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



 
                       U.S. RAIL CAPACITY CRUNCH

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

                                (109-66)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                               RAILROADS

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 26, 2006

                               __________


                       Printed for the use of the
             Committee on Transportation and Infrastructure





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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           JAMES L. OBERSTAR, Minnesota
LYNN A. WESTMORELND, Georgia, Vice-  JOHN BARROW, Georgia
Chair                                  (ex officio)
DON YOUNG, Alaska
  (ex officio)

                                 (iii)

                                CONTENTS

                               TESTIMONY

                                                                   Page
 Boardman, Hom. Joseph H., Administrator, Federal Railroad 
  Administration.................................................    10
 Busalacchi, Hon. Frank, Secretary, Wisconsin Department of 
  Transportation, Chair, States for Passenger Rail Coalition.....    10
English, Glenn, CEO, National Rural Electric Cooperative 
  Association....................................................    48
 Hamberger, Edward, President, Association of American Railroads.    10
 Keith, Kendell, President, National Grain and Feed Association..    48
 Lipinski, Hon. Daniel, a Representative in Congress from the 
  State of Illinois..............................................     6
 Martland, Carl D., Senior Research Associate and Lecturer, 
  Department of Civil and Environmental Engineering, 
  Massachusetts Institute of Technology..........................    48
 Millar, William W., President, American Public Transportation 
  Association....................................................    10
 Rose, Matthew K., President and CEO, Burlington Northern Santa 
  Fe Railway.....................................................    10
 Timmons, Richard F., President American Short Line and Regional 
  Railroad Association...........................................    10
 Wallace, Burt, Vice President, Transportation, United Parcel 
  Service........................................................    48
 White, John, Vice President, Logistics, Buzzi Ubicem USA Inc....    48

          PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Brown, Hon. Corrine, of Florida..................................    83
Costello, Hon. Jerry F., of Illinois.............................    92
Cummings, Hon. Elijah E., of Maryland............................    94
Johnson, Hon. Eddie Bernice, of Texas............................   143
 Lipinski, Hon. Daniel, of Illinois..............................   154
Oberstar, Hon. James L. of Minnesota.............................   179
Sodrel, Hon. Mike, of Indiana....................................   206
Young, Hon. Don, of Alaska.......................................   234

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

 Boardman, Hon. Joseph H.........................................    71
 Busalacchi, Hon. Frank..........................................    87
English, Glenn...................................................   100
 Hamberger, Edward...............................................   107
 Keith, Kendell..................................................   147
 Martland, Carl D................................................   160
 Millar, William W...............................................   171
 Rose, Matthew K.................................................   181
 Timmons, Richard F..............................................   207
 Wallace, Burt...................................................   213
 White, John.....................................................   220

                       SUBMISSION FOR THE RECORD

 Hamberger, Edward, President, Association of American Railroads, 
  response to questions from Rep. LaTourette.....................    22

                         ADDITION TO THE RECORD

 Arkansas Electric Cooperative Corporation, Gary Voigt, President 
  and CEO, letter to Roger P. Nober, Chairman, Surface 
  Transportation Board, August 12, 2005..........................   237


                       U.S. RAIL CAPACITY CRUNCH

                              ----------                              


                       Wednesday, April 26, 2006

        House of Representatives, Subcommittee on 
            Railroads, Committee on Transportation and 
            Infrastructure, Washington, D.C.
    The subcommittee met, pursuant to call, at 10:04 a.m., in 
Room 2167, Rayburn House Office Building, Hon. Steven C. 
LaTourette [chairman of teh committee] presiding.
    Mr. LaTourette. The Subcommittee will come to order this 
morning. I want to welcome everybody to our hearing this 
morning about the U.S. Rail Capacity Crunch.
    In 1980, our Nation's rail industry was in dire straits. 
Twenty percent of our Nation's railroads had gone into 
bankruptcy in the previous decade, including most of the 
railroads in the northeast. Many holders of railroad stocks and 
bonds were left with nothing more than worthless pieces of 
paper. Competition from trucks had sapped the railroads' 
traditional traffic base. New investment was needed to meet 
this competition, but the regulatory regime of the old ICC made 
this impossible. The ICC forced the railroads to maintain and 
operate unprofitable branch lines while the busy main lines 
suffered from years of deferred maintenance and neglect.
    Just how bad were the tracks back then? Legend has it that 
the old Penn Central experience: standing derailments, a 
situation where a parked train topples onto its side when the 
tracks give way underneath.
    The 1970s were dark days for shippers as well. Labor, fuel, 
and other costs were rising faster than inflation. But the 
railroads had little incentive to improve efficiency. Inflative 
costs were merely passed on to the shippers in the form of 
higher tariffs blessed by the ICC.
    Private investors abandoned the rail system. The remains of 
the Penn Central system ended up in Government hands under the 
name of Conrail. Likewise, the burden of operating unprofitable 
passenger service fell to another Government entity, Amtrak.
    Something had to be done or the entire rail system would 
have ended up bankrupt or nationalized. The answer to this 
immense problem was the Staggers Rail Act of 1980. Staggers 
released the railroads from the Government regulatory 
stranglehold and helped attract billions in new private 
capital. The rail system underwent a drastic restructuring: the 
number of employees was drastically reduced; many tracks were 
torn up and sold for scrap; excess main line capacity was 
eliminated; unprofitable branch lines were sold to 
entrepreneurs; cost cutting became a science; new markets such 
as premium intermodal service came to the fore.
    Rail rates have declined in real terms since the passage of 
Staggers, while productivity has tripled. At the same time, the 
industry's safety record has improved immensely, with far fewer 
injuries or deaths per year than in the 1970s, and we no longer 
hear of any standing derailments.
    But this success has not come without a cost. Twenty-six 
years after the passage of Staggers, our railroads have become 
congested, sometimes nearly to the point of gridlock. Shippers 
are complaining that it takes longer to move a car across the 
Country now than it did 10 years ago. In some cases, our 
farmers have been unable to obtain cars to move their products 
to market. The demand for coal has soared, but utilities have 
reported difficulty in moving coal from the mines to the power 
plants.
    As incredible as it may seem, railroads are having a 
difficult time finding qualified workers to meet these new 
service demands. Much of the older generation is near 
retirement and it seems that many younger people are put off by 
the long hours, mental stress, and physical labor required by 
most railroad jobs. Railroad workers might seem to be well 
paid, but let me tell you my experience is they earn every 
penny that they are paid.
    The world has changed since 1980. We no longer have the 
option of diverting rail freight traffic onto our highways, and 
anybody who has driven the Beltway recently during rush hour 
knows why. All across the Country motorists are sick of being 
stuck in traffic every day. People are demanding solutions such 
as new rail passenger service, but in many cases this is not 
really new service, we are only trying to restore what was 
abandoned in the 1950s and the 1960s.
    In today's hearing, a quarter century after the passage of 
Staggers, I hope to learn what it is going to take to build the 
new rail system of 2050, a system which will carry both freight 
and passengers with speed, economy, and efficiency.
    Before yielding to Ms. Brown, I do want to yield to the 
chairman of the Highway Subcommittee just for a minute to 
welcome one of his constituents, Mr. Busalacchi, who is on our 
now second panel; and I will explain how that happened.
    Mr. Petri, is there some Wisconsin word of welcome you 
would like to--
    Mr. Petri. Yes. Thank you very much. It is my pleasure 
today to join you in welcoming Frank Busalacchi, someone I have 
had the opportunity to get to know because we both work on 
transportation issues, and he has been a strong leader in our 
State Government and now nationally, and is appearing for a 
national coalition in the rail area. We work more on highway 
things, but rail things as well. And I am looking forward--I 
have been reading his testimony. I am hoping to get back in 
time for it.
    But, again, welcome, Frank.
    Mr. LaTourette. Thank you very much, Mr. Petri.
    I want to ask unanimous consent to allow all members to 
have 30 days to revise and extend their remarks and to permit 
the submission of additional statements and materials by the 
witnesses. Without objection, so ordered.
    It is now my pleasure to yield to our distinguished ranking 
member, Corrine Brown from Florida, for any observations she 
would choose to make.
    Ms. Brown. Thank you, Mr. Chairman. And thank you for 
hosting this Committee meeting. It could not come at a more 
appropriate time, because I believe we are on the verge of a 
crisis in our Nation railways. Thanks to economic growth and a 
sharp increase in international trade, the railroad industry 
has more business than it has capacity to handle.
    And while the Nation's freight railroads is in much more 
financial health today than it was in the 1980s, when we 
partially deregulated the industry, the railroads still do not 
earn enough to cover the costs of capital. As a result, 
railroads have either had to defer maintenance or cut back on 
the number of miles served. The size of the freight rail 
network has deteriorated to about half of what it was 26 years 
ago, but our freight shipments have more than doubled.
    We need to find a solution, a permanent solution, to this 
problem or the situation will only get worse. According to the 
U.S. Department of Transportation, rail traffic is expected to 
rise more than 50 percent by the year 2020. A traffic growth, 
traffic bottleneck will further impede freight and passenger 
rail operation and adversely impact the business of railroad 
customers, many of which count on just-in-time delivery. 
Moreover, as gas prices rise $3.00 and $4.00 a gallon, recovery 
drivers will turn more and more to commuter rail and Amtrak, 
putting even more pressure on an already congested system.
    I know that there are many ideas out there for helping our 
Nation's railroads. Railroads are critically important to our 
Nation's economy, health, and development, and they must have 
adequate support from the Federal Government, just like we do 
for aviation, highways, and mass transit, if they are to 
continue to meet the needs of their customers and if they are 
to continue to keep truck traffic off of America's highways.
    I want to welcome today's distinguished panelists, and I am 
looking forward to their insight on ensuring the fairest and 
more effective freight rail service for both the railroad and 
their customers.
    I thank you, Mr. Chairman.
    Mr. LaTourette. I thank you very much.
    Become of some time constraints, we are next going to yield 
to Mr. Miller of California.
    Mr. Miller. Thank you, Chairman LaTourette.
    This is an extremely important issue in my district. I 
represent Southern California. I appreciate the opportunity of 
having you here today to hear your testimony, and we are going 
to try to deal with a real serious issue, and that is how do 
the railroads invest in infrastructure. Not only new 
infrastructure, but dealing with the current infrastructure you 
have to maintain because, in California, moving goods and 
people are extremely important. And, especially in my district, 
capacity is something we are having to deal with. I represent 
an area that the Alameda Corridor runs through, and the Ports 
of Long Beach and L.A., most of materials come through my 
district, and it is really scary because if you can't load 
containers on trains, they have to go on trucks.
    And if you have driven the freeways in Southern California 
and you see the amount of trucks, you realize that we don't 
have the capacity on freeways to load containers on more 
trucks. I mean, they are doing a great job. The trucking 
industry has really stepped up and they are trying to do 
everything they can to move goods, but there are bulk goods 
that need to be moved by rail, and it is becoming more and more 
difficult all the time to do that. And the shipping industry 
needs to remain competitive, and without timely delivery of 
shipments in our Country, the economy is going to be impacted 
overall.
    I have been in part of the building industry for about 35 
years, and there is a tremendous amount of goods in the 
industry shipped by rail initially, and then when it gets to 
retailers, it tends to be shipped by trucks. But if we can't 
put those goods on rail, we are going to add more and more 
impact on our roads, and we just don't have the infrastructure 
to accommodate that. Not only that, but think about the coal 
that is moved, the energy shipment we are dealing with today, 
the crisis we are having to deal with and the goods that are 
moved by rail.
    We have to deal with the situation where shippers and the 
railroads need to work together, and how do we do that. How do 
we do that in a fair way? I mean, the railroads get beat up a 
lot of times because of capacity, but then the railroads are 
required to share their lines to move people. And that was not 
the initial purpose of building those railroads, it was built 
to mainly ship goods for profit. And you are allowing your 
rails to be used for other purposes, and that has to happen in 
this Country because we need to move people today. But we have 
got to find a solution where the funds are available to the 
railroads to invest in infrastructure, and at some point in 
time Government has to be part of the problem and the solution. 
We are the problem in many cases, but we have to be part of the 
solution. And we voluntarily become part of the problem often 
through regulations and legislation, but we need to voluntarily 
become part of the solution of this problem also.
    And I am looking forward to the testimony.
    Chairman, I think this is timely to do this.
    I would encourage you to come to my district sometime and 
see the amount of goods being shipped by rail and the amount of 
goods being shipped by truck, and you would realize we do not 
have the capacity in our highways to put more containers on 
trucks, and that leaves us no alternative but to make sure we 
do everything we can to make sure the railroads can compete in 
a timely fashion and that they can produce as they need to 
delivering those goods and services to our Nation.
    Thank you. I yield back the balance of my time.
    Mr. LaTourette. And I thank you very much, Mr. Miller. And 
I think you will find that a lot of the testimony deals with 
your part of the Country today, and I thank you for your 
participation and your interest.
    Ms. Johnson of Texas.
    Ms. Johnson. Thank you very much, Mr. Chairman. I want to 
thank you and Ranking Member Brown for holding this important 
hearing on the issue of rail capacity.
    As we all know, our Nation's freight rail system is an 
integral component of our Nation's robust economy. Each day, 
freight rail delivers tons of raw materials and consumer goods 
that support an array of business sectors throughout the 
Country. According to a recent report by the Congressional 
Budget Office, rail transportation is responsible for the 
transport of 70 percent of coal delivered to power plants, 70 
percent of domestic manufactured automobiles, and 32 percent of 
grain shipments.
    As manufacturing has become more global and their supply 
chains have become longer and more complex, freight rail has 
become a critical component for firms and industries. In the 
Dallas-Fort Worth region, exploding intermodal growth, coupled 
with increasing international trade with China, is reshaping 
the region's economic and freight rail landscapes. In my 
district, the evidence of this growth is unmistakable. Union 
Pacific has just completed a $100 million intermodal facility 
to support the growing intermodal volume and increased trade to 
the region, and I appreciate Union Pacific's decision to invest 
in my district as the economic impact on the surrounding area 
is expected to create 20,000 new jobs and $5 billion in 
development over the next 15 years.
    Cargo bound for the U.S. from China has grown an average of 
34 percent annually since 2002. Much of this traffic filters 
through the Tower 55 corridor in the north Texas region, as 
China is the world's leading seller of goods to the Dallas-Fort 
Worth market. Delays at Tower 55 today exceed capacity. 
Significant future growth in freight rail is expected and 
addressing this problem remains a top priority. On a busy day, 
Tower already sees in excess of 120 trails, and on an average 
day it is occupied 70 percent of the time. Obviously, this type 
of demand is placing enormous strains on existing rail capacity 
in our region and has highlighted the need for additional 
infrastructure.
    And while I fully understand this need, I am also aware 
that, unlike any other mode of transportation, railroads are 
responsible for paying for and maintaining their own 
infrastructure. This type of arrangement obviously has 
implications on infrastructure investment. As a result of this, 
I think it is imperative that we be proactive in formulating 
policy that supports, not prohibits, the industry in expanding 
capacity to avoid a congestion crisis that could endanger or 
even cripple our Nation's economy.
    As I close, I want to thank our witnesses that are coming 
before us today, particularly Mr. Matt Rose of BNSF Railroad 
from Fort Worth, Texas. I look forward to that testimony, as I 
am particularly interested in learning more about their 
thoughts in how we may all work together in addressing current 
and future capacity challenges.
    Thank you, Mr. Chairman. I yield back.
    Mr. LaTourette. I thank the gentlelady very much.
    Mr. Bachus from Alabama.
    Mr. Bacchus. I thank the Chairman. Mr. Chairman, I will 
simply say two things. One is that there is a great need for 
more rail infrastructure and capacity, and I think there is a 
solution and there is "not-a-solution." I think the "not-a-
solution" is to re-regulate rail. And I think that is, bottom 
line, what H.R. 2047 does. I think it would actually have 
disastrous consequences. On the other hand, I do believe that 
we should give the railroad all sorts of incentives, tax 
incentives, and I actually think that what is being proposed is 
insufficient and we should go further and be more 
comprehensive.
    It is an economic issue. It is also a safety issue for any 
of us that have traveled the highways. And we can either turn 
our highways into rail lines by increasing the size of our 
trucks, or we can make the investments that we have been making 
on our highways when we should have been making more of an 
investment in our rail lines.
    But I think that the best solution for the Government is 
simply to give the incentives to the railroads and let the 
railroads build the lines with as little regulation as 
possible.
    I yield back the balance of my time.
    Mr. LaTourette. I thank the gentleman very much, and I 
think you will be pleased by some of the testimony today. Some 
of our witnesses will not only talk about some tax structures, 
but also ways to set rates and do other things that would 
increase the ability of infrastructure dollars.
    Mr. Boswell, from my own--no?
    Mr. Sodrel, any opening remarks you want to make?
    Mr. Sodrel. I don't have any opening statement. Thank you, 
Mr. Chairman.
    Mr. LaTourette. I thank the gentleman.
    As I indicated before, we are going to go a little bit out 
of order. We have a request from Congressman Lipinski, 
Congressman Lipinski from the Chicago area in Illinois. His 
father, of course, is well known to all of us who serve on this 
Committee. When I was elected in 1994, Bill Lipinski was the 
ranking member of the Aviation Subcommittee, I think, and then 
went on to the Highway Subcommittee; instrumental in drafting a 
lot of the legislation that this Committee has passed over the 
years. His successor and his son now has his seat outside or in 
the Chicago area. So the first panel today will be comprised of 
the Honorable Dan Lipinski from Illinois.
    Thank you, Congressman, for being here, and we look forward 
to hearing from you.

