[Senate Hearing 109-369]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 109-369

                       REAUTHORIZATION OF AMTRAK

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

                                HEARING

                               before the

       SUBCOMMITTEE ON SURFACE TRANSPORTATION AND MERCHANT MARINE

                                 OF THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 21, 2005

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation


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                             WASHINGTON: 2006        

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        SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                     TED STEVENS, Alaska, Chairman
JOHN McCAIN, Arizona                 DANIEL K. INOUYE, Hawaii, Co-
CONRAD BURNS, Montana                    Chairman
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  BARBARA BOXER, California
GEORGE ALLEN, Virginia               BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
JIM DeMint, South Carolina           FRANK R. LAUTENBERG, New Jersey
DAVID VITTER, Louisiana              E. BENJAMIN NELSON, Nebraska
                                     MARK PRYOR, Arkansas
             Lisa J. Sutherland, Republican Staff Director
        Christine Drager Kurth, Republican Deputy Staff Director
                David Russell, Republican Chief Counsel
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
   Samuel E. Whitehorn, Democratic Deputy Staff Director and General 
                                Counsel
             Lila Harper Helms, Democratic Policy Director

                                 ------                                

       SUBCOMMITTEE ON SURFACE TRANSPORTATION AND MERCHANT MARINE

                   TRENT LOTT, Mississippi, Chairman
TED STEVENS, Alaska                  DANIEL K. INOUYE, Hawaii, Ranking
JOHN McCAIN, Arizona                 JOHN D. ROCKEFELLER IV, West 
CONRAD BURNS, Montana                    Virginia
KAY BAILEY HUTCHISON, Texas          BYRON L. DORGAN, North Dakota
OLYMPIA J. SNOWE, Maine              BARBARA BOXER, California
GORDON H. SMITH, Oregon              MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia               FRANK R. LAUTENBERG, New Jersey
JOHN E. SUNUNU, New Hampshire        E. BENJAMIN NELSON, Nebraska
DAVID VITTER, Louisiana              MARK PRYOR, Arkansas



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 21, 2005...................................     1
Statement of Senator Burns.......................................    44
Statement of Senator Dorgan......................................    41
Statement of Senator Lautenberg..................................     3
Statement of Senator Lott........................................     1
Statement of Senator Pryor.......................................    39
Statement of Senator Stevens.....................................    49
Statement of Senator Sununu......................................    46

                               Witnesses

Gunn, David L., President and CEO, Amtrak........................    22
Laney, ESQ., David M., Chairman of the Board, Amtrak.............    17
    Prepared statement...........................................    20
Mead, Hon. Kenneth M., Inspector General, Department of 
  Transportation.................................................    23
    Prepared statement...........................................    27
Rosen, Hon. Jeffrey A., General Counsel, Department of 
  Transportation.................................................     4
    Prepared statement...........................................     6

                                Appendix

Response to Written Questions Submitted to Kenneth M. Mead by:
    Hon. Daniel K. Inouye........................................    71
    Hon. Olympia J. Snowe........................................    64
    Hon. Frank R. Lautenberg.....................................    73
Response to Written Questions Submitted to Hon. Jeffrey A. Rosen 
  by:
    Hon. Daniel K. Inouye........................................    72
    Hon. Frank R. Lautenberg.....................................    73
Response to Written Questions Submitted to David M. Laney, ESQ. 
  by:
    Hon. Daniel K. Inouye........................................    69
    Hon. Frank R. Lautenberg.....................................    71
    Hon. Gordon H. Smith.........................................    67
Response to Written Questions Submitted to David L. Gunn by:
    Hon. Daniel K. Inouye........................................    68
    Hon. Frank R. Lautenberg.....................................    71
    Hon. Gordon H. Smith.........................................    66
    Hon. Olympia J. Snowe........................................    65
Smith, Hon. Gordon H., U.S. Senator from Oregon, prepared 
  statement......................................................    64
Snowe, Hon. Olympia J., U.S. Senator from Maine, prepared 
  statement......................................................    63

 
                       REAUTHORIZATION OF AMTRAK

                              ----------                              


                        THURSDAY, APRIL 21, 2005

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

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

    Senator Lott. If the hearing will come to order, we will go 
ahead and get started with my opening statement and then we 
will move to the witness testimony, we're going to have a 
number of Senators that will be joining us this morning, we 
expect eight or ten, but we work on Senate time, which is about 
15 minutes late. But we'll get started anyway, so we can sort 
of set the parameters on this hearing.
    I want to thank the witnesses for being here, I'm looking 
forward to hearing your testimony, and I'm also looking forward 
to having the chance for the Committee to ask some questions, 
and try to begin to get a vision of where we really want to go.
    This morning the Subcommittee on Surface Transportation and 
Merchant Marine will be receiving testimony on the policy 
issues surrounding the reauthorization of Amtrak. As Chairman 
of this Subcommittee, enacting legislation to reform Amtrak is 
one of my top priorities for this session of Congress. I am 
willing to work hard on developing consensus, bipartisan 
legislation, but only if the legislation truly improves the 
situation and makes some sense for the future.
    Ten years ago, when I also served as Chairman of this 
Subcommittee, I helped write the legislation which eventually 
became the Amtrak Reform Act of 1997. Unfortunately, for a 
variety of reasons, I'm sure, many of the Act's provisions 
intended to improve Amtrak's performance were never used. 
Despite assurances from Amtrak management at the time that the 
railroad was on a ``glide path to self-sufficiency,'' Amtrak 
still requires large Federal operating subsidies. One of my 
goals for today's hearing is to determine why we didn't use 
more of the 1997 legislation, what was wrong with the way we 
wrote it, and make sure that we don't repeat those mistakes, 
come up with some new and different ideas.
    I also think that it's important we are honest with 
ourselves about what are the prospects for Amtrak or whatever 
we have in its place to actually ever make a profit, or to be 
self-sufficient. If that's not going to happen, we need to 
acknowledge it, if it's not going to happen, but if we want to 
keep it or some form of it, how are we going to fund it?
    We put that decision off long enough. This is the year 
where we have to make the cut, make the decision. Today we will 
basically hear three proposals on how to proceed with intercity 
rail. First we'll hear from the Administration. The President 
proposed zero funding for Amtrak--as I understand it, not to 
kill it, but to send Congress a wake-up call that the time to 
reform Amtrak is now. I hope that was their thinking, and I 
hope that we get the message without actually killing it. In a 
way it could happen, we didn't get the legislation last year 
for a variety of reasons, no use trying to re-hash that, we're 
going to get something this year, one way or the other, we're 
going to make a decision.
    Now last week the Administration re-submitted its 
legislation proposal for reforming Amtrak, I'm sure we'll hear 
about that today, and while I think some of its provisions are 
totally unrealistic, some of them maybe can be used, and we'll 
try to decide which is which.
    Second, the Amtrak Board and David Gunn, the Amtrak 
President and CEO, have put together a Strategic Reform 
Initiative including some legislative proposals. I think the 
Board should be commended for its hard work in developing this 
initiative, which in many ways is a departure from some of the 
past thinking that we've had from the Board.
    Finally, we'll hear from the Department of Transportation's 
Inspector General, who has worked on these Amtrak issues for 
many years, both at the Department of Transportation and at the 
General Accounting Office. His testimony proposes an outline 
for a new model of intercity passenger rail. I've found his 
testimony in the past to be very helpful, our private 
discussions have been giving me some ideas of what we need to 
do, and so I look forward to hearing from all the witnesses.
    It is my intent to, after this hearing, after consultation 
with the Chairman of the full Committee, to begin to actually 
develop a bill. It is my intent that it consider all the 
aspects of where we need to go, where we can go, it's my intent 
for it to be bipartisan, I want the Administration to be 
involved. Among other things, I've already met with management, 
with the Secretary of Transportation, the Inspector General, 
Mr. Gunn, labor, and have talked to a number of Senators on 
both sides of the aisle, including Senator Lautenberg.
    We're going to get this done, and we're going to have 
something ready to go to the floor this summer. We're going to 
beat the deadline of having to get something done before the 
end of this fiscal year. We'll have to get the votes, but we're 
going to come up with something, and I hope it's something 
worth having.
    Senator Lautenberg?

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

    Senator Lautenberg. Mr. Chairman, you're an inspiration 
this morning and I'm glad to see that energy and vitality 
focused on what we do about Amtrak and what we do about making 
sure that we have a transportation system that reflects the 
needs of the country. And I am appreciative of the fact that 
you're holding this hearing on the reauthorization of Amtrak.
    It's been 8 years since we last authorized Amtrak. At that 
time I was, I look back with some envy, I was Ranking Member of 
the Transportation Appropriations Subcommittee, sabbaticals 
aren't all that they're cracked up to be, Mr. Chairman.
    I can't overstate how important it is for our country, as I 
see it, to have a balanced, national transportation system. 
We've got an interstate highway system, we have a national 
system of airports to facilitate air travel, but passenger rail 
has fallen by the wayside in our country, and even if you want 
to take the train, service is limited. And in many parts of the 
country it isn't an option at all, and we can do better, and we 
must.
    Providing another transportation choice isn't just a matter 
of convenience--I see it as a matter of national security, to 
ensure that we don't depend entirely on one mode of travel if a 
problem strikes. Many Americans would choose to take a train if 
they could, and many already do. Thousands of senior citizens 
use Amtrak service to Florida rather than brave the traffic and 
the large trucks on I-95.
    Now, I understand that there are many ideas about how to 
run passenger rail service in our country. There are some facts 
that we must consider. First, it's going to take money to do 
it. Zero will not cut it. No passenger system in the world 
makes money, not even Japan's.
    Second, the states cannot afford at this time to simply 
pick up the Federal contribution to Amtrak. Expecting them to 
do so would be yet another unfunded mandate, and it would sink 
state budgets into a sea of red ink.
    Thirdly, we need to heed the lessons of other countries 
that embarked on flights of fancy by privatizing their 
railroads. They risked the safety of their operations, and they 
ended up paying more in the end. Every organization needs 
strong leadership. And Amtrak, I'm pleased to say, has that. 
And under President and CEO David Gunn, Amtrak has overhauled 
its financial accounting system, trimmed its workforce by 20 
percent, while adding 20 percent more trains.
    Last year, Amtrak achieved record ridership of 25 million 
riders nationwide. I remind you, the equivalent of 125,000 
fully loaded 757 airplanes. Amtrak works, and Americans depend 
on Amtrak every day, we sure can tell by some of the protests 
that have arisen about removing sellers from the line. But we 
needed it most, Amtrak, when our Nation was attacked on 
September 11, 2001.
    When our commercial aviation system was shut down on 9/11, 
stranded passengers turned to Amtrak to reunite themselves with 
their families. And thank goodness they had that choice. That 
terrible day reminded us that our Nation cannot depend entirely 
on one mode of transportation, no matter how attractive it 
looks. And since the Federal Government created Amtrak 34 years 
ago, we've invested an average of less than $1 billion a year 
in rail infrastructure and operations, not nearly enough for a 
world class system.
    Germany has a modern high-speed rail system. They invested 
$9 billion in passenger rail service in 2003 alone, and instead 
of trying to kill Amtrak, we've got to find a way to build a 
passenger rail system that's as good as any in the world. And I 
thank you, Mr. Chairman, once again, for calling the hearing 
and for your vitality and promise that we're going to get a 
railroad bill, that Amtrak go out of here, and I plan to work 
with you on it, and hope that we come up with something that 
really spells out not only the problems, but how we're going to 
do it long term.
    Senator Lott. Thank you, Senator Lautenberg. Our witnesses 
today are the Honorable Jeffrey L. Rosen, General Counsel, and 
Secretary's representative to the Amtrak Board at the 
Department of Transportation; David Laney, Esquire, Chairman of 
the Board, National Railroad Passenger Corporation or Amtrak; 
David Gunn, the President and CEO of the National Railroad 
Passenger Corporation--Amtrak; and the Honorable Kenneth Mead, 
Inspector General of the U.S. Department of Transportation. We 
will call on you in that order. Mr. Mead, we're saving you for 
clean up and for comments on many of the things that you will 
hear before your testimony, so get prepared, take notes. And, 
we'll begin, then, with Mr. Rosen.

