[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]


 
 IMPLEMENTATION OF THE RECENTLY EXPANDED RAILROAD INFRASTRUCTURE LOAN 
                                PROGRAM

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

                                (109-56)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                               RAILROADS

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 15, 2006

                               __________

                       Printed for the use of the
             Committee on Transportation and Infrastructure


                                   ____

                    U.S. GOVERNMENT PRINTING OFFICE
28-271                      WASHINGTON : 2006
_____________________________________________________________________________
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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                      DON YOUNG, Alaska, Chairman

THOMAS E. PETRI, Wisconsin, Vice-    JAMES L. OBERSTAR, Minnesota
Chair                                NICK J. RAHALL, II, West Virginia
SHERWOOD L. BOEHLERT, New York       PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina         JERRY F. COSTELLO, Illinois
JOHN J. DUNCAN, Jr., Tennessee       ELEANOR HOLMES NORTON, District of 
WAYNE T. GILCHREST, Maryland         Columbia
JOHN L. MICA, Florida                JERROLD NADLER, New York
PETER HOEKSTRA, Michigan             CORRINE BROWN, Florida
VERNON J. EHLERS, Michigan           BOB FILNER, California
SPENCER BACHUS, Alabama              EDDIE BERNICE JOHNSON, Texas
STEVEN C. LaTOURETTE, Ohio           GENE TAYLOR, Mississippi
SUE W. KELLY, New York               JUANITA MILLENDER-McDONALD, 
RICHARD H. BAKER, Louisiana          California
ROBERT W. NEY, Ohio                  ELIJAH E. CUMMINGS, Maryland
FRANK A. LoBIONDO, New Jersey        EARL BLUMENAUER, Oregon
JERRY MORAN, Kansas                  ELLEN O. TAUSCHER, California
GARY G. MILLER, California           BILL PASCRELL, Jr., New Jersey
ROBIN HAYES, North Carolina          LEONARD L. BOSWELL, Iowa
ROB SIMMONS, Connecticut             TIM HOLDEN, Pennsylvania
HENRY E. BROWN, Jr., South Carolina  BRIAN BAIRD, Washington
TIMOTHY V. JOHNSON, Illinois         SHELLEY BERKLEY, Nevada
TODD RUSSELL PLATTS, Pennsylvania    JIM MATHESON, Utah
SAM GRAVES, Missouri                 MICHAEL M. HONDA, California
MARK R. KENNEDY, Minnesota           RICK LARSEN, Washington
BILL SHUSTER, Pennsylvania           MICHAEL E. CAPUANO, Massachusetts
JOHN BOOZMAN, Arkansas               ANTHONY D. WEINER, New York
JIM GERLACH, Pennsylvania            JULIA CARSON, Indiana
MARIO DIAZ-BALART, Florida           TIMOTHY H. BISHOP, New York
JON C. PORTER, Nevada                MICHAEL H. MICHAUD, Maine
TOM OSBORNE, Nebraska                LINCOLN DAVIS, Tennessee
KENNY MARCHANT, Texas                BEN CHANDLER, Kentucky
MICHAEL E. SODREL, Indiana           BRIAN HIGGINS, New York
CHARLES W. DENT, Pennsylvania        RUSS CARNAHAN, Missouri
TED POE, Texas                       ALLYSON Y. SCHWARTZ, Pennsylvania
DAVID G. REICHERT, Washington        JOHN T. SALAZAR, Colorado
CONNIE MACK, Florida                 JOHN BARROW, Georgia
JOHN R. `RANDY' KUHL, Jr., New York
LUIS G. FORTUNO, Puerto Rico
LYNN A. WESTMORELAND, Georgia
CHARLES W. BOUSTANY, Jr., Louisiana
JEAN SCHMIDT, Ohio

                                  (ii)

?

                       SUBCOMMITTEE ON RAILROADS

                  STEVEN C. LaTOURETTE, Ohio, Chairman

THOMAS E. PETRI, Wisconsin           CORRINE BROWN, Florida
SHERWOOD L. BOEHLERT, New York       NICK J. RAHALL II, West Virginia
JOHN L. MICA, Florida                JERROLD NADLER, New York
SPENCER BACHUS, Alabama              BOB FILNER, California
JERRY MORAN, Kansas                  ELIJAH E. CUMMINGS, Maryland
GARY G. MILLER, California           EARL BLUMENAUER, Oregon
ROB SIMMONS, Connecticut             LEONARD L. BOSWELL, Iowa
TODD RUSSELL PLATTS, Pennsylvania    JULIA CARSON, Indiana
SAM GRAVES, Missouri                 PETER A. DeFAZIO, Oregon
JON PORTER, Nevada                   JERRY F. COSTELLO, Illinois
TOM OSBORNE, Nebraska                EDDIE BERNICE JOHNSON, Texas
MICHAEL E. SODREL, Indiana           JOHN BARROW, Georgia
LYNN A. WESTMORELND, Georgia, Vice-  JAMES L. OBERSTAR, Minnesota
Chair                                  (ex officio)
DON YOUNG, Alaska
  (ex officio)

                                 (iii)

                                CONTENTS

                               TESTIMONY

                                                                   Page
 Boardman, Hom. Joseph H., Administrator, Federal Railroad 
  Administration, accompanied by Joseph Pomponio, Chief, Freight 
  Program Division, Office of Railroad Development, Federal 
  Railroad Administration........................................     2

          PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Brown, Hon. Corrine, of Florida..................................    34
Costello, Hon. Jerry F., of Illinois.............................    41
Cummings, Hon. Elijah E., of Maryland............................    43
Oberstar, James L. of Minnesota..................................    49
Young, Hon. Don, of Alaska.......................................    52

              PREPARED STATEMENT SUBMITTED BY THE WITNESS

 Boardman, Hom. Joseph H.........................................    18

                       SUBMISSION FOR THE RECORD

 Boardman, Hom. Joseph H., Administrator, Federal Railroad, 
  responses to questions from Rep. Moran of Kansas...............    30

                         ADDITION TO THE RECORD

Timmons, Richard F., President, American Short Line and Regional 
  Railroad Association, letter, March 7, 2006....................    57