TESTIMONY OF THE HONORABLE DANIEL LIPINSKI, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Mr. Lipinski. Good morning. I would like to start off by 
thanking Chairman LaTourette and Ranking Member Brown and the 
Committee for giving me this opportunity to come here to speak 
on this very important issue, something that is certainly 
critical to our Nation, also to my district, the City of 
Chicago and the State of Illinois.
    While the volume of rail traffic in the U.S. continues to 
increase, many of our rail systems are antiquated and cannot 
handle the growing demand. Efficient rail transport is 
imperative to the economic prosperity of our Nation, so it is 
critical that we find more ways to improve rail infrastructure 
and that we support the railroad industry's efforts to improve 
the movement of goods across our Nation.
    As you know, the Chicago area is a perpetual bottleneck for 
freight rail moving across the Country. I just was looking up 
at the map there. You can see where all the lines come together 
very nicely right there in Chicago, producing a very important 
regional choke point. And choke points such as this impede the 
efficient flow of commerce, which results in economic losses 
for businesses and for consumers. And the freight rail 
congestion also has a negative impact for passenger and 
commuter rail services.
    So with freight traffic expected to double by 2025, our 
rail infrastructure must be significantly improved or the 
problems will continue to mount, making congestion more 
difficult to alleviate and increasing the cost of fixing the 
situation somewhere down the line. We must continue to provide 
Federal support to program initiatives that innovatively 
address the capacity shortage.
    One of these initiatives is currently beginning in the 
Chicago area. While it takes a freight train two days to get 
from California to Chicago, it takes two days just to get that 
train through Chicago. To address this growing congestion 
problem, the Illinois Department of Transportation, the Chicago 
Department of Transportation, Metro Commuter Rail, and 
Association of American Railroads, including BNSF, CSX, Norfolk 
Southern, Canadian National, Union Pacific, and Canadian 
Pacific, join together to form a unique public-private 
partnership and developed a plan to ease the bottleneck.
    The Chicago Regional Environmental and Transportation 
Efficiency Project, known as CREATE, is a $1.5 billion 10-year 
plan that will make significant strides in reducing congestion 
by modernizing the Northeastern Illinois rail network. CREATE 
will completely overhaul the system by focusing on 25 new grade 
separations and 6 rail-to-rail flyovers which will separate 
freight and passenger lines. By fixing the Chicago bottleneck, 
this landmark proposal will result in national benefits and set 
a precedent for streamlining freight and passenger rail lines.
    CREATE will also provide additional benefits: traffic 
delays and grade crossing accidents will be reduced; air 
pollution from trains and from vehicles on the roads will be 
lowered; and the consumption of gasoline and diesel fuel will 
be decreased. And infrastructure investments in CREATE will 
also create tens of thousands of new good paying jobs.
    The National Commission on Intermodal Transportation 
recognized the regional bottleneck problem and recommended that 
Congress provide Federal funding incentives for intermodal 
projects of national and regional significance. The CREATE 
program is certainly one of these, and was recognized as such 
by the Committee in last year's SAFETEA-LU bill. I would like 
to thank the Committee and its leadership for providing the 
$100 million as we begin this critical program. Also, I would 
like to thank Mr. Ed Hamberger and the AAR for the continued 
commitment and support for CREATE throughout this past year.
    Study after study has shown us that if we move freight in a 
more cost-efficient and time-efficient fashion, it means a more 
dynamic economy, more affordable consumer goods, and ultimately 
a better quality of life for all Americans. I ask the Committee 
to continue to provide the support for CREATE and other 
critical rail projects that are essential to reducing the 
congestion on our rails in this Country.
    Once again, the efforts and commitments of the railroads to 
improve the rail infrastructure in this Country are to be 
applauded, and we must continue to work on important projects 
such as CREATE that will alleviate the increasing congestion 
and make rail travel in this Country, both freight and 
passenger, more efficient modes of transportation and economic 
engines for our Nation.
    I think CREATE provides a good framework, public-private 
partnership, getting the State, the City of Chicago also to put 
in funding, the railroads together. It is a good example of 
what we can do, what we should be doing, and the Federal 
Government must also continue to fund CREATE and other 
important programs such as this to ease congestion that we are 
talking about here today
    So I would like to thank the Chairman and the Ranking 
Member for my time today.
    Mr. LaTourette. Well, I thank the gentleman for his 
excellent testimony, and, clearly, the CREATE project is one 
that both his father and he and Mr. Costello and Speaker 
Hastert have done an excellent job of bringing to the attention 
of the Committee, and that work was rewarded somewhat in the 
passage of SAFETEA-LU. And I thank you for taking your time to 
come share your thoughts with us today.
    And I want to yield just for a few minutes to Mr. Costello, 
who I think may want to talk on the same subject.
    Mr. Costello. Mr. Chairman, thank you. I will be very 
brief. One, let me say that I do have a formal statement that I 
would ask unanimous consent that I be allowed to be enter it 
into the record.
    Mr. LaTourette. Without objection.
    Mr. Costello. And let me commend also the Governor of 
Illinois, the State of Illinois, the City of Chicago, and the 
railroads that Mr. Lipinski mentioned for their commitment to 
the CREATE project. Projects like CREATE, an innovative plan, 
will be part of the solution to the capacity crunch not only in 
the Chicago area, but these types of projects, in my judgment, 
are the solution to the national problem that we face with the 
capacity crunch.
    Let me also commend our colleague, Dan Lipinski. He was 
very involved, as you mentioned, along with his father and 
others, in trying to push this project along because of its 
importance not only to the Chicago area, but to the Nation. And 
I know that he will continue to be committed to this project 
and will continue to do everything he can to make certain that 
the Federal Government steps up to the plate, along with the 
private sector and the City and the State of Illinois.
    And with that, Mr. Chairman, I welcome our witnesses and 
look forward to hearing their testimony.
    Mr. LaTourette. I thank the gentleman very much. The Chair 
is anxious to get to the second and third panels, but I do 
note--and I don't want to foreclose the opportunity of any 
member to make some brief remarks.
    Mr. Westmoreland, Mr. Graves, and Mr. Cummings, anything 
you would like to say before we get started?
    [No response.]
    Mr. LaTourette. Okay, that business having been conducted, 
we will now go to what has become our second panel. I want to 
welcome the six witnesses on the second panel for today's 
hearing.
    Our first witness will be the Honorable Joseph Boardman, 
who is the Administrator of the Federal Railroad 
Administration. Before he began at the FRA in 2005, Mr. 
Boardman served as the Commissioner of the New York State 
Department of Transportation. He has been involved in the 
transportation industry at the local, State, and now Federal 
level for over 30 years, and, Mr. Boardman, I would note that, 
with your appearance today, you have now become the most 
frequent witness of this Subcommittee's hearings, and I 
congratulate you on that distinction.
    Our second witness this morning will be the Honorable Frank 
J. Busalacchi, the Secretary of the Wisconsin Department of 
Transportation and the Chairman of the States for Passenger 
Rail Coalition. The Passenger Rail Coalition is made up of 27 
State transportation agencies that support the development and 
expansion of intercity passenger rail.
    Next will be Mr. Matthew K. Rose, who is the President and 
CEO of the Burlington Northern Santa Fe Corporation. He has 
been with BNSF since 1993, steadily moving up the executive 
ranks since his start. Mr. Rose was named President in 1999 and 
in 2000 also assumed the responsibilities of being the Chief 
Executive Officer.
    Mr. Edward Hamberger, who is also a frequent flier at our 
hearings, is the President and CEO of Association of American 
Railroads. Mr. Hamberger began his career in transportation in 
1977 as General Counsel of the National Transportation Policy 
Study Commission. He also served as Assistant Secretary for 
Governmental Affairs at the Department of Transportation, where 
he implemented the Reagan Administration's legislative strategy 
on transportation issues.
    Mr. Richard F. Timmons is the President of the American 
Short Line and Regional Railroad Association. This Association 
represents a diverse group of regional and short line railroads 
that make up an important part of the overall rail network in 
this Country.
    And last but not least is Mr. William W. Millar, the 
President of the American Public Transportation Association. 
APTA members include public bus, rapid transit and commuter 
rail systems, and the private organizations responsible for 
planning, designing, constructing, financing, supplying, and 
operating transit rail systems. In addition, Government 
agencies, metropolitan planning organizations, State department 
of transportations, academic institutions, and trade 
publications are also part of APTA's membership.
    I want to thank each of you for coming. I want to thank 
each of you for submitting your testimony so that we can review 
it ahead of time. We do have a rather robust schedule for this 
hearing today. This panel will be followed by an equally large 
panel. If you can, I would ask you to be mindful of our newly 
designed light system here, which has sort of a five minute 
benchmark for opening statements.
    But that having been said, welcome. Thank you for being 
here. And, Mr. Boardman, we look forward to hearing from you.

  TESTIMONY OF THE HONORABLE JOSEPH BOARDMAN, ADMINISTRATOR, 
 FEDERAL RAILROAD ADMINISTRATION; HONORABLE FRANK BUSALACCHI, 
   SECRETARY, WISCONSIN DEPARTMENT OF TRANSPORTATION, CHAIR, 
    STATES FOR PASSENGER RAIL COALITION; EDWARD HAMBERGER, 
PRESIDENT, ASSOCIATION OF AMERICAN RAILROADS; MATTHEW K. ROSE, 
   PRESIDENT AND CEO, BURLINGTON NORTHERN SANTA FE RAILWAY; 
RICHARD F. TIMMONS, PRESIDENT, AMERICAN SHORT LINE AND REGIONAL 
    RAILROAD ASSOCIATION; AND WILLIAM W. MILLAR, PRESIDENT, 
           AMERICAN PUBLIC TRANSPORTATION ASSOCIATION