STATEMENT OF HON. JEFFREY A. ROSEN, GENERAL COUNSEL, DEPARTMENT 
                       OF TRANSPORTATION

    Mr. Rosen. Thank you. Mr. Chairman, Senator Lautenberg, 
thank you for giving me the opportunity to talk to you today 
about reforming Amtrak. The Department of Transportation has 
previously submitted my written testimony, which I hope you 
will include in the record.
    Senator Lott. It will be included in the record. I might 
say that all of your prepared statements will be included in 
the record, we'd appreciate it if you'd summarize it in as 
close to 5 minutes as you can.
    Mr. Rosen. Absolutely, thank you, Mr. Chairman. I'll be 
relatively brief in my oral remarks. I wanted to cover just 
three points.
    First, it is now clear that we have arrived at a moment 
when true reform of intercity passenger rail is necessary, is 
possible and should be achieved. Amtrak itself now agrees that 
reform is needed because Amtrak is not sustainable as currently 
structured or funded. Over the last several months, Secretary 
Mineta has traveled the Nation, meeting with railroad workers, 
state governors and transportation officials, weekday 
commuters, city mayors and just about anyone else who would 
listen to his message that the 1970's approach to Amtrak can't 
survive, and has shared with them the Administration's new 
vision for intercity passenger rail. Members of this 
Subcommittee and others in Congress have also expressed both 
interest and concern about the future of intercity passenger 
rail, and of course the President's budget proposal for Amtrak 
is itself a call to action.
    So, the actions taken by President Bush and Secretary 
Mineta have helped us lead the way and it is a welcome and 
perhaps an unprecedented development to have Amtrak itself 
ready to embrace genuine reform. I have had the privilege of 
serving as Secretary Mineta's designee to the Amtrak Board, so 
I am respectful of the extraordinary efforts of Amtrak's highly 
committed management and staff, and have observed how closely 
they worked with a Board of Directors, who themselves added a 
reservoir of business experience and insight to Amtrak's 
strategic planning process. This hearing comes at an opportune 
time, and hopefully will enable the Congress to capitalize on 
this historic opportunity for reform as you outlined, Mr. 
Chairman.
    Second, as we talk about specific reform measures, the 
fundamentals of what needs to be done to save intercity 
passenger rail are, in my view, clear. With, perhaps, the 
potential for a new consensus on some key items that both the 
Administration and Amtrak are agreed upon, if you compare the 
two sets of proposals.
    Last week, Secretary Mineta re-transmitted the 
Administration's proposed reform legislation to Congress, while 
again reiterating his five key principles for intercity 
passenger rail reform. Amtrak's own newly announced strategic 
initiatives adapt and endorse many of the same concepts and 
proposals. Agreement exists on such things as transitioning to 
competition, empowering the states to make infrastructure 
decisions and to receive support from a State/Federal funding 
partnership, providing for state involvement in infrastructure 
decisions affecting the Northeast Corridor, introduction of 
sound economics to eliminate train operating subsidies and 
reduced expenses, improved financial reporting and 
transparency, and enabling the separation of Amtrak's train 
operations from the infrastructure role.
    The areas of commonality and overlap between the 
Administration bill and the Amtrak plan provide at least a 
common baseline that can be a starting point for a 
reauthorization process that can help us save intercity 
passenger rail travel.
    Third and last, however, I nonetheless want to underscore 
that reform, to be meaningful and long-lasting, requires both 
implementation and legislation. Implementation involves the 
detailed specifics in the followup. And the legislative effort 
will continue to involve some hard choices. Because 
notwithstanding the many areas of commonality that are 
emerging, there are, of course, other areas of divergence that 
will require careful consideration by the Congress.
    One example that needs to be highlighted is the question of 
what to do with approximately $3.8 billion of Amtrak's existing 
debt, the repayment of which amounts to nearly $280 million per 
year. The Administration proposal differs from some others, in 
that we have not endorsed absolving Amtrak and its lenders of 
responsibility for those privately made loans. This issue, as 
well as some others, remain to be worked out. However, we hope 
to work closely with the Congress to achieve the ultimate goal 
of finding a total package that will save intercity passenger 
rail, introduce a new State/Federal partnership for rail 
infrastructure, enable competition for the selection of train 
operators, and provide the rail passengers in this country with 
the high quality service they need and they deserve.
    So, I want to thank the Subcommittee for holding this very 
timely hearing, and I would be pleased to respond to any 
questions.
    [The prepared statement of Mr. Rosen follows:]

     Prepared Statement of Hon. Jeffrey A. Rosen, General Counsel, 
                      Department of Transportation
    Chairman Lott, Senator Inouye, and Members of the Committee, I 
appreciate the opportunity to appear before you today to represent 
Secretary of Transportation Norman Y. Mineta and the Administration as 
this Congress takes up the very important issue of reform of intercity 
passenger rail service. If my testimony today accomplishes one thing, I 
hope it is to convince you that fundamental change in the way we 
support intercity passenger rail service is not only necessary but 
inevitable. And that change needs to happen this year, before we spend 
one more taxpayer dollar to prop up a fundamentally broken system.
    The passenger rail service model created by the Federal Government 
in 1970 is not viable in 2005. The model created in 1970 was a single 
national monopoly set up to be a private corporation but it has instead 
become like a government agency relying on Federal support to survive, 
with a legacy system of routes incapable of adapting to market forces 
and demographic changes. It has little in common with our other modes 
of transportation and the deregulatory and market-oriented changes 
other modes have experienced in the last three decades. America's 
transportation system as a whole--our system of roads, airports, 
waterways, transit lines, and the mostly private operators who use 
them--provides excellent mobility, connectivity, and efficiency that 
have undergirded our economic growth. Sadly, intercity passenger rail 
has been a different story. The supposedly private for-profit 
corporation set up in 1970 to provide all intercity passenger rail 
nationally has never once covered its own costs, much less made a 
profit. And the Federal taxpayers have infused more than $29 billion 
during the last 34 years as Amtrak has lurched from crisis to crisis 
without ever achieving a stable and viable business model. Whatever one 
thinks of Amtrak or passenger rail more generally, this situation has 
been good for no one.
    To some, perhaps this is old news. Congress looked for change in 
the Amtrak Reform and Accountability Act of 1997, and actually 
indicated that ``Federal financial assistance to cover operating losses 
incurred by Amtrak should be eliminated by the year 2002.'' In fact, 
the notion that Amtrak should operate free from Federal operating 
subsidies is codified in the United States Code. 49 U.S.C. 
Sec. 24101(d) states that ``Commencing no later than the fiscal year 
following the fifth anniversary of the Amtrak Reform and Accountability 
Act of 1997, Amtrak shall operate without Federal operating grant funds 
appropriated for its benefit.'' In the 1997 Act, Amtrak was afforded 
new flexibility to get its own house in order. But by 2002, Amtrak's 
situation was no better; to the contrary, it had grown worse, with 
massive increases in Amtrak's debt, continuing operating problems, and 
financial crises in both 2001 and 2002. Amtrak's response once again 
was to turn to the Federal Government for even greater Federal 
financial assistance. In no other functioning service market would 
rising costs and declining revenues be defined as a ``success'' if this 
produced a small increase in the number of customers. Yet, that is 
exactly what the defenders of the 1970 approach now say, as if the loss 
for each rider were ``made up in volume.'' In 2004, Amtrak increased 
its ridership by approximately 4 percent to a record 25 million 
passengers, asked for a record $1.8 billion Federal subsidy, and 
recorded a financial loss of more than $1.3 billion, of which 
approximately $635 million was a cash loss. \1\
---------------------------------------------------------------------------
    \1\ These are unaudited numbers.
---------------------------------------------------------------------------
    Things do not have to be this way. The Administration has made 
clear that there is an important role for intercity passenger rail in 
our transportation system, with a new model that will be responsive to 
the needs of the traveling public. But we can only get there by 
reforming the failed model of 1970, and committing to a new approach. 
Happily, Amtrak itself now recognizes the need for reform, and we have 
reached a time when a new approach may now be possible. It is from this 
standpoint that I am pleased to be here today to discuss the future of 
intercity rail.
    In my testimony today I will cover three things. First, I will 
provide a summary of the historical trends and current state of 
Amtrak's provision of passenger rail service. Second, I will briefly 
review some recent history of Amtrak efforts to sustain itself and the 
events leading up to the near-crisis situation we face today in 
intercity passenger rail service. And finally, I will outline the 
Administration's approach to saving intercity passenger rail and 
setting the platform for its viability in the future.
I. Riding the Rails: Amtrak's Past and Present
    Amtrak was created in 1970 as a private corporation in a major 
restructuring of the larger rail industry, which was in a state of 
major financial distress. In that restructuring, freight railroads 
ceased providing passenger service altogether. Instead, for the first 
time, there would be a single national provider of intercity passenger 
rail service to replace the multiple regional systems that reflected 
the areas covered by each of the freight railroads' route systems. The 
intent was that the national monopoly would reinvigorate passenger rail 
by permitting Amtrak to consolidate operations and achieve efficiencies 
that, after a very brief period of Federal assistance, would preserve 
and expand intercity passenger rail service as a for-profit company.
    By now we know that the hopes of Amtrak's creators have never been 
realized. Intercity passenger rail service has not been reinvigorated. 
The Department of Transportation (DOT) expects that each and every one 
of Amtrak's 15 long-distance trains will this year lose money on a 
fully allocated cost basis, even excluding depreciation and interest. 
On a per passenger basis, with depreciation and interest, the loss for 
long-distance trains ranges from $47 per passenger to $466 per 
passenger. But the long-distance trains are not alone: with 
depreciation and interest included, every one of Amtrak's 43 regularly 
scheduled routes loses money. After 34 years and $29 billion in Federal 
subsidies, intercity passenger rail's financial performance has not 
improved, service and on-time performance are below expectations, and 
passenger rail's market share relative to other modes has continued to 
erode. Last year's so-called ``record'' Amtrak ridership amounted to a 
one-half of one percent share of the total intercity passenger 
transportation market. Airlines alone carry more U.S. passengers in 
three weeks than Amtrak does in a year.


    That also belies one of the frequent arguments of today's defenders 
of the 1970 model--that the Federal Government supposedly subsidizes 
other modes of transportation at a much greater rate than Amtrak. In 
fact, FY 2005's appropriated subsidy of $1.207 billion represented 
approximately 9 percent of the total discretionary Federal funds for 
the Department--9 percent of the subsidy goes for one-half of one 
percent of the market. The argument also passes quickly over another 
important fact: highways, transit and aviation are, unlike rail, funded 
substantially by true user fees and also by state investments. (Even 
the most ardent rail proponents evince little interest in a new Federal 
passenger rail ticket tax.)
    Perhaps most importantly, however, the argument overlooks that 
Federal financial support for roads, airports, and transit goes to 
infrastructure and not to operations. In other modes of transportation, 
Federal aid goes to highway and airport infrastructure, for example, 
but Federal taxpayers are not regularly asked to write annual billion 
dollar checks to private trucking companies, private bus companies, 
private automobile commuters and vacationers, nor even to private 
airlines, although the taxpayers have regularly done so with regard to 
Amtrak.
    In considering where we are with Amtrak, it is useful to consider 
the varied things that Amtrak presently does. Generally, these can be 
grouped into activities relating to rail infrastructure, corridor train 
operations, and long-distance train service.
Rail Infrastructure
    Amtrak owns its own right of way and infrastructure along most of 
the Northeast Corridor (NEC), except in Massachusetts and part of 
Connecticut, where the infrastructure is owned by those states. Amtrak 
also owns some infrastructure in Michigan, as well as train stations in 
a number of states. Otherwise, Amtrak mostly operates trains on 
infrastructure owned by others.
    Within the Northeast Corridor, Amtrak controls the infrastructure 
not only for its own use, but for use by numerous other railroads and 
transit agencies.