    IMPLEMENTATION OF THE RECENTLY EXPANDED RAIL INFRASTRUCTURE LOAN 
                                PROGRAM

                              ----------                              


                       Wednesday, March 15, 2006,

        Committee on Transportation and Infrastructure, 
            Subcommittee on Railroads, House of 
            Representatives, Washington, D.C.
    The committee met, pursuant to call, at 2:30 p.m. in room 
2167, Rayburn House Office Building, Hon. Steven LaTourette 
[chairman of the committee] presiding.
    Mr. LaTourette. The Subcommittee on Rail will come to order 
this afternoon.
    Good afternoon. This afternoon we are doing a checkup on 
the Railroad Rehabilitation and Improvement Finance program, 
usually known more succinctly as RRIF. This program has had an 
unnecessarily checkered history since it was created in 1998 in 
the TEA-21 legislation, mostly due to administrative 
obstruction.
    When the expanded $35 billion version of RRIF was enacted 
last summer as part of SAFETEA-LU, the Congress legislatively 
overruled point by point each of the four handicaps that had 
been imposed in the program by the Department of Transportation 
and the Office of Management and Budget. The foregone 
opportunities to improve our rail transport network in eight 
years of a stifled RRIF program are huge. But in 1998 through 
2005, only a tiny fraction of the $3.5 billion revolving 
authorization for rail and rail intermodal infrastructure loans 
was tapped.
    Last year's authorization expanded the program ten-fold. 
These loans have no budgetary score associated with them unless 
and until the security deposit is provided by Federal 
appropriation. Even then, only the deposit is scored, not the 
loan amount itself. Think of what $3.5 billion in off budget 
funds could have done since 1998 to address some of the choke 
points in our rail network and to upgrade the marginal track 
network of the Nation's short line railroads.
    Today's hearing should help the Subcommittee ascertain 
whether the Department of Transportation has in fact complied 
with SAFETEA-LU and remove the impediments that the DOT has 
placed in the way of normal processing of RRIF applications for 
direct and guaranteed loans for rail infrastructure. The 
hearing should also tell us whether the DOT has in fact 
complied with other affirmative duties and obligations imposed 
upon DOT regarding the RRIF program in the SAFETEA-LU bill.
    Today's hearing is the third held by an arm of the 
Transportation and Infrastructure Committee on RRIF sine its 
creation of the program. In 1999, 2000 and 2001, members of 
this Committee, on a thoroughly bipartisan basis, made clear 
that both the present and the previous Administration, their 
frustration with the way that this program was being hobbled. 
Let's hope that today's hearing is something different.
    Because this is a hearing to determine DOT's compliance 
with the law, we will be hearing testimony only from the 
Department itself. However, as is our standard practice, the 
Subcommittee will accept written submissions from other 
interested parties about the function of the RRIF program for 
inclusion in the written record of this hearing.
    Before yielding to our special guest today, the 
distinguished Ranking Member from Illinois, Mr. Costello, I do 
have one housekeeping matter. I would ask unanimous consent to 
allow 30 days for members to revise and extend their remarks 
and to permit the submission of additional statements and 
materials by witnesses. Without objection, so ordered.
    And specifically, the unanimous consent to insert the 
Chairman of the full Committee, Mr. Young's opening remarks, 
questions that have been submitted to the Committed by Mr. 
Moran of Kansas, and a letter from the short line railroads to 
Chairman Young. Also without objection, so ordered.
    It is now my pleasure to recognize, as I indicated, our 
special guest as Ranking Member today, someone who I served 
with when we were on the Public Buildings Subcommittee, the 
gentleman from Illinois, Mr. Costello.
    Mr. Costello. Mr. Chairman, thank you. You have accurately 
described the purpose of this hearing and the problem that we 
have faced with the Administration. So I will submit my 
statement for the record and yield back the balance of my time, 
so we can go directly to our witness.
    Mr. LaTourette. I thank you very much, Mr. Costello.
    We have only one witness today. We are honored to have with 
us the Administrator from the Federal Railroad Administration, 
Joseph H. Boardman. Mr. Boardman, we appreciate your being here 
and we very much look forward to your testimony. We will catch 
up with Mr. Oberstar after we have heard from you.
    Welcome, and we would love to hear from you.

 TESTIMONY OF THE HONORABLE JOSEPH H. BOARDMAN, ADMINISTRATOR, 
    FEDERAL RAILROAD ADMINISTRATION; ACCOMPANIED BY: JOSEPH 
 POMPONIO, CHIEF, FREIGHT PROGRAM DIVISION, OFFICE OF RAILROAD 
          DEVELOPMENT, FEDERAL RAILROAD ADMINISTRATION