    Mr. Boardman. Thank you, Mr. Chairman and Ranking Member 
Brown, for having me here today to represent Norman Mineta, the 
Secretary of Transportation. In the spirit of being a frequent 
flier, I will be very short in my oral remarks and ask that my 
written testimony be submitted.
    As we have heard here today, the economy is strong. It is 
getting stronger. We have also heard here today that Staggers 
was a success and made tremendous improvements in efficiency 
for railroading in this Nation. But the excess capacity that 
was available is now gone, and what we need is greater 
investment. It is needed in our physical infrastructure, in our 
technology that we operate with today, and in the operational 
aspects of the railroads. And, yet, where we are today is with 
no agreement on the balance of the investment that is needed 
either in railroads or in other freight areas of this industry 
and how we might fund it for the future.
    I remain available for any questions you might have.
    Mr. LaTourette. Well, thank you very much for that concise 
set of remarks, Mr. Boardman.
    Mr. Busalacchi, thank you for being here. Welcome. We look 
forward to hearing from you.
    Mr. Busalacchi. Thank you, Mr. Chairman. My name is Frank 
Busalacchi. I serve as Secretary of the Wisconsin Department of 
Transportation. I am here today as Chair of States for 
Passenger Rail Coalition, a group of 27 State transportation 
agencies that support U.S. intercity passenger rail 
development. Our Coalition was founded in 2000 driven by a 
number of factors.
    Thirteen States currently provide funding to support 
intercity corridor services in partnership with Amtrak. You may 
not be aware of the fact that these State-supported services 
provide 37 percent of Amtrak's total ridership and about half 
of Amtrak's daily trains.
    Some 35 States have developed transportation plans that 
call for intercity passenger rail improvements.
    Finally, widespread public demand for intercity passenger 
rail service is reflected in robust increases in intercity 
passenger rail ridership throughout the Country. For example, 
the Hiawatha Service between Milwaukee and Chicago supported by 
the States of Wisconsin and Illinois, set an all-time record in 
2005 with more than half a million riders, a 16 percent 
increase over the prior year. Similar increases in ridership 
are evident in State-supported services throughout the Country. 
For example, Pennsylvania's Keystone Service, Illinois' 
Chicago-St. Louis Service, Maine's Downeaster, and Oklahoma's 
Heartland Flyer also had double-digit increases in 2005.
    However, while public demand is growing, rail congestion 
throughout the Country has become a significant threat to 
States supporting or desiring to implement new passenger rail 
service. Virtually all current and planned State-supported 
services operate on corridors owned by freight railroads. Many 
of these corridors are facing increasing levels of congestion. 
This rail congestion is driven by increases in freight traffic, 
as well as bottlenecks caused by aging track and 
infrastructure.
    These rail capacity and congestion problems are reflected 
in declining trends in passenger rail on-time performance. On-
time performance for all State-supported and other short 
distance trains for fiscal year 2005 was only 70.4 percent.
    Some of these statistics disguise even more severe problems 
in specific corridors. In January of this year, on-time 
performance for the San Joaquin Service in California was only 
35.2 percent. For the same period, on-time performance for the 
Cascades Service in Washington State was 50.5 percent, and on 
the Carolinian in North Carolina it was 19.4 percent.
    The members of States for Passenger Rail Coalition do not 
view these capacity problems as insurmountable. We all have 
extensive passenger rail plans to make improvements in track 
and signaling infrastructure that also address capacity issues 
on host railroads.
    A national survey documented $10.4 billion in track, 
signal, and equipment improvements planned by States in freight 
corridors, which could be programmed over six years, and a 
total of $47 billion in capital needs over a 20 year period. 
These corridors are frequently in highly congested urbanized 
areas where rail capacity issues are most often severe for both 
passenger and freight operations.
    With all of this State interest in intercity passenger rail 
development, why is on-time performance continuing to decline? 
The States for Passenger Rail Coalition firmly believes that 
the missing ingredient is a reliable Federal funding partner. 
We believe our highly successful Federal programs for highways 
and airports offer models for long-needed congressional action 
to address the critical passenger rail corridor improvements. 
Federal investment in passenger rail improvements can address 
freight rail capacity needs, while at the same time showing a 
public transportation benefit.
    In the past we have supported tax credit bonding authority 
for States as one mechanism for ensuring funding continuity for 
major corridor development projects, which typically take 
several years to complete. We are on record supporting H.R. 
1631, known as Ride 21, which provided $12 billion in tax 
credit bonding authority to States. We are encouraged by recent 
bipartisan Senate action on S. 1516. This legislation provides 
an authorization of $1.4 billion and 80/20 Federal/State 
funding to States subject to appropriation, which we believe is 
a good start.
    The States for Passenger Rail Coalition stands ready to 
assist the House Rail Subcommittee in developing intercity 
passenger rail legislation that can be added yet this year. We 
believe the public expects such a program. The public needs 
mobility alternatives to congested highways and airports. As 
the pump price for fuel continues to march steadily upward, the 
public's demand for energy-efficient rail service will continue 
to increase. The benefits are there, to the general public, to 
the freight railroads, to the shippers they serve, and to the 
Nation's economy. What is needed now is congressional resolve 
to take action.
    Thank you very much.
    Mr. LaTourette. I thank you very much, Mr. Busalacchi.
    Mr. Rose, welcome to you, and we look forward to hearing 
from you.
    Mr. Rose. Thank you, Mr. Chairman, Ranking Member Brown. I 
appreciate the opportunity to testify before you today. What 
you are doing here, quite frankly, is of national significance 
for our Country. You are going to hear my views about what I 
think are the solutions to the capacity issues, and you are 
going to hear some other views that, quite frankly, are in 
direct conflict.
    The regulatory model has served our Country well. 
Tremendous value has been passed to the consumer by 
deregulating parts of the pricing model and allowing railroads 
to improve efficiency. We now find ourselves in a supply-demand 
equilibrium that is causing some capacity shortages. This is 
exactly the intent of the Staggers Act. It is actually very 
nice to see public policy working out very, very well.
    At BNSF, we have experienced unbelievable growth. In 1995, 
when we merged our two railroads, we hauled 7 million loads. In 
the year 2005, we have hauled 10 million loads. That is 3 
million loads that otherwise would have had to have gone on the 
highway system. Over the last three years we have added the 
volume of an equivalent of a new Class I railroad each year. 
That is an average of about 650,000 units, which is really 
unprecedented demand for any growth of any railroad.
    Well, what is driving this growth? The combined growth of 
Transpacific trade specifically fueled by China, highway 
congestion, growth in agricultural trade, increased coal demand 
due to higher natural gas prices have come together in ways 
that, quite frankly, have been foreshadowed five years ago and 
never could have been fully comprehended. We have seen almost a 
complete reversal in the U.S. supply chain over this period as 
we have moved from a production economy to a consumption 
economy. In addition, much of what we used to manufacture in 
the United States is now returning via containers as imports 
through Transpacific trade.
    The good news that I share today is that this model can 
respond to this ever-required amount of new capacity. In the 
next few minutes I would like to outline some public policies 
that can assist the private sector in adding the right capacity 
at the right time.
    Obviously, handling annual increases in volume can be only 
done by reinvesting adequately to both maintain the quality of 
the infrastructure that we have, as well as to expand 
infrastructure to handle more freight at the right time. This 
requires that railroads reach a level of return on invested 
capital that is greater than our costed capital, and then 
continue to improve our returns throughout the business cycle. 
Put another way, a railroad that does not earn its costed 
capital loses money by reinvesting in itself.
    The biggest obstacle to achieving sustained investment in 
rail infrastructure has been the fundamental undervaluing of 
freight rail transportation in the supply chain. The prices the 
industry charged for transportation services fell more than 50 
percent between the years 1980 and 2003. Only since the second 
half of 2003 have the railroads began to receive more value for 
the services provided. This should be viewed very positively 
for sustained economic viability of the industry. As you will 
see in my written testimony, there is a direct relationship at 
BNSF between the rate of return on invested capital and the 
amount of capital that is required for reinvestment in the 
expansion of our network.
    Shippers want more capacity and so do we. Increased 
capacity will provide the network with more reliability, as 
well as reduce time for recovery for outages, which reduces 
operating costs and improved service. Most importantly, 
increased capacity will allow us to meet our customers' demand. 
BNSF can handle the projected growth if the network can be 
expanded in the right ways at the right time,
    Further regulatory stability allows us to plan for future 
improved returns and for this strong demand. In 2005 and 2006, 
about 20 percent of our capital program, or more than $400 
million a year, is targeted for network expansion. The key is 
not just adding capacity, but the right capacity. BNSF, like 
all private businesses, will only add capacity where it is 
needed and where we can earn adequate returns from it. I 
believe our investments in the coal transportation network are 
an example of a prudent approach to capital investment.
    I would like to now turn to my final point, which is steps 
policymakers such as members of this Committee can take to 
induce private freight railroads to invest in the right 
capacity enhancements and to do it faster. There are really 
three options. The first one is to do nothing and rely on the 
current market structure. Certainly, as railroads improve their 
returns, they will invest more capital to expand their 
networks.
    Public policymakers should continue to vigorously defend 
any attempts to change the regulatory scheme in a way that will 
not allow the railroads the means, the stability, and the 
predictability to earn sufficient returns. Passage of 
legislation such as H.R. 2047 would fundamentally alter that 
regulatory model and have the effect of significantly reducing 
private capital investment. But even with no change, capital 
expansion may be below what our economy needs.
    A second option is for direct Government investment into 
the freight railroad system. This can be done through outright 
grants or through loan guarantees that will induce investments 
that will not be made by private investors alone. BNSF supports 
public-private partnerships, but believes that direct 
Government investments must be carefully scrutinized so that it 
does not compete with private investment.
    Direct Government investments which may seem attractive at 
first blush could have a significant unintended consequence for 
overall rail capacity: rather than increase it, it would reduce 
it. Why, you ask? When making investment decisions, private 
companies like BNSF will have to consider whether its privately 
financed investments will compete against Government subsidized 
carriers. The result will be that companies like BNSF will not 
invest precious privately raised expansion capital in 
competition with nonmarket-driven Government investments, and 
there will be overall disinvestment and not increased 
investment by the rail industry.
    I respectfully submit that the role for public policy is a 
new third option to supplement the current model with a 
stimulus such as the investment tax credit recently proposed in 
the Senate. This kind of tax credit is not enough to make a bad 
investment occur, but enough to induce companies like BNSF to 
make investments sooner, rather than they otherwise would. Such 
an outcome would benefit rail shippers and the public at whole. 
This would give real impetus to increasing expansion capital of 
the rail industry from around $2 billion to perhaps $3 billion 
or maybe even $4 billion a year. That could have a true impact 
on the rail industry's fluidity and performance.
    In conclusion, I am very, very bullish on the future of 
freight railroads, but I want to encourage public policy 
initiatives that induce the right investments and recognize the 
importance of regulatory stability and creating the right 
incentives for continued investment in the rail capacity. 
Public policy will play a large role determining whether we 
will gain the right amount of capacity and at the right time. 
As you have heard and you are going to hear from customers 
testifying here today, the number one concern is sufficient 
capacity. As I said, the Staggers Act has served this Country 
extremely well. America's freight railroads are the standard 
for efficiency and excellence, and, quite frankly, the envy of 
all the countries around the continent. We need to preserve our 
ability to serve our customers and the economy.
    Thank you for this opportunity to testify.
    Mr. LaTourette. I thank you, Mr. Rose.
    Mr. Hamberger, welcome to you, and we look forward to 
hearing from you.
    Mr. Hamberger. Thank you, Mr. Chairman. On behalf of the 
members of the Association of American Railroads, I want to 
thank you and Congresswoman Brown for the opportunity to appear 
here today. I can't tell you how happy it makes my heart to see 
a standing room only crowd and the number of members who are 
here today for a hearing on freight rail. I can remember a few 
years ago a similar hearing, to put it mildly, was just not 
quite as robustly attended. So I think it underscores the 
importance of freight rail capacity and freight rail in today's 
economy.
    In the past few years, numerous major studies have 
concluded that our Nation's transportation network is being 
stretched to capacity and requires additional investment if we 
are to sustain the growth of the economy. ``Every aspect of the 
supply chain is stretched,'' noted a West Coast port terminal 
operator. ``It is not a question of whether a congestion crisis 
is going to happen, it is a question of when.'' Another quote: 
``Our highways, waterways, railroad and aviation networks are 
simply not keeping up with ordinary demands,'' says Michael 
Eskew, CEO of UPS.
    To be sure, record levels of freight are still being 
delivered. But as these statements make clear, all freight mode 
in the United States are facing capacity challenges today. For 
U.S. freight railroads, year-over-year quarterly carload 
traffic has increased in nine out of the past ten years, and 
intermodal traffic has increased in each of the past 16 
quarters. As a result, U.S. railroads today are hauling more 
freight than ever before.
    These traffic increases have resulted in capacity 
constraints and service issues at certain junctures and 
corridors within the network. In fact, excess capacity has 
disappeared from many critical segments of the national rail 
system. And as we have heard, demand will continue to increase 
by perhaps as much as 70 percent through the year 2020.
    To help meet this challenge, railroads must be able to both 
maintain their existing extensive infrastructure and build a 
substantial new capacity that will be required to transport the 
significant new traffic our economy will generate. Where will 
that money come from? The Congressional Budget Office recently 
noted, ``As demand increases, the railroads' ability to 
generate profits from which to finance new investments will be 
critical. Profits are key to increasing capacity because they 
provide both the incentive and the means to make these new 
investments.'' The Committee must understand that two-thirds of 
all investments in the freight railroads come from internally 
generated dollars, and a strong balance sheet is necessary to 
justify going into the capital markets to borrow the additional 
third of investment.
    Last year was the twenty-fifth anniversary of the Staggers 
Act. Since then, rail safety has improved by 66 percent. 
Productivity has increased by 168 percent. And as those 
productivity increases were passed along to our customers, 
average rail rates have dropped 60 percent on an inflation-
adjusted basis. And now, in 2005, railroads themselves are 
finally beginning to show tangible signs that financial 
sustainability might be within reach. Without question, 2005 
was a very good year for railroads. Revenue and net income were 
up substantially. But I would point out that the return on 
equity for the Class I railroads is still beneath the median 
for the Fortune 500 companies in 2005. Improved rail earnings 
should be viewed as a welcome development, because it means 
railroads are better able to afford the massive investments in 
new capacity that need to be made.
    Railroads are among the Nation's most capital-intensive 
industries, as you know, and even when returns were not where 
they were in 2005, from 1995 to 2004 railroads invested an 
average of 17.8 percent of all of their revenues back into cap 
ex. This compares to 3.5 percent of manufacturers across the 
board. And in 2006 a step level increase to $8.2 billion is 
planned to be spent on track, locomotive cars, signaling 
systems, yards, intermodal facilities, new technology to 
increase and maintain our capacity, and we will be spending 
millions more to hire and train thousands of new employees.
    To maintain and increase that level of investment so that 
our Nation's freight transportation can be met, I respectfully 
suggest that Congress should consider three policies with 
respect to freight railroads. One, do no harm; do not re-
regulate. The primary objective of those seeking re-regulation 
is to reduce rail rates. Lower rail rates will mean lower 
earnings, and as the CBO report emphasized, lower earnings mean 
less investment in rail infrastructure, exactly the opposite of 
what the Nation and our customers need.
    Two, continue to encourage public-private partnerships for 
freight rail infrastructure projects. Public participation in 
freight rail infrastructure projects is justified because of 
the extensive public benefits that would accrue to the general 
public by increasing the use of freight rail. These include 
reduced highway congestion, greater fuel efficiency, less 
pollution, and improved safety.
    I would like to thank this Committee, and especially 
Congressman Weller and Congressman Lipinski, for their support 
of what Secretary Mineta has called the model public-private 
partnership in the Country, the CREATE project in Chicago.
    Three, support investment tax credits to bridge the funding 
gap between what should be invested in rail infrastructure and 
what railroads are likely to be able to invest on their own. 
Under the Rail Infrastructure Tax Incentive Program, soon to be 
introduced in the Senate, the projects to expand freight rail 
capacity--I emphasize only projects and investments that will 
expand freight rail capacity--would be eligible for a 25 
percent tax credit. The Nation's economic health requires 
additional transportation capacity, and we look forward to 
working with the Committee and Congress as you develop policies 
to meet that need.
    Thank you, Mr. Chairman.
    Mr. LaTourette. I thank you very much for your testimony, 
Mr. Hamberger. I like to think that the size of the crowd is a 
direct reflection on the quality and the breadth and depth of 
the knowledge of the witnesses testifying today, as well as the 
wonderful bipartisan leadership of the Subcommittee.
    General Timmons, thank you for coming, and we look forward 
to hearing from you.
    Mr. Timmons. Thank you, Mr. Chairman and members of the 
Committee. I appreciate the opportunity to be here this morning 
to talk about the short line railroad industry. As I think you 
all know there are some 500 short line railroads operating 
nearly 50,000 miles of track across the Country. We serve 
shippers that aren't on the Class I main line system, 
preserving rail line that otherwise would be abandoned, saving 
rail jobs that otherwise be lost, and providing customers with 
competitive service that is almost always less costly than 
comparable truck transportation.
    Just to put our role in the context of the national 
transportation system, 23 of the 24 members of this 
Subcommittee have a short line in their district. Now, I might 
add that we are taking up a collection from those 23 to 
purchase a short line in that last remaining district, which is 
Congressman Porter's of Nevada.
    In the short time I have this morning, let me touch briefly 
on three topics that relate to the issue of capacity. First, 
the short line industry strongly supports the Class I tax 
credit initiative. Ed Hamberger has briefly laid out the facts 
and figures, and we think they are compelling. As I will 
discuss in a moment, short line infrastructure needs are 
different from the Class Is; yet, the capacity improvements 
they are addressing are important to us as well. Nearly 90 
percent of our traffic originates or terminates on a Class I 
railroad. Short lines handle an origination or termination one 
out of every four railcars moving on the national rail system. 
When the Class I system experiences capacity problems, our 
customers can't get cars, can't move their product, and 
ultimately can't market their product. This is a particularly 
critical condition in rural America, where truck transportation 
is more expensive than short line rail and where local roads 
certainly cannot accommodate substantial increases in heavy 
truck traffic.
    Our strong support for the Class I initiative also results 
from our own experience with a recently enacted short line 
rehabilitation tax credit. 2005 was the first year of the tax 
credit, and already it is demonstrating its worth. Our railroad 
in Congressman LaTourette's district, the Wheeling and Lake 
Erie, is using the tax credit to replace light jointed rail 
with heavier welded rail on a line where traffic has increased 
some 35 percent in the last five years. The steel, coal, and 
utility customers on the line are making major capital 
improvements partly due to the competitiveness and improvements 
in rail service.
    The Kansas & Oklahoma Railroad in Congressman Moran's 
district is using the tax credit for an $8 million rehab 
project on a line that has 100-year-old rail. Speeds will 
increase from 10 to 25 miles per hour and the line will be able 
to handle the new heavier 286,000 pound cars which are the 
industry standard. It is likely this line would have been 
abandoned without the credit.
    The Florida Northern and Florida Central Railroads in 
Congressman Mica's district are using the credit to support a 
$14 million track upgrade which will increase speeds from 25 to 
40 miles per hour and allow the short line to handle the 
heavier, longer trains that are so important to shippers. The 
railroad believes the upgrade will result in a significant 
increase in the amount of coal that can be shipped over the 
line.
    We are collecting dozens of such stories from around the 
Country, and they all share a common theme. The tax credit is 
allowing light density lines to take on or accelerate projects 
that would otherwise fall by the wayside. These projects are 
allowing us to handle more traffic, pick up and deliver 
heavier, longer trains from the Class I system, and help our 
customers reduce their transportation costs.
    This obviously is a good news story for many reasons, but 
one that is worth highlighting here is the reaction of our 
shippers. One such is from the owner of Delta Trading Company, 
which ships hazardous materials on the San Joaquin Valley 
Railroad in Bakersfield, California, and which operates over a 
line that received a $2.7 million upgrade made possible by the 
recently passed tax credit.
    His comments: ``The track rehabilitation made possible by 
the tax credit is directly responsible for my company's 
decision to invest nearly $3 million in our facility and almost 
triple our number of employees. We now have a short line 
railroad partner that can provide the volume and level of 
service that allows us to significantly grow our business. The 
tax credit was a very smart decision by the Federal Government, 
and I suspect it will more than pay for itself as our 
experience is repeated on short lines across the Country.''
    Mr. Chairman, you and members of this Subcommittee were 
strong supporters of this tax credit, and the capacity 
enhancement is already abundantly clear. However, as a final 
thought, as successful as we believe it has been and will 
continue to be, there is one hitch we did not contemplate, and 
that is the impact of the Alternative Minimum Tax on the credit 
itself. In many cases the AMT is taking up to half the credit, 
and in some cases is eliminating it altogether. I would hope 
that this Subcommittee would consider this and support some 
type of AMT relief for the period of the credit.
    I appreciate the opportunity to be here today and will be 
happy to answer any and all of your questions that you may have 
at the appropriate moment. Mr. Chairman, thank you very much.
    Mr. LaTourette. Thank you very much, General Timmons.
    Last, Mr. Millar. Thank you for being here, and we look 
forward to hearing from you.
    Mr. Millar. Thank you, Mr. Chairman and Ranking Member 
Brown and all the members of the Committee. I am very pleased 
to return before the Committee. And let me congratulate you on 
holding this hearing about our rail capacity, both passenger 
and freight capacity.
    We need only look at today's headlines to see that 
Americans' travel patterns are changing due to the price and 
availability of gasoline. Public transit in America has had an 
unprecedented growth, some 25 percent increase in usage over 
the last 10 years; and that was well before gas prices reached 
the $3.00 a gallon level.