      List of Users of the NEC Other than Amtrak

        Canadian Pacific
        Consolidated Rail Corporation
        CSX
        Delaware DOT
        Long Island Rail Road
        Maryland Rail Commuter Service
        Massachusetts Bay Transportation Authority
        Metro-North Commuter Railroad
        New Jersey Transit
        Norfolk Southern
        Providence and Worcester Railroad
        Rhode Island DOT
        Shore Line East (Connecticut)
        Southeastern Pennsylvania Transportation Authority
        Virginia Railway Express

    These other users of the NEC pay Amtrak for access and associated 
services, such as train dispatching. In total, trains operated by other 
users on the NEC actually exceed the number of trains operated by 
Amtrak itself on the NEC.
    Because of the way the 1970 model of intercity passenger rail was 
organized, maintenance and development of infrastructure for passenger 
rail has been left to Amtrak.
    In FY05, Amtrak plans to spend $215 million on fixed facility 
infrastructure projects, most of which will come from the $1.2 billion 
of Federal appropriations to be provided to Amtrak. \2\ None of those 
funds will be allocated to states, or to infrastructure in locations 
where Amtrak does not presently operate.
---------------------------------------------------------------------------
    \2\ The total Federal capital grant for FY 2005 is $492 million, of 
which approximately one-third will go toward fixed facilities, one 
third to mechanical (car and locomotive) projects, and one third to 
debt principal repayment, environmental remediation, information 
systems, and other purposes.
---------------------------------------------------------------------------
Corridor Services
    When viewed from the perspective of moving passengers, and the 
distance they are moved (passenger-miles), Amtrak can be seen as 
providing two types of services: corridor services of approximately 
100-500 miles and frequently under contract to states in which these 
corridors are located; and long-distance, primarily leisure travel 
services. Within the category of corridor services, there are two 
different types: services on the NE corridor, where Amtrak operates on 
its own infrastructure, and services on other state corridors, where 
Amtrak operates on infrastructure owned and controlled by others.
    Corridor services, which are trips of five hours or less, have seen 
an increase in ridership of 50 percent over the last ten years. Rail 
corridor service of three hours or less is very competitive with air 
service on the same corridors. Approximately 20 million people, or 80 
percent of all Amtrak riders in 2004, traveled on a corridor service.
    The NEC. The largest portion of Amtrak corridor trips are on the 
Washington-New York City-Boston Northeast Corridor. This is not 
surprising since this corridor has a long history of rail travel, a 
large and mobile population base, and significant public investment has 
gone into the infrastructure. NEC travel accounts for almost half of 
all the people who travel on Amtrak. If one looks at NEC train 
operations, separate from the NEC infrastructure, this is the one area 
where Amtrak operates at something close to a breakeven basis.
    Other Corridors. In addition to the NEC main line, Amtrak operates 
trains for corridor service in fifteen other states.

                  List of States with Corridor Service
   Note: States listed are the primary states served by each corridor.
California                            New York
    Pacific Surfliner                     Empire/Maple Leaf
    Capitols                              Adirondack
    San Joaquins                      North Carolina
Connecticut/Massachusetts                 Carolinian (Extended corridor)
    Inland Route (New Haven-              Piedmont
     Springfield)
Illinois                              Oklahoma
    Chicago-St. Louis                     Heartland Flyer
    Illini                            Oregon
    Illinois Zephyr                       Cascades (with Washington)
    Hiawatha (with Wisconsin)         Pennsylvania
Maine                                     Keystone Service
    The Downeaster                        Pennsylvanian (Extended
                                       corridor)
Michigan                              Washington
    Wolverines                            Cascades (with Oregon)
    Blue Water                        Wisconsin
    Pere Marquette                        Hiawathas (with Illinois)
Missouri                              Vermont
    Kansas City-St.Louis                  Ethan Allen Express
                                          Vermonter (Extended corridor)
------------------------------------------------------------------------


    As shown in the chart below, there are several corridors in which 
the train service has been able to attract a very significant share of 
intercity passengers. In 2004, a total of approximately 8 million 
people (i.e., approximately one-third of the total Amtrak ridership) 
traveled on these corridor routes. In many instances, these corridors 
are subsidized in part by states. State operating subsidies for these 
trains totaled ten percent of the combined Federal and State funding of 
Amtrak. However, States have not borne the full cost of these routes, 
and some states that have corridor trains have not paid anything at 
all, thereby producing issues of equity among the states, as well as 
market uncertainties about how travelers value the services.


Long-Distance Services
    Contrary to the trend line for ridership on corridor services, 
extended trips have seen declining revenues and ridership--and 
increasing costs--over the last ten years. DOT refers to these services 
as Transcontinental (more than one night), Overnight (one night) or 
extended corridor (greater than 500 miles, but with no sleeping 
accommodations). Amtrak presently operates 15 such trains. \3\ Amtrak 
has continued to lose extended trip customers to an airline industry 
that is offering a low cost, high quality service, and to automobile 
drivers who choose to use the highways rather than rail. Amtrak has had 
little or no success responding to this competition. As Amtrak's 
presence in this segment of the intercity transportation market has 
dwindled, Federal subsidies per passenger have continued to grow. In FY 
2004, the average passenger on a long-distance train received a subsidy 
of approximately $214 per trip on a fully-allocated basis, \4\ up from 
$158 in the year 2000--a 35 percent increase quintupling the modest 7 
percent inflation over the same period.
---------------------------------------------------------------------------
    \3\ The long-distance routes are as follows: Vermonter, Silver 
Service, Cardinal, Empire Builder, Capitol Limited, California Zephyr, 
Southwest Chief, City of New Orleans, Texas Eagle, Sunset Limited, 
Coast Starlight, Lake Shore Limited, Crescent, Pennsylvanian and 
Carolinian. The Auto-Train, a specialized service, also operates over a 
long-distance route but with completely different characteristics. The 
Three Rivers (New York-Pittsburgh-Akron-Chicago) was discontinued in 
March 2005.
    \4\ Fully allocated costs include depreciation and interest.
    
    
    Moreover, these long-distance trains have had considerable 
difficulty with regard to on-time departures and arrivals:

                                                  On-Time Performance of Long-Distance Trains, FY 2004
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Percent On-Time     Average Minutes     Average Minutes
       Train Name             Service type               Between                 --And         (Zero  Tolerance)    Late per Train       Late per Late
                                                                                                                     (All Trains)            Train
--------------------------------------------------------------------------------------------------------------------------------------------------------
California Zephyr      Transcon                 Chicago                 Bay Area                          14.2                 136                 159
Capitol Ltd.           Overnight                Chicago                 Washington                        13.8                 101                 118
Cardinal               Overnight                Chicago                 New York via                      33.1                  48                  74
                                                                         Cincinnati
Carolinian             Extended Corridor        New York                Charlotte                         26.9                  38                  51
City of New Orleans    Overnight                Chicago                 New Orleans                       47.7                  26                  50
Coast Starlight        Overnight                Seattle                 Los Angeles                       10.8                 139                 157
Crescent               Overnight                New York                New Orleans                       41.6                  34                  58
Empire Builder         Transcon                 Chicago                 Seattle                           68.3                  11                  36
Lake Shore Ltd.        Overnight                Chicago                 New York                           8.2                 123                 134
Pennsylvanian          Extended Corridor        New York                Pittsburgh                        17.2                  32                  39
Silver Meteor          Overnight                New York                Miami                             25.6                  84                 113
Southwest Chief        Transcon                 Chicago                 Los Angeles                       28.5                  68                  96
Sunset Limited         Transcon                 Orlando                 Los Angeles                        1.6                 359                 366
Texas Eagle            Overnight                Chicago                 San Antonio                       41.9                  57                  98
Vermonter              Extended Corridor        Washington              St. Albans, VT                    32.1                  21                  30
--------------------------------------------------------------------------------------------------------------------------------------------------------


    Overall, the picture of where things stand in intercity passenger 
rail service is far from what was hoped for when Amtrak was created in 
1970.
II. Recent History and the Call to Change
    During the 1990s, there was an increasing recognition that the 1970 
model of intercity passenger rail had developed some very serious 
problems. Congress sought to redress some of those in the 1997 Amtrak 
Reform Act. Unfortunately, the reforms embodied in the 1997 Act did not 
prove sufficient to solve the problems.
    Many of the reforms in the 1997 Act empowered Amtrak to improve its 
own performance, and removed impediments to its doing so. After passage 
of the 1997 Act, Amtrak's then-management repeatedly reported that it 
was on a ``glide path'' to self-sufficiency by 2002. That did not 
happen. The problems worsened, and it became increasingly clear that 
they were not solely the result of business misjudgments, but also 
involved inherent flaws in the 1970 model.
    Instead of a successful ``glide path,'' Secretary Mineta was 
greeted with some unwelcome surprises in his initial experiences with 
Amtrak during the current Administration. Early in 2001, instead of 
Amtrak being months from self-sufficiency as reported, Amtrak's then-
management advised that Amtrak would be insolvent within two weeks 
unless DOT subordinated the interest of U.S. taxpayers to a foreign 
bank so that Amtrak could mortgage its rights to use Pennsylvania 
Station in New York City. Within a year, Amtrak had lurched to yet 
another financial crisis, informing the Secretary that if the 
Department and Congress did not provide the company another $300 
million, it would be insolvent within two weeks and would also shut 
down commuter and intercity services. In response, to obtain time to 
assess and identify more long term reforms, DOT provided Amtrak a $100 
million loan under the Railroad Rehabilitation and Improvement 
Financing Program, and Congress provided the remaining $205 million 
through a supplemental appropriation.
    These crises highlighted fundamental problems, some of which needed 
immediate action by Amtrak, and some of which were revealed to be 
inherent to the 1970 business model and in need of legislative change. 
Among the most urgent for Amtrak itself was the state of its financial 
books and records. Indeed, it took independent auditors almost all of 
FY 2002 to close their audit of Amtrak's FY 2001 financial performance. 
That audit required $200 million in net audit adjustments and found 5 
material weaknesses and 12 reportable conditions that needed to be 
addressed to fix the problems with Amtrak's accounting practices. It 
also revealed that Amtrak had taken on almost $3 billion in new debt in 
order to pay for (1) costly overruns of poorly managed capital 
improvements, (2) an unsuccessful foray into the express package 
business, and (3) day-to-day operational expenses.
    Since 2002, Amtrak's record-keeping has improved. In 2005, the 
independent audit was completed in March instead of September and no 
material weaknesses were found. While Amtrak's auditors still find 
significant areas for improvement, they comment favorably on 
developments over the last three years.
    Through participation on the Amtrak Board, and through changes to 
the appropriations process that enabled stronger FRA oversight of the 
grant process to Amtrak, Secretary Mineta and DOT have sought a variety 
of improvements that Amtrak could make on its own. That process 
continues and is ongoing. Because I anticipate that the improvements 
instituted since David Gunn assumed leadership of Amtrak will be 
covered in the testimony to be supplied by Amtrak itself, I will not 
detail them here, but it should suffice for me to say that Amtrak 
operates in a more efficient and better way than it did three years 
ago.
    But notwithstanding the very significant management improvements 
and a much-enhanced and valuable involvement of the Amtrak Board, 
fundamental difficulties continue to confront Amtrak, because the 1970 
model of intercity passenger rail is a framework that is flawed. Amtrak 
continues to spend dramatically more money than the revenues it 
generates, and this year is spending at a pace greater than the 
appropriation from Congress. Amtrak estimates that by the end of FY 
2005 it will have only $75 to $100 million of cash remaining, with its 
costs continuing to far exceed its ticket sales.
    As shown by the two charts below, the structural problem in 
Amtrak's condition is long-term, and is getting worse, not better.


    Further adding to Amtrak's deterioration is that the company's debt 
increased massively in the late 1990's, from $1.7 billion in 1997 to 
$4.8 billion in 2002, without adequately increased passenger revenues 
to pay the debt service. Because of this increased debt, Amtrak's 
repayment requirements (principal and interest) are forecasted to be 
approximately $273 million in FY 2005 (up from $111 million in 1997).
    The FY 2005 appropriation for Amtrak of $1.2 billion represents a 
134 percent increase over the appropriation for FY 2001. Amtrak's 
President has said that as presently configured, Amtrak cannot 
successfully operate through FY 2006 without much larger amounts of 
taxpayer funds being allocated to this private company. Indeed, the 
increase sought by Amtrak--256 percent above the 2001 appropriation--
would far outstrip the 22 percent increase in domestic discretionary 
spending over the same time period. For the Federal taxpayers, that is 
a spiral in the wrong direction.
    Passenger rail is already by far the most heavily subsidized form 
of intercity passenger transportation. When viewed on a per passenger-
mile basis, analysis by the Bureau of Transportation Statistics 
indicates that the aggregate Federal expenditure for intercity 
passenger rail is 30 times greater than for commercial aviation. 
Likewise, the intercity bus industry, where there are no comprehensive 
or dedicated Federal operating subsidies, carries as many as 350 
million passengers annually (according to Eno Foundation estimates)--14 
times Amtrak's ridership. So continually increased operating subsidies 
is not the right answer.
    What is more clear now than ever is that the basic business model 
through which we provide intercity passenger rail service in this 
country--a single national entity called Amtrak--is unworkable and is 
not adequately positioned to respond to the changing transportation 
needs of this country. Massive increases in funding to merely slow a 
downward spiral are neither sustainable nor justifiable. At the same 
time, doing nothing at all will eventually result in a business failure 
and a lost opportunity for intercity passenger rail for this country. A 
change is needed.
III. The Administration's Plan for Reform and Preservation of Intercity 
        Passenger Rail
    As a matter of transportation policy, the Administration supports 
the availability of intercity passenger rail, but with a very different 
vision than the failed model of the past. Secretary Mineta has 
repeatedly set out the fundamental principles needed to reform 
intercity passenger rail and place this form of transportation on a 
sound footing. These principles are:

    Establish a long-term partnership between States and the Federal 
Government to support intercity passenger rail: Partnerships between 
the States and the Federal Government for the planning, decision-making 
and capital investment in transportation have been one valuable element 
in the success of Federal programs for highways and transit to date. 
The States, through their multi-modal planning mechanisms, are in a 
much better position to determine their intercity mobility needs and 
which form of investment makes the most sense in meeting these needs 
than a sole supplier company in Washington, D.C. State-supported 
intercity passenger rail services in places like the States of 
Washington, North Carolina, California, and Wisconsin have been one of 
the bright spots for intercity passenger rail ridership. The 
Administration wants to build upon these successes through a new 
program of Federal/State capital funding partnerships in which the 
Federal Government would provide matching grants.
    Require that Amtrak transition to a pure operating company: Amtrak 
today is both an operating company and the owner and maintainer of 
significant infrastructure that forms a key component of the intercity 
and commuter transportation systems of eight states in the Northeast, 
as well as many stations and other facilities that have local or 
regional transportation importance. These are two very different 
functions. By having them both reside in the same entity, the company 
is faced with conflicting priorities, which the company has found 
difficult, if not impossible, to balance. Infrastructure decisions have 
depended on Amtrak decisions, rather than those of the states and 
localities who are largely responsible for such planning in other 
transportation modes such as highways, airports, and transit. Amtrak, 
and the nation's transportation system, would be better off with Amtrak 
able to focus on one thing--operating trains--and doing it well.
    Create a system driven by sound economics: One of the flaws of the 
1970 model is that intercity passenger rail has sometimes been defined 
by politics, habit and fear of change. That is one reason that some 
routes have stunningly high subsidies, such as the $466 per passenger 
subsidy in FY 2004 on the Los Angeles to Orlando Sunset Limited. 
Intercity passenger rail needs to serve the markets where there is an 
identifiable demand that intercity passenger rail can meet. It cannot 
and should not try to serve every market regardless of the cost and 
regardless of the revenue. Just as with other transportation modes and 
other successful businesses in general, intercity passenger rail needs 
to have the dexterity to recognize changing business patterns and 
demand, and that sometimes the services of yesterday are not needed or 
justified today or tomorrow. Intercity passenger rail service needs to 
be designed to cost-effectively meet and support the transportation 
needs of the traveling public and sponsoring public authorities.
    Introduce carefully managed competition to provide higher quality 
rail services at reasonable prices: For the last 34 years under the 
1970 model, intercity passenger rail service has not been subject to 
the discipline of the marketplace. On corridor services, for example, 
states do not have any alternative but to have Amtrak operate the 
intercity service. This has resulted in a service that is more costly 
than one would expect in a competitive situation, and which often has 
not been responsive to changing transportation patterns, demands or 
expectations. In a free market economy, competition leads to improved 
cost effectiveness, higher quality and innovation, elements that have 
been sorely lacking in intercity passenger rail for the past 
generation. Transition to competition is never easy, but it is 
necessary for the public to get the service it demands and deserves.
    Create an effective public partnership, after a reasonable 
transition, to manage the capital assets of the Northeast Corridor: The 
Washington-New York City-Boston Northeast Corridor main line is the 
most heavily utilized rail route in the country, forming an essential 
link for intercity passenger and freight transportation and commuter 
access to the major cities of the Northeast. By some measures, such as 
the number of persons per day that use this infrastructure, Amtrak is a 
minority user of this infrastructure--particularly in urban areas. 
Transportation services on this corridor need to be insulated from the 
unpredictable consequences of Amtrak's own finances and needs at any 
given time. At least initially, the ownership of these assets should be 
in the public sector, and management and control of this asset should 
reflect significant input from the states that depend on the Northeast 
Corridor for passenger and freight mobility.

    Last week the Administration's Passenger Rail Investment Reform Act 
(PRIRA) was transmitted to the 109th Congress. It sets out and details 
the Administration's proposals on specific ways to achieve these 
objectives. After a deliberate transition period, intercity passenger 
rail would become an economically viable and strategically effective 
mode of transportation, supporting numerous successful rail corridors 
nationwide. The Federal role in passenger rail would, however, be 
revised and strengthened to mirror much more closely the current 
Federal program supporting mass transit. As set out in Secretary 
Mineta's transmittal letter accompanying PRIRA, we look forward to 
working with the Congress to discuss and fashion the specifics of 
legislation in ways that will successfully reform intercity passenger 
rail for the future.
    In addition, this week Amtrak's own Board of Directors and its 
Management are releasing strategic initiatives crafted by Amtrak to 
begin the process of reform within the company itself. That is a timely 
development, with many positive elements. Amtrak's own recognition of 
the need for reform is a welcome response to Secretary Mineta's 
steadfast resolve to address the problems of intercity passenger rail, 
and create a viable future. It is encouraging that Amtrak's own plan 
adopts many of the Administration's proposals, though it lacks some 
provisions and our legislation will still be necessary. It is critical 
that we continue to pursue all avenues for reform, including 
legislation, if we are to avoid a collapse of Amtrak.
Conclusion
    My own experience with Amtrak's Board persuades me that Amtrak 
itself recognizes the necessity for reform and that time is critical. 
Without reform, Amtrak is not sustainable at its current level of 
funding or at any level Amtrak is likely to receive in these difficult 
budgetary times. Moreover, history tells us that merely throwing money 
at the 1970 model of intercity passenger rail without addressing the 
problems that have been identified in the subsequent years does not 
result in any long-term improvements in Amtrak's finances or quality of 
service.
    The Administration has been clear that it cannot support the failed 
model of the past, nor support putting more funding into that failed 
approach. We have been equally clear that IF meaningful reform is 
accomplished and implemented, the Administration would support funding 
of infrastructure and transition needs for train operations and related 
costs.
    Secretary Mineta has repeatedly expressed the Administration's 
support for intercity passenger rail service as an integral part of our 
overall national transportation system. Congress, the Administration, 
and Amtrak itself have a brief window in which to adopt and implement 
meaningful reform. If this does not occur, discussions over reforming 
intercity passenger rail service will be taking place in a severe 
crisis situation in the not too distant future. In that unwelcome 
scenario, no options could be ruled out. The company faces a depleted 
cash balance, and a failed 1970 business model. It is for this reason 
that we urgently need Congress to address our legislative reform 
proposal this year.
    As you can see, there is much work ahead for all of us as Congress 
considers these issues. Secretary Mineta and his team look forward to 
working with the Congress to assess and implement long-term solutions 
to the recurrent crisis that plagues the old model of intercity 
passenger rail. Thank you for the opportunity to share these 
observations on Amtrak and intercity passenger rail. I will be pleased 
to respond to any questions you may have.

   STATEMENT OF DAVID M. LANEY, ESQ., CHAIRMAN OF THE BOARD, 
                             AMTRAK

    Mr. Laney. Mr. Chairman, Senator Lautenberg, thank you for 
the opportunity to appear before you today. My name is David 
Laney, I'm Chairman of the Amtrak Board of Directors. I have a 
prepared statement that I would like entered into the record, 
and I'm going to give a brief statement outlining the major 
elements of the Strategic Reform Initiatives Package which 
we're releasing today, and I believe each of you has a copy of. 
And, needless to say, joining me--as all of you are aware, and 
are probably familiar with--is David Gunn, sitting to my left.
    For the past several months, the Board and senior 
management at Amtrak have been working on an approach to reform 
Amtrak, and to revitalize rail passenger service in the United 
States. The reform initiatives we offer you today are the 
results of our efforts, drawing upon expertise in and outside 
of Amtrak, and on a considerable body of legislative 
initiatives and reform recommendations that has preceded our 
own planning.
    What you have before you is a detailed set of initiatives, 
some of which Amtrak can do on its own, and others of which 
will require government action. Taken together, we believe that 
Amtrak's strategic reform initiatives can revitalize intercity 
passenger rail transportation.
    Our proposal advances four essential objectives: First, the 
development of passenger rail quarters based on an 80/20 
Federal/State capital match program, with states assuming the 
initiative as developers and purchasers of competitively bid 
corridor services.
    Second, return of the Northeast Corridor infrastructure to 
a state of good repair and operational reliability, with all 
users gradually assuming financial responsibility for their 
proportionate share of operating and capital needs.
    Third, continuation and possible addition and elimination 
of certain national long distance routes that meet established 
performance thresholds, with a phase-in period to allow for 
performance improvement, and state financial contribution, if 
needed, to meet performance thresholds.
    Finally, fourth, the opening of markets for virtually all 
functions and services involved in intercity passenger rail to 
competition and private commercial participation.
    We've identified three sets of reform initiatives to 
achieve the objectives that I just mentioned. They include--in 
general terms--structural, operating and legislative changes. 
The operating initiatives identified in our plan highlight a 
range of actions intended to improve the performance of each 
business line, in order to provide better service, to achieve 
savings and to enhance revenues. Our recommendations for 
changes in legislation hinge directly on creation of a Federal 
capital matching program, and they will help us establish a 
platform for open competition for intercity passenger services.
    The lynchpin of this plan is the establishment of a Federal 
capital match attractive enough to attract increased state 
financial involvement in existing and emerging corridors. 
Continued development of rail quarters is critical to the 
future of rail passenger service in this country. And the pace 
of development will increase with the Federal Government as a 
reliable financial partner, just as it has for decades with 
highways, transit and aviation.
    On this point we agree with the Administration and every 
other responsible proposal for passenger rail reform. The 
demand and the desire to do so exists today, ridership on 
corridor trains has increased over 22 percent in the last 5 
years. However, to fully begin to realize the value of 
intercity passenger rail in addressing transportation 
challenges will require positioning it on comparable footing 
with other modes. Only then will states begin assuming the 
lead, and only then will we begin to see the emergence of real 
competition in the passenger rail industry.
    Returning the Northeast Corridor's infrastructure to a 
state of good repair is an essential part of our reform 
proposal. In compiling this plan, we studied various proposals 
and received and reviewed models that other countries have 
pursued, for separating the maintenance and operations of busy 
rail corridors, and that concluded--for now--that the 
complexities and risks associated with such a segregation 
outweigh any benefits.
    Amtrak owns most of the NEC, it is the only end-to-end user 
of the corridor, and in terms of train miles operated, it is 
also the majority user. Amtrak NEC trains operate at the 
highest speeds in North America, and there are still segments 
of the NEC where we are the only entity operating trains. Our 
immediate challenge is to restore the infrastructure to a state 
of good repair, which we're doing, and is detailed in our 
proposal.
    The next set of challenges is to increase capacity for all 
users of the corridor to address growing ridership demands. We 
believe that Amtrak is in the best position at the moment to 
oversee, and coordinate this work. Our plan outlines a number 
of short-term and long-term initiatives to address these 
issues.
    Amtrak is committed to operating a national system of rail 
service. Rightly or wrongly, long distance trains have become a 
focal point in the debate over reform of passenger rail 
service. While we believe their continued operation is amenable 
to the many communities they serve, they also present the basis 
for any future expansion of rail quarters. We're confident that 
we will reduce their operating losses through a series of steps 
that we outline in our proposal. We will not eliminate, 
however, the need for financial support for long distance 
operations.
    Central to this is the establishment of a phased-in 
performance improvement program that will couple cost-saving 
efficiencies with revenue-enhancement initiatives, so that over 
time these trains will achieve financial performance 
thresholds, or be discontinued. Our proposal outlines a series 
of specific steps that we would take in evaluating our various 
long distance routes.
    The first job is to set fair and clear performance 
standards for long distance trains, and establish a minimum 
performance threshold. We would then rank each route so that we 
can determine early on which trains meet the threshold or fall 
short. For all long distance trains, we will work aggressively 
to improve their performance so that they will more likely 
achieve the desired goal. During this process, we will be 
providing clear reports to the states reflecting the level of 
support each state, each particular route will require, in 
order to continue service on that route. We'll make every 
reasonable effort to improve the performance, and close the 
operating gap, but ultimately, states along the routes will be 
required to cover any recurring gap in order to continue train 
service on those routes.
    If a train continues to fall below the established 
performance threshold, then we will notify the states involved 
and begin the process of discontinuing the service on that 
route. We do believe that there are many opportunities for 
competition in the rail passenger service industry. In some 
cases, having a single provider such as Amtrak allows for 
economies of scale and certain cost efficiencies, but we can 
assure you that in some areas, we are not--and never will be--
the most efficient provider of rail-related services.
    There are actions that Amtrak can do on its own, and others 
that will depend on Federal legislative action. Some of the 
legislative decisions in this area will be difficult, and no 
doubt will encounter stiff resistance from a number of 
entrenched interests. Any discussion of competition will 
involve making decisions about access rights to the freight 
rail infrastructure, tort liability limitations, and limited 
changes to certain labor, and labor/retirement laws. We have 
provided a discussion of each of these matters in our proposal.
    Also, and perhaps most important, included in our report is 
our funding request for Fiscal Year 2006. Typically, Congress 
receives that grant request from us in February. Since we were 
well into this planning exercise, we elected to hold off making 
the request until we had completed our work, which we have now 
done.
    The last dozen pages of the proposal details our Fiscal 
Year 2006 budget requirement, which is $1.82 billion, or $1.645 
billion if our working capital needs are covered by a short-
term credit facility instead of a grant. We think that's the 
appropriate approach.
    Finally, it's worth emphasizing that Amtrak's Board and 
management have concluded that the company cannot continue to 
operate at Amtrak's current funding level of $1.2 billion, 
significantly--if at all--beyond Fiscal Year 2005. The negative 
financial impact--which we still haven't fully quantified, and 
won't be able to do for some time--of the recent problems, 
could very well exhaust our working capital and leave us 
without available cash by fiscal year end.
    We've taken, and will continue to take, aggressive steps to 
achieve short-term savings, but we have very little 
maneuverability in our operating budget and cannot responsibly 
make material reductions in capital expenditures, which are 
critically tied to critical projects on the Northeast Corridor 
infrastructure, and its state of good repair. Over time, 
significant savings will be achieved only through an 
aggressive, continued and systematic multi-year transition 
process with legislative assistance. It's for this reason that 
we have brought forward our Strategic Reform Initiatives to 
help you in your decisionmaking process for Fiscal Year 2006 
and beyond.
    In closing, both David Gunn, his management team, my fellow 
Board members and I, look forward to working closely and 
cooperatively with you in the weeks and months ahead as we 
develop our plan, and move this debate forward--hopefully to 
some conclusion. The current funding model of unpredictable 
annual appropriations levels is unsustainable, there is 
absolutely a better way to do this. We have no choice on our 
own but to start, but we will ultimately need your support. 
David Gunn and I look forward to your questions, and Mr. 
Chairman, thank you very much.
    [The prepared statement of Mr. Laney follows:]

