depends on startup costs such as employee recruitment, training, and 
any equipment or facilities needed. Contracts with larger startup costs 
are typically left for longer periods.
    Contracts are competitively bid and the government agency pays the 
contractor for providing the specified services, so a low bid generally 
wins. A contractor generally takes on only limited ridership and 
transportation revenue risk. It is not being asked to build the 
service, just to operate it properly. Examples of contracting include 
Herzog's operation of the Trinity Railway Express in Dallas, and the 
operation of MBTA commuter services by Connex in Boston.

Franchising
    Franchising usually means that a private company provides operating 
services like a contractor, but will also provide and manage more of 
the soft aspects of train service--scheduling (though a minimum 
schedule may be specified in the franchise agreement), marketing and 
branding, advertising, additional customer service functions, station 
appearance, perhaps reservations, and the condition of rolling stock. 
The government agency retains overall ownership of the ``right'' to 
provide rail passenger services. In many cases, a franchise operator 
has some ability to set prices, if only for premium services. In some 
cases, the franchise will include a requirement to make some capital 
investment--rehabilitating stations, modernizing rolling stock, maybe 
even provide new rolling stock. A private franchise operator takes not 
only the risks associated with operating the service, as does a 
contractor, but also takes ridership and revenue risks, and the risks 
associated with investments.
    Franchising usually has higher startup costs, more investments, and 
involves greater risks than contracting, so the length of franchise is 
likely to be longer. Generally, the greater the investment required, 
the longer the franchise term. In the U.K., franchises are typically 
for seven years, with options for negotiated two- to four-year 
extensions. In some cases, where the capital investment requirements 
were high, the franchise term has been longer--15 to 50 years. Some 
franchises have been sold; companies have actually paid governments for 
franchise rights. But often the franchise bid is negative--the 
franchise operator is paid to develop and operate the franchise.
    U.K. train services, commuter and long-distance train services in 
Argentina are examples of franchising of train services.

Privatization
    Privatization usually means that all or most aspects of an 
intercity passenger service are sold, including the ``right'' to define 
and provide the service and to determine the prices charged. The 
private operator has all the rights, obligations, and risks of any 
other private business, including the ability to fail or to make a lot 
of money. A private company usually must buy (or lease) the rolling 
stock necessary to provide services and has to arrange for access to, 
or ownership of stations, and all the other infrastructure needed. 
There is usually no guaranteed government payment for privatized 
intercity passenger service although private companies do contract with 
government entities to provide some services that are not commercially 
viable.
    Examples of privatization of long-distance passenger trains include 
the sale of intercity passenger services in Australia; The Ghan and 
Indian Pacific trains are the most notable. In this case, only the 
services and equipment were sold, not the infrastructure. The Japanese 
National Railway was privatized in three vertically-integrated 
passenger services. The privatization process was quite complex and 
involved settlements with excess staff and transfer of prior debt. The 
three Japanese private rail passenger companies currently operate 
profitably.
    There is room for a lot of overlap between these categories. In the 
case of Amtrak, the most likely alternatives fall between contracting 
and franchising. Amtrak's intercity passenger services are unlikely to 
be privatized--they lose too much money--although Amtrak could be 
liquidated, its assets sold and government could buy-in whatever 
passenger services it determined were in the public interest. \1\
---------------------------------------------------------------------------
    \1\ Many questions arise about what happens to Amtrak's operating 
rights on private freight railroads in this case. It should be noted 
that many state governments and local communities have negotiated 
access arrangements with private freight railroads for the operation of 
commuter services without recourse to Amtrak's rights.
---------------------------------------------------------------------------
Why Involve Private Service Providers
    Amtrak is a private corporation under the current statute (but it 
is largely, though not entirely government owned). It is charged with 
operating intercity passenger services. It is considered by some to be 
a failure, by others to be the last chance for intercity rail passenger 
services. Over Amtrak's life, it has received some $26 billion in 
subsidies. Many are concerned that the subsidy has not been well spent.
    Several proposals for reforming or changing Amtrak have been 
discussed. The Amtrak Reform Council (ARC), in a study authorized by 
Congress, published a comprehensive plan last year. Most reform 
proposals seek to obtain greater value-for-money from intercity rail 
passenger subsidies. Rather than discuss all the potential reform 
methodologies here, I will to limit my discussion to the use of private 
companies to provide such services.
    Many benefits arise from the involvement of the private sector in 
intercity rail transport. Generally, as the use of private companies 
moves from simple contracting towards franchising, more activities come 
under competitive pressures and the benefits increase. These benefits 
do have real impacts. Using private operators to replace Amtrak 
operation of some or all of its services could have these benefits:

Greater Transparency
    Competitive tendering provides transparent determination of train 
costs. The most uneconomic services are easily identified and 
eliminated, reducing subsidy costs. This usually results in better 
choices about what services to provide and often a better split of 
payment responsibility between customers, and local, state and Federal 
Governments.

Improved Service Quality
    Private companies are usually more sensitive to market and customer 
requirements. Service quality and ridership typically increases. 
Ridership increases in the U.K. were significant (up by about 36 
percent since the start of reforms) after decades of decline.

Improved Productivity and Reduced Costs
    Competition tends to drive down costs. Increased patronage on the 
best services, elimination of the worst services, better use of assets 
and resources, and the use of fewer and less expensive employees all 
tend to reduce costs and increase productivity. On average, cost 
reductions of around 20 percent from all sources are typical, but 
results vary greatly. Productivity improvements are generally greater, 
in the range of 35 to 40 percent.

Improved Safety
    Contrary to popular perception, safety is not typically sacrificed 
as private companies become involved in passenger train services. 
Private train service providers are usually under increased safety 
scrutiny and are at least partially privately insured for many safety-
related issues--so a lack of safety costs them money. In the U.K., 
notwithstanding the adverse publicity from a few major accidents, rail 
passenger safety has improved by a factor of three since reforms in 
1994; U.K. rail services are now among the safest in Europe. Safety 
improvements have also been recorded in Japan and Australia.

Increased Use of Private Capital
    Finally, longer-term agreements (either contract or franchise) 
permit greater use of private capital for providing assets for 
passenger services, particularly rolling stock. Debt associated with 
such assets is taken on by private companies and investors, rather than 
by government.

What Problems Might Arise?
    U.S. intercity rail passenger services are operated in a very 
complex environment with many stakeholders and competing interests. 
While there are many benefits from greater involvement of the private 
sector, some difficulties are also likely:

Labor Dislocations
    Competition for contracts and franchises will improve the 
productivity of intercity passenger services. Work rules are likely to 
be different; wage rates for some activities may be lower. Unless 
passenger services are increased, fewer employees will be required. 
Employees and railway labor unions are likely to resist, disrupting 
service and reducing ridership. Many governments have acted to reduce 
the impact of outsourcing on employees by guaranteeing incomes for 
existing employees. Such guarantees can be expensive.

Increased Railroad Retirement Costs
    Amtrak and its employees participate in the railroad retirement 
program, the special rail industry version of social security. The 
program is already considerably more expensive than social security for 
employers. A significant reduction in the number of employees involved 
in passenger services would increase the contributions needed from 
private railroads. Private railroads would likely want to be relieved 
of these increased costs.

Increased Complexity in Managing Infrastructure
    The operation of rail services is a complex business involving 
thousands of delicate tradeoffs between investments and operating 
decisions and day-to-day management of the balance. Coordinating the 
business is difficult (as evidenced by the trouble the industry had in 
absorbing mergers and dealing with weather-related problems). While 
some rail lines already have multiple operators, additional new 
operators could further complicate operations, disrupt freight 
services, and cause harm to railroads and the public. Individual rail 
freight carriers may seek some assurances that they would not have to 
deal with many different private operators. This could complicate 
competitive bidding practices.

Limited Infrastructure Capacity
    Since deregulation in 1980, private freight railroads have worked 
diligently to match assets and operating costs to business levels, but 
they continue to have had difficulty earning their cost of capital and 
attracting investors. One result is significant pressure to reduce 
railroad investments. On many railway lines, available capacity is 
closely matched to the amount of traffic. One of the expected benefits 
of using private companies to operate passenger services is to make 
those services more attractive, thus increasing intercity passenger 
traffic. But, some railway lines will not have sufficient capacity to 
permit additional passenger trains without affecting freight services. 
An increase in the number of passenger trains should be accompanied by 
offsetting investment to increase line capacity or freight service will 
deteriorate.

Potential Challenge to Property Rights of Infrastructure Owners
    Private railroad companies are concerned about being required to 
permit additional operators on infrastructure they have built and 
maintain for their own services. There is concern that the precedent of 
being forced to give a private operator access to their infrastructure 
will reduce their ability to prohibit others from accessing their 
lines. The ability to control access to their private network is 
essential to maintaining profitability. This problem should be 
addressed if private railroads are to agree to private operation of 
passenger services across their lines.

Liability Issues
    Currently, Amtrak indemnifies private railroads from some of the 
significant liabilities associated with the operation of intercity 
passenger trains. Any use of private operators should address these 
liability issues.

Disintegration of Network
    Introducing a number of private companies into the national rail 
passenger system, either as contractors or as franchise operators, 
could make development and coordination of an integrated national 
network difficult. Setting up contracts for and coordinating services 
between many operators is a difficult task. Such a system can sacrifice 
flexibility in many ways (for example, moving equipment between 
services, now quite easy, is more difficult when it must be negotiated 
between private operators). If an integrated national network is 
desired, a national reservation system should be maintained (though 
that, too, can be contracted) and a government body responsible for 
developing strategy and planning is likely to be necessary.

Should Amtrak Be Changed?
    Amtrak has changed greatly since its founding in 1971. While it has 
met its objective of lifting the burden of passenger losses from 
freight railroads, it has also required more than $26 billion in 
government subsidies. Amtrak covers only about 70 percent of its 
operating costs from revenue. In the future, many of its rolling stock 
assets must be replaced and northeast corridor infrastructure must be 
renewed and upgraded to take advantage of the high-speed train 
technology used in Acela services. The investment needed to maintain 
and renew Amtrak's assets will be significant--billions of dollars. 
Currently, too little money pays for too many services and too little 
infrastructure investment. Amtrak, with its current structure, cannot 
fix these problems.
    Faced with burgeoning financial requirements, the Committee has 
wisely decided to reexamine U.S. passenger rail service, including what 
services should be provided, how they should be funded, and how they 
should be provided. I have outlined options for providing passenger 
service. A range of viable alternatives to Amtrak current structure are 
used in the U.S. for commuter rail services and internationally for a 
full range of metro, commuter and intercity rail services. I have also 
shown that many companies including Connex, Herzog, and some U.S. 
freight operators already provide some passenger rail services. Many 
other firms are active in Europe, Australia and other parts of the 
world.
    The Committee has a choice between trying to improve the efficiency 
of Amtrak within the current structure, or adopting a new structure 
that harnesses private enterprise and competition to a greater degree. 
The private enterprise/competition alternative has the potential for 
significant cost savings and better customer service. But, by 
increasing transparency and removing many decisions from the political 
sphere, it would likely spark changes that have political as well as 
economic consequences. Key among these are the potential for reduced 
employment in the intercity passenger rail sector, and increased 
complexity in interactions with private railroads. The ``improve-
Amtrak'' alternative would give government greater control over 
politically-charged issues such as railway employment and route 
adjustments but would have less potential for efficiency improvement.
    Amtrak was designed in the last century on the model of a European-
style monopoly state railroad. It would not be designed the same way 
now. Many governments have come to realize that private sector 
participation in intercity rail services can have great benefits. 
Today, even European governments are reforming their monopoly state-
owned rail systems and introducing competition in an effort to improve 
rail market share and productivity, and to reduce the demand on public 
resources.
    Reform of Amtrak is overdue. The recommendations for restructuring 
Amtrak developed by ARC are certainly a place to start, along with the 
similar approach outlined today by Deputy Transportation Secretary 
Jackson. More rapid involvement of the private sector is a reasonable 
course of action.
    One thing is certain: if you wish to rely on the private sector to 
own and operate intercity rail passenger services, many private 
companies will be interested in participating.

    The Chairman. Thank you very much.
    Mr. Dittmar?

  STATEMENT OF HANK DITTMAR, CO-DIRECTOR, RECONNECTING AMERICA

    Mr. Dittmar. Mr. Chairman, thank you for the opportunity to 
appear today.
    I'm Hank Dittmar, Co-Director of Reconnecting America, 
which is an independent initiative to define a new national 
approach to intercity travel in this new century. We believe 
that passenger rail can play a significant part in our Nation's 
transportation system if we redefine the role that intercity 
rail plays in that network, we provide stable levels of capital 
funding, create incentives for connecting our separate air, 
rail, and bus networks, and remove regulatory barriers that 
prohibit coordinated planning, integrated approaches to 
delivering intercity transportation services.
    When Amtrak was created as a publicly owned, private 
corporation in 1971, it was saddled with an impossible set of 
conditions. These have been outlined by previous witnesses. On 
top of these familiar problems is a problem not unique to 
Amtrak, the failure of United States transportation policy and 
practice to approach transportation service delivery in a 
network manner. Each mode--air, rail, bus, and automobile--is 
presumed to operate independently and to compete with one 
another for customers and scarce resources. The failure to 
network the transportation system with both public and private 
components is increasingly leading to system and market 
failures within each industry. These failures are increasingly 
threatening continued improvements in our economic 
productivity.
    Finding a solution to Amtrak's dilemmas involves tackling 
this problem head-on. All other solutions are suboptimal at 
best involving only damage control. Whether private entities or 
quasi-public entities operate Amtrak, or whether infrastructure 
and operations are separated is likely to matter little unless 
a fundamental shift in the role of passenger rail is also 
accomplished in the context of the ongoing rationalization of 
the airline industry and of freight transportation.
    The elements of a solution are beginning to emerge across 
the country. As States are taking on partnership roles in 
intercity passenger rail, cities and airport authorities are 
creating travel ports linking air, rail, and bus into one 
convenient facility, and private operators are experimenting 
with inter-modal code sharing, airport express-bus operations, 
and integrated rail/bus scheduling. The next step is to take 
these promising examples and build a coherent Federal policy 
framework that allows a replication at the national level. That 
policy, with respect to passenger rail, should move toward a 
national network of short- and medium-distance routes 
interconnected with intercity bus and aviation for the long-
haul trips.
    The map that I showed there plots--we actually decided that 
in the midst of debate over structure, somebody ought to look 
at actually where travel demand is, so we went to the 1995 
American Travel Survey and plotted all intercity travel between 
city pairs. And we found--also having analyzed the official 
airline guide, we found that about half of all intercity travel 
is under 500 miles in length and that a lot of the biggest 
demand corridors are actually demand corridors that can be 
reasonably served by intercity travel, intercity rail, if it's 
focused on the 100- to 400-mile distances.
    So we believe that the proper role for rail is to build on 
these State partnerships that Mr. King spoke about and to focus 
on making inter-modal connections between rail and bus at 
airports and at downtown travel stations.
    And we've also submitted with the testimony, Mr. Chairman, 
an analysis of the 54 top airports in the country and the 
reality and the possibility of making inter-modal connections 
between bus and rail at each of those airports.
    The key actions to make this kind of national network a 
reality are the following. First, as I said, we need to focus 
intercity rail primarily on short- and medium-distance routes, 
and we believe a national network can be devised that meets 
Senator Hutchison's concerns of being a national network, but 
that also meets our concerns of operating efficiently in the 
market where rail does the most good. We believe Congress 
should create a dedicated capital program making these kinds of 
service improvements, with funding provided through States who 
partner with the national operators.
    Second, we should provide for an essential transportation 
service program. The same debate that we've heard earlier today 
about the costs of providing rail service in less dense parts 
of the country rages every time we talk about the essential air 
service program, and raged back in the fifties when we talked 
about connecting our interstate highway system. Let's just 
acknowledge that, in fact, there is a level of connectivity 
that people need, but let's operate it in an inter-modal 
manner, and try to do so in a way that provides service to the 
less dense parts of the country in the most efficient manner.
    Third, we believe we can create a last-mile inter-modal 
connections program which would provide funding for making that 
difficult last mile or two miles take place. This funding would 
be available to local entities, State entities, and it could be 
provided from a number of different inter-modal sources to 
really focus on making the connections between freight rail and 
passenger rail in key corridors, making the connections between 
airport and rail and bus at key travel ports.
    Finally, we should move to eliminate barriers to inter-
modal thinking in all of our legislation, requiring, for 
instance, aviation master plans to take account of surface 
transportation needs, opening up for competition not just for 
the provision of rail service, but for code-sharing between bus 
and rail and between airport and rail as is done in Europe. And 
this may require legislation to empower this with the Surface 
Transportation Board.
    Mr. Chairman, thank you for the opportunity to be here 
today. Intercity passenger rail is an essential part of a 
forward-looking national transportation policy. At the same 
time, we need to reform the way we approach passenger rail, 
just as we need to rethink the way we approach other 
transportation modes. An authorization that provides stable 
multi-year capital funding, promotes partnerships with States 
and private entities, creates incentives for inter-modal 
integration with intercity bus and aviation, and refocuses 
Amtrak on primarily serving a national network in short- and 
medium-distance travel would be a big step in the right 
direction.
    [The prepared statement of Mr. Dittmar follows:]

 Prepared Statement of Hank Dittmar, Co-Director, Reconnecting America

    Chairman McCain and members of the Committee, thank you for the 
opportunity to appear today to discuss Amtrak, and the future of 
passenger rail in this country. I am Hank Dittmar, Co-Director of 
Reconnecting America, an independent initiative to define a new 
national approach to intercity travel for this new century. We believe 
that passenger rail can play a significant part in our Nation's 
transportation system, if we redefine the role that intercity rail 
plays in that network, and if we provide stable levels of capital 
funding, create incentives for connecting our separate air, rail and 
bus networks together, and remove regulatory barriers that prohibit 
coordinated planning and integrated approaches to delivering intercity 
transportation services--both passenger and freight.
    Intercity passenger rail can play several important roles in an 
integrated long distance travel network: it can relieve airport and 
highway capacity in congested corridors, it can provide an important 
alternative in case of system disruption, and passenger rail is more 
energy efficient and climate friendly than either short haul air 
transportation or travel by automobile. The public supports an expanded 
intercity rail program. A 2001 national survey by the United States 
Conference of Mayors found that 69 percent of those polled supported an 
expanded higher speed rail program in the Nation. It is ironic, though, 
that even as support for intercity rail grows, and its importance to 
the Nation is increasingly recognized, Amtrak's future seems less 
secure than ever. The reason goes back to Amtrak's creation.
    Amtrak was never meant to succeed, and it has fulfilled that 
expectation. When Amtrak was created as a publicly owned private 
corporation in 1971, it was saddled with an impossible set of 
conditions. These conditions included:

   An expectation that it could operate without public subsidy, 
        something the private railroads had failed to do with passenger 
        service, and something no passenger railroad in the world has 
        succeeded at;

   An inherited set of routes that served the major population 
        centers of the 1880s, and that the private railroads had failed 
        to succeed with, once lucrative mail contracts were transferred 
        to the airlines;

   A political expectation that all of the cities on the 
        network would continue to receive service, regardless of 
        population density;

   A franchise allowing Amtrak to operate on freight railroad 
        rights of way at incremental cost, something the private 
        railroads believe causes them to lose money on each Amtrak 
        train;

   A board that often lacked the necessary expertise to support 
        the Corporation's challenging mission;

   Annual appropriations battles for general fund revenues for 
        both capital and operating uses, placing them at a severe 
        disadvantage when compared with aviation, highways and transit, 
        all of which enjoy the protection of a trust fund and multi-
        year funding.

    On top of these familiar problems is a problem not unique to 
Amtrak: the failure of United States transportation policy and practice 
to approach transportation service delivery in a networked manner. Each 
mode--air, rail, bus, automobile--is presumed to operate independently, 
and to compete with one another for customers and scarce resources. The 
failure to network the transportation system, with both public and 
private components, is increasingly leading to system and market 
failures within each industry, and these failures are increasingly 
threatening continued improvements in our Nation's economic 
productivity.
    Finding a solution to Amtrak's dilemmas involves tackling this 
problem head on. All other solutions are suboptimal at best, involving 
only damage control. Whether private entities or quasi-public entities 
operate Amtrak, or whether infrastructure and operations are separated 
is likely to matter little, unless a fundamental shift in the role of 
passenger rail is also accomplished in the context of the ongoing 
rationalization of the airline industry and of freight transportation.
    That we are experiencing a crisis in intercity transportation at 
this time can be demonstrated by citing a few examples:

   The continuing problem of metropolitan congestion, resulting 
        from the concentration of commute travel on the Interstate 
        network, threatening its viability for the intercity 
        transportation of passengers and freight;

   The ongoing decline in the number of airline passengers and 
        the related series of airline bankruptcies, resulting in a 
        restructuring of the hub and spoke system in a way that leaves 
        many small and medium sized cities with little or no air 
        service. According to the Air Transport Association, air travel 
        under 250 miles is down over 25 percent, trips between 250-500 
        miles are off 15 percent through the second quarter of FY 2002, 
        while longer trips are off less than 5 percent.

   The continuing high levels of subsidy for Amtrak's long 
        distance trains, along with a crisis of unfunded infrastructure 
        on the Northeast corridor.

   The shrinking of the railroad network, and the finding by 
        the Surface Transportation Board since its founding in 1996 
        that the private railroad industry has failed to make back the 
        cost of capital in a highly capital intensive industry.

    These are not new problems, but they are reaching a tipping point 
where government action is needed to ensure stable and reliable 
interstate commerce. I do not believe that the proper response is a 
series of continued episodic bailouts of Amtrak, the airlines, and the 
road industry, however. Rather, the country needs to integrate our 
systems and rationalize the market through a combination of: continued 
deregulation, removal of barriers to intermodal investment, dedication 
of capital resources, and a new vision for intercity travel the scale 
and scope of President Eisenhower's Interstate system. This time, 
instead of routes within a system, it should be connections between the 
systems.
    Unless this happens, many cities will be cut off from the long 
distance travel network, forcing more long distance trips onto highways 
and further degrading the performance and reliability of that 
overstressed system. Reliable freight transportation enabled 
improvements in logistics and the creation of the just in time 
manufacturing system. These developments have been key to the large 
gains in productivity that have enabled economic growth over the past 
two decades.
    These gains in productivity are being eroded as highways become 
more congested, especially in corridors where highway capacity cannot 
be added, as airport congestion and airline restructuring erode both 
the performance and the accessibility of the aviation system, and as a 
lack of reliable connections between ports, airports, highways and rail 
networks in metropolitan areas diverts freight onto highways, rendering 
its on-time arrival less and less predictable.
    The elements of a solution are beginning to emerge across the 
country as states are beginning to take on partnership roles in 
intercity passenger rail, cities and airport authorities are creating 
``travelports'', linking air, rail and intercity bus into one 
convenient facility, and private operators are experimenting with 
intermodal code sharing, airport express bus operations, and integrated 
rail-bus scheduling. The next step is to take the promising examples 
that are emerging, and build a coherent Federal policy framework that 
allows their replication at a national scale.
    Some of the promising developments that are emerging around the 
country include:
    Innovations In Surface Transportation Modes: The distance from 100-
400 miles is the most effective market for intercity bus, commuter rail 
and intercity rail. When airport access, waiting, security and transfer 
times are taken into account, bus and rail become cost and time 
competitive within this range. Three kinds of markets exist for rail 
and bus in these distances: for airport access in lieu of an auto trip, 
from city center to city center in substitution for an air journey, or 
to substitute for the spoke portion of a hub and spoke journey or for 
an auto trip.
    Across the country we have seen several success stories for 
intercity rail in these kinds of markets. They stand in marked contrast 
to the overall performance of intercity rail, and typically they 
involve partnerships between Amtrak and the state, wherein the state 
invests in equipment, track and station improvements and provides 
service subsidies. For example, the recently inaugurated service 
between Boston and Portland, Maine created a new rail market 
compensating for a loss of airline seat capacity from Portland of 26 
percent from 2000-2001.
    Other partnerships are occurring on the West Coast. In California, 
increasing rail service on the Capitol Corridor rail line--to nine 
trips each way daily between Sacramento and Oakland, CA--increased 
ridership 40 percent between 2000 and 2001 and freed up both air and 
highway capacity. Capital Corridor ridership exceeds a million riders a 
year now. More Amtrak service improvements supported by the State of 
California resulted in record ridership levels on other California rail 
corridors. The California experience also points up the value of 
intercity bus links with rail, where buses are scheduled to meet trains 
to transport passengers to communities not reached by the rail network.
    Another important step is improved equipment and service quality. 
Introduction of the sleek Talgo trains in the Pacific Northwest in 1999 
boosted ridership between Seattle and Portland and reduced travel time 
by more than a half-hour. The state-railroad partnership (the states of 
Oregon and Washington and Amtrak and BNSF Railroad) is planning steady 
improvements to track and terminals to increase speed and frequency 
with the goal of carrying quadrupling ridership from the 2001 level of 
565,000 annually by 2016.
    Turning Airports into ``Travelports'': The idea is to turn airport 
terminals into travelports where rail, bus, and urban transit would be 
added to the traditional mix of aviation, parking and rental cars. By 
making selected improvements to provide more reliable service options 
via other modes of travel for short- and medium-distance passengers, 
airport capacity will be freed for the higher-value, longer air trips. 
This kind of system is also more redundant, in the positive sense that 
travelers are presented with more options when regular service in a 
single mode is interrupted. A more redundant system is also an 
investment in economic security to ensure continued movement in the 
face of natural or man-made disasters. The value of this was clearly 
shown in the Northeast Corridor in the hours and days following the 
September 11 disaster; many studies also documented the ability of rail 
transit to provide continued service in the wake of the California Loma 
Prieta and Northridge earthquakes.
    This solution also provides a way to address the revenue problem 
airlines confront as business travelers respond to declines in service 
by seeking low fare, no frills carriers by providing an increase in 
value. There is still a place for carriers that provide services that 
people value at a higher price. The only question is how much these 
services can take advantage of intermodal integration. Linking European 
planes with trains has been focused on business travel markets, like 
Frankfurt-Stuttgart or Paris-Brussels. By offering downtown access on 
fast train connections, airlines can charge high-yield fares for high-
quality service, about the only alternative to today's focus on low 
fare, low yield strategies.
    Conventional wisdom says the European experience cannot be 
replicated here, because distance between cities is greater, and 
because it is too difficult to make the air rail connection happen. We 
looked at intercity travel in the United States and found the distance 
between most metropolitan travel markets is within that range. For 
instance, the distance from Chicago to Detroit is 284 miles, from Los 
Angeles to San Francisco is 400 miles, Portland to Seattle is 187 
miles, from Dallas to Houston is 250 miles, and from Miami to Orlando 
is 234 miles. The fact is that half of scheduled commercial air trips 
are less than 500 miles and almost that many are less than 400 miles in 
length.
    In fact, innovative airport rail and bus connections are being 
made, and we have begun at Reconnecting America to assess the potential 
at key airports around the country. Table 1 is an evaluation of the 
potential for connecting the surface rail and bus networks with the 
aviation network at 54 key airports around the country. * Our analysis 
reveals that it is feasible, and that many cities are in fact trying to 
make the connection, despite numerous institutional, financial and 
legal barriers. A few examples serve to illustrate the very real 
potential.
---------------------------------------------------------------------------
    * The information referred to has been retained in Committee files.

   Newark International Airport: the Newark Airtrain connects 
        the airport with NJ Transit and Amtrak's Northeast Corridor at 
        a new Newark Airport station, where ticketing and check-in 
        facilities are available. Continental and Amtrak are now code-
---------------------------------------------------------------------------
        sharing.

   Ted Stevens International Airport, Anchorage: a new station 
        and covered pedestrian connection has opened recently between 
        the airport and the Alaska Railroad.

   Burbank Municipal Airport: the Burbank Airport is directly 
        served by the Metrolink Commuter Rail, with ten daily trips and 
        the Amtrak's Pacific Surfliner with four daily trips. Amtrak's 
        Coast Starlight passes through the station but does not stop.

   San Francisco International Airport, where a four station of 
        the BART regional rail system to the airport will terminate in 
        a joint BART and Caltrain commuter rail station at the airport. 
        The station, which will open in late June 2003, will also 
        accommodate a future high-speed rail line which is on the 
        statewide ballot for approval this November.

   Baltimore Washington International Airport: a light rail 
        line from Baltimore directly serves the terminal, and a bus 
        shuttle connects with the BWI rail station, which is served by 
        Amtrak and the MARC commuter service. This is one of the 
        fastest growing stations in the Amtrak system.

   Key West International Airport, Florida where an intermodal 
        terminal connects air service with Greyhound bus service and 
        with an Amtrak thruway bus. There are some 21 air bus 
        connections in the country, but many airports actively 
        discourage bus terminal facilities.