    Now, America has long enjoyed the most extensive and 
efficient transportation system in the world, but other 
countries are catching up. The critical capacity issues 
affecting railroads are a part of an overall capacity crisis in 
the whole transportation system that affects airports, 
roadways, port facilities, public transportation 
infrastructure, and the list goes on. Such congestion is 
putting severe stress on America's transportation logistics 
network, which has historically given America its economic edge 
as globalization increases and the competition of people and 
goods around the world increases as well, and maintaining our 
edge is critically important to maintaining our lead in the 
future.
    Railroads, both passenger and freight, must play a greater 
role in our transportation network. Earlier this year the 
Census Bureau tells us that we are more than 300 million 
Americans for the first time. They expect that within 30 years 
an additional 100 million people will be in our Country. They 
aren't making any more land, so this means we are going to face 
an unprecedented challenge, and how do we serve those 100 
million additional people, maintain the service to the people 
we have, and growth the economy so that all have the proper 
opportunities to do what they want in their lives? Most of this 
population growth will occur in our metropolitan areas, making 
urban transportation corridors more important than ever.
    As we examine the options for expanding our transportation 
infrastructure, the need for greater reliance on rail becomes 
clear. Rail is much more efficient in terms of land use, 
energy, and adding rail capacity is imperative. I strongly 
agree with the statements we heard just a few minutes ago of 
Administrator Boardman, that we need to make more investment in 
rail infrastructure. There simply isn't another good choice.
    In urban and suburban areas, roads are hopelessly 
congested, but most of those roads have already been expanded 
to their maximum practical capacity. Adding additional highway 
capacity in urban areas is enormously expensive and for just a 
fraction of that cost we could expand the availability of 
railroads for both freight and passenger purposes.
    Now, not surprisingly, many Americans faced with the 
choices of higher gas are turning more and more to commuter 
rail. Last year, 423 million trips were made on the Nation's 
commuter rail network. This is up some 2.8 percent from the 
year before. Every one of the almost 20 commuter railroads in 
America experienced increased ridership last year.
    And thanks to the work of this Committee and others in the 
Congress with the SAFETEA-LU legislation last year, there are 
opportunities to expand commuter rail. This year we will see 
new systems opening in Nashville and Albuquerque. We are in the 
advanced planning stages in Minneapolis, Salt Lake, Portland, 
Charlotte, Raleigh, and Denver, just to name a few cities that 
we expect to see projects come online in the very near future. 
Use of public transit, and particularly commuter rail, which 
tends to service long distance trips, is the quickest way that 
most Americans can beat the high cost of gasoline.
    Now, my colleagues on the panel here today have spoken 
eloquently of the capacity crunch, and we certainly agree that 
it is there. And while all of us are working hard together to 
do things about better scheduling, on-time performance becomes 
a real challenge, and all passenger and freight interests 
involved here are doing what they can to improve on-time 
performance, but, as I said, we are going to need additional 
capacity. There are some really good success stories, though. 
The Baby Bullet South of the San Francisco Bay, for example, 
for the same amount of labor input, have succeeded in growing 
their ridership by over 20 percent by making better use of the 
capacity that they already have.
    Now, there are many ideas, and, again, my colleagues have 
spoken about some of these ideas, and generally APTA is 
favorable towards many of these ideas. Now, about 90 percent of 
all the commuter rail trips take place on rail that is owned by 
APTA members; however, it is apparent that many of the new 
commuter rail systems will need to use rail freight rights of 
way. We are prepared to pay our share of that. We agree that 
public-private partnerships are a good way to go.
    We think, though, that there need to be a series of 
principles that guide some of those partnerships. Four that 
APTA firmly believes in is that, one, more capacity is needed 
in strategic rail corridors; two, these rail corridors must be 
available for both passenger and freight purposes; three, that 
a cooperative framework must be put in place for negotiating 
fair access terms to both the public interests and the private 
interests involved; and, finally, that we must come to grips 
with the liability issue and that reasonable liability limits 
be established. We certainly agree with earlier testimony that 
describe that many projects will have public benefit, and 
certainly the public needs to be prepared to contribute 
financially to that.
    Finally, let me say, Mr. Chairman, that I believe America 
is also ready for high speed passenger rail transportation. All 
other industrialized countries in the world have or are 
developing high speed rail networks, and many developing 
countries as well. I returned from my first visit to China last 
week and, as the phrase goes, had my mind blown away by the 
investments that they are making in all forms of their 
infrastructure. Their high speed passenger rail system under 
construction envisions tying all their provinces and all 30 of 
their largest cities together in a national grid. They are 
proposing shared use corridors with freight operations, but 
then publicly funded dedicated tracks for high speed rail in 
those corridors. The Chinese have plans to invest $16 billion 
to $20 billion per year on improvements in their rail network. 
We certainly need to look there and elsewhere as examples.
    Finally finally, the Subcommittee's proposal for a 
dedicated fund for high speed rail projects through tax-exempt 
and tax credit bonds, such as was proposed in Ride-21, would 
create the favorable policy environment for which high speed 
systems could evolved and thus providing increasing 
opportunities for Americans to travel.
    In conclusion, thank you, Mr. Chairman, for including us in 
this important hearing. We stand ready to work with you and to 
answer any questions that we might. Thank you.
    Mr. LaTourette. Thank you very much, Mr. Millar.
    And thank all of you for your excellent testimony.
    Mr. Boardman, I want to start with you. In your statement 
you note, I think correctly, that the Class I railroads have 
made a number of investments and expanded capacity to a number 
of rail lines and yards. I want to focus my question on the 
yards. On the second panel today, Mr. Martland will testify, 
and he makes the observation that the railroads have put the 
vast majority of their improvement dollars in certain high 
return sectors of traffic and have, in effect, written off the 
general merchandise traffic, which we know is a major source of 
highway congestion.
    Of the yard improvements that you mentioned in your 
statements, are you aware of any that have been oriented 
towards general velocity or dwell time improvement, as opposed 
to improvements that are specifically targeted at a specific 
sector like intermodal traffic?
    Mr. Boardman. Well, I think, as a general response, all of 
them would improve the dwell time and improve the velocity of 
the railroad. But I do not know the specifics of that, and I 
would be happy to investigate that and get back to you.
    Mr. LaTourette. Okay. If you would, I would appreciate it. 
And I think you correctly point out that in order to devote 
specific--it is not a surprise to me that the railroads make a 
business decision that those lines where they can make money 
are those lines that they are going to make the biggest 
improvements in, but it does, I think, then speak to our 
discussion of--I think Mr. Bacchus, in his opening remarks, and 
others talk about--General Timmons--tax credits and things of 
that nature, and it becomes incumbent upon us to figure out a 
way how to make additional dollars available, and we've tried 
to do that with the RIF loan and the TIFFIA program.
    But let me ask you this--and I would like others on the 
panel to comment about it. We have talked about RIF, we have 
talked about tax credits, we have talked about Section 45(g). 
What do you think about the option of having the shippers and 
the carriers negotiate contract rates that include a 
requirement that a certain portion of the rate be dedicated to 
improving the infrastructure that benefits them, not only the 
shipper, but also the rail carrier?
    Mr. Boardman. Is this the UPS trust fund concept?
    Mr. LaTourette. No, it is not. We are going to hear from 
UPS on a trust fund. My question, I think, is, in addition to 
that testimony that we will hear late, what if we suggested to 
the Class I railroads and others that, when they are 
negotiating a rate with a shipper, that a portion of that rate 
be set aside, dedicated to infrastructure improvements, as 
opposed to just the cost of carrying the goods.
    Mr. Boardman. I think--I don't have a studied position, 
obviously, on that, it is something that those kind of 
innovative ideas are hopefully something that the secretary's 
new commission is looking at all sorts of ideas on how they 
might be able to finance in the future would perhaps give us a 
better idea of what that looks like, and we have got two of 
those members here on the panel with us today. So while we 
could look at that, and will, for you on a more specific 
answer, generally I think that would really have to be looked 
into and see what it would do to the competition.
    Mr. LaTourette. Okay.
    Mr. Rose, what do you think about that, as a CEO of a major 
railroad?
    Mr. Rose. Mr. Chairman, I think, practically speaking, that 
that is what the market does, a portion of the profitability of 
a certain movement does go to infrastructure. I think if you 
got very specific and target it and said that a certain rate 
has to put so much infrastructure back in a line, it would be 
very difficult. We operate--we own 26,000 miles of track and 
operate 33,000 miles of track, and these are long-lived 
investments. When you put a new tie in, it is for 30 years. So 
I think it is very hard for a piece of that rate to go in and 
say, well, we are going to dedicate it to upgrading these ties 
on this line segment.
    But I think generally that is what the overall economic 
theory will do, and where higher returns are in the industry, 
that is where reinvestment is going back into the industry. If 
you think about our network, we probably generate 40 percent--
we probably generate 70 percent of our net income over about 40 
percent of our lines. So to say it the other way, you have got 
about 60 percent of our lines are underperforming. You want--
the economic theory will want to drive back those reinvestments 
into those lines that are long-term sustainable, and the 
Staggers Act--I don't want to sound like a broken record. If 
you go back to the 1970s, when it was enacted, railroads were 
in chaos and the Government was spending billions of dollars 
bailing out Penn Central, Old Milwaukee Road. And the last 
thing I think that the industry economy wants to do is to get 
back to that time. So I will always come back to let the market 
sort this out, and it will and it has done it exactly right so 
far.
    Mr. LaTourette. Part of the purpose of today's hearing is 
what can Congress do, and I have heard the observations about 
tax policy and other things and not re-regulating, but I read 
someplace the other day that when they built the 
Transcontinental Railroad, that they were able to build a mile 
of track a day using hand tools. It seems to me--and this is a 
question I guess to both Mr. Hamberger and Mr. Rose--it seems 
to me that, as BNSF and all the railroads are making 
infrastructure across the network at a stepped up rate, that 
there are particular challenges when it comes to permitting 
with State and Federal agencies and coordination among them. 
And I guess my question is is there anything that the Congress 
can do in your mind that would better facilitate the 
construction of these must-needed projects to expand the 
infrastructure which we all agree needs to be expanded?
    Mr. Rose. I think that is a great question. When the 
transcontinental rail network was built, obviously, we didn't 
have the sensitivity to the environment, which is fine, we 
ought to be, because we stand on that record as well, that more 
rail infrastructure helps the environment very much. The 
problem we are finding out, even on our own right-of-way, where 
we are running into permitting issues that are taking a year or 
18 months to resolve, so these are issues where we are not able 
to add capacity on our own right-of-way with our own private 
capital to provide needed congestion relief for our customers 
because of some of the environmental issues that are out there 
now and, quite frankly, in terms of the complexity of the 
number of agencies that we have to deal with. We have a very 
good relationship with the Corps of Engineers and we feel like 
we can work through that group. Yet, sometimes we will get 
local people, local authorities who want to get involved, State 
authorities, and what it does, it ends up holding back 
investment that we are not asking anybody else to make on our 
behalf in terms of preventing us from being able to expand 
capacity and improve service.
    Mr. LaTourette. Maybe as a service, because my time is 
short and I do want to ask General Timmons one question, maybe 
if you and the other railroads and short lines could provide us 
with a list of those Federal regulations that you find to be 
most impeding the ability.
    Mr. Hamberger?
    Mr. Hamberger. I would just like to add one sentence of 
praise for Administrator Boardman and Secretary Mineta, who 
have assigned a full-time person to work with the CREATE 
management Committee to try to cut through the various 
environmental regulations that have to be dealt with to take 
advantage of the Federal dollars. And there are things that can 
b done on the administrative side as well as taking a look at 
legislation.
    [The information received follows:]
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    Mr. LaTourette. Okay. I appreciate that very much.
    General Timmons, before I yield to Ms. Brown, I was, I 
think, shocked by your testimony that the Alternative Minimum 
Tax has reared its ugly head relative to this tax credit, and 
it seems to me that what the short line tax credit was designed 
to give us the AMT is taking away. Are there some hard numbers 
that you can give us relative to the impact that it is having 
on the industry?
    Mr. Timmons. Mr. Chairman, the taxes were filed generally 
just several weeks ago, as you know, and we are just starting 
to get a feel for what the implications of that are, but prior 
to the actual filings we had a number of members come forward 
and say they had taken advantage of the tax credit but the 
actual returns, as a consequence of the AMT, were severely 
degrading what they thought they were going to get.
    Now, I understand that the AMT is an enormously complicated 
problem and has broad, broad implications across the Country. 
However, in the context of the tax credit, the three year tax 
credit, we think that would be enormously valuable for this 
Committee and the Congress to consider some kind of relief so 
that the intent of the Congress and the point of the tax credit 
itself is carried through so that we can actually make the 
enhancements and improve the system that needs that attention.
    Mr. LaTourette. Sure. I think a lot of us understand where 
AMT came from, but a lot of us, given the fact that there has 
been no index for inflation, a lot of our constituents are 
shocked to wake up and find that they are rich when they fill 
out their tax forms, and I imagine you are experiencing the 
same thing. When the dust settles, the request I would make of 
you is could you poll your members and get some information as 
to what the impact is so that we can evaluate that with our 
friends in the Ways and Means Committee?
    Mr. Timmons. We would be more than happy to do that. And it 
begs the--because of the degradation, it begs the issue of 
should we extend the tax credit; and obviously we think for 
that reason and the obvious success that we are having, that 
clearly that is an initiative that we should strongly pursue 
and would ask you to consider that.
    Mr. LaTourette. I thank you very much.
    Ms. Brown. Thank you.
    Mr. Boardman, I want to point out that this hearing is not 
just about freight rail congestion, it is also about how 
freight congestion impacts the passenger and commuter 
railroads. The Administration has, time and time again, 
criticized Amtrak for poor on-time performance, when it is the 
freight railroad and congestion that are causing these delays. 
What sort of assistance is available for Amtrak and commuter 
railroads to deal with the freight railroads that are delaying 
passenger trains? And, secondly, the first proposal, the FRA 
proposed using RIF loans to improve railroad infrastructure. 
Yet, the Administration zeroed out RIF in the budget. And, 
lastly, when you all sent your proposal over, you did not 
indicate where you stood on the 25 percent tax credit. Can you 
perhaps go on the record here today as to whether or not the 
Bush Administration supports the 25 percent tax credit that I 
keep hearing people talk about? You know, when I hear that 
America is hooked on oil, policies have something to do with 
this hook on oil.
    Mr. Boardman. Let me address, Congresswoman, each one of 
your questions. First of all, the question of whether Amtrak 
on-time performance and commuter rail in terms of freight 
congestion is a difficult question. Certainly, on a line that 
is a lightly used freight line, we don't have any difficulties, 
generally, with commuter services operating on that line. But 
when there is today the growth that there has been in the 
economy, the intermodal traffic, the unit train traffic that is 
on an Amtrak line, it becomes much more difficult for the 
freight railroads to make the kinds of improvements that they 
need to to allow Amtrak to get through on an on-time basis.
    We assist as we can in terms of looking at how the 
dispatching services go on with the freight railroads and how 
we might be able to make sure that they are giving the priority 
and checking to make sure that they are giving priority to 
passenger services. So we assist in that way.
    And your second question was--let us see, your third 
question--second question was on the RIF program, which we had 
a hearing, one of my frequent flier hearings here that we had 
fairly recently here. The Administration believes that under 
the RIF program that the kinds of funding that would be 
available are available in the private sector and the private 
sector would be the way to finance the kinds of improvements 
that the RIF program would do. We will, however, carry out the 
law, which is what you passed, to make sure that for the time 
that the RIF program is available, we will move it as quickly 
as we can.
    And on the third point, which was the--excuse me, help me.
    Ms. Brown. Twenty-five percent tax credit that they keep 
talking about.
    Mr. Boardman. Right.
    Ms. Brown. That I am supportive of but I want to know where 
is the Administration on this issue today, on record.
    Mr. Boardman. I don't think the Administration at this time 
has taken a position on it. Certainly, the sensitivities of a 
tax credit really belong in the Treasury Department, as opposed 
to the Transportation Department. We know that it is an 
important issue for the railroad industry, but the position is 
not taken by the Administration at this time.
    Ms. Brown. I guess I am confused. What do you mean? The 
Congress makes that decision, recommendations from the 
Administration. And my question is where is the Administration 
on this 25 percent tax credit today.
    Mr. Boardman. I understand. But the FRA is not the 
appropriate agency to make that recommendation; it is a larger 
issue in terms of tax policy, which really belongs with 
Treasury.
    Ms. Brown. Okay. So the Secretary of Transportation would 
not make a recommendation to the Congress on this issue?
    Mr. Boardman. Not without the Treasury folks involved in 
the process and having a recommendation from Treasury.
    Ms. Brown. And the Secretary is a former railroad person. I 
would think that he would at least have some knowledge of the 
needs of the industry.
    Mr. Boardman. I know that I do not speak for Secretary 
Snow.
    Ms. Brown. Okay. I guess I wanted to ask someone else.
    Mr. Secretary, there seemed to be a high degree of urgency 
in your testimony. Am I reading that correctly?
    Mr. Busalacchi. Yes, Representative, you are. You are 
reading the testimony correctly because we believe that it is 
urgent that we move forward. You know, we know the capacity 
clock is ticking; demand is up; supply is static. Time is of 
the essence. New signal systems have to be hand built, all the 
improvements have to be built while the system is in operation. 
New train sets would take three years to bring online. We must 
act now if we are to address these pressing national needs.
    Ms. Brown. Mr. Hamberger, my time is running out, but I do 
want to ask you about the tax credit. Will it go for 
infrastructure expansion to provide benefits to the public or 
the rail customer, or will it go to tax credit to use for 
infrastructure improvements which yield the highest return? I 
guess that is kind of a business decision, but is this business 
overall helping the crunch that we are experiencing?
    Mr. Hamberger. Yes, it would support only expansion 
capital. And you make a very important point, that it is only 
to expand our capacity to move more freight that would qualify 
for this investment tax credit. And it would also be applied if 
a customer wanted to expand capacity at a receiving dock or 
wanted to--if a trucking company wanted to build an intermodal 
yard, that would also qualify for this expansion of rail 
capacity. So I think it would have, because of the public 
benefits that increased freight has, as pointed out by the 
AASHTO report, it certainly would have public benefits as well.
    Ms. Brown. Have you gotten any reading as to whether or not 
the Bush Administration supports the 25 percent tax credit?
    Mr. Hamberger. We have met with various people within the 
Administration. I think it is under consideration, but they 
have not told us--made any final decision. In fairness, the 
bill has not yet been introduced, so I guess the action, force 
and event, where they have to actually issue a statement of 
Administration policy, hasn't occurred. But at some point we 
will continue to make our case to them and hope that we will be 
successful.
    Ms. Brown. Mr. Chairman, we will have another round, won't 
we? Thank you, sir.
    Mr. LaTourette. I thank you very much.
    Mr. Oberstar.
    Mr. Oberstar. Mr. Chairman, it is a very good idea to hold 
these hearings. I appreciate the work that you and Ms. Brown 
have undertaken to bring to the fore in this public forum the 
needs of rail transportation, the importance of railroading to 
our national economy; the significance of railroads in our 
ever-increasing congestion in moving goods, as well as people. 
And it has afforded the Association of Railroads, Mr. Rose and 
others an opportunity to spread upon the public record, as 
quaintly say in the legislative process, the investments made 
with the new-found revenues that railroads are enjoying.
    As we go through this--and for that I certainly commend the 
railroads. But as we go through this exercise, I can't help but 
think back on 1980 and the intensity of debate--Mr. Hamberger, 
you were on the staff at the time, I believe--of debate not in 
this Committee, because we didn't have jurisdiction over 
railroads, though we should have, at that time--we probably 
would have done a better job of deregulation--and I rubbed my 
worry beads about whether this was a good thing to do.
    Our committee had already done trucking deregulation, 
intercity bus deregulation, aviation deregulation, and what 
tilted the scale for me was that we were beginning to see the 
benefits of taking the Government out of deciding market entry 
and rates in aviation. And I thought that that might apply as 
well to railroads. So I voted for it, against many objections 
from constituents, from user groups, from railroad brotherhoods 
who were divided on the subject.
    We had 61, roughly, Class I railroads in 1980. No one 
envisioned that we would have four today, five; some of you 
will say seven. But that is where we went, consolidation. 
Aviation went in the other direction for a very long time. 
Aviation, at the time, 1980, we already had 10 new entrants 
into air competition; in five years we had 22 new entrants. But 
then aviation took the same direction that railroading took. 
Consolidation, acquisitions and mergers reduced the number of 
new entrants to today we have only one of that original 22. I 
usually ask people--offer frequent flier miles if they can tell 
me which one that was. Almost everybody says Southwest. It was 
America West. And they too have merged.
    Aviation is going in the other direction: it is losing 
money, while railroads now, for the first time in a very long 
period of their history, are making money. The Surface 
Transportation Board has rarely found that railroads are making 
adequate return on revenue, revenue adequacy, but in the 1970s, 
when your return on equity was in the one to two percent range, 
it is now--Norfolk Southern just recently reported 11.6 
percent. On balance, they are running in the 8 to 9 percent 
range. And we are seeing those capital investments that BNSF 
particularly has worked hard, on course with a very major $2 
billion or $3 billion plus investments plan in the late 1980s, 
early 1990s, and then had to shelve it because Wall Street said 
your return on equity isn't sufficient.
    Well, we have not stood by with our finger in our ear in 
this Committee. We supported the railroad retirement 
recapitulation that was supposed to generate equal benefits for 
the Railroad Retirement Fund for the health insurance and for 
capital investments. I want you to briefly comment on what you 
have done with those revenues.
    We also supported 4.3 cent repeal of the fuel tax that in 
AAR's own economic policy paper fuel tax, energy policy, 
deficit reduction said repeal of the deficit reduction fuel tax 
would restore to freight railroads--and, uncharacteristically, 
in your paper you mention barges--$200 million a year for 
equipment and infrastructure investments. But the FRA has said 