  Prepared Statement of David M. Laney, ESQ., Chairman of the Board, 
                                 Amtrak
    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to appear before you today. My name is David Laney, and I 
am Chairman of the Amtrak Board of Directors. Joining me is David Gunn, 
the President and Chief Executive Officer of Amtrak.
    For the past several months, the Board and senior management at 
Amtrak have been working on an approach to reform Amtrak and revitalize 
rail passenger service in the United States. The reform initiatives we 
offer you today are the results of our efforts, drawing upon expertise 
in and outside of Amtrak and on the considerable body of legislative 
initiatives and ``reform'' recommendations that has preceded our own 
planning. It is by no means the final word on this discussion, nor does 
it answer every question. However, we believe it does advance and 
inform the discussion about what to do with Amtrak and what will need 
to be done to make rail passenger service a viable and vital part of 
our Nation's transportation system. What you have before you is a 
detailed set of initiatives, some of which Amtrak can do on its own and 
others which will require government action. Taken together, we believe 
that Amtrak's Strategic Reform Initiatives can revitalize intercity 
rail transportation.
    Our proposal advances four essential objectives:

        1. Development of passenger rail corridors based on an 80-20 
        Federal/State capital matching program, with states assuming 
        the initiative as the developers and ``purchasers'' of 
        competitively bid corridor services.

        2. Return of the Northeast Corridor infrastructure to a state 
        of good repair and operational reliability, with all users 
        gradually assuming financial responsibility for their 
        proportionate share of operating and capital needs.

        3. Continuation and possible addition and elimination of 
        certain national long-distance routes that meet established 
        performance thresholds, with a phase-in period to allow for 
        performance improvement and state financial contribution if 
        needed to meet the performance thresholds.

        4. Finally, the opening of markets for virtually all functions 
        and services involved in intercity passenger rail to 
        competition and private commercial participation.

    We have identified three sets of reform initiatives to achieve the 
objectives that I just mentioned. They include, in general terms, 
structural, operating and legislative changes. Amtrak has already made 
substantial progress in establishing an organizational structure and 
creating management controls which have resulted in cost savings and 
better management; but we have considerable room for further 
improvement. We will, of course, continue to implement these types of 
changes and refine those already in place. To build on such 
improvements, this plan outlines a new focus on providing planning, 
budgeting, accounting and reporting of financial activity and 
performance along our distinct business lines--infrastructure 
management, NEC rail operations, state corridor operations and long-
distance operations. This type of change we feel will improve our own 
planning and performance capabilities, and enhance the financial 
clarity of our operations.
    Separately, operating initiatives identified in our plan highlight 
a range of actions intended to improve the performance of each business 
line in order to provide better service, achieve savings and enhance 
revenues. Our recommendations for changes in legislation hinge directly 
on creation of a Federal capital matching program. Other 
recommendations in our view, if implemented, will help to establish a 
platform for open competition for intercity rail passenger services.
    The lynchpin of this plan is the establishment of a Federal 
matching program attractive enough to attract increased state financial 
involvement in existing and emerging corridors. Continued development 
of rail corridors is critical to the future of rail passenger service, 
and the pace of development will increase with the Federal Government 
as a reliable financial partner, just as it has been for decades with 
highways, transit and aviation. On this point, we agree with the 
administration and every other responsible proposal for passenger rail 
``reform.'' The demand and desire to do this exists today. A number of 
states have already begun developing rail corridors, essentially on 
their own nickel. They have recognized the need, the value of passenger 
rail capacity in responding to increasing congestion, and the 
popularity of rail service when it is adequately supported. (Ridership 
on corridor trains has grown 22 percent over the last five years.) 
However, to fully begin to realize the value of intercity passenger 
rail in addressing transportation challenges will require positioning 
it on comparable footing with other modes. Only then will states begin 
assuming the lead, and only then will we begin to see the emergence of 
real competition in the industry.
    Returning the Northeast Corridor's infrastructure to a state-of-
good repair is an essential part of our ``reform'' proposal. In 
compiling this plan, we studied various proposals and reviewed models 
that other countries have pursued for separating the maintenance and 
operations of busy rail corridors and have concluded for now that the 
complexities and risks associated with such a split outweigh any 
benefits.
    Amtrak owns most of the NEC, it is the only end-to-end user of the 
Corridor and, in terms of train miles operated, it is also the majority 
user. Amtrak NEC trains operate at the highest speeds in North America, 
and there are still segments of the NEC where we are the only entity 
operating trains. Our immediate challenge is to restore the 
infrastructure to a state of good repair, which we are doing and is 
detailed in our proposal. The next set of challenges is to increase 
capacity for all users of the corridor to address growing ridership 
demands. We believe that Amtrak is in the best position, at the moment, 
to oversee and coordinate this work. There is very little disagreement 
about the importance of the NEC, both as a national transportation 
asset and its economic importance to the region it serves. While the 
Corridor does come close to covering its operating costs, it will never 
cover its capital needs. Our plan outlines a number of short term and 
long-term initiatives to address these issues.
    Amtrak is committed to operating a national system of rail service. 
We believe that many of the communities served by long-distance trains 
lack real transportation choices and rely on these services. Amtrak 
operates 15 long-distance trains and for more than half of the states 
we serve, they are the only Amtrak service. Rightly or wrongly, long-
distance trains have become a focal point in the debate over ``reform'' 
of passenger rail service. While we believe their continued operation 
is integral to the many communities they serve, they also represent the 
basis for any future expansion of rail corridors. It is important to 
note that we are confident that we will reduce their operating losses 
through a series of steps that we outline in our proposal, and we 
believe those reductions will be substantial; however, we will not 
eliminate the need for financial support for long-distance operations. 
Central to this is the establishment of a phased-in performance 
improvement program that will couple cost-saving efficiencies with 
revenue enhancement initiatives, so that over time these trains will 
achieve financial performance thresholds or be discontinued.
    I understand how important the question of what we do with long-
distance trains is to this debate. Our proposal outlines a series of 
specific steps that we would take in evaluating our various long-
distance services. As I said a moment ago, the first job is to set fair 
and clear performance standards for long-distance trains, and establish 
a minimum performance threshold. Once that is accomplished we would 
rank each route so that we can determine early on which trains meet the 
threshold or fall short. For all long-distance trains, we will work 
aggressively to improve their performance so that they will more likely 
achieve the desired goal. During this process, we will be providing 
clear remarks to the states reflecting the level of support each 
particular route will require in order to continue service on that 
route. As stated earlier, we will make every reasonable effort to 
improve the performance and close the operating ``gap,'' but ultimately 
states along the routes will be required to cover any recurring ``gap'' 
in order to continue train service on such routes. If a train continues 
to fall below the established performance threshold, then we will 
notify the states involved and begin the process of discontinuing 
service on that route.
    We do believe that there are many opportunities for competition in 
the rail passenger service industry. It is true that in some cases, 
having a single provider such as Amtrak might allow for economies of 
scale and certain cost efficiencies. We can assure you, however, that 
in some areas we are not the most efficient provider of rail-related 
services. A key goal that all of us should share is the development of 
a vibrant passenger rail service with a competitive supply industry and 
multiple service delivery options. This does not exist today. In this 
regard, there are actions that Amtrak can do on its own and others that 
will depend on Federal legislative action. Some of the legislative 
decisions in this area will be difficult and will no doubt encounter 
stiff resistance from a number of entrenched interests. Any discussion 
of competition will involve making decisions about access rights to the 
freight rail infrastructure, tort liability limitations and limited 
changes to certain labor and labor retirement laws. We have provided a 
discussion of these matters in our proposal.
    Also included in our report is our funding request for FY06. 
Typically, Congress receives our grant request in February. Since we 
were well into this planning exercise, we elected to hold off making a 
request until we had completed our work. In so doing, we felt that we 
could give you a more comprehensive and accurate request for FY06 in 
the context of our reform package. The last dozen pages of the proposal 
details our FY06 budget requirement, which is $1.82 billion, or $1.645 
billion if our working capital needs are covered by a short-term credit 
facility instead of a grant. We have also included a preview of how we 
would go about reporting Amtrak's financial information by business 
line.
    Finally, it is worth emphasizing that Amtrak's Board and management 
have concluded that the company cannot continue to operate at Amtrak's 
current funding level of $1.2 billion significantly, if at all, beyond 
FY05. The negative financial impact of the recent Acela problems could 
very well exhaust our working capital and leave us without available 
cash by fiscal year-end. We have taken and will continue to take 
aggressive steps to achieve short-term savings, but we have very little 
maneuverability in our operating budget and cannot responsibly make 
material reductions in capital expenditures (principally tied to NEC 
infrastructure, and its state of good repair). Over time, significant 
savings will be achieved only through an aggressive and systematic, 
multi-year transition process with legislative assistance. It is for 
this reason that we have brought forward our Strategic Reform 
Initiatives to help inform your decision-making for FY06 and beyond.
    In closing, both David Gunn, his management team, my fellow Board 
members and I look forward to working with you in the weeks and months 
ahead as we develop our plan and move this debate forward. In many 
ways, the relative financial stability the company has achieved in the 
last two years, as well as the enormous amount of work that has been 
done to improve our infrastructure and operations, has afforded us the 
opportunity to develop a vision for Amtrak and intercity rail passenger 
service. The current funding model of unpredictable annual 
appropriation levels is unsustainable. There is a better way to do 
this. We have no choice but to start now, but we will need your 
support. David Gunn and I look forward to your questions.

    Senator Lott. Thank you, Mr. Chairman, and now, President 
David Gunn, thank you for your service over a difficult time, 
and I think you've been the only salvation we've had, in some 
respects, at Amtrak, but I think you know we're going to have 
to make some changes, and I think you're the right guy to try 
to help us decide what they are, and move in that direction. 
And we'll be glad to hear your testimony.