    Mr. Boardman. Thank you, Mr. Chairman. Congratulations on 
the new member of your family.
    Chairman LaTourette, Ranking Member Costello and other 
members of the Subcommittee, it is my pleasure today to 
represent Secretary of Transportation Norman Y. Mineta to 
discuss the status of the Federal Railroad Administration's 
implementation of the Railroad Rehabilitation and Improvement 
Financing program, better known as RRIF.
    I am accompanied today by Mr. Joseph Pomponio, to my left, 
Chief of the Freight Program Division in FRA's Office of 
Railroad Development and the FRA Manager directly responsible 
for the RRIF program implementation, as you requested.
    The current RRIF program was created in 1998 in the 
Transportation Equity Act for the 21st Century, or TEA-21. TEA-
21 significantly amended the RRIF program created by Title V of 
the Railroad Revitalization and Regulatory Reform, or 4R Act of 
1976. That program had lain largely fallow due to changes in 
the requirements for Federal loan and loan guaranty programs 
created in the Federal Credit Reform Act of 1990.
    To date, the RRIF is the primary discretionary program 
available to FRA to provide financial assistance for capital 
improvements for the rail industry in general and to the small 
regional freight railroads in particular. Thus far, FRA has 
entered into financing agreements with 12 railroads for 13 
grants in the total amount of $517.7 million.
    All of this financial assistance has been made through 
direct loans. Recipients have included one Class I railroad, 
Amtrak; two Class II railroads; and nine Class III railroads. A 
list of these loan recipients is attached to my written 
testimony.
    Section 9003 of SAFETEA-LU amended the RRIF program in a 
number of ways. It has now been seven months since enactment of 
SAFETEA-LU and I wish to report briefly on the FRA's 
implementation of the most important of these amendments. First 
is the expansion of eligible applicants. The SAFETEA-LU 
amendments effectively expanded the types of entities eligible 
to include limited option shippers and commuter railroads. 
While FRA has been contacted by several limited option shippers 
to date, none has filed an application. FRA has recently 
received and is currently processing a loan application from a 
commuter railroad to fund acquisition of 50 new passenger 
cards.
    The second is expanding the extent of RRIF authority. 
SAFETEA-LU expanded the total authority outstanding for RRIF 
financial assistance from $3.5 billion to $35 billion, and the 
amount reserved for small and regional railroads from $1 
billion to $7 billion. The amendments also provided that the 
Secretary was not to establish any limit on the amount that 
could be used for one loan or loan guaranty. These changes may 
have significant impact on the types and sizes of projects for 
which applicants may seek financial assistance and the 
consequence to the Federal Government in the event of a 
default.
    Third is the requirement for collateral. SAFETEA-LU 
provides that the Secretary not require an applicant to provide 
collateral and that any collateral provided be evaluated at 
going concern value after giving effect to the present value of 
the improvement. Before the SAFETEA-LU amendments, FRA sought 
collateral to cover at least 100 percent of the value of the 
loan, but never required any specific amount.
    Where the value of collateral is important is in the 
calculation of the credit risk premium, which must look at the 
extent to which the Federal Government would be at risk in the 
event of a default. By offering collateral, applicants reduce 
the risk to the Government and thus the credit risk premium 
they would have to pay.
    As provided for in SAFETEA-LU, in assessing the value of 
collateral, FRA uses going concern value where it is 
appropriate. Some applicants may choose to offer collateral 
that does not encompass a going concern, such as a locomotive. 
These are valued as they would be by any other financial 
institution, usually at market or net liquidation value. 
Documenting the financing is not available on equivalent terms 
from other sources.
    SAFETEA-LU also provides that the Secretary shall not 
require that an applicant shall have previously sought 
financial assistance from another source. Prior to this change, 
FRA, consistent with Federal credit policy, sought to encourage 
private sector financing by requiring that applicants 
demonstrate they had sought financing in terms equivalent to 
those under the program from a commercial lending institution 
and had been rejected. No applicant is known to have had a 
problem demonstrating this, in part because the RRIF program 
offers applicants long-term financing at Treasury rates, making 
it unlikely that applicants would find such low cost financing 
in the private market.
    Time limit on approving a complete application. SAFETEA-LU 
provides that FRA has 90 days after receipt of a complete 
application to approve or disapprove an application. To date, 
FRA has not found this limit to be an operational issue, given 
the volume of applications FRA receives.
    Evaluation charge. While TEA-21 provided authority to 
collect an investigation fee, it was found inadequate to 
authorize the expenditure of funds collected. SAFETEA-LU 
amendments clarified that FRA can expend any funds collected 
under that authority to evaluate an application, including 
costs for contractors to undertake independent financial 
engineering and market analysis of applicants and applications. 
This provision has streamlined the application review process 
significantly.
    In the future, FRA is currently evaluating eight 
applications seeking a total of $2.75 billion in financial 
assistance. These applications range in amount from $6.2 
million to $2.5 billion. Any discussion of the future or RRIF 
should address the Administration's budget request. The 
Administration's budget request for 2007, as it did the 
Administration's budget request for 2006, proposes the 
termination of the RRIF program. I urge your thoughtful 
consideration of the Administration's proposal.
    Mr. Chairman, that concludes my testimony and I look 
forward to answering any questions the Committee members might 
have on the implementation of the RRIF program.
    Mr. LaTourette. Mr. Boardman, I thank you very much. I 
would just begin by saying, I have given thoughtful 
consideration to the Administration's request. I happen to 
think most of us think the RRIF program is a pretty good deal 
and a pretty good idea. As a Republican, I can only say that 
the Administration is putting folks like me in a tough position 
by one, making speeches calling for the ten-fold growth in the 
RRIF program, and then sending up a budget asking for its 
elimination. But we'll deal with the President, I suppose, on 
that.
    Can you tell us, since the inception of the RRIF program, 
how many RRIF loans have been granted by the Administration?
    Mr. Boardman. Thirteen RRIF loans.
    Mr. LaTourette. How many of those have gone into default or 
have not been paid back?
    Mr. Boardman. There have been none.
    Mr. LaTourette. That's what I thought.
    I want to talk about, I talked about in my opening 
statement I talked about the checkered history and what I 
consider to be a dismal record. You were not here for all of 
this, so you are not going to wear the jacket. But this 
Administration and the last Administration in my mind at least 