that railroads have generated 85 percent of their capital 
investments--or directed 85 percent of the capital investments 
to maintenance. So what has happened to the money generated 
from the Railroad Retirement Fund recapitulation and the 4.3 
cent repeal?
    Mr. Rose. Congressman, in my testimony there is a chart 
that I was hoping we could get up here, but it shows return on 
vested capital and then it shows level capital investments, and 
it follows economic theory perfectly. As our returns came down, 
capital was withdrawn from our railroad. And then as our return 
started going back up, capital was infused back into the 
railroad.
    Mr. Oberstar. Are you attributing that directly to the 
Railroad Retirement Fund and the 4.3?
    Mr. Rose. Okay, let me give you a perspective on that. We 
will generate close to $3 billion in operating income at our 
company. Four point three was worth about $60 million. Railroad 
retirement was worth about $70 million.
    Mr. Oberstar. A year.
    Mr. Rose. A year. So $120 million to $130 million of the $3 
billion of operating income. So, yes, that relief for diesel 
fuel tax went right to our bottom line, which helped our 
operating income, helped our return on invested capital, helped 
us to where, last year, we had record capital spending. Last 
week, at my board meeting, my board agreed to increase our 
capital this year by another $100 million. So I think the model 
did exactly what you were hoping for, and it has worked exactly 
as intended.
    I would just--I have got to make this one illustration that 
I think you understand more than most because of your 
understanding of the airline business. The difference between 
the airline business and the railroad business is that the 
airlines do not own the airports, and you have basically 
publicly supported airports that are off on one track; whereas, 
the railroads, we own our own airports. And what was happening 
in the--
    Mr. Oberstar. Do you own your own locomotives?
    Mr. Rose. We own our own locomotives.
    Mr. Oberstar. Do you lease any like the airlines do?
    Mr. Rose. Or a lease structure. Both.
    Mr. Oberstar. A lease structure. I gave a talk some years 
ago in which I said why spend $150 million to buy a 747 when 
you can buy a whole fleet for $50 million? When Mr. Chechi and 
Mr. Wilson pooled their $25 million apiece, bought Northwest 
Airlines for $50 million and then leveraged everything else in 
the company and turned Northwest from a corporation that had $3 
billion in equity and $1 billion in debt to a company with $3 
billion in debt and $1 billion in equity. That is what leasing 
did for them.
    Mr. Hamberger. Could I piggy-back on Mr. Rose's answer on 
behalf of--
    Mr. Oberstar. That is a good term for a railroader to use.
    Mr. Hamberger. Yes, sir. I knew you would pick up on that.
    It is difficult to identify specifically where the cash 
flow comes from. Obviously, it comes from increased rates, it 
comes from improved operating ratio, it comes from not paying 
as much taxes. But the fact is, between 1980 and 2004, the 
industry put in $360 billion in capital expenditures. Now, not 
all of that is expansion capital; there is maintenance capital. 
We wear out, you know, several miles of railroad every day, 
each one of these companies. But the capital expenditure has 
gone up--and I believe it is in my testimony--dramatically over 
the last several years, from the $5.4 billion to $6.4 billion, 
this year to $8.2 billion, now, new news, $8.3 billion, now 
that Matt is in for another $100 million.
    So that as the revenue is there, as the returns are there, 
the industry makes the commitment to reinvest it and to provide 
not just the maintenance capital, but also the expansion 
capital.
    Mr. Oberstar. Well, I know that we are trying to stick with 
a five minute time limit here, Mr. Chairman, but--and many 
questions I would like to ask do not admit 30-second responses.
    But since money is fungible, it is very difficult to track 
where the 4.3 repeal actually went, how much it was distributed 
in which categories, and the Railroad Retirement Fund 
recapitulation, and that raises questions for the tax credit 
proposal and how that can be structured so that we can track 
exactly where it goes and what it is used for.
    I will conclude, Mr. Chairman, by simply observing that I 
feel very privileged that the Association has chosen to 
dedicate an entire portion of its testimony to an attack upon 
my rail fairness legislation. I know you have had a mobilizing 
effort here, you have made a great outreach to Committee staff 
and member staff, and you have made quite an assault upon it. 
But it is not re-regulation. It is not re-regulation. That is a 
very catchy term to use to discredit a piece of legislation. 
But just as I have resisted re-regulation outright in aviation, 
we are not about to decide market entry and rate determinations 
for railroads with this legislation.
    But the fairness of filing with the Surface Transportation 
Board and the cost of the paperwork to do this, and the right 
of access to lines are matters that deserve better treatment 
than they are getting now in the railroad industry. And to 
understand that, all of you need to listen to your shippers, 
because if you are not listening to them, they are telling us 
their story, and their stories range from the cement industry 
and the grain people who are buying their own cars or trying to 
lease them from the rail sector, and then the railroads say we 
won't move your cars because you own them and that is a 
liability for us.
    And there are numerous instances of those evidences of 
unfairness in the service, and the reduction from 252,000 miles 
of rail line in 1980 to 141,000 or so today may have been good 
practice business at the time, but go and ask any one of the 
small towns that lost their LCL service, any one of the grain 
centers who have been told we won't move grain from your 
elevator unless you can fill 1500 ton hopper cars, and ask them 
whether that was a good thing. Those are the inequities in the 
marketplace that we as members of Congress hear about, that I 
hear from my colleagues and that I hear directly from my 
constituents.
    So while I am an admirer of the rail sector, an advocate 
for what you contribute to the national economy, I want to see 
you carry more cargo because it is more environmentally 
friendly. I want to see more passenger rail moved on commuter 
lines that share those lines with the rails, and to that you 
have to have double lining. To take cars off the road and 
pollution out of the air. Every car we take off the road takes 
five tons of CO2 out of the atmosphere a year.
    So, on the other hand, there are inequities that, if you 
don't address them, we think that the legislative process must 
address them. So we will have a continuing dialog on that 
subject. Thank you.
    Thank you, Mr. Chairman.
    Mr. LaTourette. I thank the distinguished Ranking Member. 
And, as he knows, the second panel is made up of a number of 
the shippers that I think will echo some of his observations.
    I think--we are waiting for Mr. Bachus to come back, and I 
did promise Ms. Brown we would do a second round, so we will 
have a second round. We may not all take the full five minutes, 
but I have--
    Mr. Hamberger. Mr. Chairman, before Mr. Oberstar leaves--
    Mr. Oberstar. I am not going forever.
    Mr. Hamberger. Okay. I was just going to say that I 
certainly understand and appreciate his view, and really 
understand and appreciate the time you have given us to 
continue to discuss these issues that we have over the past 
several years, and we will continue to take you up on that 
offer. Thank you.
    Mr. Oberstar. Thank you. I will be back.
    Mr. LaTourette. I appreciate that. Just a couple of things.
    Mr. Boardman, on the plasma screen--we have now gone to 
plasma screens here--is a map of the United States, and I think 
this map may have shown up in an edition of Trains magazine, 
and it basically highlights the lines that are illuminated in 
color, it is my understanding that those are the only lines in 
the United States that have at least double track, and, in some 
instances, more than that. I would think when you deal with--I 
don't see any in big States like--well, very little in Florida 
or Texas.
    Doesn't this map I think pretty much indicate the 
difficulty that faces us as a rail system when we are talking 
about the capacity problems either from the railroads' 
standpoint or from the shippers' standpoint and really cry out 
for some kind of increased investment? The railroads have 
indicated and testified to the amount of money that they plow 
back into infrastructure improvements.
    But doesn't this map really--a little bit like in Florida, 
I guess, where the gentlelady is from, I think it is a little 
bit like having an interstate highway that only goes one 
direction at a time. And I think, to me, at least, would you 
agree with me that this map sort of cries out for some sort of 
investment in rail capacity in this Country?
    Mr. Boardman. Mr. Chairman, I would just make the comment 
that all through the 1970s and the 1980s and the early part of 
1990s the industry was literally taking up double track, and 
the reason is, again, very financially understandable: the 
returns were not there and it was all about taking expense 
dollars out. So the model worked exactly what it should have, 
what the deregulation model said it should have.
    And I guess I would tell you the good news is that there is 
an awful lot of right-of-way that is still owned by the 
railroads that double track can go back into, and on our 
railroad, if you look--and that green line, that heavy green 
line is our transcontinental main line between Chicago and Los 
Angeles. At the end of this year we will be down to 50 miles of 
single track railroad on that 1800 mile haul. And we have been 
spending--we have spent about $800 million to complete that 
double track, and we are continuing to do that. I was just out 
on the railroad a couple weeks ago, and as we have that double 
track, it really does change the railroad.
    But I want to go back to what drove the decline was the 
decline in the railroad profitability. And what will drive, 
under current regulatory access, what will drive the increase 
in capital will be that same financial model.
    Mr. LaTourette. And not to beat a dead horse, but I would 
go back to the question about permitting that I asked you 
before. Take a line where you ripped out the double track. If 
you want to put in the same track that you used to have in the 
1980s on the same right-of-way that you own, now you have 
permitting requirements that you didn't have.
    Mr. Boardman. Correct.
    Mr. LaTourette. To restore these lines.
    Mr. Boardman, is there an observation you would like to 
make about this map?
    Mr. Boardman. I certainly think that, Mr. Chairman, when 
you look at that, it certainly builds a graphic example of what 
we need to do to add capacity. I think there is another 
interesting thing you can look at here. There are several of 
them, I think. Mr. Lipinski is no longer here, but certainly 
when you look back at the history of how railroads really came 
together, you see where everything did come together at the 
Great Lakes in Chicago and why there is such an important need 
on that gateway to make sure that we make new investments in 
that particular area.
    The other thing that I think is interesting that we found 
on other studies that we have done in the past is the lack of 
north-south movements. You see it here--you identified it in 
terms of double track, but you would see it even looking at all 
railroads. After the Civil War, it was somewhat difficult from 
a communication and improving the trade between the north and 
the south. A lot of the growth that would have been there under 
other circumstances wasn't there, and now we have 70 percent of 
the U.S. population lives east of the Mississippi River, and 
you see a lot of that could be improved by additional 
improvements along that alignment.
    Mr. LaTourette. Sure. I think Ms. Brown or somebody else 
mentioned the RIF program, and Mr. Boardman knows that we had a 
hearing on that a little earlier, so I don't have any more 
questions for you on the RIF program. I think the Subcommittee 
made its feelings pretty well known.
    But, Mr. Busalacchi, I did want to ask you. In your 
testimony I didn't see any reference to the utilization of the 
RIF program. It is my understanding that not only State 
departments of transportation, but other entities can either 
independently apply for the $35 billion that we have set 
aside--we hope the Administration will let us set aside in the 
SAFETEA-LU program, and I am wondering if you and your 
organization has considered the utilization of these highly 
favorable 25 year financing provisions as you move forward with 
your plans.
    Mr. Busalacchi. Yes, we have, Mr. Chairman. Certainly, how 
we get to the finish line on this is what we are looking at. We 
are looking at somehow getting an investment back into the 
system so we can take care of these capacity problems. 
Obviously, what we are seeing or what I said here today is that 
we have got issues with on-time performance. It is going to be 
very difficult to get people that want to use intercity 
passenger rail if we can't make these trains on time. And we 
need to have that Federal investment; we need to have 
investment of some kind for the freight railroad so that we can 
decrease the problems that we are having with capacity.
    So certainly any vehicle that we can get our hands on that 
would help us get to the finish line is certainly something 
that we are going to consider. But keep this in mind, Mr. 
Chairman. I am a DOT Secretary. I deal with transportation 
problems, not just rail problems, every day. And what our State 
is experiencing is what all the States are experiencing 
nationwide. The needs are astronomical. We don't have the 
revenue and we are running into these congestions in our major 
metropolitan centers. And that is where we come in and what is 
where intercity passenger rail comes in. . You know, we need to 
have this Federal partner so that we can decrease this 
congestion, get people--some people, not all of them--out of 
their cars, using rail.
    Mr. LaTourette. I appreciate that. I often think that--not 
to highlight one railroad, but we should ask Norfolk Southern 
where they got the seats for that tree that takes the 
containers off the trucks and puts them onto the railcars.
    Mr. Rose, I just want to ask you one question about the RIF 
program. I have heard your testimony and I have read your 
testimony, and the Subcommittee did have a hearing on the RIF 
loan program earlier this year, and, specifically, many of us 
expressed our disappointment with the Administration, at least 
we thought putting additional impediments into the application 
process. We have addressed that with Mr. Boardman and hopefully 
we will have some relief from the Administration soon.
    But it has been brought to my attention that recently BNSF 
circulated to a number of offices at least on the Senate side, 
at least, a document that strenuously opposes the application 
that has been made by the Dakota, Minnesota, and Eastern 
Railroad for a RIF loan. And I assume you have looked at that 
question, and my questions would be two. Does that document 
accurately state the position of your railroad, and, two, could 
you share with us the logic behind, as I read the document, 
asking the Executive Branch to ignore a provision basically 
that as in SAFETEA-LU, and that is removing this obstacle of 
lender of last resort?
    I understand your argument why--I believe it is your 
feeling that the granting of loans like this would create an 
unlevel playing field, but relative to the specific document, 
maybe if you could give us your comment.
    Mr. Rose. Mr. Chairman, unfortunately, I am not sure 
exactly which document you are talking about, but I can speak 
specifically, and I want you to clearly understand my position 
on RIF loan. First off, we have supported RIF loans. We think 
that it is a great way and we think that the short line 
industry is a poster child of how we can continue to build out 
the short line industry applying market base financing to help 
them with the lower financing cost. What I am saying, though, 
and I think you pretty much answered your question to me, we 
are very concerned that--and so would any economist.
    And I think if you ask any economist to look at this issue, 
where private market base capital all of a sudden now has to 
compete with Government money, I think it has compelling 
issues, and it will have unintended consequences that this 
Country will not like. You are asking us to compete on an 
unfair battleground. And we believe fully that--and I will 
speak on the DM&E piece briefly. We supported the DM&E through 
an amicus brief for their railroad to be built on the 
environmental permitting issue. That was when they were 
privately financing it. We welcome all competition that has the 
same playing field in which we operate.
    When Government money wants to come in on a very specific 
target, it is going to send unintended consequences, as we have 
to approve, like our board did, billions and billions of 
dollars of capital investment.
    Mr. LaTourette. I thank you very much.
    Ms. Brown.
    Ms. Brown. Yes, sir.
    Mr. Hamberger, the auto train comes into my district; it 
has a 17 percent delay rate. I get a lot of complaints. What is 
the freight rail industry doing to address the growing concern 
voiced by both freight shippers and Amtrak about service 
performance?
    And then my question for everyone is how do you feel about 
a trust fund like we have for highways and aviation that have 
been very, very successful? And I think you and I have had some 
discussion on that.
    Mr. Hamberger. Yes, ma'am.
    Ms. Brown. So will you answer that question? Then I would 
like the comments from the rest of the panel on the trust fund.
    Mr. Hamberger. Could I answer the one on the trust fund 
too?
    Ms. Brown. Yes, sir.
    Mr. Hamberger. Thank you.
    Ms. Brown. You are part of the team.
    Mr. Hamberger. With respect to Amtrak and customer service, 
of course, one of the main impediments to on-time performance 
is capacity, and that is why, led by Class Is and the Class IIs 
and Class IIIs, $8.3 billion is being spent in 2006, and that 
includes signalization, it includes a new track, new cars, new 
locomotives. So that is the first thing.
    The second thing, there was a major meeting, it happened 
earlier this week, with Amtrak and representatives of the Class 
Is, where a reaffirmation was made that, indeed, the Class I 
railroads are abiding by the statutory mandate to give Amtrak 
the preferred service in dispatching and running over the Class 
I railroad lines. So we are trying to address that. We are 
trying to improve operating procedures to improve service 
across the board.
    With respect to the trust fund, I appreciate your giving me 
the opportunity to address that, because those people who 
support a trust fund are very well meaning, they want to figure 
out a way to help us help ourselves help us expand capacity. In 
fact, Congressman Lipinski, Bill Lipinski and I had this same 
discussion many times when he was on this Committee. We 
believe, as an industry, that while it is well meaning, it is 
not the answer. Number one, of course, is where does the money 
come from. If it comes from a fuel tax, as some have suggested 
should have been done, that is money that we, as we just 
discussed with Mr. Oberstar, have put back into capital 
already. So taking money from us to give back to us didn't seem 
to really be any additional revenue there, it is money that we 
are already investing.
    Alternatively, we could increase the rates of our 
customers. I don't think the second panel is going to have a 
lot of people saying that they think they are paying rates too 
low. I don't think many of them are going to come in and say 
they want higher rates. And, in fact, what would happen if 
there were higher rates, we would probably have to absorb that 
increase or else there would be diversion from rail to truck or 
to barge. So, again, we would be impeding the ability of the 
industry to earn internal capital to invest.
    But assuming that the money somehow occurs, would it get 
spent? Mr. Oberstar mentioned that I referred to AWO in my 
statement, American Waterway Operators, has a trust fund. They 
were paying 4.3 cent deficit reduction fuel tax, and they 
testified before this Committee, and anybody who would listen, 
they didn't want it go to the trust fund because it never got 
spent. And this Committee, above all else, knows the fight that 
you have to go through to restore the trust to the trust fund. 
So AWO has a trust fund, had the tax, said no, we don't want it 
to go into the trust fund.
    Third, of course, if it does get spent, if OMB says, all 
right, go ahead and spend it, who is going to make that 
decision? Isn't it better to have the individual railroads 
talking with their customers, taking a look at what traffic 
patterns are, what are the projections for more coal coming out 
of the Powder River Basin, what are the projections for more 
intermodal traffic coming into Charleston, South Carolina? That 
is how we determine where the investments need to be made; more 
grain going to the Pacific Northwest; working with our 
customers, having the ability to put that money where it 
belongs, and not having it decided on a political basis either, 
with all due respect to Mr. Boardman, at the Department of 
Transportation FRA or, with all due respect to members of 
Congress, earmarked in appropriations legislation.
    And I mention that because, fourth, if it were made on a 
political basis, I am afraid that most of that investment would 
be targeted toward commuter rail operations. Now, that is a 
very important aspect, that there is enough capacity, as Bill 
Millar pointed out, there needs to be enough capacity for both 
freight and passenger. But I don't think that a tax on freight 
rail would be the way to fund passenger rail.
    And, finally, this is not an overall argument against it, 
but I do find it mildly ironic that it is UPS that is pushing 
this idea of a trust fund, when it was their CEO who rated all 
of the modes recently, and he didn't give any of us a very good 
grade. But I will point out that freight rail got the highest 
grade. The lowest grades went to highways, inland waterways, 
and aviation, all of which have a trust fund. This is a 
different model. We are privately owned, we make the private 
sector investments. As I have testified before, we get the 
dubious distinction and pleasure of paying taxes on our real 
estate. So I think as well meaning and as well intentioned as a 
trust fund is, it is not the answer for this industry at this 
time.
    Ms. Brown. I would like to hear the response from the other 
participants. Mr. Hamberger, you are very elegant, but I want 
you to understand that we have got a problem and I need you to 
get ahead of it.
    Mr. Hamberger. And that is why we are hoping that the idea 
of public-private partnerships will continue to catch on, why 
the idea of investment tax credit will gain support, and why we 
hope that you will continue to refrain from allowing us to 
continue to try to earn our costed capital. So by doing those 
three things, I believe, working together, we can stay ahead of 
the curve.
    Ms. Brown. Mr. Rose?
    Mr. Rose. I would just agree with what Ed said and just 
give you one illustration. Again, we operate 33,000 miles of 
track, 230,000 cars, 6,000 locomotives. If I had my laptop here 
today, I could draw up and show you where every bottleneck from 
yesterday's traffic that occurred on our railroad, every delay 
that we had.
    When I think about trust fund, the question I have is who 
is going to be the master planner of where that money is going 
to go? I know we have five year plans out in terms of what the 
energy sector says. They want to grow. This year we are going 
to do 350 million tons. They want to grow to about 410 million 
tons next year. We know by milepost, track segment, switch, 
interlocker, signal, mask, we know exactly where that capacity 
needs to be put in. And for somebody else to have the insight 
into our railroad, which we live with 24 hours a day, 7 days a 
week, it is just impossible. And I think what would happen, 
with all respect, that money that desperately needs to go into 
these railroads would be moved into nonmarket-based investments 
and it would cripple this industry.
    Ms. Brown. Mr. Rose, do you not believe in dedicated 
sources of revenue, knowing that we are going to invest X 
amount into the railroad industry every year for safety or what 
will benefit the overall system?
    Mr. Rose. Well, I guess when I think about it, that is what 
making a profit does, it allows--if you just allow the free 
market model to work--if you go back to Staggers, there were 
two parts of Staggers, and one of them was to assure the 
financial health of the industry. And that is why, when these 
cases come before the STB, that is one of their fundamental 
responsibilities they have. And as long as they will do that--
and they always haven't done that, but as long as they will 
continue to do that, then the railroads will have financial 
help, they will make those investments in infrastructure and 
more value will be put into the economy so more people can 
utilize the railroad network.
    Ms. Brown. Mr. Secretary?
    Mr. Busalacchi. Thank you, Representative Brown. A few 
months ago we had this conversation with Secretary Mineta, and 
the Secretary agreed with our assessment on the 80/20 funding 
transportation, rail transportation like we fund highways and 
airports. We think, the Coalition thinks that this is really 
the way to do it. It is transportation. I know I am kind of in 
conflict with my friends over here as to how they feel it 
should be done, but certainly we think that once we put this 
model together, wherever it arrives at, if we have a long-term 
solution, this is where we need to head. Right now we have this 
yearly bloodletting over Amtrak, and we go through this 
wrangling of whether we are going to fund them, whether we are 
not, and everything else, and if we have this six-year plan, or 
whatever it ends up being, like we do on highways, I think we 
can accomplish a lot and we can get to the capacity problem 
that we have.
    Obviously, where we want to get to is we want to get to the 
intercity passenger rail. As I said earlier, and I will say it 
again, the highways are getting congested. I am a DOT 
Secretary. Seventy-five, 80 percent of my budget is spent on 
highways, and I don't think we need to do that anymore. Once a 
highway gets full, it can't get any fuller, it just gets fuller 
longer; and that is what is happening. That is what is 