    In addition to these examples, airport intermodal projects are in 
the planning and development stages at Chicago's O'Hare International 
Airport, with a commuter rail and possible Amtrak connection and a 
direct high quality transit express connection in the works; at 
Providence's T.F. Green Airport, with a combined rail station and 
rental car facility, and at Miami International Airport, where an 
intermodal station is planned. Notably, Dallas/Fort Worth International 
Airport, following the success of the Metroplex's light rail and 
commuter rail investments, is planning to connect both systems directly 
into the airport. And our discussions reveal that there is some active 
planning around this concept at most if not all major hubs.
    The key actions needed are the following:

   Focus Intercity Rail Primarily on Short and Medium Distance 
        Markets: Recognition that the restructuring of the airline hub 
        and spoke system away from shorter distance spokes creates an 
        opportunity for intercity and commuter rail and intercity bus 
        to serve markets between 100-400 miles. Amtrak should cease to 
        be primarily an operator of long distance train routes, and 
        should instead focus on the short- and medium-haul markets 
        where it can be competitive with both highway and air travel. 
        Two interesting examples of underserved markets for passenger 
        rail are in the Southwestern United States, where the Los 
        Angeles to Las Vegas corridor and the Phoenix to Los Angeles 
        market are prime candidates for rail service. Exhibits 1 and 2 
        depict the densest markets for intercity travel in the United 
        States with two threshold levels, according to a GIS based 
        analysis of the American Travel Survey conducted by the Center 
        for Neighborhood Technology. Congress should create a dedicated 
        capital program for service improvements in intercity corridors 
        linking city pairs under 400 miles that serve markets in excess 
        of a minimum threshold of total one-way trips per year by all 
        modes. Funding could be provided to states on a matching basis 
        to encourage the creation of partnerships between Amtrak and 
        state governments.

   Provide for An Essential Transportation Service Program: In 
        order to create a truly national Interstate Highway Program, as 
        well as a National Plan of Integrated Airport Systems, Congress 
        has always subsidized transportation facilities and service in 
        less dense corridors with funds derived from more densely 
        populated areas. Such subsidies have been justified in terms of 
        equity, in terms of the economic benefit to smaller 
        communities, and in terms of national connectivity. They have 
        also been widely criticized for economic inefficiencies, overly 
        high per passenger subsidies, and diversion of funds from 
        higher priorities. It is likely that as long as there is a 
        Federal system and a United States Senate, these arguments will 
        continue. At the same time, though, it should be possible to 
        reduce costs, increase accountability and provide improved 
        service to the rural areas of the West and the Great Plains by 
        pursuing an intermodal approach. Instead of individual 
        programs, Congress should create an Essential Transportation 
        Service program, distributed to the states, which would allow 
        the subsidization of rail service, intercity bus service, or 
        air service based upon a finding of cost-effectiveness as 
        measured by population provided accessibility, frequency and 
        convenience. The program would need to recognize that air 
        service is point-to-point service, while rail and bus can serve 
        entire corridors, often on a multi-state basis. The aviation 
        reauthorization legislation recently sent to Congress by the 
        Bush Administration takes a good first step in this direction, 
        by reforming the Essential Air Service program to provide for 
        ground transportation services at short and medium distances.

   Create a ``Last-Mile'' Intermodal Connections Program: This 
        would be a new intermodal funding category, funded by a series 
        of modal funding sources with authorizations of $1.5 to $2 
        billion per year to fund projects to eliminate bottlenecks and 
        make intermodal connections. Direct grants, loans and credit 
        enhancement would all be funded. Eligible projects would 
        include: intermodal terminals at airports and downtown hubs 
        incorporating intercity rail and bus and local transit, and 
        connections to the system; similar terminals and connections at 
        ports, intermodal freight bottleneck relief in congested 
        metropolitan areas and key corridors, and incentive grants for 
        merged information, baggage handling and ticketing. Freight 
        bottleneck relief projects should demonstrate an enhanced rate 
        of return for the freight railroads.

   Eliminate Legal Barriers to Intermodal Passenger 
        Transportation Services: Current airport, highway and transit 
        statutes all act to inhibit creative action by states and 
        metropolitan regions seeking to make airport intermodal 
        connections. The barriers are fiscal, institutional, and 
        regulatory. The first action is thus to act to untie the hands 
        of airport proprietor, metropolitan planning agencies, state 
        departments of transportation and transit agencies seeking to 
        connect their airports to the surface transportation network. 
        If necessary, Federal laws should be modified to allow 
        alliances and mergers between intercity carriers in different 
        modes, to encourage air-rail or air-bus and bus-rail networks 
        to merge.

   Intermodal Policy and Planning: Build on the metropolitan 
        planning capacity being funded for highways and transit by 
        requiring rail and aviation plans to be coordinated with the 
        metropolitan plan and the state plan, as appropriate. We 
        applaud the Administration's recommendation in their Aviation 
        reauthorization proposal to link proposed aviation investments 
        with the metropolitan surface plans. Their proposal also 
        includes a provision to create an intermodal information 
        demonstration, which is an important and essential part of an 
        integrated, networked approach to intercity travel.

    Mr. Chairman, thank you for the opportunity to be here today. 
Intercity passenger rail is an essential part of a forward-looking 
national transportation policy. At the same time, we need to reform the 
way we approach passenger rail, just as we need to rethink our 
approaches to other transportation modes. An authorization which 
provides stable multi-year capital funding, promotes partnerships with 
states and private entities, creates incentives for intermodal 
integration with intercity bus and aviation, and refocuses Amtrak on 
primarily serving short and medium distance travel would be a big step 
in the right direction.






    The Chairman. Thank you very much.
    Mr. Landes?

STATEMENT OF ALAN LANDES, SENIOR VICE PRESIDENT, HERZOG TRANSIT 
                         SERVICES, INC.

    Mr. Landes. Mr. Chairman, I want to thank you for the 
opportunity of speaking before the Committee.
    Herzog Transit Services, headquartered in St. Joseph, 
Missouri, operates 88 passenger trains a day in the U.S. and 
provides a wide variety of services related to the passenger 
and railroad operations, freight railroad operations. Herzog 
believes that a key to reform of Amtrak and the intercity 
passenger rail service is to maximize the role of the private 
sector and introduce competition as quickly as possible into 
the national system.
    Amtrak operates a number of intercity trains commonly known 
as 403(b) services through contractual obligations with States. 
Recently, Amtrak requested many States to substantially 
increase their subsidy on these trains. Missouri responded by 
announcing a competitive bid and requested a request for 
proposal to operate one of these trains known as the Missouri 
Mule. Herzog prepared a bid for this service, but Amtrak's 
refusal to negotiate access to facilities and services 
essential to operate the route made it impossible to prepare a 
compliant bid. Additionally, once Herzog announced its 
interest, Amtrak dramatically and artificially lowered its 
subsidy requirement from $8.9 million to $6.4 million. Using 
these unfair tactics, Amtrak succeeded in keeping competitors 
out of the bid process in Missouri.
    Herzog believes that a fair competitive-bid procedure, to 
be directed by the states, but with DOT oversight, should be 
implemented immediately to prevent a repeat of this situation. 
The States would determine when and if they wish to solicit 
competitive bids. DOT would establish the guidelines for 
competitive bidding. They would monitor, but not control, the 
procedure and report to Congress in conjunction with the 
Federal Railroad Administration/Amtrak grant process required 
by the Omnibus Appropriations Act for fiscal year 2003.
    As soon as possible, senior authorizers and appropriators 
from Congress should encourage Amtrak to voluntarily cooperate 
in the fair competitive-bid procedure. If Amtrak refuses to 
cooperate, they should be compelled to do so through the next 
item of intercity passenger legislation to clear Congress.
    Four major areas must be addressed in the construct of a 
fair competitive-bid procedure. Number 1, so long as Amtrak 
receives taxpayer subsidies, certain Amtrak facilities and 
services should be made available at incremental cost to other 
state-qualified passenger rail operators. Rolling stock 
currently used on services being bid should be made available 
at fair-market lease or purchase value. Amtrak must cooperative 
on through-ticketing arrangements. Negotiations must be 
conducted with clarity, and disputes should be resolved by 
binding arbitration by the FRA Administrator.
    Number 2, alternative operators or the states would need to 
negotiate access charges with the railroads. Privately owned 
railroads must retain the right to approve private sector 
bidders who wish to conduct train operations over their 
property. Amtrak's fee for access privilege should be 
transparent and public, which will establish a benchmark for 
private sector competitors to negotiate from.
    Number 3, intercity passenger-rail liability-insurance 
coverage should be combined into a common-pool policy. This 
pool could be managed by the FRA or a qualified nonprofit 
industry association. Each operator qualified by a State would 
pay a premium into a common insurance pool.
    Number 4, in connection with its grant-making authority, 
the FRA should direct Amtrak to reorganize its accounting in a 
transparent fashion that separates the direct costs for each 
route, and allocates indirect cost and overheads by the route, 
and requires Amtrak to account exactly like a private company. 
The FRA and Congress should monitor this process carefully and 
make public reports.
    Finally, implementation of a 403(b) fair competitive-bid 
procedure, we have outlined as the next step necessary to move 
forward with the U.S. passenger rail reform process.
    I want to thank you.
    [The prepared statement of Mr. Landes follows:]

       Prepared Statement of Alan Landes, Senior Vice President, 
                     Herzog Transit Services, Inc.

    I am Al Landes, Senior Vice President of Herzog Transit Services 
(Herzog), headquartered in St. Joseph, Missouri. Herzog operates 88 
passenger trains a day in the United States. We also provide a wide 
variety of services related to passenger and freight railroad 
operations, including train dispatching, maintenance and overhaul of 
rolling stock, station operations, and construction and maintenance of 
railway track and related infrastructure. We are not alone in the 
private-sector rail passenger business. Around the world private 
companies are successfully operating thousands of passenger trains 
daily under contract to government authorities.
    As a rail passenger service operator we have closely followed the 
debate on reform of Amtrak and intercity passenger rail service. 
Currently Amtrak holds a de facto monopoly on American intercity rail 
passenger service. The results are not good. We believe one key to 
reform is to maximize the role of the private sector and introduce 
competition as quickly as possible into the national system.
    Major restructuring of intercity rail passenger service along lines 
proposed by the Administration and others will take a long time. A 
program to introduce competition to selected Amtrak operations can 
begin now under existing law. In fact, the process has already begun. 
Today Amtrak operates commuter rail services as well as shorter 
distance intercity trains through contractual obligations with the 
states. These shorter distance intercity trains are commonly known as 
403(b) \1\ service. Recently, Amtrak requested many states to 
substantially increase their subsidy on these trains. The State of 
Missouri responded by announcing a competitive bid and issued a request 
for proposal to operate one of these trains, the Missouri Mule. Herzog 
prepared a bid for this service. We learned that under current 
conditions a private company cannot bid against Amtrak's uncooperative 
government-subsidized monopoly and win. In the case of Missouri, 
Amtrak's refusal to negotiate access to facilities and services 
essential to operating the route made it impossible to prepare a 
compliant bid. Further, once Herzog announced its interest, Amtrak 
dramatically and artificially lowered its subsidy requirement from $8.9 
to $6.4 million. Amtrak succeeded in keeping competitors out of the bid 
process in Missouri. They did not bother to put in a bid themselves, 
perhaps not wanting to give the competitive process any credibility.
---------------------------------------------------------------------------
    \1\ 403(b), a term originally coined in now-repealed legislation, 
is still in common use to refer generally to intercity passenger rail 
service that is funded in some part by state government(s).
---------------------------------------------------------------------------
    Herzog has learned a hard lesson. But we are not discouraged. We 
intend to press on and are continuing discussions with Missouri and 
other states on creating a mechanism to put the 403(b) bid procedure on 
a level playing field. We believe much can be done without a change in 
law. We know many states are frustrated and want to introduce the 
element of competition into state subsidized intercity passenger 
service. However, if this procedure is to be made to work, we need 
strong direction from both Congressional leaders and the U.S. 
Department of Transportation. New procedures that apply in a 
standardized manner across the board to 403(b) state-subsidized service 
are needed. We believe a ``Fair Competitive Bid Procedure,'' to be 
directed by the states, but with DOT oversight, should be implemented 
immediately. The States would determine when, and if, they wish to 
solicit competitive bids for 403(b) service. DOT would establish the 
guidelines for competitive bidding. They would monitor (but not 
control) the procedure and report to Congress in conjunction with the 
Federal Railroad Administration/Amtrak grant process required by the 
Omnibus Appropriations Act for fiscal year 2003. As soon as possible 
senior authorizers and appropriators from the Congress should encourage 
Amtrak to voluntarily cooperate in the Fair Competitive Bid Procedure. 
If Amtrak refuses to cooperate they should be compelled to do so 
through the next item of intercity passenger legislation to clear 
Congress.
    To create a Fair Competitive Bid Procedure for intercity passenger 
service under current law there are four major areas that must be 
addressed. The first is Amtrak's control of taxpayer provided 
facilities, equipment and services. The second is access to track owned 
by private freight railroads. The third is liability. Fourth is 
Amtrak's ability to raise or lower its bid to any level by using its 
Federal subsidy. The following are our proposals.

I. Access to Amtrak Equipment, Facilities and Services
    To create a Fair Bid Procedure for state-subsidized 403(b) service, 
Amtrak must make taxpayer-subsidized assets available on a fair basis. 
So long as Amtrak receives taxpayer subsidy Amtrak facilities, 
equipment and services should be made available at incremental cost \2\ 
to state-qualified operators. We suggest Amtrak be required to engage 
in ``quick fuse'' negotiation so bidders can meet state deadlines at 
the request of the state on behalf of any qualified applicant. Disputes 
between Amtrak and a qualified bidder should be resolved by binding 
arbitration by the FRA Administrator. The following is what we learned 
from the Missouri experience and our proposed resolution of each issue.
---------------------------------------------------------------------------
    \2\ Note that we are not asking for forced access to freight owned 
track at incremental cost--only access to Amtrak facilities. Since 
Amtrak has access to private facilities at incremental cost, there is 
ample justification to give private operators access to taxpayer-
provided Amtrak facilities at incremental cost. This is especially true 
as competition will inevitably introduce efficiencies and lower the 
taxpayer subsidy.
---------------------------------------------------------------------------
    Locomotives and Passenger Cars. The RFP required the winning bidder 
to provide train sets sufficient to run the service. We scoured the 
private marketplace and arranged to acquire locomotives and passenger 
cars. However, passenger rail rolling stock is a complex and expensive 
capital item, typically with significant custom modifications. The 
market for this equipment is tight and ordering, manufacture and 
delivery of new or refurbished rolling stock is typically a multi-year 
process. Access by bidders to the rolling stock currently providing the 
service can best ensure continuity and quality of service.

        --Proposed Resolution: Because Amtrak locomotives and passenger 
        cars in 403(b) service have been acquired with significant 
        public subsidy they should be made available to alternative 
        bidders by Amtrak at a fair market lease or sale value. The FRA 
        Administrator should arbitrate the negotiation upon request by 
        the State or state-qualified bidders.

    Access to Stations. The RFP required access to passenger stations 
along the route. Herzog readily negotiated access to city-owned 
stations. Amtrak owns the critical St. Louis Station. When Herzog tried 
to negotiate access to that station Amtrak informed us they could not 
negotiate access in a timely fashion to meet the bid deadline \3\ 
therefore Herzog was unable to submit a compliant bid.
---------------------------------------------------------------------------
    \3\ Amtrak put on the table numerous issues that would require 
resolution before station or track access could be provided. These 
included appraisals of the property as the starting point of the long 
process necessary to determine an appropriate price for station and 
track access. In a major understatement, Amtrak concluded in a letter 
from Gil Mallery, Vice President of Planning and Business Development 
dated March 21, ``. . . we cannot guarantee that these discussions 
could be completed in a time frame adequate for you to meet the RFP's 
timetable.'' The Mallery letter is attached as an exhibit.

        --Proposed Resolution: At state request, Amtrak should make 
        stations and facilities available at incremental cost in a 
        ``quick fuse'' negotiation conducted in a timely enough manner 
        to not impede the bid process. Negotiations would be arbitrated 
        if necessary by the FRA Administrator at request of the state 
---------------------------------------------------------------------------
        or one of the bidding parties.

    Establishment of Maintenance Facilities. The RFP required the 
operator to provide a maintenance facility for rolling stock. Herzog 
identified an excellent vacant Amtrak property that included an 
abandoned building adjacent to the St. Louis station. Amtrak responded 
that the site had been identified as a possible future maintenance 
facility ``and must be reserved for that use.'' \4\ Herzog was able to 
identify alternative, although less desirable property.
---------------------------------------------------------------------------
    \4\ Mallery letter of March 24.

        --Proposed Resolution: At state request Amtrak should either 
        provide access to maintenance facilities and property at 
        incremental cost or make the property available by lease or 
        sale at fair market value. The only exception to this would be 
        if Amtrak had a legitimate current alternative use for the 
        property in question for intercity passenger service as 
---------------------------------------------------------------------------
        determined by the FRA Administrator.

    Cooperative Through Ticketing Arrangements. A condition of the RFP 
was cooperation with Amtrak to implement a through ticketing system. 
The need was to make the transition between service providers seamless 
for the riding public for whom the Missouri Mule service would only be 
a part of their rail journey. Amtrak would not cooperate on this issue, 
stating, ``We do not make this system available to any third parties.'' 
\5\ This made it impossible to submit a compliant bid as it would have 
kept the Missouri Mule out of the national network. This alone could 
doom the operation.
---------------------------------------------------------------------------
    \5\ Ibid.

        --Proposed Resolution: Amtrak must cooperate with any state-
        designated intercity passenger rail operations bidder on 
        through ticketing arrangements. Disputes should be subject to 
---------------------------------------------------------------------------
        binding arbitration by the Administrator of the FRA.

II. Track Access
    Herzog recommends that a 403(b) Fair Competitive Bid Procedures 
mechanism be established with no change in Amtrak's current incremental 
cost access to privately owned infrastructure. Privately owned 
railroads must retain the right to approve private sector bidders who 
would conduct train operations over their property. We recognize that 
this will provide Amtrak with an enormous advantage. However, as long 
as Amtrak holds the right of mandatory access at incremental cost over 
private property, their fee for that privilege should be transparent 
and public. This will establish a benchmark for private sector 
competitors to negotiate from.
    We believe this would be a successful formula. It grants the 
freight railroads great leverage in the process. It assures owner 
railroads need only negotiate with responsible and safe bidders while 
improving their rate of return from passenger service.\6\ 403(b) Fair 
Competitive Bid Procedures will give the track owners an opportunity to 
prove once and for all that they will cooperate in a process that will 
permit world-class passenger service over privately-owned lines without 
forced government access.
---------------------------------------------------------------------------
    \6\ Currently there are many examples of privately negotiated 
arrangements which permit commuter passenger trains to operate over 
freight railroad-owned track and permit mixed freight and passenger 
train operations. Making the Amtrak forced access fee transparent will 
help level the playing field for the bidders, for the states seeking 
bids and will be an advantage to the freight track owners. The 
difference between the Amtrak number and a privately negotiated number 
is a market mechanism for publicly identifying subsidy Amtrak has been 
receiving from freight railroads. For example, Herzog operates 
passenger trains over Union Pacific owned line in California. This 
access agreement was negotiated by the commuter authority and the 
number is not public. Herzog would wager that the access fee is higher 
than comparable Amtrak incremental access fees by more than one hundred 
percent.
---------------------------------------------------------------------------
III. Liability
    To create a 403(b) Fair Competitive Bid Procedure an additional 
issue of insurance needs to be addressed. The Amtrak Reform Act 
established liability at $200 million per accident. Amtrak has 
negotiated a nationwide policy of insurance coverage, supported with 
taxpayer dollars. It is difficult but not impossible for a smaller 
private-sector operator to obtain specific coverage for a limited 
operation.

        --Proposed Solution: Intercity passenger rail insurance 
        coverage could be combined into a common pool policy. This pool 
        could be managed by the FRA or a qualified non-profit industry 
        association. Each operator qualified by a state would pay a 
        premium into the common insurance pool.

IV. Amtrak Bid Procedures
    In the Missouri case, as soon as Herzog made its interest in 
bidding for the service known, Amtrak suddenly lowered its request for 
state subsidy. This proves competition works! However, if its original 
request was based on justifiable real numbers, its suddenly lowered 
request merely shifts the subsidy from state to Federal taxpayers. The 
ability to do this alone gives Amtrak complete control of a bid 
process. It is impossible to know Amtrak's real cost or to separate out 
the subsidy in a bid environment. Given this, it is impossible to 
compete fairly against a taxpayer-subsidized company. Amtrak has in 
fact candidly admitted that they cannot bid against private companies 
without Federal money.\7\
---------------------------------------------------------------------------
    \7\ ``Our existence is dependent upon Federal funding and therefore 
our ability to be in existence and be able to bid on these contracts is 
because of Federal aid.''--Amtrak Vice President Cliff Black, Argus 
Urban Transport Solutions, March 24, 2003, page 4.

        --Proposed Solution: In connection with its grant-making 
        authority, the FRA should instruct Amtrak to reorganize its 
        accounting in a transparent fashion that separates the subsidy 
        and requires Amtrak to account exactly like a private company. 
        The FRA and Congress should monitor this process carefully and 
        make public reports. This solution may require future 
---------------------------------------------------------------------------
        legislation.

Conclusion
    Despite the fact that Amtrak`s failure to cooperate made it 
impossible to bid in the Missouri situation, we want to make it clear 
that Herzog is in this game for the long run. Railroad passenger 
service is our business and we won't be dissuaded from competing in our 
market. We have asked the State of Missouri to extend the Amtrak 
agreement for the shortest possible time and ultimately to reopen the 
competitive process. We understand the great frustrations that states 
like Missouri, California, New York, North Carolina, and Michigan have 
had in trying to preserve their intercity passenger service. If a 
403(b) Fair Competitive Procedure can be established, even without 
changes in the present law, Herzog will be an aggressive bidder in the 
field.
    In all of the public tumult over the near bankruptcy of Amtrak, an 
essential fact has been lost. That is the stunning success of rail 
passenger service in America. Commuter authorities are running 20 times 
more passenger trains every day than Amtrak runs intercity passenger 
trains. Transit ridership grew by nearly 20 percent between 1997 and 
2001 and forty-seven of the top fifty metropolitan areas are pursuing 
rail investments.\8\ Further, by this time next year, nearly 40 million 
passengers a year will be riding on trains operated by private 
companies in the United States. The Herzog operations move 2.5 million 
passengers per year in Southern Florida, 1.4 million per year on the 
Trinity Railway Express in Dallas and 922,000 per year in California. 
The Connex operation in Boston will move 37 million passengers 
annually. Around the world, hundreds of thousands of passengers are 
carried daily on thousands of privately operated trains. This is the 
successful American and worldwide experience on which we have the 
opportunity to build. We need to draw lessons from this experience to 
apply to the reform of Amtrak and to realize the restoration of world-
class passenger service across the United States. The next step in this 
reform process is implementation of the 403(b) Fair Competitive Bid 
Procedure we have outlined.
---------------------------------------------------------------------------
    \8\ ``Stay the Course.'' Surface Transportation Policy Project. 
Page 11, March 2003.

---------------------------------------------------------------------------
                    National Railroad Passenger Corporation
                                     Washington, DC, March 21, 2003
Vice President Corporate Development,
Herzog Companies,
St. Joseph, MO

Dear Ray:

    I am responding to your letter of March 11, 2003 to David J. Carol 
regarding Amtrak's willingness and ability to provide various services 
to potential providers of Missouri state-supported rail service.
    We are certainly willing to begin discussions with Herzog and any 
other potential providers of Missouri state-supported rail service. We 
should begin discussions as soon as possible given the Missouri RFP's 
short timetable. In particular, we feel it is important to explain to 
you all the issues that have to be resolved in order to provide access 
to our station and track facilities. For example, in order to define an 
appropriate price for station access, it will be necessary to obtain an 
appraisal of the property as a starting point. Although we will 
endeavor to work as quickly as possible to resolve the many issues 
surrounding access to the facilities, we cannot guarantee that these 
discussions could be completed in a timeframe adequate for you to meet 
the RFP's timetable.
    With respect to your request to use Amtrak's reservations system, 
please note that we do not make this system available to any third 
parties. With respect to your inquiry about the abandoned building and 
vacant property adjacent to the Amtrak station, please note that it has 
been identified as the site for a future maintenance facility for the 
Midwest Regional Rail Initiative and must be reserved for that use.
    Please contact David Carol as soon as possible to schedule a 
meeting to discuss access to the Amtrak station and track facilities.
        Sincerely,
                                               Gil Mallery,
                 Vice President, Planning and Business Development.

    The Chairman. Thank you, Mr. Landes.
    Mr. Pracht?

           STATEMENT OF MICHAEL P. PRACHT, CHAIRMAN,

              PASSENGER TRANSPORTATION COMMITTEE,

                 RAILWAY SUPPLY INSTITUTE, INC.

    Mr. Pracht. Good afternoon, Mr. Chairman. Thank you for 
this opportunity to testify.
    My name is Mike Pracht, and I'm here today in my capacity 
as the Chairman of the Passenger Transportation Committee at 
the Railway Supply Institute. My personal background includes 
25 years in private sector rail transportation business around 
the world. I'm privileged to be here on behalf of the RSI 
today, which represents approximately 400 companies, 150,000 
employees, and approximately $20 billion in annual revenue.
    I believe this country is on the verge of a national 
transportation crisis. Gridlock and winglock will only worsen 
in this process. We must develop an integrated and balanced 
national transportation network that includes air, road, and 
rail working together in cooperation rather than in 
competition. Such a balanced transportation system will 
leverage the strengths of each mode.
    We have ignored, or perhaps failed to recognize, the 
importance of rail in this inter-modal mix. Think of the 
proverbial three-legged stool and the obvious instability 
created by a single shorter leg.
    I would like to offer my written statement for the record 
and summarize the following four points.
    The Chairman. Without objection.
    Mr. Pracht. First, this nation must stop fueling the 
longstanding and counterproductive competition that has existed 
between air, road, and rail. We must recognize that real inter-
modal cooperation offers more competitive alternatives to 
passengers and shippers, and relieves an already overly 
stressed system. Using higher-speed rail to connect city pairs 
between one and 400 miles will provide greater reliability and 
safety to the motorists and a more productive alternative to 
the flyer. The airline industry could take advantage of more 
suitable and best-mode feeder connections that would carry 
greater numbers of people more efficiently, freeing up both 
gates and airspace to be used more economically. French, 
German, and Japanese airlines, as transportation providers, all 
use high-speed rail connections interchangeably with express 
aircraft to provide an overall travel experience that is 
seamless, comfortable, and superior.
    Second, this vision for America will not come from the 
private sector alone. Transportation systems consist of two 
basic parts--a cash-intensive operating organization and a 
capital-intensive infrastructure. When put together, there is 
simply not enough ridership, real estate, or other sources of 
revenue to provide a viable private sector business case to 
cover both capital and cash requirements. The solution lies in 
net new investment coming from both public and private sectors. 
If the Federal Government is willing to invest in the 
infrastructure, the private sector will invest in the 
operation.
    Third, it is counterproductive to continue to combine the 
historical and politically charged debate over Amtrak with a 
meaningful discussion of intercity passenger rail. One has 
little to do with the other, and linkage is detrimental to 
both. RSI is a strong supporter of Amtrak. We are encouraged by 
David Gunn's straight-talking style and cost-cutting results.
    Fourth, RSI appreciates this committee's leadership. We 
would like to propose a new Federally chartered corporation, 
similar to Fannie Mae, that would enable capital investment in 
rail infrastructure projects not otherwise eligible for 
transportation trust funds under TEA-21. The Rail Finance and 
Development Corporation, or RFDC, would issue Federal tax-
credit bonds to support higher-speed rail, inter-modal 
terminals, access to seaports and airports, short-line 
improvements, urban relocations, and increased freight-rail 
capacity.
    As with similar proposals, bondholders would receive 
Federal tax credits in lieu of interest, with a sinking or 
escrow fund established to guarantee repayment of the 
principal. To be effective, the RFDC would require significant 
financial resources and state match to support eligible 
projects and public/private partnerships. We would propose $50 
billion in authority to be spread over the first 6 years.
    In conclusion, Mr. Chairman, public investment in 
transportation has historically produced economic stimulus. The 
whistle-stop economies of the 19th century and the interstate 
highways of the last century offer compelling examples. We 
encourage the Congress to support balance and equity in the 
reauthorization of both TEA-21 and AIR-21. Rail needs to become 
a vital part of the national transportation investment program.
    It is time for the Federal Government, the states, and all 
of us in the transportation sector, including the rail 
industry, to come together with the cooperation, purpose, and 
resolve to provide the leadership it will take to move this 
vision forward.
    Thank you, again, for this opportunity to testify, and I 
look forward to answering your questions.
    [The prepared statement of Mr. Pracht follows:]

          Prepared Statement of Michael P. Pracht, Chairman, 
   Passenger Transportation Committee, Railway Supply Institute, Inc.