has flaunted the will of the Congress. This is a program that 
was designed to provide funds, beginning with the TEA-21 moving 
forward, $3.5 billion. I think, in my opening statement, I 
mean, we have congestion problems, we have capacity problems, 
we have a variety of problems that at least in my mind, and I 
think on this that we have bipartisan agreement, that if these 
funds had been made available as the Congress intended, rather 
than having some of these impediments placed in the way, that 
were never enacted, and we have to now straighten out in 
SAFETEA-LU, I think we would have a better national rail 
system.
    But let me just ask this question. You talked about the 
encouragement in the past that borrowers go into the market. 
That I think was the lender of last resort regulation. There 
was a June 23rd, 2000 Department of Transportation-OMB 
Memorandum of Understanding on RRIF. It at least in my mind had 
four obnoxious provisions. One was this lender of last resort. 
And I think that I, my question to you, and we will go to the 
other ones next, it is my understanding that SAFETEA-LU has now 
straightened that out,and that is not to be the way this is 
administered any more.
    Can you give us an assurance that that is your 
understanding and that is how the Department is going to 
proceed in the future, or if that is not your understanding, 
can you tell us what your understanding is?
    Mr. Boardman. Yes, Mr. Chairman. I believe that the MOU 
that you are referring to is irrelevant. It really is an 
encumbrance for us. I think SAFETEA-LU corrected that. And I 
would like to point out for the record that the first grant 
under our RRIF really came under Secretary Mineta. I believe 
that he is one who is carrying out both the interest and the 
spirit of what occurred here in terms of the RRIF law.
    Mr. LaTourette. And then specifically to go through them, 
so that our record is clear, the legal situation regarding the 
RRIF program after SAFETEA-LU. First, is it correct that the 
abolition of the lender of last resort regulation happened by 
operation of law when that bill was signed and did not require 
some administrative implementation at the Department of 
Transportation to put it into effect?
    Mr. Boardman. That is correct. We today are carrying out 
and implementing both the spirit and the law of SAFETEA-LU.
    Mr. LaTourette. Second, in order to avoid confusing 
potential applicants about the demise of this lender of last 
resort, has the FRA removed that subsection from its published 
regulations?
    Mr. Pomponio. No.
    Mr. LaTourette. Do you intend to do that?
    Mr. Pomponio. Yes, sir, we intend to revise our regulations 
at some point to make changes. But at this point, the statute 
takes precedence over the regulations. So the regulations no 
longer affect it.
    Mr. LaTourette. Third, didn't the enactment of SAFETEA-LU 
immediately nullify the June 23rd, 2000 MOU on the RRIF 
program?
    Mr. Boardman. Yes, it did. We believe it's irrelevant.
    Mr. LaTourette. All right. And fourth, has the DOT made any 
sort of public announcement or communicated by other means to 
potential loan applicants that the requirements stated in the 
DOT-OMB MOU are no longer operative, and if not, when does the 
Department intend to do so?
    Mr. Boardman. Yes, we have, by reaching out to the short 
line railroads, by talking to the AASHTO folks. We have had a 
regular reach-out to make sure they understand the provisions 
of SAFETEA-LU.
    Mr. LaTourette. Have any of those communications been in 
writing?
    Mr. Boardman. I would have to verify that. I don't know.
    Mr. LaTourette. If any of them have, I would just ask that 
you submit those for the purposes of the record, if you have 
anything that was sent out in writing to the parties, which you 
have just talked about.
    Mr. Boardman. Yes, sir.
    Mr. LaTourette. As the would-be homebuyer said to the 
mortgage company, let's talk interest rates. Your statement on 
page three correctly reflects the fact that the RRIF statute 
sets out two different interest rate standards, one for direct 
loans made by the Government and one for guaranteed loans made 
by private lenders and federally guaranteed. What I find 
curious is that your statement of the interest rate standard 
for guaranteed loans tracks almost verbatim the language of the 
statute, but for direct loans by the Government, your statement 
of the standard I think is, ``an interest rate equal to the 
cost of borrowing for a comparable term based on the current 
Treasury rate at the time of closing.''
    Now, I think what the law says is that a rate not less than 
that necessary to recover the cost of making the loan. To me, 
that seems like quite a difference. And the statute doesn't 
mention comparable term, it doesn't peg the interest to a 
Treasury rate, much less than that on the closing date. It 
seems rather clear that it is just a cost recovery standard.
    If you know, where did these extra details come from and 
what is their legal basis? And by the way, hasn't every RRIF 
loan since 1998 been a direct, not a guaranteed one?
    Mr. Boardman. I can answer the last part of that, yes, they 
have been a direct loan. But I am going to ask Mr. Pomponio to 
answer the first part.
    Mr. LaTourette. Okay.
    Mr. Pomponio. The statute requires that the interest rate 
reflect the cost to the Government. But the cost also includes 
a component of risk. So early on in the formulation of the 
program, we had to make a choice of either having the interest 
rate float or to have the risk premium float. And through 
consultation with OMB, we determined that the interest rate 
would remain fixed and the credit risk premium would go up and 
down according to the risk.
    Mr. LaTourette. I'm going to have to think about that 
answer while I yield to my colleagues. I may have some 
additional questions.
    I just wanted to, Mr. Boardman, I happen to have been 
impressed with the job that you have done with the FRA in your 
short tim there. Just from my perspective, it seems this 
Administration and the last Administration has done everything 
in its power to make sure that this program has so many 
obstacles that these loans don't get out and do the work that 
the Congress intended them to do. I would hope that that would 
not be your bent, despite the fact that your boss has set up a 
budget that asks us to discontinue something that the Congress 
thinks is a worthwhile program.
    It is now my pleasure to yield to Mr. Costello.
    Mr. Costello. Mr. Chairman, thank you, and let me just 
express my frustration as well with this Administration and the 
obstruction that they have attempted to place in front of the 
Congress implementing this program. I think when we passed 
SAFETEA-LU, we were very clear in our intention in the law. It 
was President Bush who came to Illinois, and many of us 
attended the signing ceremony, when he signed SAFETEA-LU and 
talked about what a great bill it was and how it was going to 
help not only in our roads, bridges, highways, aviation, but 
also railroads. And he talked specifically about 
infrastructure.
    I am going to ask you, Mr. Boardman, just a couple of quick 
questions, ask if you agree or disagree. One, in just the brief 
conversation we had before the hearing, you acknowledged that 
freight transportation is continuing to grow. Would you agree 
that it is growing past its current capacity to handle the 
growth?