happening in the Country and that is why we need to come up 
with a program, a plan, because the people want it. The numbers 
show that the passengers, people are riding the trains; they 
want to ride the trains. We need to provide this for them.
    Mr. Hamberger. Can I make a distinction so as not to leave 
a misimpression? My response to you, Congresswoman Brown, was 
with respect to a trust fund for freight rail and freight rail 
investment with a tax on freight rail operations. I am not 
intimately familiar with Secretary Busalacchi's idea for high-
speed passenger rail. To the extent that there is an 
appropriate Federal role to fund high-speed passenger rail, 
that wasn't what I was addressing in my response to you, which 
was a trust fund which would, as Mr. Rose pointed out, supplant 
the investment decisions of the individual railroads. I was 
looking just at the freight side, not at the high-speed 
passenger side.
    Ms. Brown. And let me be clear. I did not say anything 
about tax. We are talking about revenue enhancement and 
dedicated sources. And, of course, that is another committee 
that decides where the funds would come from.
    Mr. Hamberger. Yes, ma'am.
    Mr. Rose. I want to say I was not speaking on behalf of 
commuter or passenger rail as well. I am only focused on our 
little freight railroad.
    Ms. Brown. Mr. Millar, we are coming to you.
    Mr. Millar. Yes, I will speak on behalf of passenger and 
commuter rail, and generally we have been supportive of the 
notion of a trust fund. I think particularly in the way the 
discussion has gone today, it is very clear all of us see there 
are private benefits and there are public benefits, and 
certainly a trust fund from some type of dedicated reliable 
source to fund the public benefits, I don't think there should 
be much disagreement on at all.
    I think the magnitude of the problem is likely to be, 
though, that it is going to take a trust fund and it is going 
to take tax credits, and it is going to take all kinds of other 
ideas to make sure we get the kind of investment we can have in 
the railroads both for the purpose of carrying freight and 
serving passengers. Both are essential to the Country. A trust 
fund is something, you know, we would want to know the details, 
as they say, but generally we are favorably disposed to it for 
the public benefits of passenger transportation.
    Ms. Brown. Mr. Boardman, do you have any comments that you 
want to make?
    Mr. Boardman. Do I want to make? No.
    [Laughter.]
    Ms. Brown. Speaking for the Administration.
    Mr. Boardman. I think just the comments we have had thus 
far--and I was kind of waiting for Rich to jump on there to see 
what the short lines had to say, but this is a very complex 
issue, and I think Ed is right in terms of it is a very 
different model here than with the other modes. And, yet,--and 
they went back, both Ed and Matt went back and talked a little 
bit more specifically about the fact that we in fact do use 
some trust fund dollars right now to make investments in 
railroads in certain areas, and largely it is as a result of 
where the commuters operate and largely within the northeast 
corridor. And part of the difficulty and complexity of looking 
at the northeast corridor is you have capital plans that come 
out of the commuter railroads which may or not be attached to a 
larger transit authority in the northeast that has to have 
approval about how they spend those dollars from their MPO 
locally, and those dollars then generally come out of the trust 
fund, although in the transit side of the world that even, in 
itself, is a little bit different than what the highway side 
is, because the transit piece isn't fully funded through the 
trust fund, it also has general fund revenues that come into 
its particular funding mechanisms.
    And then you have Amtrak in the northeast corridor, which 
is funded through direct appropriation from Congress on its 
capital projects, and it mixes with, in many cases, the 
projects that are on the corridor, for example, the East Side 
Access Project and the Access to the Region's Core Project, 
which are a New York and New Jersey project that are going to 
add additional commuter trains to the line. And there is also 
the freight operating on the corridor that has a capital 
program, which is a private investment in their capital 
program. So it truly is a different model, as most of the modes 
do have different models. The passenger facility charges for 
airports is operated differently than what the trust funds are.
    I think that one of the things that Secretary Mineta wants 
to have happen in the commission that he is putting forward on 
how we finance for the future is to have some discussion and 
dialog, and two of the members up here of this panel are on 
that commission, but have that discussion and dialog about the 
different mechanisms and the complexities of those to get 
financed.
    Mr. Timmons. Congresswoman, let me comment about the free 
short line and regional railroad concerns on this thing. Ed has 
mentioned at least one or two of them previously. The source of 
the funds, of course, is of great interest to us, and I won't 
dwell on that. Probably more significantly is the distribution 
or adjudication of those funds. State by State--for example, in 
Pennsylvania you have got 59 small railroads; in Texas you have 
got probably 41; in Illinois you have got 39 or 40. As you go 
State by State, the density and concentration of these small 
railroads and the commodities that they carry is extremely 
divergent. So how would you or how you would formulize some 
solution to get money to the right place at the right point in 
time to really enhance the system would be a real challenge. So 
there are some clear difficulties associated with that.
    And, finally, the dilemma of what happens to other funding 
sources that we currently have. In other words, is there an 
impact on the RIF process? Is there an impact on the tax 
credits? Clearly, if the Class I tax credit, the 25 percent, 
went through--which, under the current rules, we are eligible 
for that also--what are the consequences if we are going to get 
involved in some kind of a trust fund proposition? The study 
and review of all this, I think, is very, very important as we 
consider it for the future.
    Mr. LaTourette. Okay, I thank you very much.
    Now, a new member of the full Committee, and counsel tells 
me that we may not have met as a full Committee to ratify his 
addition to our Subcommittee, but we are happy to have him on 
the case. Just for the bookkeepers, I ask unanimous consent 
that Mr. Barrow be a member of the Subcommittee for today's 
purposes if he is not.
    And we welcome you very much, Mr. Barrow from Georgia.
    Mr. Barrow. Thank you, Mr. Chairman. And thank you, Mr. 
Chairman and Ranking Member Brown, for scheduling this hearing.
    Gentlemen, I can't add much to what has been said so far, 
but I do want to kind of give a preview of coming attractions 
on a subject that Mr. Hamberger has put on the table and I 
think is sort of implicit in what we are talking about, and 
that is the subject of rail safety. I agree with the premise 
that investing in basic infrastructure is going to have safety 
payoffs, but there are some things we could do that are less 
reliant on infrastructure and more reliant on systems and ways 
of doing things.
    For example, I represent the City of Augusta, Richmond 
County, Georgia, which, as you know, was right near by 
Graniteville, where we had a most unfortunate incident in the 
dead of night early last year, and the lion's share of the 
first responders to that tragedy came from Augusta, Richmond 
County as a result of their participation in a mutual aid 
agreement which is a common feature of local Government. Little 
communities enter into compacts with their big neighbors. If we 
have got something we can't handle, we send out the warning, 
you come, you respond, you come help us out. Neighbors helping 
neighbors is a fact of life all around the Country.
    One of the concerns I have got is that we still, today, are 
relying on such incredibly ineffective technology. Let first 
responders know what the hell they are up against when they are 
responding. The idea of relying on placards on the side of a 
container car warning you about what is inside, which I guess 
is effective to prevent somebody from causing a puncture, you 
know, that they can prevent is one thing, but it doesn't do 
anything for the first responder who is coming in the middle of 
the night, charging into an area that has been contaminated 
with a chlorine cloud. First responders need to know at least 
as much as the railroads know about what they are going to 
encounter when they charge in the middle of the night. We had 
people seriously injured because they did not have as much 
information as the railroads had about what they were going up 
against that night.
    Now, I know that folks in my former walk of life, as county 
commissioners and city councilmen, are all pushing rules and 
regs that would basically create what may well be criticized as 
a system of information overload, telling local governments 
everything that is going on, everything that is moving through 
while it is moving through, which is not what you need to know 
when you need to know it.
    What I want to know is what plans are being made, either by 
the industry, Mr. Hamberger, or by the Government, Mr. 
Boardman, either to do it on your own or to make sure that it 
gets done, that we create a system of notification of all of 
the parties to mutual aid agreements and all of the folks who 
are likely to be affected by a spill when it happens.
    I note and I commend you all for the fact that the number 
of hazmat releases in trains is much lower than trucks. I think 
that is, frankly, to be expected when you consider the 
relatively small number of huge combination vehicles that are 
closely regulated, closely maintained that is the railroad 
freight industry, versus the infinitely large number of 
articulated vehicles being driven by everybody and his brother 
all over the Country.
    I would expect fewer hazmat releases. I would expect a 
higher safety record from the railroad industry. At the same 
time, though, your vehicles are so big, and the stuff that can 
get loose when you have an accident that, despite our best 
efforts, can't be prevented, is much larger than many 
governments and first responders are capable of dealing with.
    So what I want to do is I want you all to tell me what is 
the industry doing on its own or what is the regulatory 
community going to do to try and make sure that first 
responders know what they are up against, they know at least as 
much as the railroads know when the railroads know it. Who can 
answer that?
    Mr. Hamberger. Well, let me try first, Congressman. First 
of all, I think you have to know that the industry and the 
Government are together in trying to make those kinds of 
improvements, absolutely and positively. And in the Government, 
my sister agency, which is the FMSA, which actually does the 
rulemaking for hazardous materials within DOT--and we enforce 
that rulemaking--is working with us, along with the 
Transportation Security Administration, especially now that 
Robert Jamison, who used to sit in this seat, is over at 
Transportation Security. We are making improvements on how we 
are communicating and the kinds of information that we would 
need on hazardous material, especially TIH, which is the toxic 
inhalant, one of them, at least, in the unfortunate situation 
at Graniteville.
    Mr. Barrow. What kind of improvements are we getting and 
when can we expect real-time notice?
    Mr. Hamberger. We individually and collectively are making 
those improvements to especially first responders, not only in 
terms of when the actual event may occur, but also telling the 
local communities the types of products that would be moving 
through their communities, so that they're prepared for the 
kinds of things that they may face.
    But we haven't stopped there. We are looking at how do we, 
and to use a word that I guess Traffic World told me wasn't a 
word, how do we operationalize the FRA so that we know much 
sooner what hazardous material is in the train, where it is in 
the train, and protect the communities that we are operating 
through and protect the national security to make sure that 
that information doesn't get out into the wrong locations.
    We are actively making improvements on an incremental 
basis, and we are hoping that we are trying out some additional 
programs, like CSX's NOW program and some of the additional 
ones that Ed and Matt may want to talk about that are 
coordinated and that work appropriately for the community and 
the Nation.
    Mr. Barrow. Well, I don't want to trespass on the 
Committee's time. But it sounds like what I am hearing is, we 
are working on it. What I am looking for is an answer to the 
question, what can I tell my fire department chiefs and my 
chiefs of police when they can expect to know just what they 
are up against when these things happen?
    Mr. Hamberger. There is a system in place, Mr. Barrow, 
working with our chemical customers, called ChemTrek, which is 
a 24/7, been around for many years, and it is supposed to be a 
real-time notification for the local responders. We go out, we 
work with them, we train them, the industry trains 20,000 local 
responders a year, so that they can go to ChemTrek, get experts 
on the phone from the chemical companies, the people who know 
what this stuff is, how it moves, how it reacts, what is the 
atmospherics in the area where the spill has occurred and get 
real time expertise and advice. I guess what you're telling me 
is that perhaps it wasn't quite as real time as--
    Mr. Barrow. Well, Mr. Hamberger, training folks to have the 
equipment to deal with the kind of stuff that moves through 
routinely, giving them a number to call so they can figure out 
what to do with the spill when they find it is not the same 
thing as taking affirmative action to contact them and telling 
them, in the communities, this is what you're up against. We 
have this on this train, this train is derailed in 
Graniteville, it's got X number of cars in the consist, they've 
got this kind of stuff on it. Govern yourself accordingly. We 
are here to help any way we can.
    Telling the chief of police in Graniteville who send in the 
call to the rest of Richmond County, that giving him an 800 
number to call is not really making it, is what I am getting 
at. Because these guys are going to get there sooner than that. 
And they need to know what the railroad knows when the railroad 
knows it. I don't think anything is going to be adequate until 
we get that. And I think that's the goal we ought to strive 
for.
    Mr. LaTourette. I thank the gentleman very much, and I 
would indicate to the gentleman that we had a previous hearing 
that dealt with some of those issues. But you're going to love 
the next hearing that we're going to have, which is going to 
focus specifically on tank car safety. I invite the gentleman 
to come to that hearing.
    Mr. Barrow. That's why I refer to it as a preview of coming 
attractions, Mr. Chairman.
    [Laughter.]
    Mr. LaTourette. In just a second, Ms. Brown. That hearing 
will explore a number of important issues that affect not only 
communities, the safety of people that live around the rails, 
people who work on the rails, but address again the concerns 
that shippers of hazardous materials have as well as the 
railroads' legitimate concerns relative to their common carrier 
obligations to carry materials that create great liability for 
their systems with little rewards. So I thank you for those 
questions, thank you for being here today, and I look forward 
to seeing you at the next hearing.
    Ms. Brown?
    Ms. Brown. Mr. Chairman, I ask unanimous consent for 
members to submit additional questions to witnesses for the 
record.
    Mr. LaTourette. Without objection.
    Mr. Bachus?
    Mr. Bachus. Thank you.
    Mr. Rose, you discussed increased efficiency and asset 
utilization as a way to increase capacity and network velocity. 
Could you give us some examples of what Burlington Northern has 
done?
    Mr. Rose. You bet, Congressman. The industry has made a lot 
of progress in terms of creating more electronics on the 
railroad, from looking at the locomotive health of the 
locomotive to car health to hot box detection. A number of 
things on physical track to provide a more reliable 
infrastructure.
    The next step level of improvements though really comes 
when we integrate a GPS type of planning system onto the 
railroad industry. And we're still a ways from that. We believe 
that there's an interim stage that will go a lot to the 
Congressman's concern on hazardous material that can help 
prevent a number of the things that cause derailments and train 
wrecks to where we basically give the locomotive engineer a 
much better view of the railroad and understanding what else is 
on that track and whether or not that switch is properly 
aligned, all these various things.
    The railroad, from that standpoint, really has not had a 
lot of investment in technology at that level. These are very, 
very expensive investments. We call it PTC, positive train 
control. It's kind of at the end of the spectrum. We think that 
that number could be in the five, six, seven, $8 billion range.
    Mr. Bachus. Just for Burlington Northern, or the industry?
    Mr. Rose. No, to fully implement on the entire Class I 
railroad industry. So these are major dollars. And again, the 
returns that we will work towards of implementation of this we 
think can give us both a much safer railroad as well as a step-
level capacity. Right now the ruling distance, if you will, of 
a railroad is confined by its signal system. And long term we 
believe that we will remove the signal poles and that we will 
be getting train instructions into the cab of that locomotive 
through differential GPS, which is what the military of course 
uses.
    Mr. Bachus. How about intermodal facilities? You mentioned 
that. You have constructed several, and you have several under 
consideration. What do those cost?
    Mr. Rose. We are building, most of our intermodal 
facilities now are in the hundred million dollar range. And we 
are putting a lot of technology in those, from retina scan to 
thumbprint scan for drivers to come in and go through the gate. 
We have GPS monitoring of containers, lot containers. We have 
GPS cranes that literally take the container and take it to the 
spot on the location.
    So the intermodal side has really modernized quite nicely.
    Mr. Bachus. I have read it has quite an economic impact on 
the area where you build one of those.
    Mr. Rose. We have built several, we call them logistics 
parks. Our last one was in Joliet, Illinois. And what we are 
finding is, because of the capacity issues that have been 
described here is that customers and then supply side, the 
whole transportation chain, wants to locate very close to these 
intermodal yards. So we've seen literally growth that's been 
doubling in a period of two or three years outside of our 
facility in Chicago. Wal-Mart just announced a 5 million square 
foot warehouse right on that plant.
    And you say, well, what does that matter? Well, the reason 
it matters is that, if they didn't have their distribution 
center right there, these intermodal trains would come in and 
then they would have to dray to a different location. And UPS, 
one of our most important customers, has a couple of facilities 
co-located with us to where the train comes in and literally 
the hosteling tractor doesn't even go on the highway, it goes 
through the gate, from the railroad gate to the UPS property.
    And so where we can tie the supply chain, what it does, it 
eliminates highway congestion, eliminates highway miles and 
improves environmental air quality.
    Mr. Bachus. If I could have one more question, Mr. 
Chairman?
    Mr. LaTourette. Go ahead.
    Mr. Bachus. Administrator Boardman, the proposal on the 
DM&E, the new rail line to the Powder River Basin, that's to 
create a third rail line competition into Powder River. Is that 
the reason that the Government would be making that 
expenditure? Because I know you have two right now.
    Mr. Boardman. Mr. Bachus, in terms of any RIF loan that we 
deal with, it's a loan. If a railroad comes in and makes a 
business case for the amount of money that it wants to borrow, 
if it meets the conditions of the loan, then it meets the 
conditions of the loan and they are granted the loan.
    Mr. Bachus. Yes, I guess I am trying to figure out why 
there is a lot of discussion about that particular rail line. 
There are two rail lines in there, and I just heard Mr. Rose 
describe all these things that Burlington Northern could use 
money for. And I'm sort of wondering, when you have a rail line 
in there, does the Government decide to set up a third 
competition or would you--
    Mr. Boardman. I think what you have to look at is that the 
STB made that decision when they set up the--
    Mr. Bachus. Yes. But you understand what I am saying. I am 
sort of troubled why they'd say, okay, we have got two rail 
lines that could use, that are there, and private--
    Mr. Boardman. I am still happy with the question you asked 
Mr. Rose about using positive train control to improve 
capacity. I mean, it was not that long ago that there was a 
question about whether it really would improve capacity. And I 
think it is eligible, is it not, in the tax credit?
    Mr. Bachus. Of course, you have been on the railroad lots 
like I have, and they are spending every dime they can get. I 
think that is the bottom line. And I guess they have to 
prioritize. And I am just going to say, if we build a third 
line into the Powder River and part of the reason we give that 
preference is competition, what would prevent one of the 
existing railroads from buying that line?
    Mr. Boardman. Is that a question to me?
    Mr. Bachus. Yes.
    Mr. Boardman. I don't know that there is anything.
    Mr. Bachus. Yes. So I mean, you could build it in there and 
then the Burlington Northern could buy it, or the UP. Right? 
There wouldn't be anything to prevent that?
    Mr. Boardman. As far as I know, that is not the case. I 
would have to, I think STB would be the ones to--
    Mr. Bachus. I agree. I guess you would acknowledge, though, 
at FRA, that there are rail lines all over this Country that 
could use millions of dollars to upgrade the capacity. And a 
lot of rail lines where there is, that is the only, the shipper 
has to depend on that rail line and that rail line is clogged. 
You would almost think you would spend money on that rail line 
as far as creating, spending money on that rail line out to the 
Powder River Basin.
    Do you all have discussions like this between you and the 
Surface Transportation Board? Do you all kick these things 
around?
    Mr. Boardman. Well, I think there is discussions on 
specific items at the Surface Transportation Board. I think 
your question is really maybe directed more toward General 
Timmons or somebody that is looking at whether there are 
appropriate expansions that some of the smaller railroads would 
like to do using the RIF program.
    Mr. Bachus. Sure. There have been almost no RIF loans 
approved though, is that right? Or I would ask Mr. Timmons. How 
many have been approved?
    Mr. Timmons. To date, sir, 12. A total of $517 million and 
there are six additional loans that are being considered at the 
present time. That is over a space of about eight years.
    Mr. Bachus. The one that the DM&E, how much is that 
proposal?
    Mr. Timmons. I think it is about $2.5 million, maybe $2.8 
million, something.
    Mr. Bachus. Billion?
    Mr. Timmons. Billion, yes, sir.
    Mr. Bachus. The RIF loans that have been granted so far, 
what is the total for those?
    Mr. Timmons. Five hundred and seventeen million.
    Mr. Bachus. Okay.
    Mr. LaTourette. Thank you, Mr. Bachus.
    I want to thank this panel. Obviously I think we could 
spend the rest of the afternoon with this panel because of the 
quality of the answers you've given us. I want to thank you all 
for not only your testimony but also for responding to our 
lengthy questions.
    Then if you were asked to supply some additional 
information, General, for instance, when your members are 
finished filing their taxes and all that other business, if you 
could give us some information on the AMT.
    Mr. Timmons. We certainly will, sir.
    Mr. LaTourette. You all go with our thanks, and thank you 
very much for being with us today.
    It is my pleasure to welcome our third panel of witnesses 
today. We are fortunate to be joined by Mr. Carl D. Martland, 
who is a Senior Research Associate in the MIT Department of 
Civil and Environmental Engineering, where he's been engaged in 
rail and freight research since 1971. Mr. Martland has 
participated in freight rail research studies both at the State 
and Federal level here in the United States and also studies 
the freight operations in more than ten foreign countries.
    Next will be Mr. Burt Wallace, who is the Vice President of 
Transportation for the United Parcel Service. United Parcel 
Service is one of the largest customers of Class I railroads, 
as we heard in our last panel. Moving trailers and packages 
through the Country, UPS delivers over 14 million packages a 
day to over 200 countries around the world.
    Mr. John White is here today on behalf of the Portland 
Cement Association. This trade association's members account 
for 98 percent of the cement making capacity in the United 
States and have manufacturing plants in 36 States. Mr. White, I 
would just mention that I was advised earlier that Congressman 
Dent of Pennsylvania very much wanted to be here to introduce 
you, but his other duties have taken him away. I am sure that 
he would have appreciated the opportunity to welcome you here 
today. But I will have to do it on his behalf.
    Mr. Kendell W. Keith comes to us from the National Grain 
and Feed Association, where he serves as the President. He 
earned his B.S. and M.S. and Ph.D degrees in agriculture 
economics at Oklahoma State University, before joining the 
staff at the National Feed and Grain Association in 1980.
    And finally, Mr. Glenn English, from the National Rural 
Electric Cooperative Association. Before beginning with the 
NRECA in 1994, Mr. English was a member of the U.S. House of 
Representatives, where he proudly represented the Sixth 
District of Oklahoma for 20 years. I want to thank all of you 
gentlemen for coming. You may have noticed from the first panel 
that we have this five minute rule. We kind of ignore it 
sometimes, but again, because of the number of folks in this 
panel, we have read the statements you have been kind enough to 
give us and if you could summarize your remarks, we look 
forward to hearing from you.
    Mr. Martland, welcome, and you are first.