    Good morning, Mr. Chairman and distinguished members of the 
Committee. Thank you for this opportunity to testify. My name is Mike 
Pracht, and I am here today in my capacity as Chairman of the Passenger 
Transportation Committee of the Railway Supply Institute (RSI). My 
personal background includes more than 25 years of private-sector 
experience in the rail transportation business, in senior management 
positions, at Siemens (from Germany), Ansaldo (from Italy), and Union 
Switch & Signal (a former George Westinghouse company) from the State 
of Pennsylvania.
    It is a privilege to appear before you today on behalf of RSI, 
which is the successor of two historically significant trade 
associations, the Railway Progress Institute (RPI) and the Railway 
Supply Association (RSA). Our new consolidated association represents 
over 400 companies from around this nation; large and small, public and 
private, with approximately 150,000 employees who generate in excess of 
$20 billion in annual revenue. These companies manufacture and lay the 
rail; build the locomotives, tank, freight and passenger cars; design 
and install the signal and telecom systems; and provide financing, 
after-sales service and maintenance to the entire North American 
mainline market. Many of these companies, or their predecessors, have 
distinguished histories, and contributed their expertise in the 
previous millennium when rail investments were considered in the 
context of the national interest and economic growth.
    I serve with passion at RSI because I believe that this country is 
on the verge of a national transportation crisis. Gridlock and winglock 
are both at epidemic proportions that will only worsen if left to 
historical trends. The solution to this problem lies in our collective 
ability to develop an ``integrated and balanced'' national 
transportation network that includes air, road and rail, in cooperation 
rather than in competition. Such a balanced transportation system will 
leverage the strengths of each mode to improve overall mobility and 
provide better economic results in a more environmentally friendly 
fashion. We have ignored, or perhaps failed to recognize, the 
importance of rail in this intermodal mix. Think of the proverbial 
three-legged stool and the obvious instability created by legs of 
different sizes.
    My testimony will concentrate on four basic points that RSI 
believes the Committee should consider in developing a balanced 
transportation policy to support higher-speed passenger rail 
development in the United States.

A Balanced Approach is Essential
    This nation must stop fueling the long-standing, unnecessary and 
counterproductive competition that has developed between air, road and 
rail. We must recognize that ``real'' intermodal cooperation offers the 
benefit of more competitive alternatives for passengers and shippers; 
much needed strain relief for an already overly stressed system; and 
better economic and environmental return on capital investment. 
Expected future growth highlights the challenge:

   From 2000 to 2025 the U.S. population will grow 23 percent 
        to 346 million people.

   U.S. commercial emplanements are expected to double to 1.2 
        billion per year by 2025.

   Total road miles traveled will grow 70 percent between now 
        and 2025 to 4.6 trillion annually. This compares with just 1.3 
        trillion vehicle miles annually on essentially the same 
        Interstate Highway system back in 1975.

    Current plans to increase both air and ground capacity only simply 
cannot keep pace. Federal investment in rail infrastructure, together 
with state and private sector partnerships, must be part of the 
solution.
    Using higher-speed rail to connect city pairs of between 100-400 
miles would benefit the traveling public by providing greater 
reliability and safety to motorists and a less costly and more 
productive alternative for fliers. Residual benefits would result from 
increased capacity at airports and interstates paying much-needed 
dividends to both in the process.
    Specifically, the airline industry could take advantage of more 
suitable ``best-mode'' feeder connections that would carry greater 
numbers of people more efficiently. More optimized use of gates, 
runways, and airspace would reduce delay, increase capacity and safety 
and improve cost-to-revenue ratios. The airlines would benefit from 
better returns on seat revenue; the airports from better returns on 
gate revenue; the Federal Aviation Administration from fewer blips on 
the radar screen; and the traveling public from a more user friendly 
system.
    On the highways, investment in rail will produce additional 
capacity, and reduce congestion (and road rage). Rail will enable more 
productive alternatives for interstate commuters and shorten rush 
hours, reduce lost time and help improve demographic balance and 
sprawl.
    In summary, we must promote a balanced transportation system. To do 
so we must balance our investment.

The Federal Government Must Lead
    Federal leadership paved the way for our extensive interstate 
network, and fostered our comprehensive aviation system. Higher-speed 
passenger rail requires the same commitment--results will not come from 
the private sector or the states alone.
    The reason is fundamental. Rail transportation systems consist of 
two basic parts, a cash-intensive operating organization and a capital-
intensive infrastructure. Both components represent very different 
Return-On-Investment (ROI) models and present very different investment 
scenarios. When put together, there is simply not enough ridership, 
real estate, or other potential sources of revenue to produce a viable 
private-sector business case to cover both the up-front capital needs 
and the longer long-term cash and ridership risks. It is reasonable to 
expect the private sector to invest on the operating side because 
predicted financial models are consistent with traditional risk-
tolerance levels and expectations. This is unfortunately not the case 
on the infrastructure side where a longer-term investment and risk-
tolerance philosophy is necessary. Such a longer-term business case, 
however, is also where the Federal Government has historically invested 
in partnership with the states resulting in impressive and quantifiable 
economic returns on initial capital investment.
    Experience in high-speed rail investment in Europe and here in 
municipal transit markets have translated into significant increases in 
both business and tax revenues. Each dollar invested in transit capital 
programs yields $3 in private-sector sales and profits. This creates 
both short- and long-term jobs along the right-of-way, benefits 
residential and commercial construction, and stimulates regional retail 
and service economies. Return revenues to all levels of government 
increase through permit fees, sales/income taxes, and a more generally 
robust economy.
    The solution lies in net new investment coming from both public and 
private sectors. If the Federal Government, supported by the states, is 
willing to invest in the infrastructure, the private sector will invest 
in the operation. Other industrialized nations have learned that public 
investment in ground transportation is simply good business that makes 
sense for stakeholders and beneficiaries alike.

Amtrak's Future Must Be Addressed Separately
    It is counterproductive to continue to combine the historical and 
politically charged debate over Amtrak with a meaningful discussion of 
intercity passenger rail. One has little to do with the other, and 
linkage is detrimental to both.
    We must first determine what benefit higher-speed rail will provide 
to our overall transportation network and how its integration with 
existing modes will be best achieved. We must then identify state and 
regional stakeholders with the most pressing needs and ability to 
implement projects that produce the most favorable returns.
    Only after considering these issues can we consider how these new 
corridors should be operated. For such new operations, Amtrak should be 
considered a competitor among equals. Amtrak will bring advantages, 
including its current access to the freight rail system and long 
expertise with intercity passenger operations. Other prospective 
entrants, particularly where dedicated rights-of-way are envisioned, 
might offer different approaches that could be considered.
    RSI is a strong supporter of both Amtrak and public investment in 
rail. Our member companies are suppliers to Amtrak and vested 
stakeholders in Amtrak's future. We are encouraged by David Gunn's 
straight talking style and cost-cutting results. We applaud the steps 
he has taken to instill discipline, financial credibility, and private-
sector performance measurements.

RSI's Proposal for a Rail Finance and Development Corporation
    RSI appreciates the Committee's previous efforts to promote Amtrak 
and higher-speed rail, and leadership in reporting significant 
authorizing legislation in the last Congress. As a complementary way to 
accelerate the development of higher-speed intercity rail, RSI offers a 
different approach for the Committee's consideration to establish a 
dedicated source of Federal funding for rail.
    RSI's concept builds upon previous legislative efforts to authorize 
tax-credit bonds for higher-speed rail, such as the High Speed Rail 
Investment Act, considered in the last Congress. RSI's proposal 
broadens this idea by enabling these tax-credit bonds to be issued 
through a private, non-profit, Federally chartered corporation, the 
Rail Finance and Development Corporation (RFDC) for capital investment 
in rail-related infrastructure not generally eligible for surface 
transportation trust fund expenditures under TEA-21.
    RFDC would provide financial support for capital projects that:

   Develop higher speed intercity rail corridor passenger 
        services, including infrastructure and equipment;

   Provide efficient rail access to ports;

   Provide efficient rail access to intermodal terminals:

   Provide high frequency rail access to airport terminals;

   Provide increased capacity on the Nation's rail freight 
        network designed to enhance security, reduce congestion and to 
        improve air quality and efficiency;

   Support the capital needs of short line and regional 
        railroads for infrastructure improvements to serve rural and 
        smaller communities and accommodate 286,000-pound freight cars.

   Support relocation and/or consolidation of rail lines and 
        facilities in urban areas.

    By embracing all forms of rail investment through this initiative--
not just higher-speed rail--RSI believes that our national goal of a 
balanced intermodal transportation system can be realized.
    The RFDC would be modeled on existing Federally chartered entities 
such as Fannie Mae, and governed by a Board of Directors appointed by 
the President. RFDC's function and authority would be subject to the 
oversight of the Congressional committees of jurisdiction. Specific 
criteria to be included in the RFDC's authorizing legislation would 
govern project eligibility, selection, state match, financing and 
repayment obligations. Bondholders would receive Federal tax credits in 
lieu of interest; a sinking fund based on state match (and other 
contributions as required) would be established to guarantee repayment 
of principal.
    To be effective, the RFDC must have significant financial 
resources, and RSI suggests granting initial authority to issue up to 
$50 billion over a six-year period in Federal tax credit bonds to 
states and public/private partnerships to finance eligible rail-related 
capital projects. This represents a substantial investment, but the 
need for mobility is substantial. RSI looks forward to partnering with 
interested stakeholders and working with the Committee to develop this 
concept more fully. Our nation requires Federal leadership in rail 
development, and an entity such as the RDFC would enable this to 
happen.
    In this context, RSI notes that balance and equity also requires 
elimination of the present discriminatory and unfair 4.3 cents per 
gallon deficit reduction tax and rail and barge diesel fuel. 
Investments should be made to even the playing field, and enable users 
to choose the most effective and efficient mode to provide needed 
mobility.

Conclusion
    In conclusion, Mr. Chairman, public investment in transportation 
has historically produced economic stimulus. The whistle-stop economies 
of the 19th century and the interstate highways of the last century 
offer compelling examples. We encourage the Committee and the Congress 
to support balance and equity in the reauthorization of both TEA-21 and 
AIR-21. Rail needs to be a part of the national transportation 
investment program. It is time for the Federal Government, the states, 
and all of us in the transportation sector--not just the rail 
industry--to come together in cooperation, and with purpose to provide 
the leadership it will take to move this vision forward.
    Thank you again for the opportunity to testify. I look forward to 
answering any questions you may have.

    The Chairman. Thank you, Mr. Pracht.
    Mr. Landes, Mr. Gunn stated in his testimony that it's a 
myth that the private sector is interested in taking over 
Amtrak's services. You wouldn't agree with that statement, from 
your testimony, but are there other companies, in addition to 
Herzog, that have expressed interest in operating trains or 
managing equipment and maintenance or taking on some of the 
Northeast Corridor infrastructure?
    Mr. Landes. Yes, Mr. Chairman, there are. I think they 
talked about the Boston service that was recently procured. 
You've got Connex, you've got Bombardier, you've got Alstom. 
All of them are prepared to provide a variety of services, 
including ourselves. And I think, as we've demonstrated 
throughout this country, wherever competition is allowed to 
happen, you know, people will come and participate. And you 
probably have a myriad of other companies that, given the 
opportunity, would avail themselves of it. There just really 
hasn't been that much, particularly at the Federal level. And 
so, yes, I think you would see a lot of people getting in line.
    The Chairman. Would you do me a favor and submit, for the 
record, a list of those organizations and what they would--to 
your knowledge, they'd be willing to do?
    Mr. Landes. Yes, sir.
    [The information referred to follows:]


   Preliminary List of Contacts for Discussion of Amtrak Privatization
 Originally compiled by Mercer Management Consulting, Inc.--Updated May
                                16, 2003.
------------------------------------------------------------------------
             Contact                            Description
------------------------------------------------------------------------
ALSTOM TRANSPORT                   Major global supplier of rail
Francis Jelensperger                products, services, and systems.
Senior Vice President, North
 America
353 Lexington Avenue, Suite 800
New York, NY 10016 Phone: 212-557-
 7265
------------------------------------------------------------------------
BOMBARDIER TRANSPORTATION          Leading global supplier in the rail
Pierre Lortie                       equipment, manufacturing, and
President and COO                   servicing industry.
1101, rue Parent
Saint-Bruno, Quebec J3V 6E6
Canada
Phone: 450-443-8984
------------------------------------------------------------------------
CONTINENTAL AIRLINES               Major international air carrier.
David Grizzle
Senior Vice President of
 Corporate
Development
1600 Smith Street
Houston, TX 77002
Phone: 713-324-2966
------------------------------------------------------------------------
CONNEX NORTH AMERICA               Subsidiary of Vivendi Environnement,
Jim Stoetzel                        operator of passenger rail
Vice President, Contract            franchises in the U.K. and
 Operations                         elsewhere.
Two Central Street
Georgetown, MA 01833
Phone: 978-352-8820
------------------------------------------------------------------------
CORUS RAIL                         U.K.-based international supplier in
Jon Bolton                          the rail infrastructure,
Managing Director                   manufacturing, and servicing
54 Route de Sartrouville            industry.
78230 Le Pecq, France
Phone: 33-1-30-15-67-25
------------------------------------------------------------------------
DEUTSCHE BAHN AG                   German national railway.
Dr. Klaus Vornhusen
Corporate Strategy
Potsdamer Platz 2
10785 Berlin
Germany
Assistant: Ms. Simone Kloss
Phone: 011-49-30-297-61520
------------------------------------------------------------------------
GNER (GREAT NORTH EASTERN          International provider of multimodal
 RAILWAY)                           transportation services; operator of
Christopher Garnett                 U.K. passenger franchise.
Vice President
Rail Subsidiary of Sea Containers
 Ltd.
Main Headquarters, Station Road
York YOl 6HT
Phone: 44-1904-522-200
------------------------------------------------------------------------
GREAT SOUTHERN RAILWAY             Long-distance passenger train
Stephen Bradford                    operator. Operates three Australian
Chief Executive Officer             trains: the Indian Pacific (4,352
502 Albert Street                   km. Sydney-Adelaide-Perth), the Ghan
East Melbourne VIC 3002             (Sydney/Melbourne-Adelaide-Alice
Phone: +61 3 9668 8803              Springs), and the Overland
Fax: +61 3 9668 8891                (Melbourne-Adelaide).
------------------------------------------------------------------------
HERZOG TRANSIT SERVICES            U.S. company providing a full range
Raymond V. Lanman                   of services to transit agencies in
Vice President                      the management, operations and
Corporate Development               maintenance of commuter, regional
600 S. Riverside Road               and light rail passenger systems.
St. Joseph, MO 64507
Phone: 816-233-9001
------------------------------------------------------------------------
KAWASAKI RAIL CAR, INC.            U.S. arm of leading manufacturer of
Yuichi Yamamoto, President          light rail, subway, and high-speed
Motokatsu Yoshizawa, Manager,       rail cars.
Contract Administration &
 Marketing
29 Wells Avenue
Yonkers,NY 10701
Phone: 914-376-4700
------------------------------------------------------------------------
NATIONAL EXPRESS GROUP             Leading international public
Richard Goldson                     transport group in rail, bus, and
Rail Development Director           airports; operator of U.K. passenger
75 Davies Street                    franchises.
London W1Y 1FA
Phone: 44-207-529-2057
------------------------------------------------------------------------
OSTERREICHISCHE BUNDESBAHNEN       Austrian national railway.
Magister Karl Zoechmeister
Head of Passenger Division
Praterstern 3
1020 Wien
Austria
Assistant: Ms. Joksch
Phone: 011-43-1-93000-32042
------------------------------------------------------------------------
PORTERBROOK LEASING COMPANY        International specialist in rail
Paul Francis                        equipment and infrastructure leasing
Managing Director                   and maintenance; one of the U.K.
Burdett House                       ROSCO's.
Becket Street
Derby D61, 1JP
Phone: 44-1332-262-454
------------------------------------------------------------------------
RAILWAY SERVICE CORPORATION        Consortium of operators and
Scott Spencer                       investment banks formed to provide a
President                           private-sector solution for Amtrak
604 South Bancroft Parkway          long-distance services.
Wilmington, DE 19805
Phone: 302-354-3577
------------------------------------------------------------------------
RATP INTERNATIONAL                 Operator of the Paris Metro and of
Maurice Simony                      the RER (Regional Express Network),
CEO                                 the suburban train network of Paris.
54 quai de la Rapee
F-75599 Paris Cedex 12
Phone: 00-33-1-44-68-46-99
------------------------------------------------------------------------
SCHWEIZERISCHE BUNDESBAHNEN        Swiss national railway.
Mr. Peter Grossenbacher
Corporate Planing Passenger
 Division
Brueckfeldstrasse 16
3000 Bern 65
Switzerland
Phone: 011-41-512-203480
------------------------------------------------------------------------
SNCF PARTICIPATION                 Holding company for subsidiaries of
Armand Toubol, Chairman             SNCF, the French national railway
Mireille Faugere, CEO               (Sistra, SNCF International,
Phone: 33-1-53-25-84-36             Keolis).
------------------------------------------------------------------------


    The Chairman. Thank you.
    Mr. King, what was North Carolina's experience in 
contracting out equipment and maintenance for the Piedmont and 
Carolinian service? And were you surprised at some of the 
conditions that Amtrak imposed?
    Mr. King. Mr. Chairman, we had been relatively displeased 
with the level and the quality and the cost of maintenance 
service for equipment, which the State of North Carolina, in 
this case, owns. And we also own the property and the 
facilities in which it's maintained. Amtrak supplied a 
contractor, and we did not think they were responsive to the 
kinds of quality and cost-control measures and inventory 
control that we thought were appropriate.
    We worked with Amtrak for a couple of years to develop an 
RFP to get another bid for those sorts of services and expected 
Amtrak to bid along with others. At the--24 hours or so before 
the RFP was to be received, or the proposals were to be 
received, Amtrak told us that they would not be bidding. We got 
a couple of responsive bids, both of which we considered to be 
high-quality bids. We chose the lower cost of the two and then 
went through a period of crisis for about 90 days, during which 
Amtrak continued to impose conditions basically related to 
liability and risk management, then ended up raising our costs 
through our contractor, which turned out to be Herzog, by 
imposing additional insurance costs which had not been 
anticipated.
    So, yes, we were surprised and dismayed with the 
difficulty. However, I can report on the good-news side that 
after a year of experience with the private contractor, we are 
well pleased and think we still made the right move.
    The Chairman. Thank you.
    Mr. Dittmar, are there instances when intercity passenger 
rail service connecting major cities to airport could avoid a 
need to expand or build new airports? I'm thinking specifically 
of the problem of Chicago O'Hare, which we continue to wrestle 
with at this committee, say, could be interconnected to 
Milwaukee. Is that part of the scenario that you envision?
    Mr. Dittmar. I think there are--as I say in the written 
testimony, there are three cases for making airport/rail 
connections, and the first is to provide access to a secondary 
airport to relieve a congested airport, and that would be the 
case of Milwaukee. The second would be to provide feeder 
service from outlying locations where it's not really efficient 
to provide it by air service, and that might be the case of 
Madison to Chicago. And the third is making a direct high-
quality linkage between the airport and the downtown rail hub. 
And the example, the best example, is, unfortunately, not in 
this country; it's the Heathrow Express, which is about 15 
pounds and 15 minutes to Paddington Station, and there are----
    The Chairman. What about Denver?
    Mr. Dittmar. Denver, sadly, failed to make such a 
connection, but I think there is a great opportunity to 
actually feed the Great Plains and my State of New Mexico, 
incidentally, to the Denver airport. I have to drive from Las 
Vegas to New Mexico, to Albuquerque, fly to Denver for every 
flight. And so the potential of having a high-quality bus 
connection or perhaps, in the future, a rail connection would 
actually end up saving me time.
    The Chairman. Well, maybe you could go to Phoenix.
    [Laughter.]
    Mr. Dittmar. I always do when I travel to the West.
    The Chairman. But I do have some sympathy for--that the 
time you take to get to a major airport far exceeds the time to 
get to your destination.
    Mr. Dittmar. And since--if I might add--since we looked at 
what's happened since September 11 and since the airlines have 
gone into their financial crisis, my closest airport is Santa 
Fe, and it has lost 65 percent of all flights in the last year. 
And so we're seeing a bailing out of the airlines from those 
short- and medium-distance routes.
    The Chairman. And we also see incredibly high prices from 
those smaller airports, as well, for obvious reasons, although 
not so obvious to the person that has to pay more for that 
short flight than the long one.
    Mr. Dittmar. You can't fault the airlines for making a 
business decision. The question really is, is there a more 
efficient way to provide the access for the traveling public 
from those smaller communities?
    The Chairman. Mr. Pracht, you state that higher-speed 
passenger rail requires Federal commitment because there's not 
enough ridership, real estate, or other potential sources of 
revenue to produce a viable private-sector business case to 
cover both up-front capital needs and longer-term cash and 
ridership risk. If the private sector and the states aren't 
willing to invest in projects because of the level of risk, 
what's the argument for having the Federal Government do it?
    Mr. Pracht. Well, I think it's the infrastructure side, Mr. 
Chairman, that I'm referring to. I think the infrastructure 
will require substantial capital investment, as has been the 
case, for example, with our highways and with our air-traffic 
control system and airports. And I think if that infrastructure 
can be put in place, and if assistance can be provided by both 
Federal and State government, the private sector can pick up 
the balance. And I think the returns in dividends will be 
there.
    The Chairman. I thank you. I thank the witnesses. We have a 
vote on the floor. I appreciate your patience today. I'm sure 
you enjoyed the spectacle, and we appreciate very much your 
involvement in this issue, which is obviously a very, very 
important one and also of which yet we have been unable to 
achieve consensus for many years. We thank you for being here 
today.
    This hearing is adjourned.
    [Whereupon, at 12:25 p.m., the hearing was adjourned.]
                            A P P E N D I X

               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 are here today to discuss 
Amtrak and the future of intercity passenger rail in America. 
Throughout my tenure in the Senate I have strongly supported Amtrak 
because I believe it is in the best interests of our nation to maintain 
a viable national rail system. An effective and efficient rail system 
provides a transit alternative for millions of people, lowering our 
dependence on highways and airports and reducing energy consumption and 
pollution. It is essential that we maintain a comprehensive and diverse 
transportation infrastructure, both to sustain economic growth and aid 
national security. Indeed, it is more important than ever to raise the 
Federal investment in our national rail system in light of the dramatic 
effect the September 11 terrorist attacks had on our aviation system.
    Let me begin by addressing Amtrak's financial situation. Much has 
been made of Amtrak's poor financial state over the past few years. 
Those opposed to subsidized passenger rail service point to mounting 
debt, poor management, and high labor costs as reasons to forgo 
nationalized passenger rail and concentrate solely on building more 
highways and runways. What they neglect to mention is that the 
government spends significantly more on our highway and aviation 
systems than on passenger rail, and that Amtrak is left to operate a 
national rail service--traversing forty-six states and employing 22,000 
workers--on a shoestring budget of just slightly more than a billion 
dollars. In contrast, the Federal Government spent nearly $32 billion 
for highways and $15 billion for aviation in 2002. Although most of 
this money comes from fuel taxes and ticket and security taxes that are 
collected into a trust fund, it still amounts to a government subsidy, 
regardless of whether one views the taxes as ``user fees.'' Amtrak does 
not benefit from such financial assistance, and because the 
Administration and its Congressional allies dislike the railroad it has 
been underfunded to near bankruptcy.
    As an aside, I'd like to help debunk the myth that high labor costs 
and union pressure have led to Amtrak's poor financial status. Labor 
costs are not responsible for Amtrak's financial decline. Rather, 
Amtrak's financial instability can be traced to three decades worth of 
minuscule government assistance and questionable management by past 
administrators. The fact is, Amtrak employees have gone without a 
general wage increase and a new contract for three and a half years, 
and they have sacrificed a lot to help keep the railroad functioning. 
We need to ensure that Amtrak's budget is large enough to include wage 
increases for current employees, allow both parties to draw up a new 
contract, and attract a larger workforce if we can successfully expand 
service over the next decade.
    Mr. Chairman, the ongoing debate over Amtrak's budget is absurd. 
Last year, Amtrak President David Gunn came to Capitol Hill and stated 
that unless Amtrak received a minimum of $1.2 billion for FY 2003 the 
railroad would go bankrupt. The President then proposed a budget of 
$521 million, which was obviously inadequate. The Senate then failed to 
pass an Amtrak reauthorization bill and what ensued last fall was a 
dramatic series of events that necessitated an emergency supplemental 
appropriation and a loan from the Department of Transportation (DOT) to 
keep Amtrak from going bankrupt. This is no way to do business.
    There is no question that Amtrak suffered from poor management and 
was less than candid about its financial dealings in years past, and I 
certainly don't support throwing money at a broken system. However, I 
think David Gunn has done a sound job managing Amtrak with limited 
resources and that under his leadership the railroad is headed in the 
right direction. Since he took the helm as president, he has submitted 
detailed cost analysis and budget plans to the Congress outlining his 
vision for an efficiently run, cost-effective railroad. Just last week, 
Mr. Gunn unveiled a five-year, $8 billion recovery plan that would fix 
Amtrak's deteriorating infrastructure while allowing it to operate on a 
reasonable budget. The plan calls for an operating budget of $1.8 
billion for FY 2004, a figure which would gradually decline to $1.5 
billion once the railroad's infrastructure has been upgraded. The 
Senate included $1.8 billion for Amtrak in its FY 2004 budget 
resolution and I hope that both house of Congress agree to this level 
of funding during the appropriations process. Senator Hollings has also 
introduced a reauthorization bill that would provide $4.5 billion 
annually for operations, infrastructure improvements, and high speed 
corridor development over the next five years. I strongly support 
Senator Hollings' bill and I urge my colleagues to support it as well.
    The time has come to reach a consensus on this issue. Let's be 
clear, passenger rail is inherently unprofitable. Whether it's Amtrak, 
or a private company operation, national passenger rail will require 
government support. Amtrak was created in the early 1970s because 
private operators could not make a profit and were unwilling to 
continue offering passenger rail service. There is not a national rail 
service in the world that exists independent of public subsidies. We 
need to accept this fact and move on.
    In closing I want to reiterate my belief that a larger Federal 
investment for Amtrak is both necessary and appropriate. The effects of 
a Federal commitment to passenger rail are indisputable; a larger 
investment means more jobs, less pollution, economic growth, and a 
dependable transit alternative to driving or flying. The amount of 
money we spend on rail represents a fraction of what we spend on 
highways and on the aviation system. In my view, it is inexcusable that 
among the industrialized countries the world's wealthiest and most 
innovative nation has the most neglected national rail system. We 
should upgrade the network, improve the infrastructure, establish more 
high speed corridors, and make Amtrak a practical choice for every 
American. In short, I believe that maintaining a strong, vibrant 
national rail system is good public policy and will instill a sense of 
pride among Americans. Thank you.
                                 ______
                                 
                                 Connex North America, Inc.
                                        Georgetown, MA, May 5, 2003
Ms. Sharon Dashtaki,
Missouri DOT,
Jefferson City, MO

Dear Ms. Dashtaki:

    Thank you for the opportunity to submit comments and suggestions 
relative to MoDOT's recent RFP for the operation of intercity rail 
passenger service between St. Louis and Kansas City, MO. While Connex 
did not submit a proposal in response to this RFP, we did:

   Obtain and carefully review all of the documents associated 
        with this process

   Have a representative at the Pre-bid meeting

   Carefully consider all of the elements required to submit a 
        responsive proposal

    While we ultimately decided that it was not possible for us to 
submit a responsive proposal for this procurement, we do remain 
committed to pursuing these types of passenger rail contract 
opportunities whenever and wherever they become available if the terms 
and conditions allow for true competition and for successful service 
operation and contract compliance.
    Simply, those factors were not present in this circumstance. Any 
time an agency is bidding an existing service, every effort must be 
made to create a truly competitive environment, a level playing field, 
or the incumbent operator will have too great an advantage. A common 
basis and equal footing must be established for all qualified proposers 
to have access to necessary facilities, equipment, systems and 
infrastructure. Adequate time must he provided for the preparation of 
well thought out service proposals, value-added enhancements and 
realistic, fair cost proposals. Finally, the operating environment must 
be developed that will permit mobilization, transition and safe, 
successful operation after service assumption by the new contract 
operator.
    Again, many of these factors did not exist and there was not 
sufficient time to develop alternative solutions.
    As stated earlier, however, Connex is dedicated to this type of 
contract opportunity and remains very interested in the future of 
Missouri's intercity rail passenger service. Connex's core business is 
the operation of passenger transportation services under contracts to 
local, regional and national authorities. We have more than a century 
of experience in operating public transportation services under 
contract, with emphasis on safety, punctuality, market research, 
demanding customer service standards, extensive staff training and a 
knowledge of local and regional requirements.
    Connex is the largest private passenger transportation company in 
Europe with over 40,000 employees operating contract passenger 
transport services on behalf of over 700 local, regional and national 
authorities worldwide. Connex operates a vast network of road, rail and 
maritime transportation services in a wide variety of institutional/
contractual relationships in North America, Europe, Australia, the 
Middle East and Latin America. Within this global network, Connex today 
operates 25 passenger rail systems running over more than 2,500 route 
miles of rail network. In all, Connex operates approximately 7,000 
trains a day, as well as 16,000 buses, and transports over one billion 
passengers a year safely and reliably. Connex is the only contract 
operator in the world providing a complete range of public 
transportation services, including intercity, commuter and regional 
passenger rail, light rail, heavy rail, trolley, bus and taxi.
    In addition to this international experience, Connex is the 
majority owner of the Massachusetts Bay Commuter Railroad Company 
(MBCR) and has been selected by the Massachusetts Bay Transportation 
Authority (MBTA) to operate and maintain the sprawling Boston commuter 
rail system beginning on July 1, 2003. This commuter rail service 
provides 462 weekday trains on 13 lines encompassing almost 400 route 
miles, employs over 1700 unionized and management railroad employees 
and carries almost 150,000 daily passengers. Mobilization activities 
for this assumption of service are well underway and a July 1 service 
transition date from the current operator, Amtrak, to MBCR is on 
schedule.
    If you have any questions about Connex's experience and 
qualifications or would like additional information about Connex, 
please let me know.
    Thank you again for the opportunity to submit these comments.
        Sincerely,
                                              Jim Stoetzel,
                         Vice President, Contract Operations--Rail.
                                 ______
                                 
       Prepared Statement of Ross B. Capon, Executive Director, 
              National Association of Railroad Passengers

    The National Association of Railroad Passengers is a non-partisan 
organization funded by dues and contributions from approximately 16,000 
individual members. We have worked since 1967 to support improvement 
and expansion of passenger rail, particularly intercity passenger rail.
    We strongly support Amtrak's request for $1.812 billion in fiscal 
2004. While we appreciate that the Bush Administration's request for 
$900 million is 73 percent higher than its $521 million request for 
FY03, $900 million would be a 14 percent cut from what Amtrak received 
in FY03, is only half Amtrak's request for FY04, and is less than the 
$1.1 billion in annual Federal funding which Amtrak averaged during FY 
1997-2002. Looked at another way, $900 million is 40 percent below the 
inflation-adjusted average for 1982-1984. More importantly, we 
understand that even the fiscal 2003 level of $1.05 billion would be a 
``shutdown'' level if repeated in fiscal 2004.
    Amtrak's 2004 request of $1.812 billion is meant to start to make 
up for funding shortfalls from the early 1990s--and, most immediately, 
to prevent serious deterioration of Northeast Corridor speeds, 
reliability and economic performance.
    In light of constraints placed on the appropriators' ability to 
fund all transportation needs while dealing both with tight budget caps 
and firewalls protecting most non-rail spending, it is important for 
the authorizing committees to advance legislation that provides funding 
outside normal appropriations.