    Mr. Boardman. I think all trend indications are that that 
is the case.
    Mr. Costello. Okay, and would you agree that we need 
additional investment in infrastructure projects to enhance 
service, promote efficiency and reduce cost?
    Mr. Boardman. Yes. I see railroads making those 
investments.
    Mr. Costello. And you may or may not know that the White 
House Office of Management and Budget was invited to testify 
here today, but refused to testify at this hearing. But they 
claim on their web site, and I am going to quote: ``There is no 
clear justification why the Federal Government should extend 
such favorable loans to private rail companies.'' Are you 
familiar with that statement on OMB's web site?
    Mr. Boardman. Yes, sir.
    Mr. Costello. Would you agree with that or disagree?
    Mr. Boardman. Yes, sir. I believe that what we have today 
is an ability for the railroads to go into the private sector 
to find the financing they need for their investments.
    Mr. Costello. So you think that there is no responsibility 
on the part of the Federal Government regarding investing in 
infrastructure, either from a safety standpoint or any 
standpoint?
    Mr. Boardman. I think that what we are finding today is the 
railroads are actually becoming profitable in a way that allows 
them to use more of the commercial market than they have been 
able to in the past. Our position is that this kind of a 
program can be financed in the private sector.
    Mr. Costello. So the responsibility for safety, for 
improving the rail infrastructure, rests solely on the private 
sector, on the railroads?
    Mr. Boardman. The responsibility for safety on the 
railroads is with the operator. It is our responsibility to 
ensure that they are making the right investments to continue 
that safety.
    Mr. Costello. And in your judgment, are you carrying out 
that responsibility today?
    Mr. Boardman. Yes, sir.
    Mr. Costello. Let me ask why Class I freight railroads have 
not used the RRIF program? Can you tell me in your opinion why 
that is?
    Mr. Boardman. We do have one Class I, notwithstanding the 
fact that some don't see that way, Amtrak is a Class I 
railroad, so they are using the program. The other Class I 
railroads in many ways, while the program is open to them, as I 
said earlier, I believe have become much more profitable and 
have found ways to make improvements in their infrastructure 
without using this particular program.
    Mr. Costello. My office, we have been contacted and I am 
sure my colleagues as well on this Subcommittee and in the 
Congress, from some potential applicants who are saying they 
find the application process very confusing. On your web site, 
you direct them to review provisions of TEA-21, review the 
implementing regulations and review the amendments of SAFETEA-
LU. That is not very helpful or user friendly. Is there a 
reason why you do not explain the process in terms that they 
can understand and follow?
    Mr. Boardman. I think everybody that is interested in this 
program should take the first step in the process, and that is 
to come in for a pre-application meeting, which is our first 
step. In that particular meeting, Mr. Pomponio meets with that 
potential applicant to explain all those conditions to ensure 
that we are protecting the taxpayers and the United States and 
what this Congress wanted us to carry out appropriately.
    I think we have done a good job reaching out to the 
railroad community to make sure they understand that. I know 
myself, as a small operator and business owner in the past, 
that a lot of times these particular regulations become very 
confusing when you read them on a web site or when you see them 
for the first time. But what you begin to understand is, we 
truly are here to try to help move that forward, and I think we 
have done a good job with that.
    Mr. Costello. Well, I know some potential applicants that 
would disagree with your statement. SAFETEA-LU specifically 
directs you to post on your web site the criteria and standards 
used to determine whether to approve or disapprove. Do you 
think you are complying with that directive in SAFETEA-LU?
    Mr. Boardman. We certainly think that we are. If there are 
recommendations that would improve that, I would be happy to 
look at those. If there is a specific applicant that you have 
in mind, or applicants, I would also be happy to meet with 
them.
    Mr. Costello. Have you heard from some people in the 
freight rail business that freight railroads cannot cover their 
cost of capital with their revenues?
    Mr. Boardman. I think that it has been a problem that has 
been, with any highly intense capital business, for the last 
several years, it has been very difficult to cover that. But I 
think some of that is changing, and because there is more and 
more demand, I think as you pointed out earlier, in terms of 
the congestion that is out there today. So some of those 
conditions are changing, but that certainly exists as well.
    Mr. Costello. Mr. Chairman, I see that I am out of time. I 
will have a few other questions in a minute, I hope.
    Mr. LaTourette. Okay, thank you very much, Mr. Costello. It 
is now my pleasure to yield to the distinguished Ranking Member 
of the full Committee, Mr. Oberstar.
    Mr. Oberstar. Thank you for calling this hearing, Mr. 
Chairman. I appreciate your interest, vigorous as it has always 
been, in rail service. You have been a staunch advocate and a 
thoughtful and constructive force for advancing the cause of 
rail service in the United States, passenger rail, inter-city 
transit and freight rail.
    So it comes as a great surprise, when we passed a 
bipartisan bill, bicameral bill, to increase the funding for 
the RRIF program from $3.5 million to $35 billion, and the 
President six months or so ago signed that bill into law to 
have their first budget come out and eliminate, propose at 
least to eliminate the program, saying credit assistance is 
unwarranted because ``there is no compelling public interest in 
the program.'' Where did you get that idea? You didn't write 
that statement, did you? That was written probably before you 
came on board.
    Mr. Boardman. I did not write it, sir.
    Mr. Oberstar. I am glad to hear that. I wish we had before 
us the person who wrote it. I wonder where in heaven's name 
that person has been spending his or her time. You surely have 
traveled beyond 495 to the rest of America.
    Mr. Boardman. Is that a question, sir?
    Mr. Oberstar. Yes.
    Mr. Boardman. I live in Rome, New York, so I have to travel 
beyond that to get home.
    Mr. Oberstar. Terrific. SO you know there is another world 
out there beyond the beltway.
    Mr. Boardman. I do, sir.
    Mr. Oberstar. Apparently this person doesn't, who wrote 
that statement, that is, is not aware that the Nation's 
railroads are at peak capacity after many years of troubled 
economic times, they are now making money, profits, and trying 
to invest in their rolling stock and in the rail bed itself and 
in switches and in all that goes into running a railroad 
efficiently and effectively. They can't keep up. They need to 
replace 50,000 rail cars a year. There isn't enough production 
capacity to keep up with demand. They need to replace 
locomotives, build new ones. There isn't enough production 
capacity to keep up with demand, because for so many years they 
weren't getting adequate return on capital, or at least they 