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

    Mr. Gunn. Thank you, Senator. I'll keep my remarks very 
short, since I think the Chairman, obviously he speaks for all 
of us, but I think it's important to congratulate the Chairman 
and the Board for what they've done in a very difficult process 
here. This has not been an easy task, to come up with a reform 
package, and I think it's a good plan that we've put forward, 
and I look forward to working with you to turn this into a 
reality.
    I'd like to make just one brief comment about the reform 
package, and just remind you that it really is a package, and 
that it's interrelated, so one has to be careful if you pick 
and choose pieces out of it. Obviously the most important--I 
think--piece is the funding piece, for the state of good repair 
projects, and for working capital, and getting the states in a 
position where they can access Federal capital through a 
transit-style program, we'll say on an 80/20 match.
    The proposals that we've made on the Railway Labor Act are 
designed to overcome some real difficulties we have in terms of 
productivity, and they'll be controversial, but what we're 
asking for is to be treated as any other company outside the 
railroad industry would be treated. In terms of the moving 
toward, transitioning out of, railroad retirement and gradually 
converting to social security, it's important for costs, it's 
also important if you want to open up competition. Since 
railroad retirement is a rather unique, and unfortunately, a 
very troubled system, I think the next step is developing a 
realistic implementation plan and timetables, once we know 
where we're headed on this reform journey. But I think that the 
future of intercity passenger rail, if we can pull this off, 
will be much brighter than it has been for years, but the key 
to it is to give the states the ability to be the purchaser of 
services and to access capital.
    Senator Lott. I was still meditating on that last comment, 
I thought you had more to say. He did, he pulled the train up 
to a stop, the brakes are working fine. Mr. Mead?

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

    Mr. Mead. Thank you, Mr. Chairman. First, you had a hearing 
a couple of weeks ago on surface safety, I wanted to compliment 
the Committee for having that hearing, and especially the 
majority/minority staffs for the prompt followup to it. The 
followup was of very high quality, and I just wanted to mention 
that before we start talking about Amtrak here.
    Congress has provided direction in piecemeal fashion 
through appropriations bills since the last authorization 
expired in 2002. And we've testified several times since then 
on Amtrak's high debt load, unsustainably large operating 
losses, poor on-time performance, levels of deferred 
infrastructure and fleet investment. And each time I come up 
here, it seems that Amtrak is perpetually one, two or three 
steps from the edge of collapse, and I'm really encouraged by 
your words, Mr. Chairman, that the Committee plans to move on 
reauthorization in a timely way this session.
    So, we're testifying again today on these same subjects, 
but I've got to say, testifying with a greater sense of urgency 
than in the past. As time goes on, this limp-along, status quo 
system that we have comes closer and closer to a major failure. 
The problem is, no one really knows where or when such a 
failure is going to occur.
    We reported last year that the current model is broken, and 
there seems to be a fair amount of agreement on that point. But 
the reason it's broken goes beyond just persistent budgetary 
shortfalls, and extends to matters like who decides on the type 
and amount of service, who provides the service, and who 
selects the providers. Right now, other than the threat of 
budget cuts, there's really very little in the current model 
that provides incentives for cost control.
    Mr. Chairman, Amtrak is quite literally coming to the end 
of its rope. And for several reasons, the bankruptcy option 
would be a complex and risky undertaking, and in our opinion, 
one not to relied on if the objective is to promote a more 
rational and reliable national passenger rail system. In short, 
a comprehensive reauthorization that provides new direction and 
adequate funding is needed, and it's needed this year.
    Now, what should this reauthorization contain? The 
reauthorization, in our opinion, ought to focus on improving 
mobility in short distance corridors around the country, not 
just in the Northeast Corridor, and in restructuring long 
distance services to complement those corridor services. That's 
going to require new relationships between the Federal 
Government and the states, and among the states, Amtrak and the 
freight railroads. And it's going to require giving the states 
greater authority over passenger rail decisions that 
immediately and directly affect them, and it isn't going to 
happen overnight.
    But in order for this to work, a considerably more robust 
Federal funding program for capital, with a reasonable state 
match, is going to be required, along with additional state 
contributions. It's going to cost some money. The 
Administration's proposal, I think, recognizes well that the 
current model is broken, and it confronts several key issues in 
a straightforward way, while leaving others unanswered or 
unaddressed. We concur with the emphasis on corridor 
development, within and outside the Northeast Corridor. These 
are the places where the demand is, and we concur as well with 
the greater decision making powers given the states.
    Also, we think the authorization ought to leave open the 
door to competition. Amtrak is currently the sole provider, and 
as such it has few incentives, other than the threat of funding 
cuts, to operate more efficiently. We're not in a position to 
say, though, if or how many competitors are going to step up. 
I'm not assuming that there's going to be a lot of competition, 
but I think we should leave the door open. And there will need 
to be a level playing field, because there are some privileges 
that Amtrak has right now that others do not have.
    Consideration is also going to have to be given to the very 
legitimate interests of the freight railroads who--it so 
happens, outside the Northeast Corridor--own the rail 
infrastructure. Left unanswered, though, by the 
Administration's proposal, is a very central issue, most 
notably the amount of Federal funding it supports. This has 
fostered, in our judgment, a perception that while the states 
would be given more authority and responsibility under the 
Administration's proposal, the funding burden for operating 
losses would fall largely on them, with no corresponding 
commitment to significantly expanded Federal capital funding. 
We think the debate on reauthorization would be much better 
informed if the Administration spelled out its proposed Federal 
funding levels with greater clarity.
    Now, I fully recognize that there are problems with this 
model that go well beyond money, but the funding levels are 
going to be an integral part of any solution, and in reaching 
consensus, particularly if we're going to ask the states to 
contribute more funds than they're currently providing. Our own 
take on the funding issue--this is the IG's take, it's not the 
Administration's take, necessarily--for 2005, the appropriation 
for Amtrak ended up at about $1.2 billion. In addition, Amtrak 
is estimating in 2005 that it's going to get about $140 million 
from states for operating losses, and another $200 million in 
capital. So, that puts Amtrak, effectively, at $1.5 billion for 
their current system. That level of funding is not sufficient 
to make progress toward achieving a state of good repair, in 
the Northeast Corridor or elsewhere.
    Now, if Amtrak receives $1.2 billion again next year, even 
combined with the contributions expected for 2005--in other 
words, that they were just carried over to 2006--we think 
what's going to happen is that Amtrak will, first of all, have 
to defer major capital projects they already have on the 
drawing board, and two, they will need to cut services, almost 
certainly in significant ways. I wouldn't go so far as to say 
the railroad will stop operating, but you almost certainly will 
see very significant cuts in service, and your capital program 
will be right on the edge of a high risk.
    For 2006, passenger rail is going to need Federal funding 
between $1.4 billion and $1.5 billion plus the existing state 
contributions, just in order to maintain the status quo as we 
know it today. That level of funding, the $1.4 billion to $1.5 
billion level, even with the state contributions, won't be 
sufficient to move the system to a state of good repair, let 
alone permit the corridor development that we're all talking 
about.
    And I'm focusing on 2006 because I'm assuming that you will 
pass the reauthorization, but you're not going to effectively 
transition to a new system overnight, so I'm trying to outline 
for the Committee what's going to happen in 2006. Now, for 2007 
and beyond, Federal funding levels between $1.7 billion and $2 
billion would put us on a road to bringing the existing 
infrastructure and fleet to a state of good repair, and better 
position states to use the Federal funds, plus their own 
revenues, to invest in rail corridors.
    Now what does that mean, about the states use their own 
funds? Now, that assumes that the states would provide a 
reasonable match of between 15 and 30 percent for capital 
grants. That compares with what we've used in other modes of 
transportation. It is different from what the Administration's 
proposing, at the end of the reauthorization, I think the 
Administration ends up at 50/50, I think that a more reasonable 
state match would be in the 15 to 30 percent area. And that 
would be for capital grants.
    It also assumes that the states would cover a larger 
portion of operating losses, and I'm going to deal with that in 
a minute, because I don't think it's reasonable to just say, 
``Here, start covering all operating losses.'' It also assumes 
that Amtrak's going to implement cost saving measures, some of 
them they can do in short order, like the food and beverage 
system, which is probably somewhere between $80 million and $90 
million that could be saved.
    Now, there are other key elements of the reauthorization 
package that I'd like to outline briefly for you, that extend 
beyond just a level and mix of funding. First is the Northeast 
Corridor. Two points that I know about this corridor, you've 
got to bring this corridor to a state of good repair, and one 
reason why--look at the on-time performance, the on-time 
performance is going down, down, down--and the other problem in 
the Northeast Corridor is go-slow orders. The way they deal 
with this in rail is a little different than they do in 
aviation. Aviation, when you have a problem at 30,000 feet, you 
can't say, ``Oh, let's deal with this problem by slowing 
down.'' In rail, that's one of the things they do, they put on 
go-slow orders. And that affects how quickly you can get 
through the Northeast Corridor, so the state of good repair is 
very important.
    But there's a second issue with this Northeast Corridor. 
There are some proposals that would separate the operator of 
the Northeast Corridor from the infrastructure. In other words, 
the infrastructure would be handled by some separate business 
than the operator. Great Britain has tried that. Now, we don't 
feel--I'm speaking for the IG now--we don't feel that we have 
enough experience in this country to say you ought to separate 
the two. We think that's too risky right now, you need to know 
more, and I can't recommend that step today.
    Debt: Amtrak has about $3.8 billion in long-term debt. We 
can sit and argue about whether they should have accrued that 
or not, I think in my own judgment that it was bad judgment to 
borrow that much money--it created a picture, it made it look 
like Amtrak was really meeting the goals of the last 
reauthorization, but one of the reasons was because they were 
borrowing all this money--so their debt really increased. Well, 
the fact of the matter is that the Federal Government, in 
annual appropriations, is paying that debt. We're actually 
paying this debt in the annual subsidy. And we think a good 
case could be made for the Federal Government not writing a 
check to Amtrak anymore to pay off this debt, but to just pay 
it off.
    One reason is, remember when they mortgaged Penn Station? I 
think you probably remember, a few years ago they mortgaged 
Penn Station. That's a 9.5 percent loan that we're paying off. 
The U.S. Treasury can borrow the money cheaper than that, so 
since we're paying it, basically, anyway, we think a good case 
could be made that some consideration be given to discharging 
it. As far as future borrowing, their ability to borrow more 
money ought to be frozen, unless the Secretary of 
Transportation on a stack of Bibles certifies that would be OK.
    Long distance trains: Amtrak provides long-distance service 
in 41 states. It so happens that in 23 states, long distance 
trains are the only rail service in the states. Of the 23, 
there's probably five or six that have potential for corridor 
development, that is, between city pairs. But that leaves about 
16 states. The trains incur heavy losses, you've all heard 
about it, you know how controversial these long-distance trains 
are, and I'm not going to sit here and make up the policy, do a 
policy call on whether you should keep them or not, but they do 
serve a transportation need for people, they do incur heavy 
losses. But, I've got to tell the Committee--as unpopular as it 
is to say this--getting rid of all your long-distance trains is 
not going to solve the funding problem.
    The math looks like this, Mr. Chairman. The operating 
losses are around $600 million a year from the long distance 
trains. Get rid of them, and eventually we might be saving $300 
million. So you say, what happens to the other $300 million? 
Well, the other $300 million would be re-allocated, probably, 
to facilities that our long-distance trains share with the 
corridor trains. So, it wouldn't just be a case of, ``OK, let's 
stop these trains, and we'll save $600 million, like that.'' In 
addition, there's a thing called a C-2 payments, these are 
required by existing labor rules, and the C-2 payments, in 
2006, would actually exceed cost savings. It would actually 
cost us more in 2006 if we were to stop the long-distance 
trains. So that's the math.
    Now, what about the states, what do we do with the states 
that don't have any potential for corridor development, and 
have these long-distance trains? Well, one thing I would 
suggest for the Subcommittee's consideration is that you 
construct a formula grant program--no match required--that goes 
to the states who don't have any potential for corridor 
development, but do have long-distance trains, to cover a 
reasonable percentage of the losses that they're now incurring. 
Rather than just saying, ``You should pick that all up.'' We 
have some ideas on how you might construct such a formula, but 
I do think the needs of those 16 or 17 states also need to be 
considered.
    Thank you, Mr. Chairman, that concludes my statement.
    [The prepared statement of Mr. Mead follows:]