I. Specific Concerns Regarding Amtrak's Financial and Operational 
        Status
    Continual questions over Amtrak's near-term survival hurt its 
public image and in some cases ability to sell tickets. We hope a 
period of stable funding and of David Gunn's management will overcome 
that. It is also important that the impending expiration of the terms 
of existing Amtrak board members not trigger yet another crisis.
    Eliminating routes offers no savings the first few years, and only 
limited savings thereafter. While arbitrated labor protection 
provisions make it hard to eliminate service and to close entire shops 
and terminals, those provisions do not interfere with ongoing 
operations. Indeed, most Amtrak employees are entitled to just five 
days' notice--and no severance. That is true for the New Orleans signal 
tower employees whose jobs are to be abolished because switches are 
remotely controlled from Chicago.
    Like most observers, we are impressed with Mr. Gunn's work to date. 
For specific examples, see section VII.
    Amtrak needs all the freight railroads, not just some of them, to 
handle its trains expeditiously. Amtrak pays incentives for good on-
time performance. At BNSF's operations center in Fort Worth, it seems 
clear that BNSF places value on earning those incentives. In the huge 
control room, one of several huge screens displaying company data is 
devoted to various measures of BNSF's on-time performance for Amtrak.
    Some of Amtrak's greatest difficulties are with Union Pacific. This 
partly results from UP efforts to address deferred maintenance on 
former Southern Pacific lines, which are largely single track. There is 
hope. Union Pacific Chairman and CEO Dick Davidson, Railway Age 
magazine's ``Railroader of the Year,'' is quoted in their January issue 
saying, ``We do want to be a good partner with Amtrak, and we're doing 
our best to get our railroad upgraded on the Amtrak routes and work 
with them to improve performance.''
    Years of underinvestment played a major role in creating today's 
financial and operational status. We welcome an emphasis on getting 
today's system to a state of good repair, but still more time is 
slipping by without meaningful expansion of service in this country. 
Capital funding for passenger-rail infrastructure will be needed 
whether it passes through Amtrak or not.
    Even expansion ideas that should be relatively simple appear 
stalled right now, including service to Florida's East Coast and on the 
Los Angeles-Las Vegas route. Relatively minor capacity constraints--
such as single track between Albany and Schenectady and east of the 
Cleveland station; and no place to store a train in Cleveland--cause 
big headaches for Amtrak scheduling and preclude consideration of some 
simple expansion ideas like Buffalo-Erie-Cleveland extension of an 
Empire Corridor train. Rerouting Amtrak's Texas Eagle onto Trinity 
Railway Express tracks between Dallas and Fort Worth would speed up the 
schedule, eliminate back-up moves and reduce Amtrak's contribution to 
congestion at the major freight junction just south of Fort Worth 
station, and let Amtrak stop at Centreport/DFW Airport station.
    All trains that serve Chicago would provide faster, more reliable 
service if track investment projects there are implemented.
    Some service changes are positive--dining car menus and restoration 
of checked baggage service in many places (see section VII). But Amtrak 
also faces a shortage of sleeping and dining cars. Checked baggage 
service is gone from much of the Northeast (including Providence and 
New Haven, effective April 28) and Amtrak's unboxed bicycle service has 
been reduced. Even if an entire baggage car cannot be justified, a way 
ought to be found to provide some form of this service for travelers 
who need it.

II. Capital Investments Needed to Return the Amtrak System To A ``State 
        of Good Repair''
    It is important to get Amtrak back to a ``state of good repair,'' 
and support what we have seen of Amtrak's capital plans. Moreover, 
Amtrak is not unique in the need for capital; this is true for large 
and small freight railroads, commuter, grade crossing safety, and 
security needs. A possible funding source for railroad capital 
investment is described in the next section. Congress has a 
responsibility to address the lack of balance in a transportation 
policy that provides assistance to highways and aviation but not 
intercity passenger rail.
    Amtrak-owned rolling stock and facilities should be renewed and 
maintained to a particular standard. Investment should go beyond ``good 
repair'' to ``improvement,'' such as catenary renewal that allows 
better running times Washington-New York, and perhaps expedited Metro 
North catenary work to get New York-Boston running times closer to 
three hours.
    We support intermodal links that complement the rail network. There 
are opportunities for airport stations on today's network that are not 
yet fulfilled, such as Milwaukee, Oakland and Providence. BWI's plans 
for a needed fixed-guideway link between the Amtrak station and the air 
terminal--much publicized a few years ago--appear to have been shoved 
to the back burner. Overall, intermodal links are progressing, but too 
slowly in part because--for all the verbal attention that has been paid 
intermodalism--getting Federal funding remains a challenge.

III. Long-Term Viability of the Existing Amtrak Business Model
    One's perspective on the long-term viability of the existing Amtrak 
business model depends on whether one agrees with DOT Deputy Secretary 
Michael Jackson's recent testimony that ``the Federal Government must 
work with our state colleagues to configure and then transition to a 
system . . . whereby the Federal Government provides specific capital 
investment in passenger rail infrastructure, while states assume any 
needed operational subsidy obligations. Again, we recognize that this 
cannot happen overnight.''
    It appears inconsistent to argue simultaneously that the Federal 
Government should end operating grants (albeit at some undetermined 
future time) while stating that ``passenger rail is an important 
component of our Nation's transportation infrastructure.''
    We think increased state funding of operating grants for short-
distance trains generally is unlikely until after (a) the Federal 
Government has created a genuine investment partnership with states 
which gives them an incentive to make substantial capital investments 
in the tracks such trains use; and (b) realization of at least some 
operating efficiencies as a result of such partnerships. Even this may 
depend on states recovering from what an April 21 New York Times report 
called ``their worst financial crisis since World War II.'' The story 
said just 14 states and Washington, D.C., ``have balanced budgets, 
while five states face budget gaps that are more than 9 percent of 
their total budgets. Four states face gaps of more than $1 billion.'' 
Alan Abelson, in his Barron's column for April 28, wrote. ``According 
to Stephanie Pomboy, who puts out the feisty and provocative economic 
newsletter MacroMavens . . ., the states are facing their worst budget 
crisis in history . . . As Stephanie observes, a conservative estimate 
is that the collective state budgetary shortfall this year will run $70 
billion . . .''
    We agree with Amtrak that the operating grants for the national 
network (a.k.a. long-distance) trains should remain a Federal 
responsibility. However, those trains will benefit from corridor 
investments, since national network trains either use corridor tracks 
or connect with corridor trains.
    One could shut down the entire national network, and the Northeast 
Corridor would still require in excess of one billion dollars a year. 
At that point, however, there would not be adequate political support 
to secure that funding.
    What is needed is a new funding source for rail capital investment.
    We have no problem with ownership of the Northeast Corridor passing 
to the U.S. Secretary of Transportation, though we favor Amtrak 
retaining control of dispatching to the same extent that is true today. 
Also, we think--in the event of conveyance to DOT--Amtrak and its 
engineering people must have strong representation in the capital 
programming needs and the Amtrak operations people must have strong 
representation in the construction/renewal program to protect train 
operations and ensure a safe environment for the work to be done.
    We oppose conveyance to private ownership, an approach that proved 
disastrous in Britain. We thought conveyance to states unworkable even 
before fiscal crises enveloped them.
    The only important basis for our conditional support of conveyance 
of the Northeast Corridor to DOT is the possibility that it would be 
easier to address the Corridor's significant capital investment needs 
if the Secretary was accountable for funding the maintenance and 
improvements to the Corridor to ensure that it is safe and reliable for 
high-speed train operations.
    An ownership change might also help reduce Amtrak's own, arguably 
unfair image as a ``black hole'' for money. For example, the New York 
City tunnels need $1 billion in safety improvement work, yet about 90 
percent of the passengers using those tunnels are New Jersey Transit or 
Long Island Rail Road commuters. With the present ownership, however, 
that one billion dollars becomes a major contributing factor to 
Amtrak's black hole image.
    With the highway and aviation systems under considerable stress, 
and with appropriators complaining that the new subcommittee structure 
has further reduced their ability to support ``non-firewalled'' 
programs like Amtrak, it is perhaps naive to think that changing 
ownership of the Northeast Corridor will solve its funding problems. We 
need a source for increased investment in rail infrastructure.
    We commend to the Committee the concept of a Railroad Finance and 
Development Corporation, which the Railway Supply Institute has 
endorsed. This Corporation would address capital needs relating to 
high-speed rail in general, as well as to needs of freight short lines, 
and specific projects of importance to Class One railroads such as in 
Chicago. The corporation would sell bonds, eliminating fears many have 
about having Amtrak sell bonds, and the reluctance of some states to 
sell bonds. Of course, labor issues still would need to be addressed. 
But, as a matter of good tax policy, the bond approach would result in 
real construction projects in the railroad industry that will have many 
potential stimulative aspects that will improve the economy (such as by 
alleviating congestion in other modes and--as in Chicago--on the 
railroads themselves), create jobs, and have a ripple effect in the 
supply industry and those industries that provide component parts.
    In addition, for budget purposes, it scores better than anything 
else Congress can do in this area. Every $100 in bonds sold results in 
only a $30 budgetary cost to the government (tax revenue loss).
    The Corporation is envisioned as a private, non-profit, Federally 
chartered entity authorized to issue tax-credit bonds for capital 
investment in rail-related infrastructure not generally eligible for 
transportation trust fund expenditures under TEA-21. As endorsed by the 
Railway Supply Institute, the corporation would provide financial 
support for capital projects that:

   Develop higher speed intercity rail passenger services, 
        including infrastructure and equipment;

   Meet the backlog of capital needs on the Northeast Corridor 
        infrastructure;

   Provide efficient rail access to ports;

   Support development of intermodal terminals, transloading 
        facilities and rail access thereto;

   Facilitate high frequency rail access to airport terminals;

   Enhance capacity on the Nation's rail freight network 
        designed to enhance security, reduce congestion, improve air 
        quality and improve efficiency;

   Support the capital needs of short line and regional 
        railroads for infrastructure improvements to serve rural and 
        smaller communities and accommodate 286,000-pound freight cars;

   Support relocation and/or consolidation of rail lines and 
        facilities in urban areas.

    Financing: Modeled on existing Federally chartered entities such as 
Fannie Mae, RFDC would be authorized to issue up to $50 billion in 
Federal tax credit bonds to states and public/private partnerships to 
finance eligible rail-related capital projects. Specific criteria to be 
included in the RFDC's authorizing legislation would govern project 
eligibility, selection, financing and repayment obligations.
    RFDC would establish a principal sinking fund to secure payment of 
the principal at maturity. A 20 percent non-Federal match, contributed 
by state, localities. or other project participants, would form the 
primary basis of the sinking fund for each bond issuance, supplemented 
by additional Federal contributions as may be required.
    Governance: The corporation would be governed by a Board of 
Directors appointed by the President. RFDC's function and authority 
would be subject to the oversight of the Congressional committees of 
jurisdiction.
    The authorizing committees already have a long list of rail needs 
that they have been unable to fund through the authorization process 
because no matter how much is authorized there is no room in 
transportation appropriations to fund these needs out of the 30 percent 
of funds left over after guaranteed spending programs are addressed.

IV. Impact of Amtrak on Commuter Rail Operations
    We are glad that the Administration ``determined that the best 
means to ensure that Amtrak continues to provide [commuter] services is 
to see that Amtrak has sufficient funds to operate through the end of 
the fiscal year.'' We fear that a literal reading of the Omnibus 
Appropriations Act could lead to an immediate Amtrak shutdown if Amtrak 
were forced to ``firewall'' in advance enough funds to guarantee 
commuter rail operation.
    Just as highways derive much of their economic effectiveness from 
the fact that they serve many different users, so also is common use of 
many tracks and facilities by Amtrak and commuter rail a source of 
economic effectiveness. An Amtrak shutdown would undo this economic 
effectiveness, with diverted traffic adding to highway and road system 
congestion, and depriving commuter rail and transit systems of revenues 
from connecting Amtrak passengers.
    The best way to protect commuter rail reliability--and indeed to 
protect the significant contribution that Amtrak makes to the economy--
is to ``see that Amtrak has sufficient funds to operate'' next fiscal 
year and the year after that.

V. Public Wants More Travel Choices, Not Fewer
    Although public support for passenger rail was well established 
before September 11, 2001, as reflected in polls discussed near the end 
of this statement, the 9/11 catastrophe focused and energized public 
interest in having more transportation choices, not fewer, and thus in 
retaining and improving our national passenger rail network.
    Because of the combined impacts of the ``airport hassle'' factor 
and fear of flying, people who formerly flew to avoid four-hour ground 
trips now accept ground trips of about eight hours in order to avoid 
flying. Ironically, the majority of those trips are by car, even though 
plane travel remains far safer than driving.
    Where good train service is offered in such markets, business is 
thriving even in the face of a weak travel and tourism industry. The 
public--by its purchase of tickets--has shown that it will ride 
conventional-speed services in large numbers in many markets. Such 
trains need not come anywhere near the speed of a TGV; they need only 
be reasonably fast and reasonably frequent to be attractive to many 
travelers.
    During the first seven months of Fiscal 2003 (October-April), the 
following services posted travel increases in the face of extraordinary 
weakness in the travel and tourism markets. The percentages shown are 
increases in passenger-miles compared with the year-earlier period. 
(The passenger-mile--one passenger carried one mile--is the standard 
measure of intercity travel.)

   Chicago-Grand Rapids +30.7 percent
   New York-Pittsburgh Pennsylvanian +21.1 percent*
   Boston-Portland Downeaster service +12.5 percent
   Pacific Surfliner (Primarily San Diego-Los Angeles-Santa 
        Barbara) +10.6 percent
   Chicago-New Orleans City of New Orleans +9.7 percent
   San Joaquin Valley Service +7.6 percent
   New York-Charlotte Carolinian +7.2 percent
   Chicago-Carbondale Illini +7.1 percent
   Chicago-Quincy Illinois Zephyr +6.7 percent
   Sacramento Area-Bay Area-San Jose +6.5 percent
   Chicago-Seattle/Portland Empire Builder +5.9 percent
   Chicago-St. Louis +5.8 percent
    [* Primarily the result of restructuring the train to run at 
``passenger-friendly'' rather than ``freight-friendly'' times.]

    Reflecting the relationship between an aging population and 
interest in alternatives to driving, the American Association of 
Retired Persons in its new ``Public Policies 2003'' states, ``Congress 
should support nationwide passenger rail service that is integrated and 
coordinated with regional, state and local passenger rail [and should] 
establish a dependable funding mechanism that insures continuing 
passenger rail service.''

VI. Analyzing Route Financial Performance
    DOT Inspector General Kenneth Mead, in February 27, 2002, testimony 
before the House Appropriations Subcommittee on Transportation, called 
operating grants needed for long-distance trains (what we call national 
network trains) ``chump change'' compared with ``the annual capital 
subsidy required to continue operating'' Northeast Corridor trains. He 
said national network operating losses are only about 30 percent of NEC 
capital requirements.
    We offer the following comments about methods of measurement:
    First, the passenger mile--one passenger traveling one mile--is the 
standard measure of intercity travel. Trip lengths vary widely and use 
of the passenger-mile reflects that. Consequently, ``loss'' per 
passenger-mile (or, preferably, the relationship between revenues and 
costs) are more meaningful ways to measure the relative efficiency of 
Amtrak's routes. To illustrate how results can differ, the FY01 numbers 
in the Amtrak Reform Council report showed that the Southwest Chief had 
the fifth best operating ratio but the fifth worst subsidy per 
passenger.
    Second, the absolute numbers that have been widely quoted, though 
they exclude depreciation, are based on fully allocated costs 
(including, for example, a share of the Amtrak CEO's expenses) and thus 
exceed savings that might be realized by discontinuing a specific 
route.
    Third, the Sunset Limited in particular has been hampered by 
exceedingly poor on-time performance on Union Pacific tracks, as 
discussed in Section I.
    Finally, our Association strongly believes that the existing 
network is a skeletal foundation, from which the system should grow. 
Thus, the only purpose for ranking routes would be to identify where 
special actions might be needed to improve performance, not to identify 
routes for discontinuance.
    We question the relevance of the planning process used to 
restructure the Northeast rail freight network in the 1970s. That 
network was very dense and arguably overbuilt, so that it was easy to 
take out countless miles of track without harming major markets. The 
Amtrak network by contrast is skeletal. The ability to take out 
individual routes without collapsing the system is severely limited 
because of the interrelationships among the routes in terms of shared 
revenues (connecting passengers) and shared costs (common facilities).

VII. Examples of Improved Efficiency at ``Gunn's Amtrak''
    David Gunn and his key people have impressive knowledge specific to 
railroading and to budget discipline, which appears to be paying off 
already.
    Some changes are visible to passengers, including the now-
consistent, dining-car requirement that sleeping-car passengers sign 
their names and room numbers. Meals are included in the sleeping-car 
charge, but not in coach fares. Reinstitution of the signature 
process--and an audit (comparing dining car checks with passenger 
manifests)--aims to determine more accurately food/beverage revenues 
and costs and to help eliminate abuse (e.g., coach passengers getting 
free meals).
    The on-board snack bars are getting the ability to issue printed 
receipts to passengers which show just what was purchased and for how 
much. This improvement--long taken for granted by managers at most food 
outlets ``on the ground''--enhances Amtrak's ability to monitor 
inventories and to make sure that the company gets all the money due to 
it.
    A new frequency--the 10th Acela Express on the New York-Boston 
run--was added January 27 without increasing crew costs. The New Haven-
Springfield got more frequent service April 28, thanks to more 
efficient use of crews and equipment. On the same basis, Amtrak added a 
Chicago-Milwaukee frequency last October.
    Amtrak on February 10 transformed the Pennsylvanian, formerly a 
secondary, coach-only Chicago-Philadelphia train with an ``express-
friendly/passenger-unfriendly'' schedule serving both endpoints at bad 
times. The train now runs New York-Pittsburgh on a passenger-friendly 
schedule. March and April financial results showed dramatic improvement 
from year earlier figures.
    Amtrak restored seven-day-a-week staffing and checked baggage 
service at about 20 stations on April 28, most of which lost it a year 
ago. We believe this reflects a recognition that last year's action was 
done in haste and needed rethinking. Among the affected stations: 
Salinas and San Bernardino, Cal.; Champaign, Ill.; Meridian, Miss.; 
Columbus and La Crosse, Wis.; Greenville, S.C.; Houston, Tex.; and 
Pasco, Wash. Little Rock was added to this list effective May 23.
    Amtrak is fixing, scrapping or selling equipment that has been out 
of use, realizing that there is a cost to the indefinite storage of 
such equipment. Elderly, costly-to-maintain coaches have been kept in 
service (especially on the New York-Philadelphia Clockers) while modern 
equipment that needed only minor repairs was sidelined; Amtrak is 
undertaking those minor repairs.
    Amtrak is making good use of sizable inventories left over from 
previous projects cut short by funding problems. For example, Amtrak 
has found orange upholstery to use when overhauling coaches with worn 
upholstery of the same color. The end result may not be the color one 
would have chosen for the new century, but it is clean and new--and did 
not require any new purchase.
    Amtrak is covering a lot of old carpeting with plastic, which is 
easier to clean and doesn't hold dirt, odor, or splashed coffee.
    Amtrak's organizational structure has been flattened by elimination 
of the Eastern and Western general manager positions, so that the seven 
divisional general superintendents now report directly to the vice 
president of operations.
    Amtrak announced January 24 that it would close its Chicago call 
center, the smallest of its three centers, at the end of December. Even 
if the number of agents added at empty desks in Riverside and 
Philadelphia equals the number of agent positions eliminated in 
Chicago, Amtrak expects to save $3 million a year in management, 
facility and technology costs. Any net reduction of agents--such as 
might be possible because of the continuing migration of business to 
the Internet--would increase the savings. Chicago reservation bureau 
employees have the right to ``follow their work,'' but employees who 
reject this option are not entitled to severance (labor protection) 
payments.

      Appendix I. Polls Indicate Public Support for Passenger Rail

    Polls over the years have consistently shown public support for 
faster, more frequent, and reliable passenger trains, including two 
national polls last summer. A poll conducted by CNN/Gallup/USA Today 
near the height of Amtrak's June, 2002, cash crisis (June 21-23) found 
that 70 percent of the public support continued Federal funding for 
Amtrak. Similarly, The Washington Post found that 71 percent of 
Americans support continued or increased Federal funding for Amtrak 
(August 5, 2002, article reporting on July 26-30 poll).
    An October 27, 1997, nationwide Gallup Poll sponsored by CNN and 
USA Today asked whether ``the Federal Government should continue to 
provide funding for the cost of running Amtrak, in order to ensure that 
the U.S. has a national train service, or the Federal Government should 
stop funding Amtrak, even if that means the train service could go out 
of business if it doesn't operate profitably on their own.'' Favoring 
continued funding were 69 percent of respondents, with 26 percent 
against (and 6 percent other responses). State-specific polls also have 
been positive.
    Wisconsin: A poll by Chamberlain Research Consultants of Madison, 
released by the Wisconsin Association of Railroad Passengers in June 
2002, indicated that:

   77 percent of Wisconsin residents ``support a nationwide 
        system of passenger trains with increased routes, frequencies, 
        and shorter travel time.''

   76.6 percent said they would use the trains if the planned 
        nine-state Midwest Regional Rail network becomes available to 
        them.

   54.3 percent responded positively to this question: ``If 
        Federal funding is available for improving intercity passenger 
        rail services, Wisconsin may try to attract these rail 
        improvement funds by pledging to pay for a portion of the 
        project with state money as we do now with highway and airport 
        projects. Is this something you favor, oppose, or neither favor 
        nor oppose as a way to raise money to develop passenger rail 
        services in Wisconsin?''

    The survey, which was conducted over a week-and-a-half ending in 
mid-February, took place as the future of Amtrak and the need for a 
nationwide rail passenger service was being debated by Congress, and as 
Wisconsin state government wrestled with its most serious financial 
crisis ever. More information is available at http://www.wisarp.org.
    Ohio: The Ohio State University Center for Survey Research (OSU-
CSR) released a poll (``Tracking Ohio'') on March 8, 2001, which found 
that 80 percent of Ohioans want the state to develop passenger rail 
service. The following question produced a 74 percent positive 
response: ``If Ohio had a modern, convenient and efficient passenger 
rail network, do you think it would improve the quality of life in Ohio 
or would it have no effect? About two-thirds (65 percent) of 
respondents said state money should be used to attract Federal 
passenger-rail funding to Ohio, if such Federal funding were available. 
More than half (53 percent) said the best way to relieve road traffic 
congestion is to ``improve all forms of transportation including mass 
transit and high-speed rail.'' The statewide poll was conducted by 
telephone January 2-31, 2001, as part of the OSU-CSR's monthly Buckeye 
State Poll. The margin of sampling error was no more than +/-4.3 
percent.
    New York: In 1998, the Marist College Institute for Public Opinion 
(Poughkeepsie) released results of a poll it conducted of New York 
State registered voters regarding state investment in intercity rail 
passenger service (trips longer than 75 miles one way). Findings: 82 
percent believed that having modernized intercity passenger train 
service is at least as important as having good highways and airports 
(of this figure, 12 percent felt rail service was even more important); 
87 percent favored an increase in government spending for intercity 
passenger train service. The poll was based on approximately 600 
responses with a margin of error of no more than +/-4 percent. It was 
commissioned by the Empire State Passengers Association and the Empire 
Corridor Rail Task Force.

Appendix II. Benefits of Amtrak and Passenger Trains
    In crowded corridors, passenger trains represent vital people-
moving capacity and help relieve air and road congestion. This benefit 
will grow over time as travel demand continues to grow while airport 
and highway construction face more intense local opposition and ever-
tighter limits on funding and sheer availability of land.
    Amtrak is far safer than auto travel,
    During inclement weather, Amtrak is safer and usually more reliable 
than airplanes and buses. Amtrak was the only thing going in the 
Northeast in this year's President's Day storm.
    In most cities, Amtrak helps mass transit, downtown areas and 
transit-dependent people by serving--and increasing the visibility and 
economic viability of--transit-accessible downtown locations. Amtrak 
feeds connecting passengers to transit. Amtrak shares costs with 
transit at joint-use terminals and on joint-use tracks. Positive 
impacts have been observed even in small cities with minimal Amtrak 
service. Mayor John Robert Smith of Meridian, Miss., on Amtrak's New 
York-Atlanta-New Orleans run (one train per day in each direction), 
says property values have tripled in recent years around the railroad 
station, site of a relatively new intermodal terminal.
    By contrast, new airports intensify energy-inefficient suburban 
sprawl and stimulate auto-dependent development. This leads to the 
social costs of getting transit-dependent people to work, or the need 
to address the consequences of their not working.
    Amtrak is important to those who cannot fly due to temporary or 
permanent medical problems, and to those for whom physical and 
financial considerations rule out driving long distances, for example, 
seniors and students. (The editor of Frequent Flier, forced by doctor's 
orders to take the train to Florida, wrote a favorable column about the 
trip.) Indeed, some of those medical problems have come about as a 
result of flying.
    Amtrak serves many communities where alternative transportation 
either does not exist, is not affordable or only serves different 
destinations. Trains can make intermediate stops at smaller cities at 
minimum cost in energy and time. This is apparent in corridors--where 
benefits go to such cities as Jefferson City, Lancaster, Trenton, 
Kalamazoo, Wilmington, Bloomington/Normal and Tacoma. It also means, 
for example, that the Empire Builder can stop at eight small cities in 
Washington (plus Seattle and Spokane); ten in Montana plus, depending 
on the season, East Glacier Park or Browning; and seven in North Dakota 
without compromising the train's appeal to those riding between Chicago 
or Minneapolis and Seattle or Portland. Similarly, the California 
Zephyr serves five Colorado points (plus Denver) and five points each 
in Iowa and Nebraska. (The Southwest Chief serves yet another Iowa 
point, Fort Madison.) Also, Amtrak serves 16 North Carolina points.
    [Here is an example of long-distance travel that I encountered on 
the Southwest Chief: a mother and her 14-month-old child rode from 
Garden City, Kans., to Barstow, Cal. The family was moving to 
California; the husband was driving the U-Haul; the wife and child were 
on the train ``so the move would not be so traumatic'' for the child. 
They did not consider the plane because they felt it would be too 
cramped for the child. Also, airfare out of Garden City was 
prohibitive.]
    Amtrak is part carrier (like United and Greyhound) and part 
infrastructure. Thus Amtrak provides important passenger-moving 
capacity, unlike airlines and bus companies. In much of the Northeast 
Corridor and a few other places, Amtrak is the rail equivalent of the 
air traffic control system, airport authorities and airlines. (Among 
the ``other places'': the Chicago terminal, part of the Chicago-Detroit 
line and the track between Albany, NY, and the Massachusetts state 
line.) Elsewhere, Amtrak is the only carrier with legal access to 
freight railroads' tracks--a quid pro quo for relieving the railroads 
of their passenger-train obligations in 1971.
    Amtrak's national network trains are transportation ``melting 
pots.'' Intercity travelers by all modes had an average annual income 
of $70,000. The comparable figure for travelers on Amtrak's national 
network trains is $51,000. [This is 1999 data inflated to 2002 and thus 
probably good for 2003 as well.] However, the majority of passengers on 
these trains ride coach. Surveys available to us six years ago 
indicated that, for 30 percent of coach passengers traveling over 12 
hours, average income was less than $20,000 (for 11 percent, it is less 
than $10,000). Obviously, most standard- and deluxe-room sleeping car 
passengers have considerably higher incomes and pay much higher fares. 
Nonetheless, anyone who characterizes these trains as land versions of 
cruise ships should try walking the coaches, especially at night.
    Trains, especially on longer trips, offer a form of social contact 
almost lost in this country today--the opportunity to meet and relax 
with total strangers that one may or may not ever see again.
    Amtrak over much of its network enables one to enjoy gorgeous 
scenery in total comfort. Some examples: the Connecticut and California 
coastlines, the Hudson River in New York, the Colorado Rockies, the 
mountains of Vermont and northern New Mexico, Glacier Park in Montana 
and West Virginia's New River Gorge.
    Amtrak uses only 79 percent of the energy airlines use to move a 
passenger a mile, and only 22 percent of the energy general aviation 
uses (to do the same). This statement is based on the following 2000 
data from the Oak Ridge National Laboratory's annual Transportation 
Energy Data Book (Edition 22, published September 2002) and available 
online: Amtrak 2,902 British thermal units per passenger-mile; Airlines 
3,666; General aviation 12,975. Amtrak is much less polluting than 
airplanes. (Energy efficiency is a good proxy for air pollution).
    Thanks to a growing array of connecting buses available with train 
travel in a single ticket transaction, Amtrak puts people on intercity 
buses who would not otherwise have considered using them. ``Thruway'' 
is Amtrak's copyrighted name for connecting buses that can be booked 
and ticketed through Amtrak's reservation system. Thruways first 
developed in a big way in California, where the state underwrites an 
impressive network of dedicated, feeder buses. Elsewhere, depending on 
the situation, Amtrak or the private bus companies themselves bears the 
financial risks for many Thruway runs.