claimed so. In many cases, they certainly weren't.
    But it is different now, and they need to catch up. We have 
6.5 million trucks on the Nation's highways carrying goods 
between cities. And they are congested and they are behind 
time. They are trying to get the railroads to carry more of the 
trucks, the rails can't carry the trucks. The railroads are 
trying to get the trucks to carry the containers. They can't, 
they don't have enough capacity.
    So someone in this Administration said, there is no 
compelling public interest in the program? That's outrageous. 
It's like telling Brown that he did a good job in Katrina. I 
was just there over this past weekend. There is a whole St. 
Bernard Parish, I know it has nothing to do with this hearing, 
Mr. Chairman, but it is an example of the incompetence of 
people who write this drivel and expect us to swallow it. A 
whole 38,000 homes are submerged, homes that were lifted up by 
that flood and moved three blocks, home, concrete pad, smashed 
into other homes, and they say, oh, you're doing a fine job. 
It's destroyed.
    So we need to rebuild America. Are you aware of what China 
is doing?
    Mr. Boardman. Yes, sir.
    Mr. Oberstar. Tell me what you know about what China is 
doing in rail.
    Mr. Boardman. I think what China is doing is not just in 
rail. I think they have taken over perhaps as many as 30, over 
30 ports, they have built the largest container terminal 
outside the United States within 50 miles. They bill it as East 
Meets West, North Meets South. China is making strategic 
investments all over the world.
    They now today are building a railroad that is going to go 
into western Europe to continue to expand their economy. I 
think they are a competitor, I think it is something that we 
need to be aware of, and I absolutely agree with you.
    Mr. Oberstar. I am delighted to hear that. I spent a good 
deal of time, made seven trips to China. They are investing 
$200 billion and doubling the capacity of their ports. They 
have a $100 billion program to modernize 35 existing airports, 
build 6 new ones and build airports in the interior of the 
country, in a regional airport development program that I 
encouraged them to do 3 years ago.
    And they build the world's first maglev operational system 
in Shanghai, from downtown Shanghai to the Pudong airport, two 
12,500 foot runways, terminal to handle 90 million passengers a 
year. It is working very successfully. And now they are 
building an 820 mile link from Beijing to Shanghai, steel on 
steel, traveling 220 miles an hour, 820 mile railroad, at a 
price tag of $17.5 billion. You mean to tell me that there is 
no compelling public interest in a rail program in the United 
States? The Chinese sure have figured it out.
    They also are committed to building a 110 mile maglev from 
Shanghai to Hangzhou. Shanghai-Hangzhou is a 110 mile high 
technology corridor. Last night I had dinner with Liwu Steel 
Group, from the City of Liwu, who have invested, Mr. Chairman, 
in an iron ore mine in my district. Because China this year 
will pour 345 million tons of raw steel. No country in the 
history of the industrial revolution has poured that much 
steel.
    They have such a demand for iron ore that a mine in my 
district that was shut down because of competition from 
Brazilian ore is now open because of the world competition need 
of China for iron ore to feed their steel industry.
    We tried to get rail service to bring that ore from 
Minnesota to the West Coast, to Prince Rupert Island, so they 
would have an 8,000 mile journey to Liwu, but the railroads 
couldn't give us a quote that was near what the Chinese wanted. 
So we ship it by rail to Lake Superior, laker through the Great 
Lakes system to Hamilton, Ontario, where it goes to Steel 
Company of Canada. StelCo, which had been taking ore from 
Labrador, stops taking that ore and Labrador ore goes to China.
    But because of that exchange, we have an iron ore mine that 
is back employing 430 people. If we had a really efficient, 
effective rail system, we would have saved millions of dollars, 
put more people to work, created an opportunity for more 
capital investment in the iron ore mine of Minnesota. And there 
are many of those examples all around this Country.
    Now, I have for years supported the maglev technology and 
authored the provisions in ISTEA that provided stimulus for the 
research, development, testing and engineering of maglev. And 
in TEA-21 and again in SAFETEA-LU. The General Atomics Company 
won the contract to do this R&D and I was out in San Diego, 
pushed the lever to see this maglev lift off and operate on a 
400 foot track, Mr. Chairman. It is fantastic. Quiet, smooth, 
efficient. I have always thought it was a great thing for 
passenger service.
    But the Port of Los Angeles came to meet with me and 
General Atomics and said, we would like to use the maglev 
technology to move freight containers from the Port of Los 
Angeles through the Alameda Corridor into and past Riverside, 
on a continuous loop line. Because you can move them faster 
with less impact on the community. Won't have to do the grade 
separations that are now costing probably a billion and a half 
dollars just to do the grade separation for the existing 
traffic.
    The RRIF loan would be terrific for this initiative. I wish 
I would have thought of it myself. But they can do that. And I 
have had discussion with some of your staff, a couple of months 
ago, about this matter.
    Now, do you think that qualifies in the sentence that there 
is no compelling public interest in the program? I would call 
that a compelling interest, wouldn't you?
    Mr. Boardman. I think it certainly qualifies for the 
program of RRIF.
    Mr. Oberstar. You wouldn't call it compelling, though? 
Well, you probably will in sotto voce.
    Thank you, Mr. Chairman. I will desist for the moment.
    Mr. LaTourette. I thank you very much, Mr. Oberstar.
    Mr. Boardman, just a couple, I think I have three 
questions, and then we will turn to my colleagues to see if 
they have some follow-up as well. But just so you don't think 
we are here to beat you up today, I have been advised by 
counsel that your testimony was submitted, it is the earliest 
we have ever received FRA testimony since 1987. So you are to 
be congratulated for that, and we thank you for doing that. 
Whoever got that to us, we very much appreciate it.
    Maybe this one is for Mr. Pomponio, because he talked about 
the credit risk premium. Just so I understand, on the floating 
credit risk premium, if the applicant puts up 5 percent, does 
this floating risk premium a the beginning of the loan, is it 
your belief that the DOT can come back during the life of the 
loan and demand that that deposit be increased to 10 percent or 
another percentage of the face amount?
    Mr. Pomponio. No, sir, it is fixed at the beginning and it 
is fixed for life. It is a one time charge.
    Mr. LaTourette. Okay. Then I want to talk a little bit 
about whether or not there has been compliance with the 
requirements of SAFETEA-LU. I have the Federal Register from 
September 26th, 2005. I know that it was late, and that isn't 
so much what concerns me.
    What I hear from the short lines in particular is the 
criteria is in a black box where the applicants know next to 
nothing. I think what we were attempting to in SAFETEA-LU was 
to correct that. But the correction that I think you think, and 