 TESTIMONY OF CARL D. MARTLAND, SENIOR RESEARCH ASSOCIATE AND 
 LECTURER, DEPARTMENT OF CIVIL AND ENVIRONMENTAL ENGINEERING, 
   MASSACHUSETTS INSTITUTE OF TECHNOLOGY; BURT WALLACE, VICE 
 PRESIDENT, TRANSPORTATION, UNITED PARCEL SERVICE; JOHN WHITE, 
   VICE PRESIDENT, LOGISTICS, BUZZI UNICEM USA INC.; KENDELL 
  KEITH, PRESIDENT, NATIONAL GRAIN AND FEED ASSOCIATION; AND 
   GLENN ENGLISH, CEAO, NATIONAL RURAL ELECTRIC COOPERATIVE 
                          ASSOCIATION

    Mr. Martland. Thank you very much for the opportunity to 
speak before a Committee that is truly interested in all 
aspects of rail transportation. I am speaking I guess on my own 
behalf at the invitation of the Committee, and I am speaking 
from the perspective of someone who has been involved in 
railroad research, capacity, service and systems issues for 
more than 35 years.
    I obviously believe that the railroads play an important 
role for the system, a role that should be growing, if it could 
be growing, but that it's not clear that the railroads will be 
able to grow enough to play the role in relieving congestion, 
reducing fuel, reducing emissions, providing space for commuter 
and Amtrak that the public I think really would like to see.
    The capacity crunch. I think that it is real, it is serious 
and it can and should be overcome. I see four key symptoms of 
the problem. First of course is poor service. Average train 
speeds are well under 25 miles per hour. Yard times are 
frequently above 30 hours, whereas the benchmarks that I looked 
at in the 1970s and 1980s and early 1990s were 16 to 18 hours. 
Trip times are commonly 10 days or longer today. When I did 
studies in the early 1970s and the early 1990s, the average 
trip times for general merchandise freight was six to eight 
days. So service clearly has deteriorated and capacity clearly 
is the culprit.
    Rising rates. For the first time since just after 
deregulation, average revenue per ton mile is increasing. This 
is a reversal of a 20 year trend, and it is not caused by the 
changes in service, obviously. It is caused by the fact that 
capacity is limited and basic economics say that's when prices 
will go up.
    Third, longer hauls is nothing new. It has been going on 
for a long time. But it is again evidence that the industry 
will focus on the most profitable traffic, which is the long 
haul, especially the bulk and intermodal.
    Fourth is that the public really is interested. This 
hearing is one bit of that evidence, and we have many examples 
of public investment.
    The causes, I think the causes go beyond the basic 
financial ones that we have heard many times. One, we have a 
nineteenth century system in many places that is trying to 
serve twenty-first century needs. We have most rail managers 
growing up in an era when downsizing was the requirement, not 
growth. We don't know how to manage well for growth.
    Starting about ten years ago, the increases in tonnage and 
traffic was no longer masked by the improvements in 
productivity. Bigger, heavier trains worked for a while, but 
now we just need more space.
    Deregulation created intense competition that has reduced 
prices. The customers and the public are benefiting to the tune 
of about $25 billion per year. The railroads, despite the 
claims that things are better, things are a little bit better, 
but not much better than they were in say, even the mid-1980s 
or even the mid-1960s. The problem is that technology is not 
the solution to this, it is a systems problem--systems and 
institutions, financing, management, legislation.
    The question, can the private sector solve the problem? The 
private sector could, but the experience of the last ten years 
sets doubt, because we are in a situation where every year or 
two for some reason there is a tremendous crisis in terms of 
gridlock and service. The public interest calls for more 
capacity for commuters. The public interest calls for moving 
trucks off the road, shorter haul intermodal, support for 
general merchandise. So I think the public wants more than the 
private sector is likely to put in on their own.
    There's a strong history of public participation. I don't 
have an Power Points, I do have a required tie showing the 
Union Pacific Railroad constructed as a great public service 
project more than 100 years ago, with public funds and a 
private participation. We have had many examples of land grants 
and innovative financing since then.
    And I guess my main recommendations, yes, we should be 
exploring and analyzing ways that the public can help the rail 
industry to increase capacity. I think any public programs that 
provide megabucks for infrastructure should provide something 
for planning and research. If the dollars are to be spent, 
let's spend some time and money to figure out how best to spend 
those dollars.
    I think in general there is a greater need for policy 
analysis. FRA needs more money and more people to answer the 
questions that the Committee is asking. In my paper, I talk 
about the freight car utilization program of the 1970s as a 
good example of a program that involved the railroads, 
Government, customers, and I think even some public agencies in 
looking at in that case equipment utilization issues. But that 
was a systems problem, much like capacity.
    In summary, I think we need a vision for the rail system. 
We started today with the Chairman's statement of a vision for 
2050. I think we need to define what is an interstate rail 
system. I am not talking about a public system, but what is the 
rail system for 2050, what would it look like? And I think it 
would have 50 mile per hour freight trains. I think it would 
have six to eight day service for general merchandise freight, 
capacity for coal, capacity for commuters and a smattering of 
high speed rail.
    And I think that this Committee could do a great service in 
providing some of the resources to help the planning, for the 
planning and eventual implementation of such a system. Thank 
you very much.
    Mr. LaTourette. I thank you, Mr. Martland.
    Mr. Wallace, welcome. We look forward to hearing from you.
    Mr. Wallace. Thank you, Mr. Chairman. At UPS, we believe 
the future of the Nation's rail system is at the very heart of 
our Nation's ability to compete globally. Right now, from our 
experience, there is much that needs to be done to ensure that 
future ability.
    There is a collective need and there must be a collective 
remedy. As a Nation, we recognize the importance of first class 
highway and aviation infrastructure. Our rail network must be 
placed in that same category. Today commerce and the demand for 
efficient transport is global. U.S. companies remain leaders in 
innovation and our workers are as capable as any.
    Our Nation's infrastructure, however, has failed to keep 
pace with the demands of this century. Railroad infrastructure 
is an integral and necessary part of a system that increasingly 
must be viewed as a single, all-encompassing network. If any 
part of that network fails to keep pace, the entire system 
suffers along with our ability to compete.
    UPS remains among the largest corporate customers of Class 
I railroads in the United States. We and our customers, 
businesses large and small, homeowners and families all across 
America have a vital interest in the efficient operation and 
future direction of the North American railroad industry.
    In 2005, we spent more than $750 million on freight rail 
transportation. And through our supply chain solution 
subsidiary, we controlled another $800 million in customers' 
railroad transportation spend. On an average day last year, we 
moved 3,000 trailers filled with packages on flat cars. We have 
been incorporating rail transportation into our network since 
the 1960s. It is important to us to understand that every 
trailer we put on the railroad represents one less trailer 
moving on the highways.
    UPS and our customers depend on rail service as a vital 
part of our worldwide intermodal transportation network, which 
on a daily basis delivers more than 14.8 million packages to 
7.9 million customers worldwide. It is estimated UPS delivers 
more than 6 percent of the U.S. gross domestic product and 2 
percent of the global EDP each and every day.
    Allow me to give you an example of how our system interacts 
with that of the railroads. A national hair products 
manufacturer uses UPS for its nationwide shipping needs. Their 
Southern California distribution location supplies products to 
much of their West Coast retail beauty salon customers. UPS 
uses the rail network to feed these packages to UPS hub 
locations in the Pacific Northwest.
    This customer has had repeated service problems and delays 
in this region and recently stated, taking a week into Oregon 
and Washington from California simply does not work. Other 
carriers get to these locations in two days via truck. At this 
rate, we might be forced to make changes.
    Unfortunately, this scenario is all too common on today's 
rail network. When our customers confront us with this 
feedback, we are left with few alternatives. UPS wants the 
railroads to succeed and to continue our mutually rewarding 
transportation partnership. But the bleak current service 
picture forces us to be responsive to our customers' needs and 
find an alternative transportation mode.
    Our marketplace dictates a quick and appropriate response. 
Along that same vein, we wish the railroads had the ability to 
respond to our needs. Whether as a result of the 1990 rail 
mergers or other reasons, there has been little new rail 
capacity. Given the current state of the industry, UPS remains 
opposed to additional Class I rail mergers.
    Regrettably, the railroads have been unable to make 
adequate capital investments, technological enhancements and 
innovative solutions in responding to the new market 
conditions. I stress the word adequate. It is not as if the 
industry has not been investing, as you have heard today.
    Rail performance clearly underscores, however, that it 
simply has not been enough. An aside, the proposed railroad 
infrastructure investment tax credit legislation is not 
sufficient. We need to devise a more comprehensive solution. 
Nothing illustrates the current challenges we face more than 
time in transit, which remains a significant issue for UPS 
customers. Since the passage of the Staggers Act, the 
efficiency and speed of our Nation's transportation system 
generally has increased. The lone exception, however, is the 
railroad velocity, and demands on an already overburdened rail 
network are increasing.
    In recent years, UPS has invested billions of dollars on 
technology, much of which is directly related to embedding 
information on each individual package. Today we can provide 
our customers a wealth of information regarding the status and 
time and transit of a $6 package or an ocean-bound cargo 
container. In contrast, the railroads lack the capacity to give 
their customers information about trainloads of freight.
    As noted earlier, however, this is not only an issue for 
the Nation's railroads. UPS strongly believes this is an issue 
critical to an array of constituency beyond the railroads 
themselves: the major users, such as the Nation's farmers, 
retailers, the mining industry and chemical manufacturers. 
Looking forward, one concept that should be explored is the 
notion of establishing a public-private partnership to help 
fund a railroad infrastructure improvement projects.
    I would ask the Committee to consider the following. The 
Nation's highway system has a highway trust fund to support and 
maintain a safe and efficient Federal highway system. The 
Nation's airports have a aviation trust fund to support, 
maintain and enhance airport infrastructure and provide 
necessary capacity. If the existence of these two 
transportation trust funds are deemed to be in the public 
interest, why not a railroad trust fund or a similar, user-
funded mechanism?
    We need a private-public investment plan to address the 
serious challenges facing the industry. Wouldn't improving 
railroad capacity, safety, infrastructure and technology be in 
the best public interest? Yet the user-funded trust fund has 
not gained traction, while service levels diminish and rates 
continue to rise.
    The railroad industry should be challenged to find a 
mechanism that does meet its approval, because doing nothing is 
not a viable option. Thank you.
    Mr. LaTourette. Thank you very much, Mr. Wallace.
    Mr. White, welcome. We look forward to hearing from you.
    Mr. Wallace. Thank you, Mr. Chairman.
    Mr. Chairman and members of the Subcommittee, my name is 
John White. I am Vice President of Logistics for Buzzi Unicem 
USA. We are a leading manufacturer of Portland cement in the 
United States.
    I appear today on behalf of the Portland Cement 
Association, where I serve as Chairman of the Logistics 
Committee. I appreciate the opportunity to testify and look 
forward to a constructive dialogue addressing the need for 
additional rail capacity and reasonable steps we believe are 
necessary to improve--
    Mr. LaTourette. Mr. White, could I ask you to move your 
microphone a little closer to your mouth? Thank you very much.
    Mr. White. Current rail policy and capacity constraints 
impede cement manufacturers from effectively and efficiently 
delivering an essential commodity needed to build our Nation's 
infrastructure. With more than 80 percent of cement 
manufacturing plants captive to a single railroad, the current 
railroad policy is unnecessarily contributing to higher 
construction costs.
    The PCA is a trade association representing 31 cement 
companies operating 102 manufacturing plants located in 36 
States, accounting for 98 percent of the domestic cement-making 
capacity. Portland cement is the powder that acts as a glue in 
forming concrete. Nearly every construction project requires 
Portland cement. In 2005, the U.S. consumed 127 million metric 
tons of Portland cement.
    Average cement shipments range between 250 and 300 miles. 
However, truck transportation is not practical beyond 125 
miles. As such, the cement industry is reliant on railroads to 
deliver our product beyond the economical range of trucks, 
which accounts for at least 50 percent of all shipments by 
volume.
    Several member companies report that they are charged 
substantially higher rates at their captive locations versus 
their dual rail serve facilities. Some of the cement industry's 
inbound coal and raw materials are also captive, which results 
in higher rail rates that add to the cost of cement and 
ultimately the cost of construction.
    Mr. Chairman, inconsistent service from the Class I 
railroads is a serious problem the cement industry confronts in 
bringing an affordable and essential product to market. The 
rail cars supplied by the railroad are typically old and 
frequently a safety concern. They are asking industry to 
provide private or company-owned rail cars but cannot guarantee 
a minimum level of service to help justify the cost of buying 
and operating these cars.
    The cement industry has no recourse regarding rates, since 
cement is classified as an exempt product from rate regulation 
by the STB. Since the STB has done little to address service 
issues, we believe Congress should enact legislation expanding 
the STB's authority in this area. The modest provisions 
included in H.R. 2047 do not constitute re-regulation, a term 
used by our friends in the railroad industry to overstate the 
perceived negative impact of this legislation.
    Mr. Chairman, the PCA believes that the intent of Congress 
and the Staggers Act was only to regulate the railroads where 
competition existed. Unfortunately, the implementation of the 
Act has often resulted in deregulation where there is no 
transportation competition.
    One example of unintended consequences of the Staggers Act 
involves a captive East Coast cement company that must 
transport cement 300 miles by rail to its distribution 
terminal. The applicable rail rate is so outrageously high, the 
cement company concluded that importing cement all the way from 
China to the East Coast was less expensive than shipping it 300 
miles by rail. Additional examples are provided in our written 
statements.
    Cement consumption is expected to grow from 127 million 
metric tons to 200 million metric tons by 2030. To meet this 
demand, our industry currently is engaged in its most 
aggressive capacity expansion in the history of the industry. 
Despite our concern about captivity, market forces require we 
expand existing facilities.
    While the industry is committed to providing reliable and 
adequate supplies of cement, these efforts are partially offset 
by existing rail constraints. As the economy grows and more 
cement capacity is put in place, it is likely that existing 
rail constraints will be exaggerated, potentially leading to 
the repeat of the large rate hikes we experienced in 2005.
    PCA obviously supports increasing investment in the 
Nation's rail infrastructure. As the Class I railroads report 
profit increases, now is the time for them to bolster 
investment, to expand capacity and improve their service, 
especially to the captive shippers. PCA does not yet have a 
position on the 25 percent tax credit proposal, but would be 
inclined to support it if Class I railroads are required to 
invest in capacity projects providing relief to the captive 
shipper. This would be the most prudent use of taxpayer 
dollars.
    We also urge Congress to further examine the concept of the 
railroad trust fund, similar to the highway trust fund, to 
finance rail capacity.
    Mr. Chairman, contractors utilizing cement in large scale 
concrete paving projects, such as those authorized under the 
SAFETEA-LU, need a reliable supply of cement to meet 
construction timetables. Just as contractors expect timely 
shipments of concrete from the cement company, it's the 
obligation of the railroad, we believe, to deliver timely 
shipments to us.
    In conclusion, it is essential that the Portland cement 
industry have access to a competitive rail transportation 
system to ensure that our product is delivered in a timely and 
efficient manner to our customers who are building the Nation's 
critical infrastructure, fostering economic expansion. With 
more than 80 percent of the cement manufacturing plants, and a 
similar ratio to the industry's 400 distribution terminals, 
they are held captive with a combined declining service. This 
only adds to our Nation's construction costs.
    Thank you for the opportunity to testify today, and I look 
froward to questions.
    Mr. LaTourette. Thank you very much, Mr. White.
    Mr. Keith, welcome to you, and we look forward to hearing 
your remarks.
    Mr. Keith. Mr. Chairman and members of the Committee, rail 
transportation is very important to the grain and feed 
industry, as about 35 percent of all commercial grain movements 
go by rail. The U.S. transportation system in the past has been 
a competitive strength for U.S. agriculture in both domestic 
and export markets. But it is turning into a competitive 
weakness, as globally we are falling behind in infrastructure 
investment, compared to our competitors, in particular, in 
water and rail.
    The current rail capacity shortage has all the signs of a 
growing and chronic problem. We believe it is becoming a 
serious issue, both for the private and public sectors, as 
limitations on transportation capacity could well become an 
impediment to growth in the overall U.S. economy.
    The railroads of course have acknowledged the capacity 
shortage and have announced higher levels of infrastructure 
investment. But will it bring new capacity quickly enough?
    In the past, Wall Street has punished railroads for 
investing in infrastructure. We think, though, that this 
current situation is different, as all the transportation 
systems, water, rail and highway, are at or near capacity. But 
will railroad management and Wall Street analysts correctly 
perceive this as an opportunity for railroads to grow their 
business with new investments, while still maintaining 
profitability? We have our doubts.
    The capacity crunch in rail has become most severe in the 
last three years, and the various carriers have responded in 
different ways, some more successful than others in serving 
this new demand. Some carriers are up by as much as 20 percent 
in car loads, some are as low as 5 percent gain in the last 
three year period.
    Clearly, and overall to solve the capacity crunch, 
railroads need to invest in more engines, crews, build passing 
lanes and double track some areas. These investments are going 
to take some time.
    We think the railroads might also want to review what they 
might do operationally. The Canadian National, for example, has 
done, has improved train velocity partly through a balanced 
system of incentives and penalties for both the railroad and 
the customers. This has resulted in an improved railroad-
customer cooperation and better operational performance.
    One concern that we have from an agricultural perspective 
is how much new investments will really benefit agricultural 
shippers. In the latest capacity crunch, agriculture and food 
shipments have not proven to be a high priority for rail 
carriers. Intermodal and coal have both received higher 
priority than agriculture in general
    Also, grain in the past has been viewed as a commodity that 
will wait on transportation in a freight shortage situation, 
despite the need for grain to be delivered in a timely way to 
obtain optimal value.
    We are also concerned about how well shippers that are less 
than unit train and shuttle size will be treated if the rail 
capacity crunch continues or becomes worse. Clearly the unit 
trains and shuttles are the most efficient way to move high 
volumes. But there are some markets out there that simply 
cannot justify those movements and that still need reasonable 
rail service. We think there is a common carrier obligation 
still under the law.
    Some other points that we would like to make toward 
possibly improving rail service in addition to infrastructure 
investments, we would urge the railroads to reconsider some of 
their policies toward shipper owned cars. A number of these 
policies are one-sided and distort the incentives for 
investment in equipment by rail customers that currently supply 
over half the rail cars being used in our marketplace today.
    Railroads also need to review their current fuel surcharge 
programs to ensure they are fair. Some are clearly excessive. 
Many accessorial charges now being imposed by carriers are 
simply a drain on manpower in both the railroads' and 
customers' business. Both of these issues, frankly, we believe, 
are distractions, distractions that take away from the focus 
needed by both carriers and their customers to improve rail 
service and performance.
    In conclusion, our industry remains very dependent on rail 
service. We need a market responsive rail system. With the era 
of cheap fuel appearing to be forever behind us, fuel efficient 
carriers like railroads stand to reap long term benefits if the 
necessary investments are made to serve the growing demand 
base.
    Thank you.
    Mr. LaTourette. Thank you very much, Mr. Keith.
    My neighbor to the east in Erie, Pennsylvania, is 
Congressman English. It is a pleasure to meet another one. 
Thank you for coming here today and we look forward to hearing 
from you.
    Mr. English. Thank you very much, Mr. Chairman. I 
appreciate that, and it is certainly a pleasure to be here and 
have an opportunity to visit with you a little bit about this 
issue.
    Last month I visited with some of the folks over at 
Homeland Security, talking about the lessons we had learned 
from responding to Rita and Katrina and how things might be 
done better. One of the officials there made the point to me 
that one lesson that they had learned is that the critical 
element in the response was electricity. And until you got the 
power turned on, a lot of other things didn't work. And I am 
afraid far too often, that is something that is not recognized 
and I think in the future, that is going to be a priority as 
far as homeland security and the way that we respond to some of 
these challenges.
    As far as that electric power is concerned, roughly half of 
all the power in this Country, whether it is electric 
cooperatives or the municipals or investor owned utilities, is 
generated through the use of coal. Coal is the fuel, and it is 
the cheapest fuel. And in fact today, we know that coal is 
cheaper to buy than it is to ship to the destinations where it 
is used to generate electric power.
    Now, 25 years ago, when Mr. Oberstar and I were here, and 
the Staggers Act was being passed, we had a far different 
situation than we do today. At that time, as Mr. Oberstar 
pointed out, we had roughly 60 railroads around this Country 
who were delivering that coal to those generating plants. Today 
we only have four Class I railroads left, and I think three 
others that operate on a regional basis, as I understand it.
    That is a far different world than it was 25 years ago. 
Twenty-five years ago, Chairman Staggers had it in mind that 
the Interstate Commerce Commission was going to be able to deal 
with the problem that he understood would come out of the 
Staggers Act; namely, that you were going to have a portion of 
the shippers in this Country who were in fact not going to have 
access to competition. And for that reason, he provided that 
authority to the Interstate Commerce Commission, and of course 
that has been passed on now to the Surface Transportation 
Board.
    Twenty-five years ago, Chairman Staggers assumed there 
would be competition among all these railroads. And with only 
four Class I railroads, there virtually is no competition. What 
in fact we are dealing with today are monopolies. And I think 
that it is important for the Congress to recognize and to deal 
with that.
    Now, we have complained for some time about the problems of 
shipping, those of us who are captive shippers, shipping where 
there is no competition and what that has done to the rates. We 
have in some cases rates 300 and 400 percent profits being made 
off of captive shippers. And that is abuse.
    But today we have an additional problem, and that is 
raising the question as to whether or not railroads are going 
to be able to meet the demand of moving coal to these plants. 
The Vice President has just pointed out about three years ago 
in order for electricity to meet the needs of the Country's 
rising demand, to meet our growth, that we are going to have a 
power plant a week come online in order to meet those needs for 
the next 20 years.
    Now, the decision for us is this question: should in fact 
those plants be coal-fired? Can they be coal-fired? And if they 
are not coal-fired, what happens to the rates that the American 
consumer is going to have to pay? And we have a serious 
question in our mind today, Mr. Chairman, whether there is in 
fact going to, those needs are going to be met by America's 
railroads, whether they can meet those needs. Because quite 
frankly, they are not doing it in a timely manner today.
    I would also point out, in the electric utility industry, 
we have an obligation to serve. And I would suggest to you with 
only four Class I railroads left in this Country, and given the 
fact that this has become such a vital ingredient, this is the 
only way we can move coal to those generating plants, that if 
they do meet the same kind of importance to the economy to this 
Nation that the electric utilities do, and that they should 
have the same requirement, namely, an obligation to serve.
    If the Congress is going to move forward, if the Congress 
is going to provide assistance to the railroads to in fact 
improve the structure, and there needs to be improvement, I 
wholeheartedly agree with that, then I would also suggest to 
you, Mr. Chairman, that there is no free lunch and there 
shouldn't be a free lunch handed out by the Congress. And in 
fact, there should be this obligation to serve as a part of the 
understanding.
    And that obligation to serve should begin with providing 
relief, and I am talking about in the form of transportation, 
to those who are captive shippers, as well as to those in the 
rest of this Country, the rest of this Nation's economy, before 
we give preference to those overseas, namely those cargo 
containers that are coming in from foreign countries.
    Mr. Chairman, this is becoming a very important thing, and 
I think your hearing is very timely. I would also suggest that 
this is probably an item on the agenda that is going to reach a 
priority that we have not yet seen.
    So I commend you for the hearing, and we are ready to help 
this Subcommittee in taking care of this problem.
    Mr. LaTourette. I thank you very much for your excellent 
statement and observation.
    I thank all of you for your observations today. I want to 
focus on this notion of a trust fund first, that Mr. White and 
Mr. Wallace talked about. I assume you were in the room when we 
had the first panel, and I not only serve on this Subcommittee, 
but also on the Water Resources Subcommittee. There is some 
discussion in this Country about whether or not we need to have 
a water infrastructure trust fund at this moment in time.
    And then you always get to the $64 question: where does the 
money come from? I don't know if it is easy or not, but we have 
relied in the Highway Trust Fund on the Federal excise tax 
since the formation of the system, at 18 and some cents. When 
you talk about water trust fund, does it come from the people 
that manufacturer flushables? The bottled water people are 
scared to death it is going to come from them.
    And so when you talk about a rail trust fund, I am 
wondering if, and let me throw it open to Mr. Wallace and Mr. 
White, and then ask you, Mr. Martland, if you have thought of 
this as one of the ways that we could address this problem. 
Have you given any thought as to how we are going to raise the 
money to go into the trust fund?
    And in line with, Mr. Hamberger was here, he talked about 
the fact that, and I think that it is right--he is still here--
that if you say, okay, well, let's put an excise tax on fuel, I 
don't know how that is putting new money into the system. But 
Mr. Wallace, have you given any thought as to how we would fund 
a freight rail or a rail trust fund?
    Mr. Wallace. Yes, Mr. Chairman. Our thought is that 
shippers, like UPS, would contribute via some type of a user 
fee. And while we can't give you the specifics at this time, 
and certainly that would need to be worked out, this would be 
in an effort to create a public-private arrangement to ensure 
that we are investing in railroad infrastructure improvement 
projects.
    Our position at UPS is that we don't have the specifics at 
this time, but we would certainly be willing in working with 
this Committee to helping to develop that process.
    Mr. LaTourette. So Mr. Hamberger, at least in the case of 
UPS, is wrong, you would be willing to pay higher rates as long 
as some of the higher rates went to infrastructure 
improvements, is that right?
    Mr. Wallace. We need to improve the fluidity of the 
network. We need a solution. So if it came to that, then we 
would be willing to pay more fees towards infrastructure 
improvement.
    Mr. LaTourette. Mr. White, how about you and the cement 
folks? How do you feel about that?
    Mr. White. I think you will find that the cement industry 
is also a heavy user of the inland waterways. Most of the 
cement companies belong to the American Waterways Association. 
I think like UPS, we don't have a specific funding methodology. 
Our idea on the trust fund relies more on the fact that it 
would target where that type of funding would be applied. It 
would be trackable and it would be discernable to Congress.
    And it would allow us to, as an industry on the user side 
and as an operator from the railroad side, to target areas 
where we think as a group these investments need to be made. 
Because some of them are regional, but many of them are on a 
very national basis, much like the infrastructure on the locks 
and dams. They benefit a large variety of people that don't 
even know they touch, that type of improvement.
    So whether it is a user fee like we have on the waterways, 
some type of tax or even something in the rate. I am getting 
higher rates anyway. If I could put some tangible benefit to 
that rate, it would certainly be more palatable to sell to my 
board of directors than telling them I am paying higher rates 
but I don't have a definitive plan on what that is going to get 
me.
    Mr. LaTourette. Let me ask you both this before I turn to 
Mr. Martland for his observations as to whether this is sort of 
the public participation he was thinking about. There are two 
things that I think haven't been discussed. One is, I think I 
asked Mr. Rose about it but the other one I didn't. But the RIF 
infrastructure loan program allows currently joint venture loan 
applications by a railroad and just about anybody else. And so 
have either of your organizations considered partnering with 
one of the railroads for a RIF loan application that would 
specifically be designed to create improvements that benefit 
that carrier and the major shipper?
    And secondly, the question I did ask Mr. Rose, is why 
can't, in the long term contracts that were first authorized in 
the Staggers Act, be used creatively to include a contribution 
by the shipper to be dedicated to specific infrastructure 
improvements on the lines that you use? Have either of you 
given that any thought? Mr. Wallace?
    Mr. Wallace. Well, unfortunately in the case of both of 
those points, I have not been involved in discussion on either 
one of those. Although on your second point in regards to 
putting into the rate additional dollars that would go directly 
toward infrastructure improvement, I think that would be 
something that we would be willing to explore and understand 
exactly how that would work, particularly if we were sure it 
was going to bring benefit to improving the overall performance 
of the network.
    Mr. LaTourette. Mr. White?
    Mr. White. Our industry has looked at that. We continue to 
fall back to the point that where we have the capacity 
constraints are not in areas specifically served in the first 
60 to 80 miles coming out of our plants. We have 10 plants in 
the United States, 5 of them are served by short lines for the 
first 15 to 25 miles, until they reach the Class Is. So for us, 
we weren't really sure if that type of creative investment did 
anything for us. Because what we are seeing, the congestions 
are in the major areas, Kansas City, the southern part of the 
United States, over toward the East Coast. So it did not 
initially look like a mechanism for us that would work.
    Mr. LaTourette. Let me ask you this, because you also 
raised the issue of captive shippers. My understanding is that 
one of the new options by the RIF program that was created 
permits captive shippers that are only served by one railroad 
to also access the RIF loan program. Have any members of your 
association who may have a close proximity to a second railroad 
explored that opportunity that you are aware of?
    Mr. White. We are only aware of one member company that is 
currently trying to do something similar. Since I don't have 
the specifics, I think their problem isn't a funding problem. I 
think their problem is a right of way problem. They have 