Appendix III. Subsidies
    Mr. Jackson's April 10 statement notes that ``highways, transit and 
aviation are, unlike rail, funded by true user fees and also by state 
investments. Even the most ardent rail supporters evince little 
interest in a new Federal passenger rail ticket tax.''
    This statement requires two important modifications--recognition of 
the huge amount of ``non-user'' public funds (and related policies) 
that support highways and aviation, and of the support inherent in how 
the user fees are handled.

General Funds
    A total of $34 billion in 2001 highway spending came from non-user 
sources in all levels of government (while $10 billion in highway user 
payments went to ``nonhighway purposes'' Table HF-10, Highway 
Statistics 2001).
    In FY 2003, general-fund support for FAA Operations jumped by $2.2 
billion (from $1.1 billion to $3.2 billion) and thus supported 46 
percent of the total cost of $7.0 billion. At the same time, the trust 
fund (user payment) contribution likewise fell by $2.2 billion (from 
$6.0 billion to $3.8 billion).

Federal Matching Funds--Nothing for Intercity Passenger Rail
    It is generally acknowledged that an effective capital investment 
program fosters operating efficiency. Federal policy, however, 
encourages states and local governments to invest in highways and 
aviation, where Federal funds cover 50-80 percent of project costs, and 
not on railroads, where Federal funding generally is zero. Completely 
irrespective of the merits of any given project, it is difficult for 
states to devote scarce resources to rail projects that generate no 
Federal support, particularly when that means passing up Federal funds 
for road and aviation projects.

User Fees and Tax Policies
    We recognize that, if only for symbolic purposes, a ticket tax is a 
possible component of a rail funding program. However, at least in the 
early stages, it would be no ``silver bullet''. If Amtrak is 
successfully setting fares to maximize revenue, an additional surcharge 
could cause revenues to fall. Alternatively, if the ticket tax payment 
is removed from Amtrak's income, then the operating loss grows by a 
like amount and must be made up from some other Federal payment, with 
no net gain (and more work for accountants).
    A mode-specific trust fund system insures massive continued 
investment in the modes that are already dominant, regardless of 
whether they are the best solution for tomorrow's transportation 
problems, and regardless of the needs of the users paying those taxes. 
A large proportion of them are soon-to-be senior citizens who will 
place greater value on non-automobile travel choices.
    User fees clearly do not cover environmental and other external 
costs associated with highways and aviation.
    The savings associated with financing an airport project with tax 
exempt, government-backed bonds rather than with commercial loans 
sought directly by the airlines is substantial. The various sources 
available to fund airports, like the mode-specific trust fund system, 
help reinforce the dominance of modes that are already dominant whether 
or not they offer the best solution for today's transportation 
problems.
                                 "_____
                                 
 Response to Written Questions Submitted by Hon. Ernest F. Hollings to
                          Hon. Kenneth M. Mead

    Question 1. The Office of the Inspector General had planned to 
conduct a review of the designated high-speed rail corridors in the 
United States, focusing on demand studies, expense projections, 
estimated capital requirements, and proposed implementation schedules. 
The review would also evaluate the implications these projects would 
have on Amtrak and the options for restructuring passenger rail 
service. I understand that this review unfortunately is now on hold. 
Why have you postponed conducting this review?
    Answer. Our Status Review of the Designated High Speed Rail 
Corridors was put on hold last summer when we were tasked with 
oversight of certain conditions included in Amtrak's Railroad 
Rehabilitation and Improvement Financing Program (RRIF) loan. We did 
not have sufficient resources to adequately perform both tasks 
concurrently. We have since completed most of our work on the RRIF loan 
conditions and hired an additional staff economist with a background in 
high-speed rail.

    Question 1a. When do you expect to begin this review?
    Answer. We restarted this review in May 2003, and plan to issue a 
report to the Secretary and Congress by the end of 2003. Our report 
will cover each of the current, ten high-speed rail corridors.

    Question 2. In your testimony, you cautioned against any plans for 
Amtrak that call for the separation of the infrastructure from the 
operating side of the railroad. You cited the disastrous experience in 
Great Britain after that country allowed a for-profit entity to operate 
the infrastructure. Has the DOT IG conducted any studies of 
privatization schemes used in other countries and how these plans could 
be applied to Amtrak?
    Answer. No, we have not conducted any studies of our own on 
privatization schemes used in other countries. We have, however, 
reviewed the results of some studies conducted by others. These formed 
the basis for the points made in our testimony.
    The experience in Great Britain shows that an infrastructure 
company that is focused on its bottom line may make decisions that are 
in its own best interest financially, but which may affect the safety 
or efficiency of rail service operations. We do not want to encounter 
the same problem.
    It should also be noted that Amtrak estimates its capital needs 
will be more than $5 billion over the next 5 years. This level of 
investment does not include system upgrades or high-speed rail 
investment and is likely at the low end of what will need to be spent 
on the U.S. passenger rail infrastructure regardless of which structure 
is deemed appropriate. Changing the ownership or organizational 
structure will not eliminate the need for this funding.

    Question 3. You stated in your testimony that the elimination of 
Amtrak's long-distance trains will not save the company enough money to 
make a meaningful difference in its financial health. The elimination 
of these trains, however, would cause the railroad to lose the 
``political glue'' that has supported intercity passenger rail and the 
national economic interest in assisting transportation in all of its 
forms. In other words, passenger rail in the U.S. would lose a lot more 
than long-distance service. How do you believe that this loss of 
``political glue'' would affect other aspects of Amtrak's operations?
    Answer. Amtrak is primarily dependent upon Federal subsidies to 
cover the capital needs and operating losses across its entire system. 
These subsidies are the result of a broad base of Congressional support 
from members in many States across the country. In the event long-
distance trains were eliminated, this broad base of support, or 
``political glue,'' would likely deteriorate in a substantial manner. 
It is uncertain whether Amtrak would be able to garner enough support 
to fund the capital needs and operating needs of other corridor 
services around the country.

    Question 3a. What kind of effect would the elimination of one or 
two long-distance trains, perhaps the worst financial performers, have 
on the national passenger rail system?
    Answer. The elimination of one or two long-distance trains would 
not materially change Amtrak's train operating expenses initially due 
to labor protection payment obligations. In addition, Amtrak's overall 
overhead expenses would probably not be significantly reduced by the 
elimination of just one or two routes, though there would likely be 
some savings.
    FRA estimated Amtrak's 2003 avoidable operating costs, excluding 
consideration for labor protection obligations, for Amtrak's long 
distance trains at $85 million (this excludes two long distance routes 
with positive contributions on an avoidable basis). The highest annual 
per train avoidable operating loss was about $13 million.

    Question 4. Do you believe that passenger rail can be made to be 
profitable without substantial government subsidies?
    Answer. No, I do not. Substantial capital subsidies will be 
required for any foreseeable passenger rail system in this country. 
Passenger rail may be operationally self-sufficient if it is time and 
cost competitive with auto and air over distances of up to 500 miles. 
However, this would require major improvements to existing 
infrastructure or new technology, both of which will require 
substantial government subsidy. Also, new agreements with freight 
railroads will have to be forged.

    Question 5. Of the many reform proposals you have heard about in 
recent years, are there any that you believe could have some merit for 
the future success of Amtrak?
    Answer. I believe that transitioning Amtrak to a system that is 
more directly linked to State decision makers would lead to more 
success for Amtrak. Amtrak's route structure needs to be responsive to 
today's travel environment and the best way to achieve this is through 
developing higher-frequency, higher-speed corridors. These corridors 
can be connected by less frequent corridor feeder services to maintain 
a national network as a third alternative to air and auto. FRA 
estimates only 20 percent of the passengers on Amtrak's long-distance 
trains travel from end-point to end-point. The remaining 80 percent 
travel on intermediate portions of the long-distance routes.
    As we see it, the corridor/feeder concept will retain service to 
most, if not all, current stations. In fact, it may increase service to 
many stations and allow for more desirable daylight connections between 
corridors. In addition, the decisions concerning which services should 
be offered along with part of the funding responsibility will lie with 
the states.
                                 ______
                                 
 Response to Written Question Submitted by Hon. Frank R. Lautenberg to 
                          Hon. Kenneth M. Mead

    Question. What actions are the Department of Transportation taking 
to ensure the safety of the 117,600 daily travelers who use the Amtrak 
tunnels under the Hudson River? What steps must be taken to address 
remaining needs of the tunnels?
    Answer. The Department is working closely with Amtrak and the Long 
Island Railroad (LIRR) to implement a Tunnel and Life Safety Program 
with a projected total cost of nearly $900 million. Over the next 5 
years, investments will include construction of three major ventilation 
structures, installation of a fire standpipe system, and other 
ancillary projects. Amtrak plans to contribute $179 million to these 
projects through 2007 ($3 million of which is from New Jersey Transit 
(NJT)) and LIRR will contribute $184 million. \1\ Amtrak received $100 
million in the Department of Defense appropriation which was signed 
into law on January 10, 2002 specifically for these projects. The scope 
and completion of the remainder of these projects is dependent on 
future appropriations.
---------------------------------------------------------------------------
    \1\ Amtrak revised its agreement with NJT so that no additional NJT 
money will be contributed to the tunnel project in future years. The 
revised agreement calls for Amtrak to match NJT funding for projects 
elsewhere on the Corridor with equal expenditures on the tunnel 
project.
---------------------------------------------------------------------------
    While Amtrak and the other users of the Penn Station New York river 
tunnels have been investing in the life-safety program since 1976, 
their efforts have focused on prevention, such as keeping track, 
signals, and equipment in a state of good repair rather than emergency 
response. Since the terrorist attacks on September 11, 2001 the focus 
of investment has shifted and about $22 million has been spent 
installing new lighting along with emergency directional signs and 
location mile markers in all 6 tunnels. In addition, new fire-resistant 
cross passage doors have been installed. Contracts have been awarded 
for the standpipe construction and ventilation projects with completion 
projected in FY 2005 and FY 2007, respectively.
    Additional projects necessary to complete the program include 
short-range projects totaling $81 million and long-range projects 
totaling $453 million. However, funding sources for the remaining 
projects have yet to be identified.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. John McCain to 
                             David L. Gunn

    Question 1. Amtrak's press release on the five-year plan states 
that ``Amtrak will not undertake new train services unless any 
operating loss is fully covered by the state or states it serves.'' If 
this standard is appropriate for new service, which I believe it 
clearly is, why not apply this standard to all of Amtrak's operations?
    Amtrak's current statutory mandate is to ``operate a national rail 
passenger transportation system.'' 49 U.S.C. 24701. Discontinuing all 
trains that incur operating losses not reimbursed by states would be 
inconsistent with that mandate, since it would eliminate all Amtrak 
service outside of the Boston-to-Washington Northeast Corridor and a 
few short corridors elsewhere. Decisions about whether to change 
Amtrak's statutory mandate are policy decisions that are appropriate to 
consider as part of a comprehensive discussion on the scope, size and 
expectations of intercity rail passenger service in the United States.
    States provide significant funding to support the operation of 
individual short distance routes because short distance trains provide 
direct and easily identifiable benefits to individual states. Outside 
of the Northeast Corridor, short distance trains generally serve, and 
therefore primarily benefit, one or at most two states. Their schedules 
are geared to local markets, and most of their passengers are making 
intrastate trips.
    By contrast, Amtrak's 16 long distance trains are part of a 
national multi-state network. Individual long distance trains travel 
through as many as a dozen different states, carry passengers destined 
to all of the 46 states that Amtrak serves, and are scheduled to serve 
the major endpoint cities at which they connect during daylight hours 
(which means that some states on each train's route are served only at 
night).
    Because long distance trains serve national needs, they provide 
much more limited and varying levels of benefits to the individual 
states through which they operate than do the short distance Amtrak 
trains that receive state support. Elimination of Federal support would 
result in the demise of the long distance train network currently 
operated by Amtrak, because states would not assume the Federal 
Government's historical role of supporting interstate long distance 
trains. The best evidence of this is that, in Amtrak's 32-year history, 
no state has ever offered to fund the operating losses of an Amtrak 
long distance train, even when faced with the loss of all Amtrak 
service.
    It also bears noting that states that support Amtrak short distance 
services today are hard pressed to continue even their current levels 
of support. When Amtrak sought to increase state support for short 
distance services last year, we were advised by a number of states that 
they were simply unable to pay more. Amtrak's new policy of requiring 
all states to pay the full direct operating costs of state supported 
services, and the fiscal crises that nearly all states currently face, 
have led a number of states to advise Amtrak that they may have to 
discontinue existing state supported services by the end of this year.

    Question 2. The new five-year plan includes capital funding for 
replacing the Thames and Niantic bridges in Connecticut; refurbishing 
200 miles of catenary on the Northeast Corridor, replacing Amtrak's 
dispatching centers in Boston, Philadelphia, and New York; and 
performing life safety work in the New York Penn Station tunnels. How 
much of the capital burden will be borne by the commuter authorities 
such as New Jersey Transit and the Long Island Railroad, which operate 
the majority of the trains on the Northeast Corridor?
    Answer. Capital investments from Northeast commuter agencies are 
projected at $428 million over the five-year plan, or approximately 19 
percent of total estimated cost of infrastructure improvements in the 
Northeast.
    With respect to the specific projects referenced, it should be 
noted that commuter trains do not operate over the Thames River Bridge, 
and that only one commuter train per day operates over the Niantic 
River Bridge.

    Question 2a. Will the capital requested for the next five years be 
sufficient to complete all of these projects, or will some additional 
capital still be needed in subsequent years?
    Answer. The capital requested covers the estimated costs of 
completing the specific major projects identified in Amtrak's strategic 
plan by the end of FY 2008 with the following exceptions:

   As indicated in the strategic plan, the New York Tunnels 
        Life Safety program will continue beyond FY 2008.

   The planned replacement of the Portal River Bridge over the 
        Hackensack River in Northern New Jersey in partnership with New 
        Jersey Transit is expected to start in FY 2008 but will be 
        completed in subsequent years.

    As indicated in the strategic plan, normalized capital expenditures 
on other projects will continue to be required after FY 2008.

    Question 2b. In the past, the DOT Inspector General has criticized 
the millions of unsubstantiated cost savings assumed in Amtrak's 
business plans. What cost savings are assumed in the latest five-year 
plan and can you account for how all of the savings will be achieved?
    Answer. The operating cost savings projected in Amtrak's business 
plans will reach their maximum level--$120 million on an annualized 
basis--in FY 2008, the final year of Amtrak's five-year plan. That 
amount equals less than 4 percent of Amtrak's projected operating 
budget in that year. We believe that cost savings of this magnitude are 
achievable, given the inefficiencies in Amtrak's current operations due 
to the deteriorated condition of its infrastructure and equipment 
(which the capital program will address) and Amtrak's current work 
rules (which Amtrak intends to address in pending labor negotiations). 
Because Amtrak will continue to provide regular and detailed reporting 
on its financial performance, and DOT now provides funding to Amtrak 
through a grant-making process that requires Amtrak to submit detailed 
financial information, Congress and Amtrak's financial overseers will 
know whether Amtrak is on track to achieve this target.

    Question 2c. Assuming Congress approved the $8.2 billion request, 
after the next five years, how much Federal support would Amtrak need 
on an annual basis?
    Answer. As indicated in Amtrak's Strategic Plan, the required level 
of Federal support will decline to approximately $1.5 billion in FY 
2008, the fifth year of the plan. Given that the plan will restore much 
of Amtrak's infrastructure and equipment to a state of good repair, 
Amtrak anticipates that its annual need for Federal support will remain 
at approximately that level, adjusted for inflation, for the 
foreseeable future following FY 2008 if Amtrak continues its current 
level of operations. Over time, some fluctuations may occur due to the 
potential need to replace certain major infrastructure assets on the 
Northeast Corridor, and major increases will be required when a 
significant portion of Amtrak's existing equipment fleet needs 
replacement.

    Question 2d. What does Amtrak's long-term debt amount to at the end 
of your five-year plan?
    Answer. At the end of the five-year plan, FY 2008, Amtrak's long-
term debt balance, including the current portion of long-term debt, is 
projected to be $3.1 billion. Excluding defeased leases the balance is 
projected to be $2.2 billion.

    Question 3. DOT just completed an analysis showing that the long 
distance trains lose $547 million on a fully allocated basis, excluding 
depreciation and interest. Whether the savings is $300 million, as you 
have indicated, or $547 million, that seems like real money to me. 
Don't you agree?
    Answer. There are several different ways of measuring the financial 
performance of long distance trains:

   On a fully allocated basis, excluding depreciation and 
        interest but including a share of common costs that benefit 
        other trains and that would remain even if all long distance 
        trains were discontinued, Amtrak's long distance network's 
        losses are forecast to be approximately $547 million a year.

   On an avoidable cost basis, which includes only costs 
        estimated to be eliminated (based upon a 2002 study) if all of 
        Amtrak's long distance trains were discontinued, losses are 
        estimated to be approximately $300 million a year. This is the 
        approximate amount that would be saved in the sixth year 
        following the discontinuance of all long distance train 
        service. (During the first five years, these savings would be 
        offset in large part by labor protection costs and other 
        shutdown costs.)

   Using the Department of Transportation's definition of 
        avoidable costs, it is projected that, in FY 2003, the 
        aggregate net avoidable losses of the 17 individual Amtrak long 
        distance routes will be $68 million. This lower figure, which 
        does not take into account the cost of labor protection during 
        the first five years after discontinuance or other shutdown 
        costs, reflects the fact that the elimination of individual 
        long distance routes would produce relatively small savings 
        because many shared costs incurred for the benefit of the 
        remaining long distance trains would still be incurred.

    We agree that these amounts are ``real money.''

    Question 4. You have stated that over the long-term, eliminating 
the long-distance trains would only save $300 million on a fully 
allocated basis. But does this include needed capital investments to 
keep the trains in operation?
    Answer. The $300 million in avoidable costs associated with 
continuing all long distance trains does not include capital costs.

    Question 4a. How much capital would your five-year plan invest in 
long distance trains to improve stations, equipment and other capital 
items?
    Answer. Direct capital investment for long-distance service is 
estimated at approximately $800 million over the five-year period, 
primarily for fleet and facilities.

    Question 5. As required by the Fiscal Year 2003 Omnibus 
Appropriations Act, Amtrak recently submitted a report on actions to 
reduce the financial burden of the long distance trains on the Federal 
treasury. How much will the actions cited in the report reduce needed 
Federal subsidies?
    Answer. As indicated in the report, Amtrak projects that the 
actions specific to long distance trains that are detailed in the 
report will reduce Amtrak's subsidy needs in FY 2004 and subsequent 
years by approximately $17 million when compared to the level of 
subsidies that would have been required had these actions not been 
taken. It should be noted that Amtrak's FY 2003 budget reflects the 
projected savings/revenue increases (approximately $6 million) that 
Amtrak expects will be realized from the implementation of certain of 
these actions during FY 2003. As noted in the long distance report and 
the strategic plan, Amtrak is also taking other actions, not specific 
to long distance trains, to reduce its Federal subsidy needs.

    Question 5a. What is Amtrak doing to reevaluate the strategy for 
the long distance trains? Have you, for example, considered modeling 
the long distance trains after the Alaska Railroad, which markets 
vacation packages that include a train ride?
    Answer. Amtrak has recently initiated a number of pricing actions 
and promotions to make its long distance trains more attractive to 
leisure travelers during a period when there has been an unprecedented 
decline in leisure travel by all modes. They include increasing 
Amtrak's group discount from 5 percent to 20 percent, and promotional 
discount programs to encourage ticket purchases during the off-peak 
winter and early spring periods. These actions have generated 
additional revenues and ridership on long distance trains. Long 
distance train ridership was up 19 percent in April compared to a year 
ago.
    Unlike most of the travel industry, Amtrak has chosen to retain 
travel agent commissions for long distance trains (while eliminating 
them for short distance trains) in order to encourage travel agents to 
promote Amtrak to high revenue customers looking for a ``cruise-type'' 
experience. Dining car menus have been revamped so that passengers 
traveling on longer trips will have different choices of entrees each 
day. Amtrak offers dozens of vacation packages that, for a single 
price, combine a train trip with other travel services such as hotel 
accommodations; sightseeing tours, rental cars, and travel by other 
modes. These packages are described in Amtrak's ``Amtrak Vacations'' 
brochure, a copy of which is attached.
    Amtrak has also eliminated most of its express cargo business, and 
reduced the volume of mail that it carries on long distance trains, in 
order to improve financial performance, shorten travel times, and 
eliminate delays due to mail and express car switching at intermediate 
stations.

    Question 6. As you know, several states are considering or have 
considered competitively bidding corridor service. A representative 
from Herzog testified about his company's experience in trying to bid 
to operate service between St. Louis and Kansas City. It appears that 
Amtrak initially informed the state of Missouri that the required state 
subsidy for the ``Mules'' service would rise from $6.2 million to $7.9 
million but that when the state indicated it would bid out the service 
rather than agree to pay $7.9 million, Amtrak miraculously found a way 
to reduce the subsidy request by $1.5 million, to $6.4 million, or only 
a $200,000 increase. How was Amtrak able to justify this reduction?
    Answer. The allegation that Amtrak lowered its price to the State 
of Missouri for operating passenger rail service between St. Louis and 
Kansas City when Amtrak became aware that the State planned to bid out 
the service is not correct.
    At Missouri's request, Amtrak provided the state in November of 
2002 with a preliminary cost estimate of $6.8 million to $8.9 million 
for operating the ``Mules'' service in FY 2004, depending upon the 
level of services Missouri selected, with the caveat that the actual 
cost would be based upon Amtrak's uniform Route Contribution Analysis 
(RCA) costing methodology, which was then under development. The 
reduced Amtrak cost estimate to which the question refers was formally 
communicated to Missouri on December 20, 2002, when Amtrak sent letters 
to all states that fund state supported services advising them of the 
payments from states that would be required under RCA. Because RCA 
eliminated inequities in the payments made by the various states, some 
states' projected payments decreased while others' increased.
    Herzog did not announce its interest in operating the Missouri 
service until January of 2003, and Missouri did not issue its RFP until 
March of 2003. The reduction in Amtrak's projected charges to Missouri 
was communicated to the state before these events occurred. This 
reduction resulted from the application of a new, uniform, costing 
methodology for all state-supported trains, and had nothing to do with 
the Missouri's subsequent decision to bid out its service.

    Question 6a. If Amtrak is able to use its Federal subsidy to cover 
overheads, how can there be fair and open competition with the private 
sector?
    Answer. The current statutory scheme is not intended to create 
``fair and open competition'' between Amtrak and private entities that 
wish to operate selected intercity rail passenger services currently 
operated by Amtrak. In particular, other parties do not possess 
Amtrak's essential statutory rights to require freight railroads and 
regional transportation authorities to provide access to their rail 
lines and facilities for intercity rail passenger service, and to base 
payments for such access upon incremental cost (with any payments above 
incremental costs based upon quality of service).
    It bears noting, however, that some of the other parties who have 
expressed interest in operating intercity rail passenger services enjoy 
significant labor cost advantages over Amtrak, because they limit 
themselves to intrastate operations and therefore are not obligated to 
pay the significant railroad retirement taxes that Amtrak pays.

    Question 6b. Why did Amtrak deny Herzog the ability to tie into 
Amtrak's national reservation system? Given that the government 
subsidizes Amtrak, why shouldn't Amtrak's reservation system be 
available to any operator of intercity passenger service?
    Answer. Herzog approached Amtrak about the possibility of using 
Amtrak's reservation system less than three weeks before Herzog 
apparently planned to submit a bid that was premised upon access to 
Amtrak's system. Amtrak had never sold access to its reservations 
system to third parties and, until Herzog's request, has had little 
occasion to ever consider doing so.
    While Amtrak does not object in theory to the potential use of its 
reservations system by other intercity rail providers, there are a 
number of complex issues that would have to be resolved and negotiated 
before this would be possible. This could not have been accomplished in 
the context of a last minute request on the eve of a looming RFP 
deadline. It is extremely doubtful that the inability to resolve this 
minor issue had any bearing on Herzog's decision not to compete for the 
operation of the Missouri service, given that much more significant and 
costly issues, such as the cost of access to freight railroads' tracks, 
remained to be resolved when Herzog decided not to bid.

    Question 7. Several states, including California, Oregon, and 
Washington have invested significant state dollars to develop higher-
speed rail corridors. Yet the entire $2.8 billion cost of the Northeast 
Electrification project and the Acela train sets was borne by the 
Federal Government. Why should the Northeast Corridor states 
essentially get a ``free ride''? Shouldn't intercity rail service be 
funded the same way for all the states?
    Answer. Intercity rail should be funded the same way for all 
states.
    Amtrak has long taken the position that the Federal Government 
should provide funding for capital investment in rail corridors around 
the country, as it has done for the Northeast Corridor. Amtrak has 
supported a number of proposals over the years to create a Federal-
state partnership for investing in new and existing rail corridors and 
believes that the full economic, transportation and environmental 
potential of these corridors cannot be achieved without such Federal 
investment. The Northeast Corridor demonstrates the power and benefits 
of Federal rail investment--the regional economy and transportation 
system genuinely depend on Amtrak and commuter rail service operating 
on the Northeast Corridor. This success can be duplicated elsewhere and 
Amtrak continues to support enactment of a Federal-State rail capital 
partnership program. Even the Administration, in testimony before your 
Committee, indicated that this is a likely approach as part of their 
plan for intercity passenger rail.
    With respect to the particular examples referenced in the question, 
it should be noted that the Acela trainsets were paid for with private 
financing.

    Question 8. According to your testimony, you consider it a myth 
that the private sector is interested in operating intercity services. 
In light of your statement, how do you account for the MBTA's 
(Massachusetts Bay Transportation Authority's) new contract with 
Connex? North Carolina's contract with Herzog for equipment 
maintenance? The state of Missouri's effort to contract out the 
``Mules'' service? California's current study of the merits of 
contracting out its intercity service?
    Answer. The ``myth'' is that the private sector will operate 
intercity rail passenger services without subsidy. This will not 
happen.
    The MBTA contract involves a publicly subsidized commuter rail 
service, not an intercity service. Many companies, including Amtrak, 
compete for profitable commuter rail service contracts. It bears noting 
that the new operator will be charging the MBTA considerably more than 
the MBTA was paying Amtrak, which had been operating the MBTA service 
but decided not to compete for the new contract.
    What private companies are uniformly not interested in doing is 
providing intercity rail passenger services without guarantees of 
significant governmental subsidies that are sufficient to assure them 
of a profit. The reason is that intercity passenger rail operations are 
not profitable, as the freight railroads learned to their great 
detriment prior to the formation of Amtrak.

    Question 9. The Northeast Corridor is a valuable regional asset, 
used by Amtrak, commuter authorities, and freight railroads. Amtrak 
accounts for about 56 percent of the train-miles on the Corridor but 
operates less than 20 percent of the daily trains. The commuter 
authorities have access to the Northeast Corridor on an incremental 
cost basis. How much do you estimate the commuter authorities are 
underpaying for the use of the Corridor.
    Answer. Under current statutory law and administrative decisions, 
most commuter authorities using Amtrak's Northeast Corridor properties 
are only required to pay the incremental costs attributable to their 
use. Commuter authorities are ``underpaying'' Amtrak for their use of 
the Northeast Corridor only in the sense that they would be required to 
pay more if Congress changed the law to require them to pay Amtrak on 
the basis of fully allocated costs (as freight railroads do for their 
use of the Northeast Corridor) or some other methodology that required 
higher levels of payments. During the last Amtrak reauthorization 
process in 1997, Amtrak supported proposed legislation that would have 
required commuter railroads using the Northeast Corridor to pay fully 
allocated costs; however, this legislation was rejected by the 
Railroads Subcommittee of the House Transportation and Infrastructure 
Committee.
    Amtrak has not attempted to project the extent to which commuter 
railroads' payments would increase if they were required to pay fully 
allocated costs. Because of the magnitude of the costs involved, and 
the number of Northeast Corridor users among which specific cost 
components would have to be apportioned, making such a calculation for 
the entire Northeast Corridor would be a major undertaking. However, 
there is no question that, under a fully allocated costing methodology, 
commuter railroads operating over the Northeast Corridor would be 
required to pay significantly more for both capital and operating costs 
than they do today.