I appreciate your willingness to receive additional suggestions 
from us, but the words I think you have published say as 
follows: ``The words used below differ from the statute and the 
regulations only for the purpose of brevity. This notice does 
not contain any new criteria or impose any new requirements or 
have any legal effect other than to satisfy the mandate from 
the Congress to issue this notice.''
    First of all, can you tell me what that is supposed to 
mean, because I don't think I know? And second of all, I think 
it says that you are simply announcing a condensed restatement 
of the existing statute. And how does that then satisfy the 
Congressional intention to give specific criteria and specific 
notice so that people who want to apply for these RRIF loans, 
even if you don't like them, how they can do it?
    Mr. Pomponio. Well, our intent was to comply with the 
statute, and by necessity, this process is one where we have 
many different types of applications that come in. So it is 
difficult to set criteria that would apply to all of them. We 
do go out of our way to provide as much guidance as we can as 
to what items are reviewed on an individual basis. I talk to 
potential applicants every day.
    But it is just simply too difficult to anticipate what 
types of applicants we might receive and therefore be able to 
lay out specific criteria. The primary one is repayability.
    Mr. LaTourette. Okay. I appreciate that. That actually 
brings me to, because as I read it, and I want to be fair, but 
as I read it, it is like the absolute minimum to satisfy what 
we had suggested in SAFETEA-LU.
    Secondly, in Appendix 2 to your statement today, Mr. 
Boardman, it discusses an OMB-approved CRP model that is used 
to calculate the credit risk premium for RIFF loans. Yet I 
don't see the CRP model mentioned in the September 26th Federal 
Register notice that supposedly satisfied the SAFETEA-LU 
mandate to publish substantive criteria and standards used to 
approve or disapprove applications. So why at a minimum don't 
we have your OMB-approved CRP model?
    Mr. Boardman. The credit risk premium is on our web site. 
If we need to adjust how we say that information, we will do 
that. I don't think that is a problem, is it?
    Mr. Pomponio. No. If I might add, the primary purpose of 
that credit risk premium model is to estimate the risk to the 
Government. We decided early on that if that model were made 
public and available to anyone, first of all, it is a 
complicated model that requires input by the agency. And 
secondly, if it were made public, it might provide opportunity 
to gain the system and to provide input that might skew the 
results.
    Mr. LaTourette. Okay. Let me ask you this. Am I the only 
one that gets complaints from short lines and people in the 
railroad business that they don't quite have the program down 
based upon your publication of the requirements? They're not 
complaining to you? You have not heard that complaint before?
    Mr. Pomponio. As I said, I speak to potential applicants 
every day and explain every question they have. I spend a lot 
of time explaining. Our application is on our web site. All 
that need to do is be filled out. The reference to the statute 
is only for reference and it is not required reading, because 
an applicant could just fill out the application. So I have not 
had anyone come and say they don't understand the system. I 
have gone so far as to help them complete an application.
    Mr. LaTourette. Okay.
    And Mr. Boardman, my last question before going to my 
colleagues again, and I heard what you said and I think you 
heard what I said, but there was a quote by Secretary Mineta in 
a magazine called the American Short Line and Regional Railroad 
Association, it was actually a press release, and it came about 
in January of 2004, and the Secretary made the following 
statement, when they were proud to announce the $233 million 
RRIF loan for the Dakota Minnesota and Eastern Railroad: 
``President Bush is committed to growing the economy and the 
RRIF program provides targeted, innovative finance 
opportunities that yield significant and economic benefits.'' 
What has happened since the Secretary made that pronouncement?
    Mr. Boardman. I think the Secretary believes that. I think 
that the RRIF program has done that. I think we have carried 
out the law appropriately. I think the belief here is that the 
private sector can provide that.
    Mr. LaTourette. Well, thank you very much.
    Mr. Costello.
    Mr. Costello. Mr. Chairman, thank you.
    I have to tell you, Mr. Boardman, I have to strongly 
disagree with you. I do not think that you are complying with 
the statute. Frankly, I heard what the Chairman said, and I 
heard what the reply was. But I don't think that you or the 
Administration is going out of their way to really help anyone. 
I have heard from the short lines too, the same as the Chairman 
has, and I am sure other colleagues. There are a number of 
people who are confused, they have questions. And I have really 
not had anyone say to me that they have contacted your office 
where they felt that they got complete information and that you 
were helpful concerning the RRIF program.
    But let me ask a question. If it is the Administration's 
position and your position that there is no compelling public 
interest in financing these facilities, that the private 
railroads have to finance these projects on their own, then 
when the Administration submitted their bill for SAFETEA, U.S. 
Department of Transportation in 2003, the Administration 
proposed private freight eligibility under the highway program. 
Now, if we are going to say to the private railroads that you 
have to finance these projects, then why did the Administration 
say, it is okay to take money from under the highway program to 
finance these projects and programs, but it is not appropriate 
to take it out of the RRIF program?
    Mr. Boardman. I am not sure of the specifics of what you 
are bringing up. I don't know that even if I was right at this 
minute what the thinking would have been behind it in 2003. But 
I do believe that there is a difference between the highways 
and the railroads in terms of its ownership. The highways are 
publicly owned and have been publicly owned and publicly 
financed. There is an interest at the highway side at this 
point in time to find new private ways to pay for highways. I 
don't know if that particular section you are talking about 
regulates that or addresses that.
    But the railroad has been a private entity from the 
beginning and is owned privately.
    Mr. Costello. Well, I would just ask you and suggest to you 
that you may want to take a look at page 38 in the bill that 
the Administration and the Department of Transportation 
propose, because it clearly indicates that if this bill was 
implemented and passed by the Congress that these projects 
would be financed, that it was okay with the Administration to 
finance them under the highway program. It just seems 
inconsistent, the Administration's position today to let these 
private companies finance the infrastructure on their own.
    With that, Mr. Chairman, I would yield back the balance of 
my time.
    Mr. LaTourette. Thank you, Mr. Costello.
    Mr. Oberstar.
    Mr. Oberstar. I find a very interesting comment in your 
testimony about the procedures that have to be followed for 
application. On page 3, you said, pre-application meetings, 