another railroad that is within some distance of them, but the 
only right of way available without buying private right of way 
and creating a new corridor is to put it next to one of the 
existing Class Is. I think there is some legal entanglement in 
that right now.
    Mr. LaTourette. If you would be so kind, after this 
hearing, could you may supply this Subcommittee with the 
specifics of that example that you are talking about?
    Mr. White. I would be happy to.
    Mr. LaTourette. And then my last question, Mr. Martland, 
when you talk about where we are today versus where we were 
before and the increase in wait times and yard times and 
everything else, I thought I understood you to say that this is 
a legitimate public interest, public sector interest to be 
involved in now. What do you envision, how do you envision the 
public getting involved? Is it the trust fund? Is it the RIF 
loan program? Is it the contract rates? Or is it something else 
that you see, a tax?
    Mr. Martland. I think I would agree with Administrator 
Boardman, who said that there are many possible ways to finance 
the improvements. I think that the different ways should be 
studied, we should have some analysis with all the different 
perspectives included.
    The point I would make is that since deregulation in the 
last 25 years, there has been a tremendous, tremendous benefit 
to the public through the reductions in rates passed on to the 
customers. I keep listening carefully, and what I hear are 
concerns with equity, inequitable increases in rates, more than 
the rate level. The rate levels are much lower than they were, 
and the amount of money, $20 billion to $25 billion a year, 
according to my studies, is more than enough to fund the 
grandest of vision that anybody is talking about.
    So I think that it is worthwhile to consider the tax 
credits. I think it is worthwhile to consider direct 
investment, whatever. But I think the private sector makes a 
very strong case that they are the ones who can identify the 
bottlenecks and work on the freight and work with the customers 
and that why make it more complicated than it is.
    What is really lacking is a way to get the public dollars 
into the rail system. We have heard people talk for the 
commuter rail and the clarification of the urban networks, as 
in Chicago. And I think that that is an area where some 
mechanism to get general public dollars into the sections of 
the rail system that would not necessarily be upgraded by the 
freight railroads themselves. And probably the best way to do 
that is to have some mechanism for coordination.
    Mr. LaTourette. I tend to agree with you on that last 
point. I happen to be a huge fan of the Highway Trust Fund. I 
think that most members of this Committee would think that 
members of Congress are in a better position to identify high 
priority highway projects in their districts than perhaps the 
Secretary of Transportation or the head of their department of 
transportation.
    But the one concern that I think I do have about this 
freight rail or rail trust fund is that I don't think I am in a 
better position to figure out or would be able to say that all 
the money for choke points should come to Cleveland, Ohio, 
because I happen to be there. I think that the private sector 
may be better able to assess that.
    But thank you very much. Ms. Brown.
    Ms. Brown. Thank you, Mr. Chairman.
    I think I am going to yield my time to Mr. Oberstar, but I 
do have a question for Mr. Wallace. Mr. Wallace, I understand 
recently that UPS has taken some of their business off of the 
railroads. Can you talk about that? And briefly, can you all 
tell me what you think about the 25 percent tax incentive? Is 
it enough, or do you agree with it? Starting with you, Mr. 
Wallace.
    Mr. Wallace. Yes. We recently rolled out an initiative that 
we referred to as fast lane. And basically that is to improve 
time and transit from point to point for ground packages. And 
in doing so, in order for us to achieve that objective, we did 
remove about 300,000 packages per day from the rail network, 
simply because the rail network doesn't currently have the 
capability to move as fast as we would need them to. So 
therefore, we had to go to the ground transportation for that.
    Ms. Brown. How many additional trucks did that put on the 
road?
    Mr. Wallace. That added, on a daily basis, over 600 trucks 
per day.
    Ms. Brown. That's a problem.
    Mr. Wallace. In regard to the tax credit, conceptually it 
sounds good. However, the problem is we are not sure what type 
of impact it would really make. And financially, the railroads 
have had some very good years recently. We think that 
additional investment, additional capital investment is where 
we need to start in lieu of a tax credit.
    Ms. Brown. I thought the 25 percent tax credit would be to 
increase the, to expand that investment, it had to go for that.
    Mr. Wallace. Well, I have to tell you that I am not 
familiar enough with exactly how that would be applied to 
acknowledge that.
    Ms. Brown. Well, I just want you to know that I am 
concerned about this 600 additional trucks that was put on the 
road. That is something that I guess the Committee is talking 
about how we can resolve some of these issues.
    Mr. White?
    Mr. White. The PCA has not taken a final position on the 
tax credit. It looks like a method that could work. One of the 
things again that we are most interested in is, are these 
monies going to be applied to relieve some of the congested 
areas and give some of the captive shippers some relief. If you 
can make a tie to that, I think you would find our organization 
could get behind that proposal.
    Ms. Brown. I am coming to you, Mr. English. Nice meeting 
you, sir.
    Mr. English. Thank you very much.
    I think there is a little bit of a political problem here 
that the Congress may have to wrestle with on this. I think it 
is a good idea as has been pointed out, if we are going to deal 
with the problems, if in fact we are going to deal with the 
infrastructure, if in fact we are going to deal with the whole 
question of captive shippers, if we are going to look at making 
sure that we are able to make the deliveries on time and meet 
capacity needs for the future.
    However, I think the railroads have to invest something 
too. And I think they have not demonstrated at this particular 
point that they are willing to do that. I notice here Business 
Week on April 3rd, the top performers, the S&P 500, number 12 
was Burlington Northern Santa Fe. One year return of 58.5 
percent and a three year return of 230.3 percent. We have the 
same thing with Norfolk Southern at number 46, one year return 
at 44.5 percent, and a three year return of 179.7 percent.
    Well, are they investing this money in infrastructure? Are 
they in fact trying to relieve the captive shipper problem? And 
is the Surface Transportation Board doing its job when in fact 
it takes $4 million with one of our members, spent $4 million 
just to get before the Surface Transportation Board and got 
dismissed. We had another member that wrote in, complaining 
with regard to one of the railroads, to the Surface 
Transportation Board, and the people that responded was the 
president of the railroad, not the Surface Transportation Board 
members.
    Now, something is amiss here, and I think these kinds of 
issues have to be addressed if in fact the taxpayers are going 
to be putting money up. I think that the Congress is going to 
have to be able to go to the American people and say, yes, we 
are going to clean up these problems and take care of these 
problems. And it means that the railroads are going to invest 
as well as the American people. It has to be a Wall Street and 
Main Street type of effort here.
    Ms. Brown. Yes, sir.
    I yield back the balance of my time.
    Mr. LaTourette. I thank the gentlelady very much. 
Congressman English, I just want to insert in the record, we 
were obviously, in your testimony, concerned about the letter 
going to the STB. I think that the president of BNSF responded. 
I am told by Mr. Nober, who is a former associate of all of us, 
worked here on the Committee, that his belief is that the 
letter was copied to the Surface Transportation Board and did 
not go directly to them. But if you have a different set of 
facts, if you could get that to the Subcommittee, I know we 
would be happy to take it up with Mr. Nober.
    Mr. English. I was shocked about this, Mr. Chairman, and we 
will be happy to provide that for the record for you.
    Mr. LaTourette. Okay. I thank you very much.
    Mr. Bachus, did you have some questions?
    Mr. Bachus. Thank you.
    Mr. Martland, reading your testimony, I notice you 
highlighted the delay time in rail yards as being very 
significant, and has actually increased since the 1980s and is 
now up to 20 or 30 hours.
    Mr. Martland. Yes, sir.
    Mr. Bachus. You might think that the merger of railroads 
would actually have quickened that time. But I mean, it has 
not. Is that sort of a surprise? You would think with less 
railroads, you would get more efficiency.
    Mr. Martland. As you try to consolidate the system, you get 
more and more lines going into the same junctions. And you 
have, the railroad lines of 1980 were capable of handling maybe 
40 or 50 million gross tons per year. And the ones we have 
today can handle 100, 150 or more. So the you have even bigger 
arteries going into the same heart. I think that's the basic 
problem.
    Mr. Bachus. Now, just in the last year or two, the 
railroads have started spending a lot of money on expanding 
their yard capacities, is that correct?
    Mr. Martland. I know that they continue to invest very 
heavily in intermodal. I don't have specifics about recent 
investments.
    Mr. Bachus. Let me read for all of you, we have talked 
about profits, and Congressman English, you were talking about 
the railroads are making record profits recently. I would agree 
with you in the last year or two. But on page four of Mr. 
Martland's testimony, he actually says, the average revenue per 
ton mile declined every year from 1983 to 2001. In constant 
dollar terms, average revenue per ton mile began to rise only 
in 2004.
    So you have actually had declining rates with deregulation 
every year from 1983 through 2001.
    Mr. English. The 20 percent of us who are customers of the 
railroads that are stranded shippers have not seen anything 
like that. What we are negotiating now with regard to our coal 
contracts, we are seeing huge escalations. That is the issue, 
the part of the problem here that we see is, you go back to the 
Staggers Act and what was intended, this kind of abuse was 
never intended. And we are just not seeing any kind of response 
or addressing of that problem, and we are seeing these huge 
escalations come once again.
    And now we have an energy problem facing this Country. We 
have electric rates, you probably heard up here at Baltimore 
Gas and Electric, they put caps on that State, and I think 
maybe it is the State doing it. But they are going to have a 50 
percent increase in rates.
    We are going to have cases right now in which deliveries 
are not arriving at the generating plants. We have several of 
our folks that are in single digits as far as the number of 
days supply they have left. And they have to use natural gas or 
buy on the open market.
    Now, natural gas will run anywhere from 7 to 9 percent, or 
7 to 9 times higher in price. So all this stuff I think comes 
in and--
    Mr. Bachus. Well, now, I agree, obviously there is a 
capacity restraint, there is a velocity restraint.
    Mr. English. We need to address that.
    Mr. Bachus. I guess what I am sort of puzzled by, the 
shippers not saying tax incentives would be a great thing.
    Mr. English. If you read my testimony, I said that we would 
be willing to go along with tax incentives if in fact we are 
going to address the problem. We would be supportive of doing 
that if the railroads are going to invest their money in this 
thing. I think they ought to put something up.
    And also, I think we get back to the same issue here, and 
Mr. Chairman, I would say that this industry is vital. It is 
vital to this Country's economic health and I think that we 
have to recognize that and we have to come to grips with it. I 
think that is what makes it worth the American people investing 
in it.
    But along with that, the railroads have an obligation to 
help this Country meet its needs, its energy needs and other 
needs. And it is vital to us, and we have to come to grips with 
that.
    So there needs to be an adjustment made. It has been 25 
years since Staggers. I hope that this Committee will come to 
grips with that. I hope we can get some investment tax credit. 
I am hopeful that we are going to see the inequities eliminated 
and we see some new structure. And I hope also that we get the 
Surface Transportation Board to make some interpretation of the 
Staggers Act that allows stranded shippers, when they get to 
the point where they can compete, to be given that opportunity. 
And they are not given that today.
    Mr. Bachus. Seeing Mr. Martland's testimony, he says the 
rail industry is investing heavily in capacity, but individual 
railroads will concentrate their limited funds on what they 
perceive to be the most profitable market segments.
    Mr. English. And I think that is a key issue. Because we 
get into this question, if this is a vital industry, if we are 
down to four Class I carriers in this Country, and this 
Country's economic health depends on that, and if the United 
States Government is going to assist the railroads in fixing 
this infrastructure because it is in the best interest of the 
Country, there has to be reckoning that comes to be bear here. 
And I think that it is not just in the areas where you can make 
the most money, and because of the fact we squeeze this thing 
down to where, the heck with those folks that we can't make the 
most money, there is an obligation to take care of the--
    Mr. Bachus. I understand what you are saying. But you do 
get into problems when you start telling industries you will 
invest in this as opposed to that. Any time, and I think you 
will agree, any time you add regulations or control, you 
usually diminish profits.
    Mr. English. Well, then, there shouldn't be any assistance 
from the United States Government. There is no free lunch. And 
if we are getting to the point that the United States 
Government is going to take taxpayer money and going to fork 
out taxpayer money to help the railroad, but the railroads 
don't have to do anything, hey, we want a little of that over 
in the electric utility industry. We have obligations. There is 
an understanding that is reached.
    If this is a vital national interest, if in fact the 
taxpayer is going to help out, and if we are going to get this 
thing straightened out, then we have an obligation or the 
railroads have an obligation then to serve this Country and to 
help meet the needs of this Country. Whether it is national 
defense, you ought to bring some folks over from the Department 
of Defense and see what kinds of difficulties they are running 
into in getting their equipment to the shores where they can 
ship it overseas. I understand there are great difficulties 
over that.
    But all this is a national--
    Mr. Bachus. I think we all agree that--
    Mr. English. Well, let's fix it.
    Mr. Bachus.--it is a problem, and we ought to fix it. But I 
am just saying that tax incentives, the Congressional Budget 
Office has studied this. Now, I just say maybe do you agree or 
disagree with this? Because I think this kind of debate is very 
helpful. Let me read their statement to you.
    ``As demand increases, the railroad's ability to generate 
profits from which to finance new investments will be critical. 
Profits are key to increasing capacity, because they provide 
both the incentives and the means to make new investments.''
    And I believe in competition. But if there is no 
competition, and there is a monopoly, then the question comes 
in, a question of abuse. And there is a difference between 
making a profit and abusing people who are held captive and 
they are held hostage and they are under a monopoly. And we 
have a monopoly situation developing here, and that is not in 
the best interest of this Country.
    Is the main problem--
    Mr. LaTourette. Mr. Bachus, could I ask you to make this 
your last question?
    Mr. Bachus. Yes. Is the problem the rates, the shipping 
rates, or is the problem capacity? Those are two different 
problems.
    Mr. English. I think we have several issues that are coming 
together.
    Mr. Bachus. And if you are talking about shipping rates, 
that would be where they are making a profit. If you are 
talking about capacity or velocity--
    Mr. English. Right.
    Mr. Bachus. That is not because you are a captive shipper.
    Mr. English. That is right. Where you have competition, it 
is my understanding that the rate return is about 6 to 8 
percent. And goodness knows, that is fair. Where yo have 
captive shippers, those 20 percent of us that are captive 
shippers, with the new contracts that are being negotiated, it 
is my understanding you are up to a 400 percent return. Now, 
that is abusing folks.
    You have a problem with regard to being able to make 
deliveries on time, and that is killing us. And that may be 
more important than the profits at this point.
    So yes, I think we need to respond to that, and that is the 
reason we say hey, if we can get this thing straightened out 
and take care of the infrastructure of the railroads and the 
railroads are willing to invest some money and help us take 
care of the economy of this Country, let's do it. Let's help 
them.
    Mr. Bachus. The rates have declined every year until 2004.
    Mr. English. Where there is competition.
    Mr. Bachus. They didn't for captive shippers.
    Mr. English. And we have had long term contracts with 
regard to coal. And those contracts are expiring. That is where 
we are really seeing the big jumps.
    Mr. Bachus. And could you give us some of those figures?
    Mr. English. Be happy to do it. Appreciate your interest.
    Mr. Bachus. And you are Jan English's husband, right?
    Mr. English. That is who I am known about in this town, 
yes, I am known as Jan English's husband.
    Mr. Bachus. She is chairman of the First Lady's luncheon 
this week, so I would say you are having a very difficult week.
    [Laughter.]
    Mr. English. Under tremendous stress and strain, you 
understand.
    Mr. LaTourette. Thank you, Mr. Bachus. Our last questions 
today will be asked by Mr. Oberstar.
    Mr. Oberstar. Thank you, Mr. Chairman.
    I think this last exchange was one of the most productive 
all day. I enjoyed listening to the discussion. And again, I 
compliment you and Ms. Brown on scheduling these hearings and 
the preparation that has gone into their development.
    Congressman English, you raised the issue that has been 
lurking in the background here for this whole hearing, and that 
is, the obligation to serve. The common carrier responsibility.
    When in the nineteenth century the Federal Government 
created, in effect, the rail industry in America, it was for 
public interest service and necessity. Railroads got every 
other section of rail, some cases more than that, of land, in 
which to run their rail lines. And the mineral rights. And the 
wood fiber rights, to log the woodlands to make the railroad 
ties. They extracted ballast from gravel pits along the way to 
build the trackage.
    And they did that out of the public interest, convenience 
and necessity, to serve. But what we heard from the railroad 
sector testimony was this clash of Wall Street investments, 
profitability, return on equity, return on investment, and very 
little in the testimony, you have to take a microscope to find 
our obligation to serve the public.
    Now, each of you witnesses has raised a different aspect of 
the service responsibility. In the law, the Surface 
Transportation Board, successor to the Interstate Commerce 
Commission, provides that rail carriers shall provide any 
person on request, carrier's rates and other service terms in 
writing, electronically. The transportation of agricultural 
products, carriers shall publish, make available, retain for 
public inspection the common carrier rate, schedule of service 
and other service terms.
    There is really very little in the law that says what 
quality of service. That was left to the Interstate Commerce 
Commission.
    Now, further on, in use of terminal facilities, the board 
may establish conditions and compensation for use of 
facilities. The board has done very little in the obligation to 
serve. And in your testimony, Mr. English, Congressman, there 
is ``effectively no Government agency to which rail customers 
can turn for redress, even when severe rail service problems 
are being experienced.''
    Now, the bill that I introduced with a number of other co-
sponsors, and that was rather roundly attacked in the rail 
testimony earlier today, is not re-regulation. It is just an 
attempt to restore the public service content of the 
responsibly the railroads have to the public. They have a 
responsibility to the public, and not only to the shareholders. 
Not only to Wall Street. Wall Street doesn't receive product 
from the railroads, but our power companies do. Concrete ready 
mix association does. The producers of agricultural products 
do.
    And when, as the PCA, Portland Cement Association, 
testimony says, Class I railroads have refused to add cement 
rail cars to their fleets. Isn't that a service obligation? 
Isn't that a public responsibility on the part of the 
railroads? It is not only profit driving this. Profit is vital 
to their operation. But so is public service.
    Your members report as much as 15 percent of empty rail 
cards delivered to manufacturing plants are being rejected. And 
that railroads add tariff provisions, charging for storage, 
that is demurrage, of private rail cars and then they refuse to 
carry them and move them.
    I think we need to further explore, Mr. Chairman, this 
common carrier obligation of the railroads, which they don't 
like to talk about, but which is their core responsibility.
    Mr. English?
    Mr. English. Congressman Oberstar, I think there is a 
balance to be struck here between Wall Street and Main Street. 
And this is a vital industry, just as the electric utility 
industry is a vital industry. And I think it is up to the 
Congress to deal with the realities of today as opposed to the 
way things were 25 years ago.
    I have been around this town long enough that, and 
certainly on this issue have seen enough of it, I remember how 
it was in 1980. And there is no question the railroads needed 
help. And it was recognized, they play such a vital role in 
this Country that we have to do something.
    Deregulation, the district that I represented at that time 
was very rural. We lost our airline service with airline 
deregulation. We lost our bus services as a result of bus 
deregulation. We lost our trucking service because of trucking 
deregulation. And I was scared to death when it came up with 
regard to this issue what was going to happen to us.
    But certainly we all recognized and understood, we 
desperately need rail service and we need the railroads and we 
need them just as much today as we did back then. And I think 
there was a recognition of that throughout the entire 
Government--Democrats, Republicans, Congress, the 
Administration. And we put in process here a way of rescuing 
the railroads. And I think it has been very successful, over 25 
years, you look at these returns and you look at Wall Street. 
Railroad is on the cover of FOrbes Magazine in February talking 
about, this is the best investment going. We hit the promised 
land.
    If you go back to 1980 and what Chairman Staggers saw and 
he was trying to do, not all of it has worked as well as that. 
Those of us who are stranded shippers, it hasn't worked the way 
he intended. But I think we have reached a new plateau. And I 
think we have to understand that our infrastructure is vital 
for the railroads. And we have to understand that we need a 
very healthy rail system in this Country. And we have vital 
industries that are heavily dependent on the railroads, and 
they are only going to be able to do their job if in fact the 
railroads are healthy and profitable and being successful.
    Mr. Oberstar. I agree with that, and you have stated the 
case very well. But maximization of profit to the exclusion of 
public service is contrary to the concept upon which the 
railroad sector was created in the public interest by the 
Federal Government.
    And one of, what we are trying to address in this 
legislation that I have introduced to reinstate competition and 
rephrase competition, one of the obstacles is the bottleneck 
rule that I am sure each of you in the grain and cement sector 
has unfortunately encountered. Mr. Wallace, Mr. White, Mr. 
Keith, do you have some examples that you would like to share 
with us?
    Mr. Keith. Bottleneck issues are an issue at some locations 
for agricultural shippers. They are not so severe as in some 
other industries, though. We have switching issues that are 
competition issues and some other things. But the bottleneck 
per se is not as big an issue for ag. But I know it is for some 
other sectors.
    Mr. Oberstar. What about rail car availability?
    Mr. Keith. Rail car service in particular, where there are 
captive shippers, has proven to be a difficult situation, in 
particular, last year with Katrina and so forth. And really, to 
the extent we can't get timely service, it tends to run up 
Government costs to farm programs because of our loan 
deficiency payments. So we do need to solve that problem.
    Mr. Oberstar. Mr. White?
    Mr. White. I can speak for my company. What we have done is 
we have simply purchased an entire private fleet of rail cars. 
We don't rely on the railroad to provide any cars. We currently 
own about 1,250 cars. Most of the rest of our industry does 
that.
    We have determined that that part of the capital investment 
in the overall delivery of our products is going to have to be 
made by our company. The railroads are investing in rail cars, 
just not in cars that haul cement. And we came to a meeting of 
minds with that with the railroads. What we need now is, and 
part of what we have asked for and the legislation provides is, 
if we are going to make this capital investment as a partner 
with them, give us some level of service that we can depend on 
for the movement of those cars.
    You have asked me to make a substantial investment. 
Guarantee me that you will move them in a predictable, reliable 
and efficient manner. And you won't hear me complain about my 
investment in the cars. But don't do that and then I have a 
major problem.
    Mr. Oberstar. Do you know whether the barge lines partner 
with their customers to have a customer acquire a barge?
    Mr. White. Yes, sir. Our company also owns about 60 barges. 
And it is a very similar relationship. We go to the barge lines 
and we come to an agreement on how we are going to move a 
product. I do, oddly enough, agree with the railroad on one 
side. The river is there for anybody who wants to use it. There 
is no barrier of entry. The highways are there, there is no 
barrier of entry.
    It is expensive to build a piece of railroad. And I know 
that, as an industry, we build it. And that is why some of the 
creative alternatives, tax credit, the trust fund, I think are 
really good ideas. I just want to make sure they are coupled 
with some type of service and opportunities to go before the 
STB when there is a problem, so that the railroad and the 
industry can resolve them together. We don't hate the 
railroads. We like the railroads. We need them to be profitable 
and we need to have good infrastructure.
    On a larger basis, as a Nation, I think the Federal 
Government is going to have to help the railroads get to some 
level of development that supports the Amtrak and the public 
transportation that we are all going to need if we are going to 
pay $3.50 a gallon for gas. We are going to need to ride on 
trains.
    Mr. Oberstar. That is a good, thoughtful, balanced approach 
and one that I embrace. Because you equate service and 
investment and the need for profitability. The Surface 
Transportation Board, along with the railroads, have justified 
higher costs and higher rate of return for railroads from bulk 
shippers, grain and coal and chemicals. That helps them to 
profitability, to be able to provide other service to less, 
lower profit centers in their service network.
    And we do have to, because of the structure we have 
created, the Federal Government does not own the rail beds, but 
in creating the railroads, they get an enormous benefit, 
mineral rights, land rights, timber rights, over many, many 
decades. They have and uniquely shoulder the obligation to 
serve. It is a balancing act.
    Mr. Wallace?
    Mr. Wallace. In terms of bottlenecks, if you are describing 
that as the same as congestion, then clearly that is a 
significant problem that we have experienced as users of the 
railroad. There is a very significant number of service 
failures that we experience that are associated with congestion 
and bottleneck problems. Certainly that is what we are 
interested in seeing improvement in, is increasing the fluidity 
of the network, so that we can get back to the service levels 
we were achieving and had achieved for 25 years. We are very 
dependent upon the railroads and have good working 
relationships. We are looking for solutions to help them solve 
that issue.
    In terms of availability of equipment, such as flat cars, 
that is not a problem for us. Although rail trailers has been 
more challenging, getting rail trailers, which we use heavily, 
has been more challenging. The railroads have a different 
strategy as it comes to managing rail trailers. That has 
changed how we have to operate and put a little bit of a burden 
on us.
    Mr. Oberstar. Mr. Martland, do you have any summary 
observations on these issues?
    Mr. Martland. One thought that has occurred to me is that 
as we go back to 1980, or 1970, we had the problem of the light 
density lines. There were tremendous battles in the Congress 
and the ICC about how to deal with that problem. And the way it 
was solved is, Congress said in the 3R4R Act somewhere, okay, 
if somebody wants that line to remain in service, put some 
money in up. If you don't put the money up, then no line.
    And the Federal Government said, well, we will put up some 
money that will last for a few years, where the States can buy 
the lines or subsidize the lines, and then that money would 
come to an end.
    Commuter rail, many cases now that the States just, or the 
MPOs contract with the railroads or with Amtrak to provide the 
service. They are not trying to make a profit out of the fare 
box. And I think we, in the discussion of public benefits, I 
think the public agencies, at the State, local and Federal 
level, have to figure out what are these public benefits worth 
and then pay enough to get sufficient benefits to justify the 
public investment.
    And in that way, the railroads are still doing what they do 
best. They would get revenue for certain services, they would 
identify the bottlenecks and they would deal with the 
bottlenecks.
    Mr. Oberstar. Thank you. Mr. Chairman, this has been a 
very, very productive session. The written testimony is very 
much in-depth, unlike much of what we see over the course of a 
hearing here, in not only this but other Subcommittees as well, 
and very useful documentation.
    And the response has been very substantial. You have been 
generous with the time so that we can explore issues at length.
    We need to continue this dialogue, and we need to explore 
further and dig deeper into how we can unlock this grid that is 
choking America. The trucking sector doesn't have enough 
capacity to move the goods that are foisted upon it. They are 
trying to ship trailers on the rails. The rails don't have 
enough capacity to haul the trailers. They want the trucking 
sector to take more of its responsibility. The barges can't go 
everywhere, because waterways are limited by their pathways.
    And more goods are coming into our ports every year. The 
Chinese now have launched the Chinese Shipping Company, COSCO, 
its 9,000 container vessel, 1,000 footer, that is going to add 
to our congestion on the West Coast ports. They can't put in on 
the East Coast ports.
    The railroads are now in a period of profitability. Clearly 
they need some help in making the capital investments that are 
required. The public needs help too, with the service issues 
that have surfaced. I thank you very much.
    Mr. LaTourette. I thank you very much.
    One of the reasons that I enjoy serving on this Committee 
so much is because you happen to be the Ranking Member of the 
full Committee, and there isn't a hearing that goes by that I 
don't learn something from your participation. So I thank you 
very much.
    This was an important hearing, and I want to thank the 
Ranking Member of the Subcommittee for making it possible. And 
it does add, if it was easy I guess we would have solved the 
problem.
    At our next hearing, we are going to be dealing 
tangentially with the railroads' common carrier responsibility, 
and on that subject we are going to be dealing with hazardous 
materials and the movements and the economies of scale with 
that as well. So I look forward to the gentleman's 
participation there, too.
    Ms. Brown?
    Ms. Brown. I just wanted to say thank you, Mr. Chairman, 
and Mr. Oberstar and other members that have come and 
participated. And of course, to all the panelists.
    In closing let me just say, recently I had a hearing in 
Jacksonville, where a lot of the citizens came to see me about 
the port, very excited that we are getting a new Asian carrier 
that is going to be working out of the Port of Jacksonville. It 
is less than a half mile from my house. That will bring about 
1,600 huge tractor trailer trucks. And I said, well, what is 
wrong with the railroads, which is there, the facilities? They 
said, well, it will take them two days to do something that is 
15 minutes away.
    That is unacceptable. All of those players have to come to 
the table and sit down and talk and figure out how we can work 
this out. So if we know issues beforehand, how we are going to 
best serve the public, then this is one of the reasons why this 
Committee may be coming up with some additional funding. But we 
certainly have to work to the needs of the community and 
provide the--we are all excited about these jobs, it is going 
to provide 5,000 new jobs and X amount of income. But 1,600 
tractor trailers, trucks, every day, that is unacceptable.
    Mr. LaTourette. I thank the gentlelady very much.
    I want to thank all the members for participating today. I 
want to thank this third panel for your testimony and adding to 
our body of knowledge.
    Not to single anybody out, but I have been at this only for 
12 years, not the number of years Mr. Oberstar has, but Mr. 
Martland, I found your testimony to be some of the most 
informative I have read in those 12 years. I thank you for your 
body of work. I thank you all for coming today, and you go with 
our thanks.
    [Whereupon, at 1:45 p.m., the subcommittee was adjourned.]
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