    Question 10. If the commuter authorities paid their ``fair share'' 
on the Corridor, how much would Amtrak's capital needs be reduced in 
the five-year plan?
    Answer. The extent to which Amtrak's capital needs would be reduced 
would depend upon how ``fair share'' was defined, and upon the 
willingness and financial ability of the commuter authorities to bear 
the increased capital (and operating) costs they would be required to 
pay if they wished to continue to operate over the Northeast Corridor.

    Question 11. What steps, in your view, would need to be taken to 
manage the Corridor through an interstate compact?
    Answer. The steps that would need to be taken to manage the 
Northeast Corridor through an interstate compact are difficult to 
predict in the absence of any specifics as to how that compact would be 
organized and operated. If the compact takes the form that is 
described, in very general terms, in the Administration's recent 
Congressional testimony, the issues that would have to be addressed 
would likely include the following:

A. Restrictions in Financing Agreements to Transfer of Northeast 
        Corridor Assets and Rolling Stock
    Almost all of Amtrak's rolling stock is subject to long-term tax 
leases, and many of Amtrak's principal Northeast Corridor assets, 
including the maintenance facilities and adjacent property for the high 
speed trainsets, are subject to either long-term tax leases or long-
term bond financed leases. The specific structures of the financing 
vary, but there are certain common elements that would need to be 
addressed in the context of a transfer of Amtrak's assets to an 
interstate compact. For example:

        1. Amtrak itself does not have title or legal ownership of many 
        of these assets. As a result, Amtrak does not have the 
        unilateral legal right to dispose of or transfer the asset to 
        another entity.

        2. Under most of its financing, Amtrak is subject contractually 
        to one or more of the following covenants:

          a. a prohibition against transferring the subject asset;

          b. a prohibition against Amtrak's disposing of all or 
        substantially all of its assets;

          c. a requirement that Amtrak maintain its corporate 
        existence.

        If Amtrak breaches one of these covenants, such breach would 
        result in an Event of Default, which could result in one or 
        more of the following consequences: a foreclosure and taking of 
        possession of the asset by the lienholder; an acceleration of 
        all the remaining amounts of indebtedness incurred by the 
        financing.

        3. Numerous Amtrak financings contain cross-default provisions 
        such that an Event of Default under one financing could trigger 
        an Event of Default under other financings, with the attendant 
        consequences of acceleration of indebtedness, foreclosure, and 
        possession of the collateral.

    In short, in order to effectuate a transfer of ownership and 
leasehold rights to the NEC facilities and equipment, it would be 
necessary:

   to negotiate with Amtrak's lenders/lessors to obtain their 
        consent to the transfer, which could require payment of 
        consideration including potential loss of bargained for tax 
        benefits and/or a Federal guarantee of Amtrak's $3.9 billion 
        indebtedness;

   to pay the full amount owed under any financing as to which 
        consent could not be obtained; and

    Finally, under certain of the leases, Amtrak has specific 
obligations, not transferable to other parties without the lessor's 
consent, to maintain the Northeast Corridor.

B. State-Owned Portions of Northeast Corridor
    If the compact was to operate the entire Northeast Corridor, the 
state-owned portions of the Corridor in Massachusetts and Connecticut, 
which total over 100 miles, would have to be acquired from these 
states.

C. Valuation of Northeast Corridor Properties
    If the formation of a compact results in a conveyance of the 
Northeast Corridor to DOT by Amtrak, the valuation of the corridor and 
its assets will have to be ascertained. There are likely to be disputes 
involving various stakeholders (e.g., Amtrak's common stockholders) 
over the amount of the consideration to be paid by DOT and whether and 
to what extent they are entitled to share in that consideration.

D. Provisions of Other Agreements
    In addition to the financing agreements referenced above, various 
other agreements to which Amtrak is a party contain restrictions on the 
transfer of contractual obligations or assets without the consent of 
the other party that would appear to be implicated by the creation of 
the compact.

E. State Laws and Constitutions
    The statutes and/or constitutions of some of the affected states 
would, unless amended, likely preclude some states from taking certain 
of the actions that would likely be necessary to create and operate the 
compact.

F. Northeast Corridor Operations and Control
    The joint control of the Northeast Corridor by the Federal 
Government, eight states, and the District of Columbia would obviously 
raise complex operational and control issues. These issues include:

   what ``voting rights,'' or veto powers, each state would 
        have;

   how the financial contributions of individual states would 
        be determined;

   what would happen if the members of the compact were unable 
        to agree upon the priority and scope of capital projects, 
        operational and control issues, and each state's financial 
        contribution;

   what would happen if some states chose not to participate in 
        the compact, or failed to provide the full amount of the 
        funding requested of them;

   whether the Corridor would continue to be maintained to the 
        levels required for Acela Express operations at speeds of up to 
        150 mph, and who would bear the additional capital and 
        operating costs required to maintain track to these levels 
        (which are not required for commuter train operations); and

   what entity would have operating control over the Northeast 
        Corridor, and responsibility for its safe operation.

G. Labor Agreements
    The creation and operation of the compact would raise a number of 
significant labor issues, including:

   who would be the employer(s) of the employees performing 
        work currently performed by Amtrak;

   whether existing labor agreements would transfer;

   whether the Railway Labor Act and the Federal Employers 
        Liability Act would apply to all employees; and

   whether all employees would be covered by Railroad 
        Retirement and Railroad Unemployment (and if not, how the 
        resulting shortfalls in these funds would be addressed).

H. Environmental Consideration
    One very important consideration would be determining 
responsibility for, and apportioning the cost of, the potentially 
significant environmental liabilities on the Northeast Corridor. In 
particular, because most of the Corridor has been electrified and 
operated with electric equipment since the 1930s, there is PCB 
contamination at a number of sites that predates Amtrak's acquisition 
of the Corridor in 1976, but for which Amtrak has borne many of the 
environmental cleanup costs to date because it is the current owner of 
the Corridor.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Ted Stevens to
                             David L. Gunn

    Question 1. What, if any action has Amtrak taken to effect, or 
otherwise to address, the mandatory October 1, 2002 redemption of its 
common stock?
    Answer. The National Railroad Passenger Corporation (Amtrak) has 
two classes of stock, preferred and common. Amtrak's preferred stock is 
completely owned by the United States Government through the U.S. 
Department of Transportation. Under the Rail Passenger Service Act (49 
U.S.C. 24304), Amtrak was required to issue to the Secretary of 
Transportation preferred stock equal to the par value of all Federal 
operating payments and most Federal capital payments received 
subsequent to October 1, 1981, as well as capital and certain operating 
payment received prior to that date. On September 30, 2001 and 2002, 
109,396,994 shares of preferred stock were authorized for issue at the 
par value of $100--all of which were issued and are outstanding. All of 
the issued and outstanding preferred stock are held by the Secretary of 
Transportation for the benefit of the Federal Government.
    The Amtrak Reform and Accountability Act of 1997 resulted in 
significant modifications to Amtrak's capital structure. Prior to the 
Act, dividends were to be fixed at a rate of not less than six percent 
per year and were cumulative; no dividends, however, were ever 
declared. The 1997 Act abolished the voting rights and liquidation 
preference of the preferred stockholder. The 1997 Act established that 
no additional preferred stock is to be issued by Amtrak in exchange for 
Federal grants. According to an independent audit, at the time of 
enactment of the 1997 Act, the minimum undeclared cumulative preferred 
dividend in arrears for all series issued and currently outstanding was 
$5.8 billion.
    The company also authorized to issue 10,000,000 shares of common 
stock at a par value of $10. Of the 10,000,000 authorized, 9,385,694 
were issued and are outstanding. The common stockholders, four 
predecessor railroads to Amtrak, have voting rights for amendments to 
Amtrak's articles of incorporation proposed by the Board of Directors. 
The 1997 Act also required Amtrak to redeem, by the end of Fiscal Year 
2002, at fair market value, the shares of common stock outstanding.
    Amtrak has held meetings with the owners of the common stock to 
discuss the redemption of their shares, but there has been no 
resolution of this matter between Amtrak and owners of the common 
stock. It is Amtrak's position, based on the current debt load and 
annual losses of the company, that the common stock has little or no 
value. Nevertheless, in an effort to comply with the 1997 Act, Amtrak 
has made an offer to redeem the stock at a cash price of $0.03 per 
share. In a letter dated November 2, 2000, counsel for the four common 
stockholders rejected Amtrak's offer as inadequate. Amtrak has no legal 
authority to compel the stockholders to redeem their shares.
    In my testimony, I indicated that when I arrived at Amtrak on May 
15 of last year, the corporation was in serious trouble. Amtrak faced 
insolvency. Sometime in July 2002, we would have missed our payroll. 
The physical plant had been allowed to deteriorate. Heavy maintenance 
of cars and infrastructure had ceased several years ago--over 100 cars 
were wrecked or damaged and out of service. Fiscal controls were 
inadequate. We were unable to close our books for FY01 until September 
of the following year. There was no regular reporting of financial 
results. The organization was poorly defined and did not lend itself to 
effective decision-making. Amtrak's management was top heavy--84 people 
had ``vice president'' on their title. The budget process was 
ineffective, and there was no control over staffing. Our credibility as 
an organization was in tatters.
    My immediate goal in June and July 2002 was to secure funding to 
allow us to survive into FY03. However, at the same time, we had to lay 
a prefoundation for the future. I set a goal to have in place by 
October 1 a functional railroad organization, a zero-based budgeting 
process, and public reporting of financial and physical results. We 
also began focusing on controlling expenses. We were successful--we 
secured a loan from DOT and a supplemental appropriation from Congress 
that allowed us to make it through the end of the year and avert a 
transportation crisis. We entered FY03 with an appropriation from 
Congress which was essentially zero based and which focused available 
resources on beginning the rebuilding process, as well as controlling 
expenses.
    While we would be willing to continue to discuss this matter with 
the owners of the common stock and discuss the redemption of the 
shares, Amtrak believes this issue can only be resolved in the context 
of reauthorization legislation because, as noted above, Amtrak does not 
have the legal authority to condemn the common stock in question or 
otherwise compel redemption. I must be candid and inform you that my 
immediate attention is focused on stabilizing the railroad to ensure 
the safety of our workers and our passengers. Once the railroad is 
stable--and its condition and operational reliability is restored--I 
can turn that same attention to the resolution of this matter.
                                 ______
                                 
 Response to Written Questions Submitted by Hon. Ernest F. Hollings to
                             David L. Gunn

    Question 1. In your testimony you stated that Amtrak train 
employees earn only about 90 percent income of their freight railroad 
counterparts. You also stated that you believed that management changes 
could result in Amtrak employees performing their duties more 
productively. What management changes could be made to enable Amtrak 
employees to function in a more productive and efficient manner?
    Answer. I have already instituted changes within Amtrak to enable 
greater efficiency and productivity amongst our employees. In June of 
2002, one month after I became Amtrak's President and CEO, I announced 
a re-organization and streamlining of the company through the 
elimination of the business units, centralization of Amtrak's overall 
business functions, elimination of nearly 300 positions, and reduced 
the number of vice presidents by two-thirds. This took effect in 
November of 2002 to coincide with the beginning of the fiscal year. I 
have since also instituted monthly budgets based upon monthly staffing 
plans as well as new organization charts for the company. These tools 
will better enable me to control our number of positions and monitor 
our workforce budget. Finally, I have put in place a management leave 
tracking system that will reduce employee absenteeism. Improving the 
efficiency and productivity of this railroad is of paramount importance 
to me and I will continue to search for ways to better serve these 
goals.
    In addition, we have worked hard to organize our back shops to 
perform real production work. At Beech Grove, we have organized the 
workforce into larger gangs to give us more flexibility to shift 
workers to projects reducing slack time and will have tried to enhance 
our progressive maintenance program by changing out components prior to 
lifecycle expirations. This should help us to begin to get ahead of 
enroute failure and bring more reliability to the fleet. With regard to 
infrastructure, we have, for instance, put the Track Laying Machine 
back in service and have replaced over 26 miles of wood ties with 
concrete, undercut, resurface, and where necessary replace worn rail 
with new. As of today, this is a much more efficient use of manpower 
than doing small projects here and there. Rebuilding the railroad in 
this manner also builds employee morale.

    Question 2. Amtrak must provide employee benefits to employees who 
suffer a loss of income due to the discontinuance of train service. You 
stated that this benefit is part of bargaining agreements made with 
Amtrak employees. Can this aspect of the bargaining agreements be 
changed?
    Answer. Congress directed Amtrak in its last reauthorization (1997) 
to negotiate substitute conditions for C2 labor protection under the 
terms of the Railway Labor Act. Following this requirement, Amtrak 
began negotiations with rail labor with the terms for the new labor 
protection ultimately decided through binding arbitration. Therefore 
Amtrak cannot change these bargaining agreements. Congress could 
directly address the C2 labor protection issue in Amtrak's 
reauthorization by legislating over the collective bargaining 
agreements and mandate specific labor protection thresholds.

    Question 2a. What effect would there be on Amtrak employee morale 
and productivity if this benefit were eliminated from collective 
bargaining agreements?
    Answer. Amtrak cannot speculate on employee morale and/or 
productivity as it pertains to the potential elimination of C2 labor 
protection.

    Question 3. Your 5-year strategic plan addresses current 
infrastructural needs. What do you foresee as Amtrak's 10- and 15-year 
strategic goals?
    Answer. Amtrak is currently focused on two strategic goals: 
returning plant and equipment to a state of good repair, and improving 
financial and operational performance. Under Amtrak's five-year plan, 
the majority of Amtrak-owned assets will be in a good state of repair 
by FY08; remaining projects will be completed in the subsequent five-
year period. There will always be the need for capital investment. 
While the plan does not call for any new initiatives or service unless 
funded, any future passenger rail development or restructuring will 
require that the existing railroad is stabilized as called for in 
Amtrak's plan. There is obviously a great demand and need for improved 
and expanded intercity rail passenger service in the United States. The 
extent to which that need is met, and the role that Amtrak will play, 
will depend upon the decisions made by policymakers over the next few 
years.

    Question 4. We are watching very closely the transition at the MBTA 
where a private enterprise will replace Amtrak as the operator of 
Boston commuter trains. I understand that Amtrak did not bid on the 
MBTA contract, even though Amtrak has contracted with the MBTA for 
several years. How much did MBTA pay you?
    Answer. The MBTA paid Amtrak $177 million for the final year of 
commuter rail service.

    Question 4a. How much will they be paying the new entity?
    Answer. According to newspaper reports, the new company will be 
paid $1.07 billion over a five-year period or annualized $214 million 
per year over five years.

    Question 4b. When does your contract expire?
    Answer. June 30, 2003.

    Question 4c. What is the new company's financial position?
    Answer. Amtrak does not have any knowledge of the new company's 
financial position.

    Question 4d. Is the new company considered a rail carrier for 
purposes of RRTA?
    Answer. According to newspaper reports, the new company is 
considered a rail carrier for purposes of RRTA.

    Question 4e. Why didn't Amtrak bid?
    Answer. Amtrak found many of the terms of the Request for Proposals 
issued by the MBTA unacceptable from a business and risk perspective. 
For example, the Request for Proposals required the operator of the 
service to fully indemnify the MBTA against all injury claims, 
environmental risk and to operate the service on a fixed price basis 
for a lengthy period (at least five years) with little provision for 
cost adjustments even if there were major increases in insurance, 
utility, or other costs. For those reasons, we chose not to bid.

    Question 5. One of the witnesses at the hearing testified that 
Herzog withdrew its bid to operate the Missouri Mules after Amtrak 
lowered its subsidy requirement to operate the trains from $8.9 million 
to $6.4 million. The implication seemed to be that Amtrak engages in 
tactics that create an unfair bidding atmosphere, thus preventing any 
competitors from winning contracts away from Amtrak. Why did Amtrak 
lower its subsidy requirement for the Missouri Mules? Do you believe it 
would be an appropriate business practice to reduce the price Amtrak 
charges to operate a train just to avoid a bidding war with a private 
competitor?
    Answer. The allegation that Amtrak lowered its price to the State 
of Missouri for operating passenger rail service between St. Louis and 
Kansas City when Amtrak became aware that the State planned to bid out 
the service is not correct.
    At Missouri's request, Amtrak provided the state in November of 
2002 with a preliminary cost estimate of $6.8 million to $8.9 million 
for operating the ``Mules'' service in FY 2004, depending upon the 
level of services Missouri selected, with the caveat that the actual 
cost would be based upon Amtrak's uniform Route Contribution Analysis 
(RCA) costing methodology, which was then under development. The 
reduced Amtrak cost estimate to which the question refers was formally 
communicated to Missouri on December 20, 2002, when Amtrak sent letters 
to all states that fund state supported services advising them of the 
payments from states that would be required under RCA. Because RCA 
eliminated inequities in the payments made by the various states, some 
states' projected payments decreased while others' increased. All of 
this information, costing breakdowns and methodology, was made public.
    Herzog Transit Services did not announce its interest in operating 
the Missouri service until January of 2003, and Missouri did not issue 
its RFP until March of 2003. The reduction in Amtrak's projected 
charges to Missouri was communicated to the state before these events 
occurred. This reduction in cost resulted from the application of the 
new, uniform, RCA costing methodology for all state-supported trains, 
and had nothing to do with the Missouri's subsequent decision to bid 
out its service. See letter attached to the back of these responses 
from Amtrak President and CEO, David Gunn, to Representative Graves (R-
MO) for further details.

    Question 6. Because Amtrak is a public entity, its finances and 
contracts are available for public consumption. Is there public 
availability of the same information of private entities who are 
bidding against Amtrak for a contract to operate a train?
    Answer. In many situations in which Amtrak is competing for a 
contract, much more Amtrak financial and business information is 
publicly available than is available for other bidders which gives our 
competitors certain advantages.

    Question 6a. Do you believe Amtrak is competing on a level playing 
field when bidding against other bidders on contracts to operate 
trains?
    Answer. As stated above, the public availability of information 
about Amtrak is advantageous to other companies that are competing 
against Amtrak for contracts to operate rail services. In addition, 
some companies that bid against Amtrak are not considered a 
``railroad'' for purposes of the Railroad Retirement Tax Act and the 
Railroad Unemployment Tax Act, and therefore pay significantly lower 
payroll taxes. Amtrak has an advantage where existing equipment is 
available. Also, Amtrak has a legislative advantage regarding access to 
freight carriers.

    Question 7. Many proponents for privatization of Amtrak argue that 
private companies can operate the railroad more efficiently and for 
lower costs than Amtrak. Do you believe a private entity can make a 
profit at operating Amtrak without the benefit of significant 
government subsidies?
    Answer. No, that is a myth. The private sector cannot operate 
intercity passenger rail service without significant government 
subsidies. Rail passenger service has not been profitable since the end 
of World War II. Amtrak was formed because the private railroads were 
losing too much money providing intercity passenger rail service. As 
information, no national passenger rail system in the world is 
profitable.

    Question 8. In your testimony, you cautioned Congress against 
viewing reform of Amtrak as a ``silver bullet'' that will quickly fix 
Amtrak. You seem to be saying that massive reform is not needed; only 
tighter management of finances and critical improvements to plant and 
equipment. Of the many reform proposals you have heard in the past 
year, are there any that you believe could have some merit for the 
future success of Amtrak?
    Answer. Any successful reform proposal will have to include a 
significant source of capital funding to enable the railroad's 
infrastructure and fleet to be returned to a state of good repair and 
make funds available to States for corridor development. S. 1900 does 
provide such funding. Absent such an infusion of capital, Amtrak, or 
anyone trying to operate rail passenger services, will continue to live 
hand to mouth, if at all.
                                 ______
                                 
 Response to Written Questions Submitted by Hon. Ernest F. Hollings to
                           Hon. David D. King

    Question 1. The Administration has proposed that states should 
contribute a greater share to the support of intercity rail, as much as 
50 percent. Other modes of transportation, such as highway and 
aviation, typically are based upon only a 20 percent state match of 
Federally appropriated funds. Do you think that a 50/50 match scheme 
for passenger rail, in contrast to the 80/20 plans used for highway and 
aviation funding, is a fair way to provide proper support for intercity 
passenger rail?
    Answer. An investment of Federal resources in improved intercity 
passenger rail can be used to leverage significant state and private 
resources in a program of infrastructure improvements that can improve 
both intercity passenger and freight services. By authorizing funding 
at less than an 80 percent Federal share, the current Federal 
transportation program provides a disincentive for states to invest in 
rail since states can receive more Federal funds for state dollars by 
matching highway, aviation or transit program funds.
    The States for Passenger Rail Coalition (SPRC) supports a national 
interconnected intercity passenger rail network. However, states should 
not, nor are they in a position to, fund long-distance service. This is 
a Federal responsibility. States are willing to invest in a system of 
improvements to support existing and new passenger rail corridor 
services that benefit their state, and to partner with adjoining states 
in developing projects that serve their mutual interests. While 
projects of regional and multi-state interest are possible, these 
projects will require Federal assistance.
    Improvements to the management and operation of our system of long-
distance trains are crucial, but it should be acknowledged that the 
national network of intercity passenger rail services serves as an 
important link between corridors, offers critical access in some areas, 
and is the base upon which ``new corridor service'' will be developed.

    Question 1a. Do you believe it is feasible for States to provide 
this type of funding with their current state of financial deficits?
    Answer. In June 2002, Secretary Mineta requested that the National 
Governors Association (NGA) consider and advise him on the 
Administration's principles for investment in intercity passenger rail. 
One of the principles requested that States begin directly funding the 
national system operating through their state. The NGA adopted policy 
statement EDC-16 at their February 2003 Annual meeting. The policy 
states, in part, `` . . . States have partnered with Amtrak for the 
operation, development, and financial support of existing corridor 
services. The states have a stake in the successful restructuring of 
Amtrak and need to be closely involved in these discussions. States 
should not be forced to bear the historically Federal responsibility 
for continuing intercity passenger rail service should Amtrak be unable 
to continue as an operating entity . . . .''

    Question 2. On the Piedmont line, the passenger train that operates 
daily between Charlotte and Raleigh, the State of North Carolina owns 
the equipment. What was the initial investment made by North Carolina 
to purchase this equipment?
    Answer. North Carolina's passenger equipment pool was created for 
an investment of $7.5 million. This figure includes an approximate cost 
to rehabilitate and place it into service of $750,000 to $1 million per 
car. Our initial locomotive power was developed in the same manner, 
which we supplemented through investment in new locomotives at a cost 
of $4.6 million in 1998. In addition to the trainsets themselves, North 
Carolina has made significant investments in the mechanical facilities 
to support their daily operation, as well as investments in acquiring 
the railroad and in building or rehabilitating all active passenger 
stations.
    A spreadsheet detailing investments by States in intercity 
passenger rail service is attached.

    Question 2a. What would it cost to lease the same equipment?
    Answer. Generally an equipment lease seeks to recover 10-12 percent 
of the cost of assets that have a useful life of 15 years.
    Passenger equipment is not available in the marketplace. In fact, 
the lack of equipment is a major problem for any entity seeking to 
develop or operate service. The States for Passenger Rail Coalition has 
provided testimony recommending that a national pool of passenger rail 
equipment be established. This equipment pool would be a cooperative 
venture involving states, or interstate compacts and authorities, and 
the Federal Government, and it offers opportunity for both the 
financial markets and for equipment manufacturers. Without such an 
approach, it is unlikely that a single state will be able to make much 
progress in the area of acquiring new rolling stock.

    Question 3. The Administration proposal calls for states to form 
compacts for the support and operation of intercity passenger rail 
between those states. North Carolina now enjoys passenger rail service 
that connects to much of the deep South and all of the states on the 
Eastern Seaboard. What success do you believe North Carolina would have 
in forging a compact with neighboring states for the continuation of 
passenger rail?
    Answer. The Amtrak Reform Act of 1997 provides authority for States 
to form interstate high-speed rail compacts. Legislation (Railroad 
Infrastructure Development and Expansion Act for the 21st Century, 
RIDE-21) introduced in this session of the Congress acknowledges the 
role the compacts may play in implementing improved intercity passenger 
rail services. Many states are critically examining alternative forms 
of governance that could be a means of implementing new services.
    No states are considering the formation of compacts to continue the 
existing national intercity passenger rail network. Should the Congress 
not fund the national network of intercity passenger rail services, we 
believe the National Rail Passenger Corporation would be forced to 
cease operations.
    States are working cooperatively in a number of regions around the 
county to plan and develop improved intercity passenger rail service. 
These initiatives are characterized by market driven city pairs with 
strong economic linkages. Many of the long distance trains connect 
regional corridors although the network of long-distance trains does 
not serve all states equally well.
    The Midwest Regional Rail Initiative (MWRRI) is an example of 
states working together to develop a comprehensive plan for integrated, 
interstate passenger rail service in 100 to 400 mile corridors. The 
MWRRI plan does not envision the states having any role in supporting 
long distance trains. Even focusing on short to medium distance 
corridors, the MWRRI states have not reached a consensus on either an 
institutional approach or cost allocation formula for the 
implementation of the plan at this time.
    The MWRRI proposes that the service be provided through a contract 
with a provider, presumed at this time to be Amtrak. There has not been 
a decision as to how the states will share capital or operating costs 
and/or revenues of the proposed service. The MWRRI planning experience 
suggests that cost allocation among states is both a complex technical 
and political issue that will be difficult to resolve without Federal 
involvement. However, there are several institutional alternatives 
being considered for the future implementation of the plan. These 
alternatives range from creation of an interstate compact as authorized 
in the Amtrak Reform and Accountability Act, to each state contracting 
for its individual service. The number of different railroads over 
which the proposed service will operate complicates the decision-making 
process. These same issues have been identified in the Ohio and Lake 
Erie Regional Rail--Cleveland Hub Study--a multi-state study just to 
the east of the MWRRI
    The number and diversity of states involved in most long distance 
corridors makes interstate agreements for these services highly 
unlikely. For example, the Empire Builder Service from Chicago to 
Seattle crosses seven states over multiple railroads. It is hard to 
envision cost sharing arrangements that would be acceptable to states 
as diverse as Illinois, North Dakota and Washington State.
    While North Carolina does ``enjoy'' service as a component of the 
national system, this service is not designed to serve North 
Carolinians; rather it is designed for the New York to Florida and 
Louisiana markets. States should not be expected to fund services they 
do not plan, into which they do not have management input and that are 
not optimized for their citizens.
    In addition, there are a number of states that have constitutional 
or statutory provisions that negatively impact their ability to 
subsidize intercity rail passenger service.

    Question 3a. What would North Carolina's options be if other states 
in the South or on the Eastern Seaboard are not able to forge a working 
compact, thus disrupting North Carolina's rail connections to more 
distant destinations?
    Answer. Cease interstate service, and likely cease intrastate 
services also. About 50 percent of all intercity rail passengers in 
North Carolina use the national system for interstate travel. Of the 
single interstate train the state sponsors, approximately 60 percent 
use the service for interstate purposes.
    The cobbling together of the Atlantic Coast states to recreate 
Amtrak's NY to FL services would quickly break down over cost 
distribution and service issues. In addition, intrastate services would 
be in jeopardy. Over half of the trip which originate in North Carolina 
using one of our state-supported trains have a destination in another 
state.

Direct State Investments in Improved Intercity Passenger Rail, 1996-2002
  [Actual expenditures of State money, as estimated and reported by the
states. Excludes matching funds from Amtrak, the Federal Government, and
                           freight railroads]
------------------------------------------------------------------------
                                           State expenditure,  (millions
                                                    of dollars)
------------------------------------------------------------------------
California                                                        $871.6
Washington State                                                    87.6
Oregon                                                               3.1
Illinois                                                           153.7
Michigan                                                            52.0
New York State                                                     111.6
North Carolina                                                     118.9
Virginia                                                            80.1
------------------------------------------------------------------------
    Totals                                                      $1,478.6
------------------------------------------------------------------------
Based on these numbers, it is fair to report the states' cash
  expenditure over the past five years at approximately ``1.5 billion.''
  (Updated March 6, 2003.)