many RRIF applicants have had little past experience with 
Federal funding programs, time and cost associated with the 
need to comply with NEPA and Section 106 of the Historic 
Preservation Act, the rigor of FRA analysis.
    So railroads, some railroads, you say, have chosen not to 
proceed with RRIF applications after the pre-application 
meetings. That is a very candid statement on your part and I 
appreciate it. But it sounds a lot to me like you are trying to 
chase them away rather than help them out. Your job as the 
Federal Government is to help people.
    We put a program in place, we put the funding behind it, we 
say there is a need out there, we have identified that need, 
and then we expect you to help people carry it out, not to 
scare them away.
    Mr. Boardman. Yes, sir, I understand that.
    Mr. Oberstar. And if there are complications about NEPA and 
historic preservation, I direct you to the streamlining 
provisions of SAFETEA-LU. At full Committee Chairman Young's 
request, I largely wrote that language. Came back to him with 
it, we made numbers of changes. It is a totally bipartisan 
approach, a lot of pages of legislative language.
    But it was going to streamline, it was going to cut months, 
maybe years out of the way we finance and build our Federal 
highway program. Just lift that language out, take it over to 
the RRIF loan program and you can cut a lot of time and wasted 
effort out and speed these loans along. I will even come and 
help you do that if you need help with it.
    Mr. Boardman. Mr. Oberstar, I accept the help and I will 
look at that language. I will see if we can improve this.
    Mr. Oberstar. We dealt very specifically with the National 
Trust for Historic Preservation. Very complicated stuff. But we 
got it worked out. All the highway construction interests and 
the environmental interests all had a crack at that language, 
and we satisfied everybody. It is an amazing piece of work. And 
it will help speed these projects.
    I don't want to read again that someone was turned away 
because they are going to take to much time. I want to read 
that you are out there helping people get along.
    You said in response to Mr. Costello, the private sector 
can provide that, meaning financing. I don't think the private 
sector is rushing out to help finance railroads, certainly not 
the short lines, certainly not with the problems that we have 
seen over the last several years. That is why we established 
this loan program.
    So we want you to nurture it, encourage it along. I know if 
the members of this Committee have anything to say about it, 
and we will, that we are not going to see that RRIF loan zeroed 
out. We are going to see it implemented. I would like to see a 
project like the maglev take a whack at speeding freight.
    You know, $370 billion in freight enters the United States 
at the six West Coast ports. More than 75 percent of that 
freight is destined beyond California. Today it takes 30 hours 
from the Port of Long Beach-Los Angeles, 1,200 miles and $300 
per container to get to Chicago. Then it takes 30 hours and 
$300 to go 7 miles through Chicago. And then $200 per container 
and another 24 hours to go to the East Coast, 1,200 miles.
    That is very costly by the time it gets to the consumer. We 
are spending an awful lot of time and money on moving freight 
through highly congested corridors. If we can speed up that 
freight movement by putting additional rail capacity in place, 
then we have an obligation to the public, to our economic 
productivity, to do that.
    I have talked to the Mayor of Los Angeles, Mayor 
Villaraigosa, I talked with the Port Authority, as I indicated 
earlier, of Long Beach-Los Angeles. And we are very soon going 
to be coming into your office to look for a RRIF loan to do 
this maglev project. And I look forward to your embrace of the 
idea.
    Mr. Boardman. I'd better have that streamlining language in 
there before you get to the office.
    Mr. Oberstar. I am looking forward to doing that.
    Mr. Boardman. Yes, sir
    Mr. Oberstar. The Administration has said that they are 
going to eliminate the RRIF provisions through the 
appropriations process. Don't waste--carry the message back. 
You probably don't really want to do that, but carry the 
message back that we want to see this Administration spend more 
time figuring how to do these loans than trying how to kill the 
loans. We ought to be doing at least as much as China.
    That is all I have. Thank you very much.
    Mr. LaTourette. I thank you very much, Mr. Oberstar.
    Ms. Brown, we are about to finish. Do you have anything you 
want to say before we leave? We have to go down and save the 
people that are losing their identities in Financial Services 
at 3:30. If you have a couple of observations, we would be 
happy to hear from you.
    Ms. Brown. Thank you, Mr. Chairman, for hosting this 
Committee meeting. I will just enter my comments for the 
record.
    But I would like to just publicly say that I am very 
concerned about the Administration's proposal for railroads in 
this area. It is a great concern that we spend billions on 
aviation but very little on highways, waterways and railways. 
Of course, just last week CEOs from many companies were in my 
office saying that they wanted a 25 percent tax credit to 
expand their network. As we come under just, I think it is next 
week, we just passed a year ago, what happened in Madrid, and 
we look at the fact that we really have not done anything in 
this Congress to address rail safety in this Country. It is 
appalling. It really is appalling.
    When I heard one former Secretary say to the extent that do 
we need an independent investigation, no we don't, we need 
Congress to do their job. So I would encourage members on both 
sides of the aisle to do their job as far as making sure that 
we talk about rail infrastructure safety, but we follow up the 
rhetoric with the funds needed to ensure that we put those 
safety measures in place.
    With that, I yield back the balance of my time. Thank you, 
Mr. Chairman, for holding this hearing.
    Mr. LaTourette. Thank you very much. I am glad you could 
make it.
    For the record, Ms. Brown I know wanted to be here for the 
entire hearing. But she was listening to the Liberian 
president. My understanding is she was one of the guests at the 
inauguration of the president. So I am glad that you were able 
to be with us.
    Ms. Brown. Mr. Chairman, I was the only member of Congress 
to attend that ceremony. She was just as elegant at that 
ceremony as she was today. We need to do all we can to ensure 
that she is very successful. She said they are a star in 
Africa, having the first female president in an African 
country. Also, we have such strong ties throughout our history. 
So that was wonderful.
    Mr. LaTourette. That is wonderful. She probably likes RRIF 
loans, too.
    [Laughter.]
    Mr. LaTourette. Mr. Boardman, I want to thank you very 
much. I know not all the questions were pleasant but I think 
you got sort of a bipartisan flavor that, at least on the 
Subcommittee we think this is an important program and we hope 
that you will take not only the letter but the spirit of the 
SAFETEA-LU observations as you move forward. Hopefully you will 
be granting a lot more RRIF loans in the future.
    So thank you very much.
    [Whereupon, at 3:31 p.m., the Subcommittee was adjourned.]

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