                                 ______
                                 
     Response to Written Questions Submitted by Hon. John McCain to
                             John H. Winner

    Question 1. Having listened to the testimony of Deputy Secretary 
Jackson, how would you characterize the Administration's plan in terms 
of the categories of contracting, franchising, and privatization you 
discuss in your written statement?
    Answer. Deputy Secretary Jackson described reforms that, if 
implemented, would, over time, eliminate Amtrak's monopoly in intercity 
rail passenger services. These reforms would allow all forms of private 
sector participation described in my testimony to be applied to 
intercity passenger services.
    As I understand Mr. Jackson's testimony, over a six-year reform 
period, a part of Amtrak would be restructured into a train operating 
company. As an operator, Amtrak would obtain contracts for the 
operation of intercity trains from States and Regional Rail Operating 
Companies. At some point, these contracts would be opened to 
competitive bidding, introducing the competition for contracts 
discussed in my testimony.
    The Deputy Secretary did not describe the Administration's vision 
of the future intercity passenger train environment in detail. From the 
description offered, however, some trains could be franchised. It is my 
expectation that some named long-distance trains (e.g., the Coast 
Starlight) and high-speed rail services could be franchised. 
Franchising is typically associated with better marketing and customer 
service because train services are more closely matched to market 
demands since the franchise operator assumes some revenue risk. If the 
franchise agreements are long enough, such agreements could be used to 
introduce improved, upgraded, or even new rolling stock.
    Once Amtrak gains experience as a train operating company, it could 
be privatized to compete with other train operating companies for 
intercity, suburban, and metro operating contracts and franchise 
opportunities. To me, it would be illogical to maintain a majority 
government owned enterprise in a competitive marketplace.

    Question 1a. Do you think the Administration has thought through 
all of the critical issues for instituting reform?
    Answer. Reform of intercity rail passenger services in the United 
States will be a complex undertaking. Developing a system that 
encourages local and state participation in train services, breaking 
the current Amtrak monopoly, dividing Amtrak into different companies, 
introducing competition and private participation, and dealing with the 
problems that might arise with increased private participation, all in 
a politically charged environment, will be very difficult.
    It is unlikely that anyone could foresee all the problems that may 
arise. But that should not be an excuse for delay. Perfect solutions 
that please everyone do not exist but, the framework described by 
Deputy Secretary Jackson is a reasonable place to start. Adjustments 
should be made over time, as the process unfolds.

    Question 2. In your testimony, you discuss some of the challenges 
to be faced in transitioning to a new model for passenger rail service. 
One area in particular that you highlight is the problems that will be 
faced by infrastructure owners in dealing with multiple operators on 
their rail lines. While the prospects of problems are real, in your 
opinion are they insurmountable?
    Answer. No, the problems associated with multiple operators on rail 
lines are well known to the rail industry. There are many privately-
owned rail lines with multiple operators. The map below shows, in red, 
U.S. rail lines with multiple freight operators as recorded by the 
Federal Railway Administration in 2002. The red lines represent about 
20 percent of the rail network in the United States. On some red lines 
there are actually several operators--more than two, sometimes as many 
as four or more. Clearly, having multiple rail operators on a rail line 
is not unusual. Private railroads have been negotiating access rights 
to track for a long time.



    However, high-speed, high-priority passenger trains consume a lot 
of rail line capacity and many lines are near capacity. As new 
passenger trains are introduced, given a higher priority, or their 
speed increased above that of other trains on the line, some investment 
in line capacity is likely to be required. Investments and schedules 
should be the subjects of negotiations with infrastructure owners.

    Question 2a. What steps could be taken by Congress in restructuring 
passenger rail service in the United States to minimize the disruption 
to other rail operations?
    Answer. Several steps will minimize disruption in other rail 
operations:

   Reform of Amtrak may cause some labor strife. Labor actions 
        should not be allowed to affect private rail services.

   A mechanism should be developed to indemnify infrastructure 
        owners from excess liability claims related to passenger train 
        operations on their lines.

   Train operating companies should have reasonable access to 
        insurance.

   The effect of reforms on railway retirement contributions 
        should be clearly understood. It may be necessary to create 
        some method to compensate the fund for changes in Amtrak 
        employment or contributions so that private railroads are not 
        adversely affected.

    Inspector General Ken Mead discussed how some of these problems 
might be mitigated. For example a direct payment to the Railroad 
Retirement Board would cover excess payments burdens of private 
railroads. Deputy Secretary Jackson also discussed a Federal/State 
grant approach to funding infrastructure improvements, similar to the 
way in which highway and transit systems are funded. This might be an 
effective way to handle capacity investments necessary for increased or 
enhanced passenger services.
    A process should be developed for resolving capacity limitations 
and commercial conflicts between private property owners and 
governmental units, at all levels, who seek to run additional passenger 
trains. The process should include some mechanism for financing line 
capacity improvements and a system for specialized review of conflicts.

    Question 3. Are these same problems faced when new commuter 
operators enter the market, and if so, how do the freight railroads 
deal with them in that context?
    Answer. The commuter rail passenger services market is dynamic and 
is the fastest growing area of rail passenger services in the United 
States. New commuter services are being implemented with many different 
arrangements. Some of the problems discussed above must be faced when 
new commuter operators start service, but not all.
    Most expansion of commuter rail services has occurred over the 
infrastructure of private railroads. The parties have freely negotiated 
terms that are mutually satisfactory and services have expanded as a 
result. Some private railroads have shifted operations and sold 
infrastructure for commuter rail passenger services to local 
authorities. Others have reached agreements covering service 
conditions, investments, and liability protections and codified these 
agreements into commercial contracts.
    On the other hand, in a commuter operation, the scope of problems 
is limited to a region or a relatively short stretch of line. Railway 
retirement is not usually an issue; the use of an operator, other than 
the infrastructure owner or Amtrak, is often not considered; and the 
role of operator is often not subject to bid. Clarification of the role 
of Amtrak, ownership of Amtrak's right-of-access, and insurance and 
liability issues would ease the formation of new commuter and intercity 
routes funded by local authorities and other government bodies seeking 
to expand rail passenger services.

    Question 4. What do you believe are the next steps to take 
regarding Amtrak's future and that of intercity passenger rail in the 
United States?
    Answer. The first step should be to get started with legislation 
that will irreversibly eliminate Amtrak's monopoly on intercity rail 
services and restructure Amtrak. Amtrak should become a train operating 
company and ownership of Amtrak's assets (stations, rolling stock, and 
track) transferred to a body that will manage access to them. This 
should start quickly. The legislation must recognize the rights of 
Amtrak's minority shareholders.
    Amtrak's board could take some of these steps today. It should 
create an accounting structure and system that clearly identifies 
operating costs by train service and separates the cost of 
infrastructure maintenance and renewals on the northeast corridor. It 
should also form an infrastructure subsidiary to manage ownership of 
the northeast corridor property.

    Question 5. How long do you expect restructuring to take?
    Answer. The restructuring process is likely to take 6 to 10 years. 
Congress should not wait for the perfect plan because during the 
restructuring process, economic life will continue to evolve and 
conditions will change. It is likely that any legislation will be 
modified as the process proceeds; that is the typical experience in the 
restructuring of complex public entities. The evolution of intercity 
passenger services in the United States will be stunted and distorted 
until Amtrak no longer has a monopoly on them.

    Question 6. Can you describe how restructuring has been implemented 
in other countries?
    Answer. Books have been written about railway restructuring in 
other companies; I have spent the last 25 years helping other countries 
restructure their rail industries. So it is difficult to describe 
briefly how passenger rail restructuring has been implemented in other 
countries. Two things that I have learned is that monopoly rail systems 
distort transport markets and that government-owned railway enterprises 
are enormously difficult to change. Governments all over the world have 
already, are now, or are planning to restructure their state-owned rail 
systems. Each country has taken a unique approach, tailored to its own 
particular circumstances. Some examples:

Europe
    Countries of the European Union are in the throes of reform now and 
have been since the mid 1990s. The EU has taken a deliberate approach 
and agreements have been difficult to achieve between countries with 
private railroads (e.g., Switzerland) and those with a tradition of 
strong state support for state-owned railroads (e.g., France and 
Germany). The EU has required at least accounting separation of rail 
operations from infrastructure as a means to improve transparency. Most 
national railways are being restructured along lines of business--
infrastructure, intercity passenger, local passenger, and freight. 
Once-large engineering and maintenance departments are being separated 
and many engineering services are now contracted in. Operation of local 
and regional passenger trains is increasingly contracted or franchised 
to private operators. Rail freight transport is on the cusp of very 
significant restructuring as new EU competition laws require access to 
state-owned infrastructure for any EU-approved rail service provider.
    In most of Europe, freight and passenger services lose significant 
amounts of money. Each EU country is using a different approach to 
restructuring, but the effect of all approaches is to increase 
competition and break up integrated state rail enterprises. For 
example, in France, the government moved rail infrastructure, and 
almost all debt (some $26 billion) from the French national railway 
(SNCF) to the newly formed French Railways Infrastructure Authority 
(RFF) in 1997. Between 1997 and December 2001, debt had climbed to 
nearly $40 billion and some resolution was needed. The French 
government formed the High Council on Railway Public Service (CSSPF) to 
control the development and evolution of the rail sector and provide 
recommendations for resolution. In January 2002, the government 
transferred responsibility for planning and financing local passenger 
transport to regional authorities. EU competition policy requires that 
contracts for local service must be competitively bid. Railway labor 
unions have objected to the split of SNCF operations and infrastructure 
and caused significant unrest. Outsourcing of local services is set to 
increase, and freight services will be subject to competition from 
other rail operators. Conventional intercity passenger ridership and 
rail freight traffic have dropped significantly in response to 
increased unreliability. SNCF and RFF are both under significant 
financial pressure. But, the ultimate fate of restructuring in France 
has yet to be decided.
    The German National Railway, the DB, was established as a private-
sector company in 1994. In the process, it separated infrastructure 
from transport organizations (with DB AG as a holding company), opened 
the rail network to third parties with payment of trackage charges, 
made the Federal Government responsible for rail infrastructure 
investment, and transferred the responsibility for suburban passenger 
transport to the states. These reforms have had some salutary effects 
on costs: DB employment declined by 30 percent and many light density 
lines were dosed. Suburban and commuter service patronage have 
increased 33 percent. But despite a full-cost road pricing scheme for 
German motorways and higher fuel prices, financial performance of the 
holding company has deteriorated and further reform will be necessary.
    The restructuring process in Europe has been underway for many 
years and it is likely to take many more years. As European rail 
systems become more market oriented, restructuring is likely to 
continue in a long process of creative destruction characteristic of 
market economies.

The U.K.
    Much has been discussed about the complex railroad restructuring 
process that has taken place in the United Kingdom. The British 
Government ended a moribund vertically-integrated state monopoly rail 
system by privatizing the entire system. The process was complex and 
fraught with difficulty; some of the problems have been well reported. 
However, good aspects of the restructuring process are often overlooked 
in critical reviews of the U.K. privatization process. These include 
stimulation of rail services--passenger ridership is up more than 36 
percent over the reform period; a doubling of the number and kinds of 
passenger services offered; freight traffic is up more than 42 percent; 
and private investment in rolling stock has increased significantly. A 
little noted feature of the reform of British Rail is that rail 
passenger safety has improved by more than a factor of three.
    While the U.K. reforms were criticized as being overly complex, 
they were bold and have been successful in many ways. While the 
government is taking new steps to adapt regulations and reforms to 
changing conditions and to weaknesses in the original restructuring 
process, it is not re-nationalizing rail services. One of the 
characteristics of rail reform in most countries is that restructuring 
processes must be adjusted over time to take into account new issues 
that arise in a now dynamic rail industry. Dynamic change was not 
characteristic of the pre-reform industry.

Latin America
    Rail restructuring has also been proceeding for many years in Latin 
America. While most Latin American railroads were built by private 
enterprises, during the 1960s virtually all were nationalized. By the 
beginning of the 1990s, nearly all state-owned Latin American railroads 
had fallen on hard times, with track in bad condition, rolling stock 
out of service and poorly maintained, and rail freight and passenger 
services spiraling downward. At the same time, government subsidy 
requirements were spiraling ever upward.
    With high deficits, growing demand for public monies, and limited 
availability of funds, restructuring was the only mechanism remaining 
to sort out railway problems. Again, restructuring has been different 
in each country but most Latin American countries have used 
contracting, franchising, and privatization as restructuring 
mechanisms. By the beginning of the new millennium, there were no 
significant publicly-operated freight railroads remaining in Latin 
America and many suburban passenger railways and metros had also been 
transferred to private operation.\1\
---------------------------------------------------------------------------
    \1\ ``Changing Railway Structure and Ownership: Is Anything 
Working,'' Louis S. Thompson, Railways Adviser, The World Bank. 2002.
---------------------------------------------------------------------------
Japan
    The largest restructuring occurred in Japan with the breakup and 
partial privatization of the old Japanese National Railways (JNR). The 
deterioration of JNR did not occur suddenly and there were at least six 
attempts to reform JNR since 1964. It is difficult to summarize the 
complex transitions that took place, but some $200 billion in debt was 
transferred to a government Settlements Corporation, along with excess 
staff. Three major rail passenger corporations, JR East, JR Central, 
and JR West, were established and privatized.
    Since privatization, the three companies have been generally 
profitable. Labor productivity has trebled (and is now about five times 
the comparable labor output of EU railways), fares have been stable, 
and government subsidies have been transformed from payments of about 
$5 billion annually to positive income of some $3 billion a year in tax 
payments from the private companies. Investment in infrastructure and 
rolling stock has continued to grow while service quality and 
reliability has improved significantly.

    There are several lessons to be learned from the reform experience 
of other countries. First, restructuring is a complex, multi-year 
process. Second, restructuring works best when it is based on planning 
by impartial, expert groups insulated from political pressures. Third, 
resolution of labor issues is a critical component of restructuring 
processes.
    World experience shows that many different restructuring methods 
can work and that all forms of contracting, concessions, and 
privatization are useful means to accomplish restructuring. World 
experience also shows that publicly-owned monolithic and monopoly 
railways operating behind government-constructed barriers to 
competition are a recipe for the demise of rail services.
                                 ______
                                 
 Response to Written Questions Submitted by Hon. Ernest F. Hollings to
                             John H. Winner

    Question 1. In your testimony, you propose that certain sectors of 
the passenger rail industry could be franchised as a form of 
privatization. Franchises could run the gamut, from franchises to 
market passenger rail to larger franchises to rehabilitate stations or 
modernize rolling stock. Franchises call for higher start-up costs and 
greater risks, but the franchisee stands to make more money if it is 
successful. You note that the U.K. franchised train services. When the 
U.K. tried to wean its rail franchisees from huge government subsidies, 
the franchisees were forced to make operating cuts that led to customer 
dissatisfaction. Several franchisees went bankrupt. The franchises were 
transferred to other companies, but with a substantial increase in 
subsidy level. Today, the number of franchisees has been cut by half, 
and passenger rail service in the U.K. requires a higher level of 
government support after privatization than before. In the state of 
Victoria, Australia, three of five passenger rail franchisees have been 
abandoned because of financial losses. In Argentina, when the national 
government withdrew all subsidies, no private company stepped in to 
provide passenger rail service because it could not be profitable 
without subsidies. Passenger rail service disappeared in Argentina.
    With the background knowledge of so many franchise failures in 
other countries, one has to question the motivation of a private entity 
seeking to enter the rail passenger business as a franchisee. Is it 
because it genuinely expects to earn a profit due to its stellar 
management and efficiency, or because it expects to benefit from a 
significant government subsidy that will roll in year after year 
regardless of the entity's management abilities?
    Answer. Franchising is one of several methods that may be used to 
involve the private sector in providing intercity rail passenger 
services. Private companies will participate if they have an 
opportunity to earn a return on their investment of capital and labor; 
returns expected would be related to the level of risk. Since intercity 
rail passenger services can rarely be operated profitably (including 
investments for rolling stock and infrastructure), it is unlikely that 
any intercity rail passenger services would be offered in the United 
States if there were no payments from government entities or agencies.
    The U.K. railway restructuring process was very complex and will be 
debated for a long time. Franchising involves risks and some U.K. 
franchises failed. Even so, many of the outcomes of that restructuring 
have been very good. Intercity rail passenger travel grew about 36 
percent, freight services grew 50 percent, the number of daily trains 
nearly doubled, stations were improved, subsidies declined by 
200-300 million a year for over four years, there was a 
surge of new private investment in rail passenger rolling stock, and 
rail safety improved considerably. On the other hand, the increase in 
daily train services resulted in a shortage of qualified staff and 
congestion on the rail network, and increased congestion caused 
deterioration of on-time performance. Today's higher government 
payments for rail services in the U.K. are primarily for infrastructure 
investments necessitated by underinvestment in the past, the need for 
new capacity, and promised line upgrades.
    Franchising in Argentina was successful in helping to restructure a 
rail system consistently costing the government more than $1 billion a 
year while producing little transport output for the economy. That loss 
was replaced by income from freight concessions and taxes paid by 
franchise operators, and a limited and defined subsidy payment for 
passenger services. As a result of restructuring, commuter ridership 
soared, freight transport increased for the first time in decades, and 
private investment poured into rail rolling stock and infrastructure. 
Intercity rail passenger services were not contracted, franchised, or 
otherwise subsidized by the national government; states elected not to 
subsidize them either. Therefore, intercity passenger services ceased. 
When the economy of Argentina collapsed recently, all companies were 
adversely affected, many closed--some rail franchises were among them. 
When a franchise fails, the franchised assets return to the government.

    Question 1a. A bidding process for franchises would likely foster 
competition between private companies to win the bid. However, what 
about the franchise system would generate competition once the 
contracts are all awarded?
    Answer. In most places franchises are awarded in a competitive 
bidding process and competition arises during the bidding process. If 
there is only one franchise, once the franchise is awarded, there is no 
further competition between franchise operators until the end of the 
franchise. If there are multiple franchises, there is usually a great 
deal of competition between operators to improve performance of their 
underlying franchise. Most franchise contracts are written with 
performance targets and bonuses for improved schedule performance, 
reduced customer complaints, increased ridership, and other measures. 
Most rail passenger services also have a great deal of competition from 
other modes--automobile, air, and bus. In fact, it was the rise of 
inexpensive and convenient highway and air travel that ultimately made 
intercity rail services unprofitable.

    Question 1b. Wouldn't franchising a certain segment of the rail 
passenger industry to a private entity just be, in effect, exchanging 
one monopoly (Amtrak) for another?
    Answer. A franchise is not likely to become a monopoly for several 
reasons. First, the term of a franchise is limited and there is 
competition for the franchise each time the term is up. Second, 
performance criteria are usually written into a franchise agreement. An 
operator who does not meet those criteria loses the franchise. If a 
franchise operator does a poor job, or goes out of business, the assets 
revert to the government and the franchise can be awarded again.
    Contrast this with the present situation. Under existing law, 
Amtrak's franchise is never up--it is a monopoly. If Amtrak does a poor 
job, there is not much that the government can do about it.
    Contracting and franchising are more flexible than government 
ownership. The process is usually not politicized and operator changes 
occur as a part of a natural process. Franchise periods vary, depending 
upon the investment required (investments may be for equipment, station 
improvements, or for branding and advertising). Some are two to three 
years; others, which have larger investment requirements, are for 
longer periods--say, seven to ten years.
    Finally, there is usually a lot of competition for rail passenger 
transportation services; automobiles, buses, airlines, carpools, and 
even taxis compete with rail transportation. Most franchise agreements 
give the operator an incentive to increase ridership, usually by 
improving customer service. So, even if a single franchisor has a de-
facto rail monopoly for some period of time, it must still create a 
loyal customer base and compete with other transport modes. Amtrak has 
done this in some places, particularly the northeast corridor. Yet, 
even here, where Amtrak has its greatest market power, it commands only 
about 35 percent of the market between Washington and New York, hardly 
a monopoly.

    Question 2. You say that in North America, all of the major freight 
railroads are qualified to be private-sector operators. I cannot argue 
with that statement; but it is also a fact that Amtrak, a government-
operated national passenger rail system, was created 30 years ago 
precisely because these freight railroads did not want to engage in the 
passenger rail business.
    Answer. When Amtrak was created, the nation's railroads were in 
financial distress. Many had gone bankrupt or were on the verge of 
bankruptcy, particularly in the eastern part of the United States. 
Private railroads had been required to provide passenger services for 
many years under a regulatory system that encouraged cross-
subsidization of rail passenger services by rail freight services. 
However, competition from trucking, boosted by completion of the 
interstate highway system and deregulation, greatly reduced the ability 
of private railroads to charge freight prices high enough to continue 
cross-subsidies. Privately-owned railroads could not continue to engage 
in a money-losing passenger rail business.
    Amtrak was created to relieve railroads of this burden. Railroads 
made significant contributions of capital and equipment to start Amtrak 
in exchange for relief from passenger transport losses. It is through 
these investments that many private freight railroads continue to be 
minority shareholders in Amtrak.

    Question 2a. Do you know of any specific major U.S. freight 
railroads that have expressed an interest in operating passenger rail 
in this country?
    Answer. Several U.S. freight railroads currently operate rail 
passenger trains. These services are almost all commuter or suburban 
services in major cities and are operated under contract for local 
transit authorities. In the past, at least one U.S. freight railroad 
was involved as an operator of commuter services in Buenos Aires, 
Argentina. Some freight railroads have indicated that they would want 
to operate passenger trains that travel over their rail lines should 
Amtrak fail.

    Question 3. You specifically mentioned particular private entities 
that you believe are good examples of rail privatization that has 
worked, including Connex, National Express, and Arriva. In fact, Connex 
was the first rail company in the British system to be stripped of its 
franchise because of long delays, dirty trains, and other operational 
problems. The British government wound up bailing out the rail operator 
to the tune of 58 million. Similarly, the British 
government had to raise 115 million ($165M) to bail out 
another private rail operator you mentioned, National Express, that was 
facing crippling losses and projected little chance of ever returning a 
profit by the end of its franchise. Arriva, which you cite as being 
staffed with 15,000 employees, was forced to cut 160 trains in Britain 
because of problems it had with recruiting and retaining train 
operators. With so many demonstrated failures in other countries, what 
would make you think that somehow the experience would be different in 
the United States?
    Answer. Franchising has worked very well in many markets; there are 
more successful train operating companies in the U.K. than failures. 
Franchise operations in Argentina worked well until the collapse of the 
economy. Experience with private operation of rail passenger services 
throughout much of Europe has been positive. Private operation of 
passenger and freight services has been expanding successfully 
throughout the world and there are now a number of large international 
operators with a great deal of experience.
    Under the proposals that have been discussed, a rail operating 
company arising from within Amtrak would also compete in the market. 
Further, there are a number of U.S. rail companies with a great deal of 
experience operating successful train services. With the world's 
largest market-based economy; experience in contract, franchise, and 
private operation of train services; a fully developed legal and 
contract system; and many private railroads, the U.S. has the right 
environment for any effort to inject private participation into 
intercity rail passenger services.
    When rail markets in the U.K. were restructured, no private rail 
operating companies existed in that market. Government-owned British 
Rail had a monopoly on both passenger and freight rail services, so a 
competitive market had to grow from scratch. Given the much greater 
experience with privately-operated rail services in the U.S. and the 
number of different operators already in the U.S. market, contracting 
for rail operating services and franchising rail operations is more 
likely to be successful here than in other markets.

    Question 4. Japan's privatization of passenger rail service is 
touted as one of the best-managed railroad transportation systems in 
the world, but it began with a $300 billion investment by the Japanese 
government. Although Japan is about the size of California, $300 
billion represents well over 11 times the amount spent by the U.S. on 
supporting Amtrak in the past 30 years. Today, Amtrak is $5 billion in 
debt and has $6 billion in backlog of state-of-good repair investments. 
If $300 billion were invested in Amtrak's infrastructure and 
operations, do you think the railroad could then be profitable?
    Answer. The restructuring and eventual privatization of parts of 
the Japanese National Railway (JNR) was a significant achievement. 
After World War II, JNR was converted from a government ministry to a 
state-owned corporation. It was also forced to provide employment to 
returning servicemen, bloating its workforce and driving up pension and 
wage costs. Japan also constructed many branches to serve smaller 
communities. Rail tariffs were controlled and kept quite low, causing 
JNR to operate at a loss. Pensions, investment and operating loses were 
financed by debt. As the Japanese economy recovered and personal wealth 
grew, many interstate-type highways were constructed and rail market 
shares fell rapidly while JNR debt continued to climb. Even 
construction of high-speed lines (Shinkansen) and introduction of 
Bullet-Train services starting in 1964 did not improve JNR's financial 
position. Restructuring Japan's rail system was complex and took many 
years. As part of the restructuring, some $200 billion of JNR's $340 
billion debt (all guaranteed by the government) was transferred from 
the government-owned company to a new government-owned Settlements 
Corporation. The Settlements Corporation also assumed responsibility 
for excess employees and assets. The remaining portion of JNR debt was 
transferred to the operating companies that were eventually privatized.
    The investment of billions of dollars did not help JNR become 
profitable. It took a restructuring process that injected private-
sector financing and incentives into the operation of the railway. 
While investing $300 billion into rail passenger infrastructure and 
rolling stock in the U.S. would certainly provide many high-speed lines 
and upgrade most rolling stock, it is unlikely that this alone would 
allow Amtrak to operate profitably. If that investment were not counted 
as Amtrak debt, and if passenger revenues were not expected to renew or 
replace those assets as they wore out, then it is possible that some 
Amtrak routes and services could be operated profitably.

    Question 5. The American passenger rail system is partially 
privatized in that most of the rail infrastructure over which Amtrak 
operates is privately owned. If we franchise passenger rail operations 
to private rail operators other than Amtrak, large freight railroads 
that own thousands of miles of track over vast portions of the United 
States may have to deal with a number of private operators on their 
track. How would you suggest we convince the freight railroads to allow 
these other railroads to operate over their tracks?
    Answer. Many private rail lines currently have multiple operators. 
The map below shows U.S. rail lines with multiple operators, including 
Amtrak. Amtrak operates few intercity passenger trains on most private 
rail lines (two trains per day--one in each direction--is typical on 
many miles of private rail line outside the northeast corridor), so the 
issue of multiple operators on any one line may not be an important 
issue for many freight railroads. In any case, access, train priority, 
required speeds, liability, insurance and many other issues should be 
settled with private railroads in the process of negotiating access 
agreements. Private railroads are experienced in negotiating access 
agreements, although some arbitration or settlements process may be 
needed for disputes that cannot be settled through negotiation.
    Significant increases in rail passenger services or speeds across 
private railroad lines are likely to require investments in new 
capacity. (See previous ``U.S. Rail Lines with Multiple Operators'' 
map.)
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John McCain to
                              Hank Dittmar

    Question 1. How did Reconnecting America come to the conclusion 
that passenger rail service should focus on short-distance corridors 
connecting densely populated urban areas?
    Answer. Our conclusion can be more accurately stated in the 
following way: we believe that intercity passenger rail can serve an 
important role in an interconnected network with aviation and intercity 
bus, primarily serving shorter and medium distance markets of up to 400 
miles in length. We do not recommend a disconnected corridor based 
approach, but rather an interconnected national hub and spoke system. 
We reached this conclusion as a result of evidence that shows that 
intercity rail can compete effectively with short haul air service in 
terms of time and cost, and when service is upgraded, can compete 
effectively with the automobile over the same lengths. One advantage of 
intercity rail is that it does in fact serve linear corridors, and thus 
may link multiple city-pair markets of 100-400 miles. A good example is 
the California Corridor, which links numerous metropolitan markets 
between San Diego and Sacramento.

    Question 2. Your proposal, which focuses each mode of 
transportation on the markets where each has a natural economic 
advantage, certainly seems like common sense. But Congress doesn't 
always seem to use common sense in establishing policy. As a practical 
matter, how do we transition from the Amtrak of today to the corridor 
network you recommend?
    Answer. First off, we do not solely recommend a corridor network, 
we recommend an interconnected national network of aviation, intercity 
rail and intercity bus, with rail routes principally serving short and 
medium distance markets.
    In resolving this issue it is important to balance appropriate 
government action and public investment with actions to remove barriers 
that inhibit the market from acting to maximize intermodal services. 
States, regions and localities need to be given the flexibility to use 
Federal transportation funds to make intermodal connections, and 
Federal regulations and agency practices that prevent intermodal 
operators from emerging need to be eliminated. At the same time, we 
need to recognize that short and medium distance travel markets are the 
best growth opportunity for intercity rail service, and that the 
appropriate way to encourage service improvement in these corridors is 
to create a Federal grant program for states and regions which 
incorporates principles of shared investment and benefit with the 
private sector.
    The second major step would be to recognize that the debate about 
Amtrak service in less populated regions is not principally a debate 
about market demand, it is a debate about the merits of pursuing a 
national system that connects the fifty states. As President Eisenhower 
said when he proposed the Interstate Highway System, ``we are a United 
States.'' We therefore believe that the most appropriate approach to 
moving forward with a reform vision is to provide for an Essential 
Transportation Service program, which provides subsidies for less dense 
areas to be connected into the national system, and which allows for 
air, intercity rail or intercity bus subsidies and which recognizes 
that rail provides not just point to point service but a collection and 
distribution function along a linear corridor. Such an approach would 
perhaps provide the same level of service to rural areas, but might 
interconnect with nearby metro areas and major airport hubs rather than 
providing cross-country service.
    The key political problem in envisioning a new role for Amtrak as 
part of an interconnected national system is that the beneficiaries of 
the existing long distance routes are unlikely to support changes to 
their existing service (however marginal that service benefit is) 
without some guarantee that the replacement system will not result in a 
loss of access. Perhaps this is why Amtrak President David Gunn calls 
system changes political in nature.
    Mr. Gunn's position would seem to stake out a role for Amtrak as an 
operating company, with route decisions being left to Congress. This is 
obviously not a workable situation, nor is the Administration's idea of 
turning the operating problem entirely over to the fiscally strapped 
states, One possibility would be to create a separate, small planning 
and finance authority for intercity passenger services, with the 
responsibility of transitioning to an intermodal network over time. It 
is important to make these changes gradually so that rural communities 
do not lose transportation access as the Nation moves from the existing 
structure to a national network of medium distance rail routes 
interconnected with aviation and bus at key travelports. The Surface 
Transportation Board or the Air Transportation Stabilization Board 
might be obvious candidates to be restructured to serve this role, much 
as public utilities commissions have overseen essential utility 
services.

    Question 3. You mention in your statement that the Downeaster, 
between Portland, ME and Boston, created a new rail market compensating 
for the loss of airline seat capacity. But Greyhound argues that the 
subsidized rail service and Amtrak's low-fare policies are a 
competitive threat to bus service. Does it make sense for Congress or 
the states to subsidize Amtrak service to the detriment of bus 
companies that do not receive Federal operating or capital subsidies?
    Answer. The Downeaster is an excellent example of the way that 
intermodal planning at the state and the metropolitan level can be 
improved. We believe that markets like the Portland to Boston corridor 
can be well served by an integrated rail-bus schedule, with both modes 
operating from the same stations, and with intercity rail serving high 
demand peak periods with higher capacity trains, and bus service 
filling out the schedule throughout the rest of the day. In such a 
scenario, each mode would do what it does best.
    As to the questions of subsidy, we think the question of unhealthy 
competition arises primarily as a result of a failure to network the 
systems, and that an integrated network would be fiscally more 
sustainable for all the modes.
    Question 4. The States for Passenger Rail Coalition is arguing for 
a large new high-speed rail program. But, based on your 
recommendations, is speed the issue or should Congress be looking at 
the development of conventional or high-speed rail, depending on the 
distance between major city pairs?
    Answer. The States for Passenger Rail Coalition argues for both 
``investment in new passenger rail systems and incremental improvements 
in regional passenger rail corridors to expand ridership, with 
increased speeds, and additional frequencies to expand routes'' 
according to their National Passenger Rail Policy Statement, adopted 
August 25, 2002. Reconnecting America generally concurs that intercity 
rail funding programs should support both approaches, with the 
preponderance of investment probably going to upgrade speeds, safety 
and comfort on existing rail alignments, most often in a shared 
investment arrangement with a freight railroad. The rail network does 
not well serve some key intercity corridors, however, and in those 
cases new alignments, technologies and services may be the best 
solution.

    Question 5. Would your organization support applying the Federal 
Transit Administration's process of evaluation and ranking to new 
intercity rail passenger service?
    Answer. Reconnecting America would generally support the adoption 
of rational processes for evaluation and ranking of proposals for new 
intercity transportation services, so long as they are applied on an 
intermodal basis, and take into account the different characteristics 
of each mode and they are related to a clear statement of goals and 
objectives at the national level. It is problematic, for example, FTA 
process has been used to ration limited Federal transit New Starts 
funding, but that no similar requirement has been imposed for new 
highway capacity projects in metropolitan areas.
    If our Interstate Highway system and our Essential Air Service 
program had to meet the same standards in terms of demand, density and 
patronage that intercity passenger rail has to meet, the highway and 
aviation systems would look a lot different today.
    Enclosed for the Committee's review is a map that we produced which 
shows average daily traffic on the highway network. The map clearly 
demonstrates that the Interstate and National Highway System 
designations in many parts of the country are established for reasons 
of connectivity, rather than reasons of population density or demand. 
That is why we have argued for clarity in terms of the policy rationale 
for these services through the creation of an Essential Transportation 
Service program for small community air service, intercity bus service 
and intercity rail service for smaller communities. Such a program 
should have ranking criteria that embrace both point to point services 
and corridor service to multiple cities and towns, with the ultimate 
objective being to connect at a hub to longer distance travel by air 
and rail.



    Question 6. I would like to ask you a few questions that bear more 
on your position with the Great American Station Foundation. Does it 
make sense, in your opinion, to have Amtrak turn over all stations to 
the states or municipalities? Are station ownership, maintenance, and 
commercial development more appropriately a local function than an 
Amtrak function?
    Answer. The most important issue from a national perspective is to 
move from viewing these facilities as serving single modes, whether 
they begin as train stations, as airports or as bus depots. Rather they 
should be seen as ``travelports,'' serving as the nodes which link air, 
rail and bus service into an interconnected national network. Standards 
need to be developed specifying appropriate interconnections for 
differing sizes of communities, so that a downtown station in one 
medium sized community near a large hub may connect local transit, 
intercity bus and passenger rail, with a dedicated and integrated rail 
and bus connection to the large hub airport in the nearby metropolitan 
area. Incentives need to be developed to promote joint funding and 
operation of these facilities, no matter who owns them, and the ``Last 
Mile Connections Fund'' would provide a vehicle to ensure the final 
connections get made.
    Outside of the Northeast Corridor and Chicago Union Station, Amtrak 
owns very few of the stations it serves. The primary client of the 
Great American Station Foundation's efforts to assist with station 
revitalization as intermodal facilities has been local authorities--
either municipalities or local governments. In some cases the private 
railroads still own stations, and lease them to local authorities. In 
every case, the problem has been one of providing technical assistance 
with planning, finding incentives for intermodal coordination, and 
overcoming barriers to shared use, such as the FTA policy prohibiting 
their funds from being used in facilities that include private 
intercity bus carriers. These barriers exist no matter who owns the 
stations: many municipalities will not welcome private bus operators, 
for example, and may tend to favor transit use over Amtrak use of the 
stations they own. Airports tend not to want to threaten parking and 
rental car operations, and see transit, Amtrak and buses as potential 
competitors. Seeking solutions that help to remove these ownership 
biases as well as the policy barriers at both state and Federal levels, 
such as allowing airports to charge PFCs for arriving bus and rail 
passengers, will help to solve the situation.
    Divesting Amtrak of the ownership of those stations it does own 
would need to be accompanied with some provision for the new owners to 
fund the upkeep and operating obligations that would accompany the 
stations, and perhaps this could be accomplished through some sort of 
short and medium term funding, declining over time, with the 
opportunity to make ongoing revenue from the development of air rights, 
adjacent land, and leasing of space in the stations.

    Question 7. Do you recommend, and is it possible, for Amtrak and 
Greyhound not only to develop shared intermodal stations but also to 
share station employees?
    Answer. We think that shared use and operation of intermodal 
facilities is critical to a successful intermodal network, and this 
applies not just to Greyhound and Amtrak but also to local transit and 
aviation. Particularly in small and medium sized communities, where 
Amtrak has cut staffing at stations, sharing ticketing and baggage 
service may be the only way to adequately serve customers. There are 
numerous ways to accomplish this objective:

   through third party contracting for station operations and 
        maintenance, with each operator maintaining its own ticketing 
        operation;

   through management of the station by one of the operators, 
        with ticketing and baggage handled by each operator; and

   in small stations, with a travel agent or municipality 
        acting to sell tickets on a commission basis, with the station 
        owner handling maintenance.
                                 ______
                                 
 Response to Written Questions Submitted by Hon. Ernest F. Hollings to
                              Hank Dittmar

    Question 1. You have stated that continued episodic bailouts of 
Amtrak, the airline industry and the highway industry are not the way 
the Congress should approach interstate commerce. Instead, you suggest 
deregulating all transportation industries, including passenger rail, 
and open them up to intermodal investment groups.
    Answer. My testimony called for a sustained increase in public 
investment in intercity rail, along with the removal of government 
barriers to intermodal investment in airport-rail-bus connections by 
airports, transit authorities and states. I contrasted the current set 
of bailouts with a national intermodal policy that sought to provide a 
more fiscally stable, environmentally sustainable and consumer friendly 
intercity travel system through integrated investment in air, rail and 
bus. Deregulation was not in fact the central recommendation of my 
testimony. It was instead the following:

        ``We believe that passenger rail can play a significant part in 
        our nation's transportation system, if we redefine the role 
        that intercity rail plays in that network, and if we provide 
        stable levels of capital funding, create incentives for 
        connecting our separate air, rail and bus networks together, 
        and remove regulatory barriers that prohibit coordinated 
        planning and integrated approaches to delivering intercity 
        transportation services--both passenger and freight.''

    Intercity transportation cannot operate without public subsidy, 
whether it is air transportation, highway transportation or intercity 
rail. We need to quit kidding ourselves that it can, and recognize that 
Amtrak has been hamstrung by the lack of a dedicated, stable funding 
source, especially when compared to aviation and highways, which have 
their own trust fund and dedicated funding source. Accordingly I called 
for multiyear capital funding that promotes partnerships between the 
states and Amtrak, a Last-mile Intermodal Connections program to 
promote intermodal investment in air-rail-bus connections and in shared 
benefit passenger-freight rail corridors, an Essential Transportation 
Services program to subsidize intercity air, rail and bus 
transportation in rural areas. Amtrak needs to reform and update its 
route structure, operating philosophy and funding partnerships to 
reflect the market demands of a 21st Century America, as the route 
structure of the 19th Century does not serve us well. To suggest such 
changes does not imply a lack of support for continued investment in 
Amtrak, merely a desire that increased investment in Amtrak yield 
maximum benefits.

    Question 1a. Are you aware of any investment groups that are 
willing to invest billions of dollars like the United States Government 
to operate an efficient and viable passenger rail system?
    Answer. No, and Reconnecting America has never suggested that 
investment groups were willing to take on the task of operating an 
efficient and viable passenger rail system. There is increasing 
evidence that private freight railroads are willing to work with the 
public sector to make shared benefit, shared investment improvements in 
rail corridors that improve the performance of both passenger rail and 
freight. This is a welcome development, as it creates a key opportunity 
for getting past the current concern that the freight railroads have 
with improved intercity service. Congress should facilitate such 
investments, as your legislation does. Capital grants to states to 
improve rail service could promote investment by requiring a state 
match, either of operating subsidy or capital.
    Question 1b. Do you believe that privatizing passenger rail would 
be a profitable undertaking?
    Answer. No, and Reconnecting America has never recommended the 
privatization of passenger rail. We do support enhanced collaboration, 
code-sharing and scheduling between Amtrak and private bus operators, 
as takes place in California. Similarly, if regulatory barriers are 
removed, I believe that code-sharing, integrated luggage and ticketing 
and information between Amtrak and air carriers, such as exists in 
Europe, can help Amtrak capture a new passenger market: that of acting 
as the medium distance spoke in the hub and spoke network. At the same 
time, there are many private companies who are willing to take on some 
aspects of passenger rail services on a contractual basis including 
food services, equipment maintenance and in some cases operations. 
While there is a role for greater private contracting in the provision 
of some aspects of rail service, there needs to be a national operator, 
with national branding, ticketing, standards, safety and operations 
oversight and information, and that operator will require public 
subsidy as do passenger rail operations worldwide. Public private 
partnerships need to be properly aligned so that the public interest is 
preserved as the private sector is engaged in spheres where it excels.

    Question 2. The events of September 11th showed how vulnerable our 
transportation system is to terrorist attacks and our need for 
alternative means to travel across our great Nation in a timely manner. 
Amtrak provided that service. However, you stated that Amtrak should 
eliminate long distance service.
    Answer. Perhaps I was unclear in my statement, as I do not believe 
that Amtrak should eliminate all long-distance service. What I said 
was:

        ``Amtrak should cease to be primarily an operator of long 
        distance train routes, and should instead focus on the short 
        and medium haul markets where it can be competitive with both 
        highway and air travel.''

    It is recognized worldwide that the most effective markets for 
intercity rail are markets between 150-400 miles, and these are the 
growth markets for intercity rail passenger services internationally, 
including in the United States. This does not rule out a role for long-
distance trains, particularly those that effectively combine pairs of 
cities within those distances. At the same time, however, it is clear 
that air travel provides more speedy service across longer distances, 
and that the scheduling issues associated with long-distance trains 
often prevent them from effectively serving shorter distance markets 
along these routes.
    We need to recognize that there are many reasons for Federal 
investment in transportation, and that connectivity is a key reason. As 
President Eisenhower said when introducing the Interstate Highway 
legislation, ``We are a United States,'' and if demand and cost-
effectiveness were the only criteria, we would not have built 
Interstate highways across the Great Plains or the Great Basin. 
Attached to my answers is a map depicting Average Annual Daily Travel 
on the Interstate highway system, derived from DOT statistics. It 
clearly demonstrates that this issue is not unique to Amtrak, but 
confronts us with respect to highways as well. Yet we have made such 
investments in both highways and air service, and have done so for good 
reasons. The answer is to provide subsidies for train service in less 
populated corridors, in tandem with and coordinated with subsidized air 
service and intercity bus service. Such subsidies could be offered 
through a new Essential Transportation Service program rather than the 
current program dedicated only to aviation. The creation of an ETS 
program would resolve a policy muddle, because these routes would be 
provided for national connectivity and rural transportation purposes, 
and not because they offer competitive service quality in a congested 
corridor.

    Question 2a. How do you believe American citizens would have 
traveled across the United States in the days after the attacks had 
Amtrak not been able to provide long distance service?
    Answer. Amtrak indeed provided an important service to the Nation 
in the days after the September 11 attack, and the system redundancy 
and reliability that is added by a national rail system as part of an 
interconnected national transportation system is vital. The role of 
passenger rail could be enhanced if rail, air and bus were 
interconnected at ``travelports'', allowing seamless transfer between 
long-distance flights and rail and bus feeder service. Amtrak should 
operate a national rail network composed primarily of medium distance 
routes, interconnected with one another and with intercity bus and air 
service at major hub locations, including many important travel markets 
that are not served or are poorly served by the current Amtrak system. 
In the end, this would provide a better service for the citizens of the 
country than either the disconnected corridor vision promoted by some 
or the existing long distance train network Amtrak operates today. 
While Amtrak might still need to operate some long distance trains, 
many parts of the country would be better connected by medium distance 
routes interconnected with other rail service and with bus and airline 
service at major hub locations. In the coming months, we hope to 
publish a map depicting such a reorganized structure.
                                 ______
                                 
 Response to Written Question Submitted by Hon. Frank R. Lautenberg to
                              Hank Dittmar

    Question. Your ``Reconnecting America'' initiative proposes 
essentially that we make better use of our Nation's transportation 
infrastructure to take advantage of the efficiencies and benefits that 
suit each particular mode of transportation. For instance, one example 
of an intermodal connection is in New Jersey, where travelers can take 
an Amtrak train and connect at Newark Airport to flights leaving to 
Europe or to the West Coast. But there doesn't appear to be any Federal 
program designed to provide funding for these types of projects. From a 
policy standpoint, how can we as a government make it a priority to 
encourage this type of efficiency among the many modes of 
transportation?
    Answer. The Newark Airport Air-Train project is an excellent 
example of the kind of intermodal connections we should be pursuing as 
a matter of government policy. It provides a convenient connection for 
air passengers arriving at Newark to destinations on Amtrak throughout 
the Northeast corridor as well as destinations throughout the Tri-State 
region via New Jersey Transit, and the connection to Penn Station. 
While the Newark project proves that these kinds of connections can be 
made, our review of the Newark experience as well as others in San 
Francisco, Portland, Oregon, and Providence, Rhode Island reveals that 
each project has had to invent its own funding sources, overcome 
significant obstacles, and deal with funding barriers in law and 
regulation that inhibit a systems approach to passenger transportation. 
In our view, without significant policy changes, it will continue to 
require persistent genius to succeed at these kinds of ``travelport'' 
projects.
    For our vision of an interconnected system to become a reality, 
then, we believe a number of Federal actions are necessary. First, 
Congress should create a ``Last-Mile Intermodal Connections Fund'' to 
finance these kinds of network connections for both passengers and 
freight. Such an Intermodal Trust Fund could be financed with funding 
sources that come from each mode, and would be used to provide a 
Federal share, of up to 50 percent to attract other investment in air-
rail-bus terminal projects at airports, rail station intermodal 
projects in downtowns, and port intermodal center projects for freight.
    Second, Congress needs to adopt policy and planning provisions 
calling for such an interconnected approach in state and metropolitan 
transportation plans, airport system plans and airport master plans, so 
that at a minimum these plans recognize the modal investments in each, 
address potential overlap or impact and consider the efficiencies from 
potential intermodal investments. These provisions need to be 
accompanied with enhanced funding flexibility for states and regions, 
eliminating the legal and regulatory barriers that inhibit Federal 
modal funds from being used for intermodal projects. Three key 
examples:

   Expanded eligibility to use Passenger Facility Charges for 
        ground access improvements off airport property, provided it is 
        accompanied with authority to charge PFCs to arriving intercity 
        rail and intercity bus passengers, along with charging a modest 
        surcharge for arriving transit and commuter rail passengers at 
        travelports. The House passed aviation bill makes a modest step 
        in this direction.

   Flexibility to use National Highway System funds to make 
        capital investments in intercity passenger rail and freight 
        rail corridors, provided it is a shared investment scenario and 
        the project relieves a NHS corridor.

   Flexibility to use Federal Transit Administration funding 
        for intermodal facilities for projects that benefit both 
        intercity bus and intercity rail, along with local public 
        transit.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John McCain to
                              Alan Landes

    Question 1. I was surprised that your testimony recommends other 
train operators negotiate access with the freight railroads, while 
Amtrak should be permitted to retain its right to access the rights-of-
way of the freight railroads at incremental cost. Do you take this 
position because you believe that even if you have to pay more for 
access, you will still be more competitive than Amtrak? (In other 
words, will the benefits of competition offset higher charges to access 
the rights-of-way of the freight railroads?)
    Answer. My testimony related to state-supported services operated 
under contract to Amtrak [formerly 403(b) services]. This position was 
taken to allow competition for these services immediately without any 
changes in Federal law. The position also recognizes the freight 
railroads' opposition to other operators having access to their rights 
of way at the ``incremental cost'' basis that Amtrak enjoys.
    If the other issues raised in my testimony (access to government 
subsidized Amtrak facilities and equipment at a fair price and 
liability and insurance) are addressed, it may well be that 
efficiencies introduced by other operators could more than offset the 
cost differential for track access fees based on fully-allocated costs 
to the track owner.

    Question 1a. How much of a difference do you estimate there is 
between what Amtrak pays the freight railroad and what you have to pay 
through negotiation?
    Answer. Herzog does not possess documentary evidence of what the 
incremental cost is that Amtrak is paying the freight railroads. Part 
of our testimony was the suggestion to require Amtrak to make this 
available. In the proposal prepared for the State of Missouri, which 
was not submitted for the reasons stated in our testimony, we assumed 
that the access charge negotiated by the Altamont Commuter Express 
Authority with the Union Pacific for the Stockton to San Jose commuter 
rail service would be a good approximation of the cost for other 
operators. We understand this to be approximately $6.13 per train mile. 
The best information we have regarding Amtrak's cost is that the State 
of Missouri pays Amtrak approximately $2.90 per train mile for access 
to the UP between Kansas City and St. Louis. The difference, of course, 
represents a subsidy from the freight railroads to Amtrak.

    Question 1b. If we are truly to have fair and open competition, 
shouldn't the same rules apply to all potential operators, including 
Amtrak?
    Answer. Yes, but the freight railroads are very reluctant to grant 
other operators access at the rates Amtrak is currently paying. Indeed, 
Amtrak's performance may cause interference with freight operations at 
the same time the track owners are under compensated. We would not want 
passenger to undercut the substantial public benefits of congestion 
relief, energy savings and safety derived from the rail alternative to 
truck. While we are not suggesting what Amtrak should or should not pay 
to the freight railroads, it may be that allowing the freight railroads 
to recover more than incremental costs would bring about track owner 
cooperation and result in the improvement of rail passenger service in 
this country.

    Question 2. I have been concerned that freight railroads will 
prevent an operator other than Amtrak from operating over their rights-
of-way even if the operator is willing to negotiate higher access fees. 
How can Congress protect the interests of the freight railroads while 
also ensuring that they do not make the price of access so high as to 
make the service prohibitively expensive?
    Answer. As mentioned in my answer to Question 1, it may be that 
Congress could charge the Surface Transportation Board with 
establishing criteria to serve as the basis for the negotiated access 
fees. This could serve as a template for negotiation. We believe that 
the negotiated access rates will generally settle at a number that 
makes the service affordable. We have been involved in such arms length 
negotiations many times. Herzog operates affordable and successful 
commuter rail service at negotiated rates in 3 locations. Connex North 
America is operating the MBTA commuter rail routes at privately 
negotiated access fees. The Burlington Northern Santa Fe also has 
negotiated rates with the Chicago Metra and the Seattle Sounder as does 
CSX does with MARC in Maryland and CSX and NS do with VRE in Virginia.
    Speaking as a potential qualified operator, Herzog is prepared to 
negotiate directly with the freight railroads for access to track and 
facilities or this could be done by the states. Whether it is the 
states or a qualified operator, a specific process needs to be 
prescribed that allows the negotiations of a reasonable cost to be 
accomplished within a reasonable timeframe that would allow qualified 
operators to timely respond to the states. If negotiations fail, the 
process should spell out a binding arbitration procedure.
    In some cases the cost to the infrastructure owner of providing the 
access will be so high that accurately calculated access fees may be 
prohibitive. As mentioned previously, freight rail companies depend 
upon their track to conduct business, increasingly in direct 
competition with other modes. Congestion of lines is a critical issue 
and infrastructure capacity is limited in most areas. In such a case, 
the public parties seeking to maintain the service would need to enter 
into a dialogue with the track owner to determine what improvements to 
track, signaling, etc. would be necessary to bring the infrastructure 
or other operating systems to a level that would permit an acceptable 
access fee. The parties would then need to agree to a mutually 
satisfactory mechanism to implement those improvements. This is the 
kind of ``win-win'' situation that can lead to expanded passenger rail 
service. However, it will be important that Congress make the funding 
available for rail infrastructure expansion as a part of the 
Transportation Efficiency Act reauthorization.

    Question 3. You testified that Amtrak refused to allow Herzog 
access to its national reservation system? What justification did 
Amtrak give for taking this action?
    Answer. In a letter to Herzog dated March 21, 2003, Amtrak stated 
that ``we do not make this system available to third parties.'' Our 
request to Amtrak was to use the reservation system for ``through 
ticketing'' for which there appears to be precedent. Amtrak has 
arrangements with Greyhound to issue ``through tickets'' for Amtrak 
passengers who begin or continue their journey on Greyhound buses to or 
from destinations served by Amtrak to or from destinations not served 
by Amtrak. We frankly believe that the flat Amtrak rejection was simply 
an excuse to help assure we could not prepare a bid that was compliant 
with the Missouri requirement for through ticketing.

    Question 4. I understand that Herzog operates a maintenance 
facility for the state of North Carolina. Did you encounter similar 
problems in bidding for the maintenance contract or taking over the 
maintenance operation?
    Answer. Yes. Amtrak operates intercity service in the North 
Carolina supported by the state. Amtrak subcontracted the equipment 
maintenance for this service to a company called Dymac. At the request 
of the State Amtrak issued an RFP to possibly replace Dymac. After 
months of work Herzog submitted a response to Amtrak's RFP. For 
undisclosed reasons and much to the dismay of Herzog and the State, 
Amtrak abruptly cancelled the process after reviewing responses. The 
State then removed the equipment maintenance from Amtrak's scope of 
work and directly issued a new RFP to which Herzog was the lowest 
responsible bidder. The State's RFP included insurance requirements 
identical to those in the original Amtrak RFP, all of which were met by 
Herzog. After the contract was awarded to Herzog and only two weeks 
prior to the commencement of the service, Amtrak notified the State 
that it required a substantial increase in insurance coverage levels 
and without them Amtrak would discontinue the operation of the service. 
This action by Amtrak caused a significant increase in cost to the 
state. In Herzog's view, it was an attempt by Amtrak to scuttle the 
contract award to Herzog.

    Question 5. Mr. Gunn stated in his testimony that it is a myth that 
the private sector is interested in taking over Amtrak services. 
Obviously, you would not agree with this statement. Could you please 
provide the Committee with a list of other companies that have 
expressed interest in operating trains, managing equipment maintenance, 
or even taking on responsibility for the Northeast Corridor 
infrastructure?
    Answer. There is a great deal of private sector interest. There is 
also a great deal of private sector experience as articulated in Mr. 
Winner's testimony. For months, Mr. Gunn has been asserting that 
``private sector interest in passenger service is a myth.'' Mr. Gunn's 
myth is a myth. He is flat wrong.
    Attached is a preliminary list we have compiled. It is an expanded 
version of a list originally compiled by Mercer Management Consulting, 
Inc. and made available to us. The National Railroad Contractors and 
Maintenance Association (NRC) is surveying its membership as well as 
some additional firms in Europe. We expect to have an expanded list 
ready for you within a month.
                                 ______
                                 
 Response to Written Questions Submitted by Hon. Ernest F. Hollings to
                           Michael P. Pracht

    Question 1. Would this plan in effect generate a steady revenue 
stream available for rail infrastructure?
    Answer. Yes, our proposal is to provide $50 billion in revenues for 
railroad infrastructure over a fixed period of time. This would 
generate a dependable and reliable source of capital investment funding 
for both freight and passenger needs.

    Question 2. Would it supplant the annual appropriations required of 
passenger rail now?
    Answer. No, this proposal is designed to address capital 
infrastructure projects for all railroads and would not take the place 
of annual appropriations for operating needs for intercity passenger 
rail.

    Question 3. What effect would this plan have on transportation 
congestion, including freight rail, highways and aviation?
    Answer. The American economy continues to lose billion of dollars 
each year as a result of traffic congestion. The most cost effective 
way to expand capacity and reduce congestion is on the Nation's 
railroad infrastructure. The American Association of State Highway and 
Transportation Officials (AASHTO) estimates total freight rail capital 
investment needs of $175 billion to $195 billion over the next twenty 
years, but the private rail industry will only be able to provide up to 
$142 billion. The remainder would require public investment. If 
railroads were unable to meet the estimated demands for freight 
movement, billions in additional highway investment would be required. 
If these capital needs are met and railroads are able to attract a 
continued share of growing freight traffic the Nation would save the 
country $17 billion in reduced congestion and highway investment costs 
from 2000-2020.

    Question 4. Would the investment be earmarked only for rail, or 
could it be used to improve intermodal terminals, as well as improved 
access to airport terminals and ports?
    Answer. Our proposal is designed to provide infrastructure funding 
for railroads, if intermodal terminals and access to airport terminals 
and ports include rail connections, then they would qualify.

    Question 5. Would the plan support only heavily used transportation 
corridors in crowded urban areas, or would rural communities benefit 
from the investment as well?
    Answer. We expect that a proposal of this nature should be 
accompanied by project qualification standards, which should be 
established by Federal policy makers. There is no reason why rural 
communities should not benefit from these investments if they meet the 
standards.

Under the plan you propose, the government investment would not be 
        confined to passenger rail, but freight rail would also be 
        eligible for funding.
    Question 1. How do you respond to those who would say that it would 
be inappropriate for taxpayers to invest in what is really a private 
asset?
    Answer. The type of rail infrastructure investment we are proposing 
is designed to provide a public good that would reduce congestion, 
improve air quality, and provide a more efficient and balanced national 
transportation system. Without such an investment, the government would 
be limited to investing in transportation infrastructure that would be 
more costly and less efficient. In addition, unlike other 
transportation investments, investing in railroad infrastructure places 
the burden of maintenance on the railroad, not the government.

    Question 2. How would you allay fears by freight railroads that 
huge government investment in their infrastructure could essentially be 
interpreted as a sale of the infrastructure to the public?
    Answer. Under our proposal, the railroads will not benefit from 
direct grants from the government. This would fall into the category of 
a government incentive for private investment in transportation 
infrastructure. There are numerous examples where the government uses 
the tax code to encourage certain activities that benefit the private 
sector. This case is no different because the government gets a public 
benefit in exchange for offering such an incentive. There are also many 
examples where government already provides direct funding for rail 
infrastructure improvements that are designed to achieve a public good. 
All our proposal would do is establish an environment where states and 
the railroads could join in public/private partnerships to accomplish 
objectives that are in the interest of the taxpaying public. Railroads 
will have the option of not participating if they so desire. This 
concept in no way is designed to replace the significant investment 
already being made by private railroads. However, it is designed to 
provide an incentive for private railroads to undertake projects that 
are in the interest of the public and that otherwise may not get 
funded.

    Question 3. Would the infrastructure currently owned by the freight 
railroads remain in control of the freight railroads? Who would own and 
control infrastructure improvements outside of the freight rail system, 
such as access to airport terminals and equipment for high-speed 
passenger rail?
    Answer. Our proposal does not assume any transfer in ownership of 
existing railroad property that may be improved and expect that it 
would remain fully in control of the freight railroads.
    With respect to infrastructure outside the existing freight system, 
we anticipate that any ownership decision would be made by the public/
private partnership, which could include ports, states or the freight 
railroads. With respect to passenger rail access to air terminals and 
the necessary equipment for providing the service, we believe that 
those advocating the improvements should make the ownership and 
maintenance responsibility decision.

                                  
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