    Prepared Statement of Hon. Kenneth M. Mead, Inspector General, 
                      Department of Transportation
    Mr. Chairman and Members of the Subcommittee:
    We appreciate the opportunity to testify on reauthorization of 
intercity passenger rail and Amtrak. Intercity passenger rail is an 
important component of a balanced transportation system. Amtrak's 
authorization expired in 2002. In the interim, Congress has provided 
direction in piecemeal fashion in the appropriations process. We have 
testified several times since then on Amtrak's unsustainably large 
operating losses, poor on-time performance, and increasing levels of 
deferred infrastructure and fleet investment. We find ourselves 
testifying again today on these same subjects, but with greater 
urgency. As time goes on, the current limp-along status quo system 
comes closer to a major failure, but no one knows where or when such a 
failure may occur.
    We reported in November 2004, that the current model for intercity 
passenger rail is broken. And the reason it is broken goes beyond 
persistent budgetary shortfalls and extends to matters like who decides 
on the type and amount of service, who provides service, and who 
selects the providers. Other than budget cuts or the threat of budget 
cuts, the current model provides few incentives for cost control or 
delivery of services in a cost-effective way.
    Amtrak is quite literally coming to the end of its rope and, for 
several reasons, the bankruptcy option would be an extraordinarily 
complex and risky undertaking--in our opinion, one not to be relied 
upon if the objective is to promote a more rational and reliable 
national passenger rail system. In short, a comprehensive 
reauthorization that provides new direction and adequate funding is 
needed and needed this year.
    The reauthorization, in our opinion, should focus on improving 
mobility in short distance corridors around the country--not just in 
the Northeast Corridor--and in restructuring long-distance services to 
complement corridor services. This will require new relationships or 
partnerships between the Federal Government and the states and among 
the states, Amtrak, and the freight railroads, and give the states much 
greater authority and control over intercity passenger rail decisions. 
But, in order for this to work, a considerably more robust Federal 
funding program for capital, with a reasonable state match, will be 
required along with additional state contributions.
    The Administration's proposal recognizes that the current model is 
broken and confronts several key issues in a straightforward way, while 
leaving others less clear or unanswered. We concur with the emphasis on 
corridor development within and outside the Northeast Corridor--these 
are the places where the demand is--and we concur as well with the 
greater decision-making powers given the states.
    Also, reauthorization should leave open the door to competition. 
Amtrak is currently the sole provider of intercity passenger rail 
service and, as such, has few incentives, other than the threat of 
funding cuts, to operate more efficiently. While we are not in a 
position to say how many, if any, potential competitors there might be, 
there needs to be a level playing field to promote competition, and 
consideration must be given as well to the legitimate interests of the 
freight railroads who own the rail infrastructure outside the Northeast 
Corridor.
    Left unanswered by the Administration's proposal, however, is a 
central issue, most notably the approximate level of funding it 
supports. This has fostered a perception that while the states would be 
given more authority, the funding burden for operating losses would 
fall largely on them, with no corresponding commitment to significantly 
expand Federal capital funding. The debate on reauthorization would be 
much better informed if the Administration's bill spelled out Federal 
funding levels with greater clarity. We fully recognize that the 
problems of the current model extend beyond matters of money, but 
funding levels are an integral part of any solution and in reaching 
consensus.
    Our own take on the funding issue is as follows. In Fiscal Year 
(FY) 2005 Amtrak received a Federal appropriation of $1.2 billion. In 
addition, Amtrak anticipates $140 million in state contributions for 
operating costs and $200 million for capital projects. In effect, 
Amtrak had access to funds of about $1.45 million. This level of 
funding is not sufficient to make progress toward achieving a state of 
good repair.
    If Amtrak receives only $1.2 billion in Federal funding in FY 2006, 
even combined with expected state operating and capital contributions, 
they will likely continue to defer needed capital investment and may 
need to cut services. Amtrak needs Federal funding between $1.4 billion 
and $1.5 billion, plus existing state contributions, in order to 
maintain the status quo as we know it today. However, this level of 
funding would not be sufficient to move the system to a state-of-good-
repair, let alone permit investment in new corridor development.
    For 2007 and beyond, Federal funding levels between $1.7 billion 
and $2.0 billion would put us on the road to bringing the existing 
infrastructure and fleet to a state-of-good-repair and better position 
states to use Federal funds plus their own revenues to invest in rail 
corridors. This assumes that states would provide a reasonable match of 
15 to 30 percent for capital grants and would cover a larger portion of 
operating subsidies and that Amtrak would implement cost saving 
measures in such areas as food and beverage service.
Current Model Is Broken, Resulting in Severe Financial Instability and 
        Declining Service Quality
    Despite multiple efforts over the years to change Amtrak's 
structure and funding, we have a system that limps along, never in a 
state-of-good-repair, awash in debt, and perpetually on the edge of 
collapse. In the end, Amtrak has been tasked to be all things to all 
people, but the model under which it operates leaves many unsatisfied. 
Consider the following:

   Amtrak is in a precarious financial condition. Its system 
        continues to suffer operating losses on all but a handful of 
        routes. Losses on some longdistance trains (excluding 
        depreciation and interest) exceed $400 per passenger. For the 
        last 6 years the average annual cash losses have exceeded $600 
        million. The growth in cash losses since FY 2000 is primarily 
        attributable to rising interest expense.

   Amtrak is carrying a large debt burden. Its total debt grew 
        178 percent between FY 1997 and FY 2002, although it has 
        declined slightly in the past 2 years. For the foreseeable 
        future, Amtrak's annual debt service payments will approach 
        $300 million.
        
        
   While ridership increased to 25.1 million in FY 2004, 
        passenger revenues were $1,304 million, below the $1,341 
        million achieved in 2002, due primarily to fare pressures. For 
        the first 5 months of FY 2005, passenger revenues were $3 
        million lower than the same period in FY 2004.
        
        
   Amtrak has an estimated $5 billion backlog of state-of-good-
        repair investments, and underinvestment is becoming 
        increasingly visible in its effects on service quality and 
        reliability. Deferred capital investment has led to several 
        system failures in recent years, including a failure of a key 
        12-kilovolt electric cable during the August 2003 northeast 
        power blackout; fallen overhead power lines (catenary) on the 
        line between New York and New Rochelle; and broken bolts on the 
        Thames River bridge in Connecticut. No one knows where or when 
        a critical failure will occur, but continued deferral of needed 
        investment increases the risk that it may not be too far away.

   Further, on-time performance fell from 74 percent in FY 2003 
        to 71 percent in FY 2004, with even Amtrak's premier service--
        Acela Express--achieving on-time performance of only 74 
        percent. On-time performance for long-distance trains averaged 
        less than 50 percent. Last year, the poorest performing train, 
        in this regard, was the Sunset Limited, with an on-time 
        performance of only 4 percent.
        
        
    Today, Amtrak's corridor trains outside the Northeast Corridor, 
based on current schedules, average 48-mph speeds and long-distance 
trains average only 46-mph. These speeds reflect scheduled time and 
overstate the lower actual speeds due to delays. Deteriorating 
infrastructure and increasing freight and commuter rail congestion will 
continue to impact on-time performance.
Bankruptcy Is No Substitute for Reauthorization
    A rail bankruptcy is an extraordinarily complex and risky 
procedure, and we cannot predict how the passenger rail system would 
emerge from bankruptcy. An Amtrak bankruptcy is no substitute for 
reauthorization. In our opinion, this is not an option to be relied 
upon if the objective is to promote a more rational and reliable 
national passenger rail system.
    Labor Costs. Labor negotiations are outside the bankruptcy process. 
In a non-railroad bankruptcy, the bankruptcy court can cancel or change 
collective bargaining agreements, which some airlines successfully used 
as leverage when renegotiating with their unions. In a rail bankruptcy, 
the Trustee would have to negotiate with Amtrak's unions under the 
Railway Labor Act.
    Cash Crunch and Infrastructure Needs. Amtrak's cash crunch would be 
exacerbated in bankruptcy. Once in bankruptcy, vendors often demand 
cash or provide credit under stringent terms. As a result, absent a 
Federal cash infusion, there is a possibility that major assets such as 
Penn Station and the Northeast Corridor would need to be sold or 
remortgaged to raise cash to sustain operations. Meanwhile, the value 
of the Federal Government's mortgages on these properties would be 
diluted, and the infrastructure would continue to deteriorate.
    Public Interest. Once in bankruptcy, a federally appointed Trustee 
would direct and manage Amtrak. The trustee must consider the ``public 
interest,'' which has generally been broadly interpreted as continued 
operations of the railroad, but in what fashion would clearly be left 
up to the Trustee and it might not be the best solution or a solution 
that the reauthorizers would prefer (or what the states would prefer). 
For example, in order to continue operations, the Trustee may need to 
shut down various state corridors or long-distance service to stop the 
bleeding of cash and operating losses.
Eliminating Long-Distance Service Will Not Solve the Funding Problem
    Long-distance service has sparked widespread controversy, in part, 
because of its heavy subsidies. In 2004, long-distance trains 
cumulatively incurred operating losses of more than $600 million 
(excluding interest and depreciation). In fact, the loss per passenger 
exceeded $400 on two of these trains--Sunset Limited and Southwest 
Chief. Eliminating long-distance service reduces operating losses 
associated with long-distance trains by about half (or $300 million) 
but will not make Amtrak profitable.
    Because long-distance trains share stations and facilities with 
corridor trains, eliminating the long-distance trains would not 
eliminate the shared costs. In addition, Amtrak allocates a share of 
overhead and infrastructure maintenance to the long-distance trains--
some of these costs will be reallocated to all remaining trains. For 
example, we estimate that $300 million or more in shared and system 
costs would be shifted to other corridor trains. Thus, the expected net 
savings are only about $300 million. However, these savings would not 
be immediate--in fact, in the first year, it may cost Amtrak more to 
eliminate the service than to operate it because of its labor severance 
payouts (commonly called C-2).
    Long-distance trains represent about 15 percent of total intercity 
rail ridership. However, many of long-distance riders do not really 
travel long distances. In fact, long-distance trains carry only a small 
number of end-to-end riders. Of the 3.9 million long-distance riders in 
FY 2004, only 527,000 rode the entire length of the route and another 
403,000 rode between city pairs also served by existing corridor 
service. The remaining 3 million riders traveled along portions of the 
route. These trips mostly ranged from 500 miles to 700 miles--slightly 
longer trip lengths than corridor riders.
    While eliminating long-distance service may seem appealing from a 
Federal budgetary standpoint, especially with the large deficits, it 
ignores the mobility needs of rural areas of the country and the 
benefits passenger rail provides. Amtrak provides long-distance service 
in 41 states and is the only intercity passenger rail service in 23 of 
those states. The questions of whether to provide long-distance 
service, who makes those decisions, and who funds the losses are 
critical policy decisions that will need to be made.
Where Do We Go From Here? Reauthorization Guidance Is Essential
    The ``limp along'' approach is costly and leaves many unsatisfied. 
The current model for providing intercity passenger service does not 
leave the states in a position to decide upon the best mix of service 
for their needs--what cities are served, schedules and frequency of 
service, and service amenities. The model provides little balance 
between the national goals of an integrated network and regional and 
state transportation needs. How much funding and who provides the 
funding--Federal, State, or a combination--are also critical questions 
that need to be addressed. In providing reauthorization guidance, some 
core elements need to be considered in determining how passenger rail 
is funded and delivered. Specifically, deciding the levels and mix of 
Federal and State funding, achieving a state-of-good repair in the 
Northeast Corridor, determining the appropriate framework to integrate 
competing demands of infrastructure and operations in the Northeast 
Corridor, and paying off Amtrak's legacy debt.
    In our opinion, a new model for intercity passenger rail should 
also include several important aspects. The first is that funding and 
governance build in incentives for cost cutting. Specifically, 
eliminating direct subsidies to Amtrak, or any other operator, and 
channeling funds through the states will likely promote more cost 
control because an operator will need to better justify costs in order 
to retain an operating contract. In addition, it will encourage states 
to maximize efficiency by keeping their own costs to a minimum. Second, 
the introduction of private competition into the management and 
operation of intercity passenger rail services will exert additional 
market pressures on operators to provide cost-effective, higher quality 
service.
Adequate Federal and State Funding Should Be Provided in Order To 
        Restore the Intercity Passenger Rail System and Invest 
        Meaningfully in Corridor Development
    Federal funding levels, along with state contributions, have not 
been sufficient to subsidize operations, address deferred capital 
needs, and significantly improve service along the existing rail 
network. In the last 2 years, Amtrak has received annual Federal 
funding of $1.2 billion. These amounts were supplemented by operating 
and capital contributions from state and local sources--in FY 2004 
these were $135 million and $114 million, respectively. In effect, 
Amtrak received about $1.45 billion in public funds.
    It will require at least $2 billion in funding from all sources to 
begin any meaningful corridor development. The policy challenge is 
determining who pays for what portions of the system. Federal funding 
of $1.4 billion to $1.5 billion would not provide sufficient funding to 
maintain a 5-year program toward restoring the system to a state-of-
good-repair. Projects in both the Northeast Corridor and in the 
corridors and long-distance routes outside the Northeast Corridor would 
continue to be deferred. This simply maintains the limp-along status 
quo.
    One approach to promote adequate Federal and state funding could be 
to use a variety of grant programs similar to those used in aviation, 
transit, and highways that place funds in the hands of states. These 
programs are based on a combination of Federal/State matches and 
formula grants. More specifically,
    Capital Grants With a Reasonable Match. Like the Administration's 
proposal, this approach would provide capital grants on a competitively 
determined basis and would be administered by the Department of 
Transportation (DOT). States that desire to improve existing intercity 
rail service and/or develop new corridor services would apply to DOT 
for a matching grant, similar to the Federal Transit Administration's 
New Starts Capital Program. The Administration's proposal also suggests 
such a program but provides a 50/50 capital match rate by the end of 
the reauthorization period. Our view is that a lower state match rate 
requirement would provide incentives for states to take an 
``ownership'' role in developing rail corridors on a more competitive 
basis with other transportation modes (historically, highways and 
transit have used an 80/20 match rate).
    To accommodate the need for different types of capital investments, 
two types of capital matches could be established. For investments that 
qualify as traditional capital investment, such as track or purchases 
of passenger equipment, the Federal share could go up to 80 to 85 
percent. On the other hand, for investments that qualify as capital 
maintenance (for example, those under the transit definition) the 
Federal share might be 70 to 75 percent.
    Formula Grants With No Match Required. This approach provides funds 
to states outside the Northeast Corridor that do not have corridor 
development potential and that rely on long-distance trains for 
substantially all intercity passenger rail service. By discussing this 
approach, we are not taking a position on the ultimate policy of 
whether long-distance service should be retained or eliminated but 
merely presenting it as an approach for funding states that do not have 
the population densities to support corridor development.
    This approach could initially include sufficient funds to subsidize 
existing long-distance and corridor services. Over the reauthorization 
period the funds associated with corridor services would be reduced and 
then eliminated at the end of the period. Further, we expect the level 
of Federal funds subsidizing the long-distance services would be 
reduced to reflect greater operating efficiencies resulting from 
capital investments as well as other savings resulting from food and 
beverage service changes, improved labor productivity, and efficiencies 
that may be introduced by competitive service providers.
    As determined by the states, funds could be used to defray the cost 
of operating subsidies, capital investment, or both, with no match 
required. The amount of the formula grant could be calculated on the 
basis of Amtrak's Fiscal Year 2005 operating loss allocable per 
embarking/disembarking passengers in the affected state or some other 
formula that provides an equitable allocation.
    Restore Northeast Corridor to a State-of-Good-Repair. The Northeast 
Corridor presents a difficult challenge. The funding priority for the 
Northeast Corridor reflects the accumulated deferral of investments 
which has resulted in an estimated $5 billion backlog of capital 
projects, threatening current and future service reliability. The 
effects of the deteriorating infrastructure are readily evident. For 
example, Amtrak's reported on-time performance in the Northeast 
Corridor as a whole between 1994 and 2002 ranged from 82 to 89 percent. 
In FY 2003, it dropped to about 80 percent. For FY 2004, even Amtrak's 
premiere Acela service posted an on-time performance of only 74 
percent, far short of Amtrak's stated goal of 94 percent. If the 
decision were made to keep the current Northeast Corridor intact, we 
estimate Amtrak would need to spend about $575 million annually for an 
extended period on infrastructure and rolling stock to eliminate the 
backlog of capital investment in the Northeast Corridor.
    However, bringing the eight Northeast Corridor states and the 
District of Columbia together in a short period of time to direct and 
manage this effort is incredibly complex but may be achievable by the 
end of the reauthorization period. Recognizing this challenge, one 
option during the reauthorization period could be for the Federal 
Government to fully fund the Northeast Corridor's capital requirements 
until a state-of-good-repair is achieved. This would also address 
states' reluctance to inherit a legacy system they did not create. We 
suggest that the DOT distribute funds directly to the Northeast 
Corridor infrastructure manager separately from the competitive grant 
process.
    Construct for 5-Year Reauthorization Funding. Congress and the 
Administration have a difficult decision to make in determining the 
appropriate level of funding for intercity passenger rail. The level of 
funding can obviously vary. We have been giving this some thought and 
would like to present a construct for consideration. We recognize that 
many assumptions need to be made about who pays for what and how to 
balance national, regional, and state transportation needs. Those are 
decisions for Congress and the Administration to make.
    In building this construct, we made several assumptions for 
purposes of illustration. These include:

   Formula grants will not fully cover train operating losses. 
        Amtrak's forecast net cash operating needs (excluding interest) 
        were used as the starting point. The levels of funding 
        represent imputed cost savings of 10 percent per year from a 
        combination of revenue growth and operating cost savings.

   Over the 5-year reauthorization period, Federal subsidies 
        decline for long-distance trains and corridor operating 
        subsidies shift to the states. We expect states to place higher 
        performance and efficiency demands on the service provider to 
        lower operating costs to more affordable levels.

   Debt service is based on Amtrak's projected debt service 
        payments through FY 2009, adjusted for installment payments on 
        their RRIF loan and possible early buyout options on leased 
        equipment.

   Capital requirements to restore the system to a state-of-
        good-repair are based on Amtrak's Strategic Plan for FY 2005-FY 
        2009 and on assumptions we made on allocating capital needs 
        between the Northeast Corridor and the rest of the system. The 
        funding allocation assumes a capital need of $575 million for 
        infrastructure and fleet in the Northeast Corridor and $250 
        million for infrastructure and fleet outside the Northeast 
        Corridor.

   Funds available for capital match represent funds remaining 
        after state-of-good-repair funding requirements are met.


                                  Construct for 5-Year Reauthorization Funding
                                                 ($ in Millions)
----------------------------------------------------------------------------------------------------------------
                                                                                                         After
                                                                                                       State-of-
             Federal Contributions               FY 2006    FY 2007    FY 2008    FY 2009    FY 2010     Good-
                                                                                                         Repair
----------------------------------------------------------------------------------------------------------------
Formula Grants (Capital and/or Operating             $570       $513       $462       $416       $374       $337
 Subsidy)
Debt Service                                          276        361        314        298        298        298
Capital to Restore System State-of-Good-Repair        754        776        825        825        825
NEC Infrastructure+Fleet                              575        575        575        575        575
Non-NEC Infrastructure+Fleet                          179        201        250        250        250
Available Capital for Match                                                  97        261        503      1,365
----------------------------------------------------------------------------------------------------------------
    Total Federal Contribution                     $1,600     $1,650     $1,700     $1,800     $2,000     $2,000
----------------------------------------------------------------------------------------------------------------
NEC: Northeast Corridor

    New Federal capital available for state match does not become 
available until annual Federal funding levels reach $1.7 billion. This 
construct highlights the policy choice that needs to be made between 
restoring the system to a state-of-good-repair and investment in new 
corridor development. At $2 billion, we would expect about $500 million 
to be available to states to match for use in new and/or improved 
corridor development, and after a state-of-good-repair has been 
achieved this Federal funding level would provide over $1.3 billion for 
state capital matches.
Too Premature to Separate Management of Northeast Corridor 
        Infrastructure From Operations
    Proposals to separate the Northeast Corridor infrastructure 
management and operations into two independent companies present a 
level of complexity and risk that needs a more thorough examination. At 
some point down the road, this split might be feasible and may prove a 
better way of controlling costs. However, at this juncture, not enough 
is known about the benefits and risks of this proposal. As we witnessed 
in Great Britain's experience, there are risks associated with 
establishing a commercial, for-profit entity to operate the 
infrastructure. Allowing an infrastructure company to operate ``like a 
business'' may mean relinquishing control over how certain expenses are 
cut or which capital investments are made. An infrastructure company 
focused on its bottom line has incentives to make decisions that are in 
its financial best interest but may not be in the best interest from a 
safety or efficiency perspective for the operator. The result could be, 
at best, disruption to service and a decline in on-time performance 
and, at worst, compromised safety conditions.
    Aside from the risks of separating the infrastructure from 
operations in the Northeast Corridor, there are benefits to the 
integration. In particular, an integrated Northeast Corridor provider 
of track maintenance, capital programs, operations, and dispatching is 
likely to be more efficient and less costly than two providers, each 
having a separate organizational support structure. In addition, a 
bifurcated approach would require a fully functional oversight and 
control organization at the outset lodged in the Northeast Corridor 
compact or the DOT to coordinate between operations and infrastructure. 
If formation of the Northeast Corridor compact is delayed, there could 
be disruptions to the operation of the corridor.
    It may be possible at some point down the road to develop a model 
where all interests are best served, but a more thorough review and 
understanding of lessons learned from other similar attempts would be a 
valuable precursor to such a division in the Northeast Corridor.
Pay Off Legacy Debt and Restrict Future Borrowings
    As of September 30, 2004, Amtrak had long-term debt and lease 
obligations of about $3.8 billion with amortization periods extending 
beyond 20 years. Under the current model, these obligations are paid 
for with Federal appropriations. Because portions of Amtrak's debt were 
financed at higher interest rates than what the Federal Government can 
borrow, Congress and the Administration should consider a one-time 
appropriation for the specific purpose of discharging any debt that can 
benefit from the Federal Government's borrowing power, producing 
longterm Federal savings. For example, Amtrak pays 9.5 percent interest 
on its mortgage obligation for Penn Station, New York, whereas recent 
10-year Treasury notes issued by the Federal Government are yielding a 
little over 4 percent. In addition, Amtrak's ability to incur long-term 
debt should be restricted, except for refinancing opportunities that 
lower interest expense and do not increase the outstanding principal, 
and no commitments should be made without advance approval by the 
Secretary of Transportation.
    Mr. Chairman, that concludes my statement. I would be happy to 
answer any questions at this time.

    Senator Lott. Thank you, Mr. Mead. Senator Snowe, thank you 
for coming, if you've got any questions you would like to 
submit for the record, and your statement will be included in 
the record. We've been joined by Senator Pryor and Senator 
Dorgan, also.
    Let me, I don't want to take up all the time asking 
questions of each one of you, but I'll just get started and try 
to go 5 minutes or so, and I'll yield to the other Senators, 
and then we can get a second round, but let me begin with you, 
Mr. Rosen.
    From the Administration's standpoint, the Administration's 
proposal calls for the states to pick up 50 percent of the 
costs, is that right?
    Mr. Rosen. On infrastructure matching grants, that's 
correct.
    Senator Lott. And does the Administration really think the 
states could or would do that?
    Mr. Rosen. Well, Senator, right now there are a number of 
states that pick up 100 percent of the cost, and so for, at 
least those states, it would certainly be advantageous. For 
other states, they already put in something comparable to that 
when they want to improve transit infrastructure, so I think it 
is likely that there would be states that would be interested.
    Senator Lott. Is it true that the President's budget 
proposal provided zero funds for Amtrak?
    Mr. Rosen. Yes, with the caveat that there was funding of 
$360 million in the event directive service was needed if there 
were an Amtrak shutdown.
    Senator Lott. Did the Administration contemplate the 
seriousness of such a ridiculous proposal? I mean, what in 
heck? What if we don't act? Congress is not a swift operation, 
what if we don't do another authorization bill, what if we just 
balled up in the Senate or in conference, we don't produce an 
authorization, and the Appropriations Committee says, ``Well, 
sorry, we just don't have the money,'' or the Administration 
opposes it, I guess there was some reason for that, but I 
frankly was extremely stunned and disappointed that such a 
proposal would be sent up here by this Administration.
    Mr. Rosen. Well, Senator, what I think I can say about that 
is that the course we were on, all of us on this panel has said 
in one fashion or another, that the course we are on is 
unsustainable, and so Secretary Mineta has made plain in a 
number of contexts that the point of the President's budget 
request was to be a call to action, because the course we're on 
is unsustainable. I think it's heartening that you've scheduled 
this hearing and that you've made the very hopeful remarks that 
you have about the intention of this Committee and hopefully 
the Congress.
    Senator Lott. Well, obviously with my record and all, I 
want to work with the Administration, but I need your genuine 
real involvement and help to get this done, and I hope the 
Administration, the Transportation Department will remember 
that one of the critical components of economic development in 
America is the transportation system. If we don't have well-
funded proposals for highways and for airways and for railways 
and ports and harbors, we're not going to be able to grow 
economically, because we won't have the capacity. And, quite 
frankly, I don't think the Administration is stepping up 
adequately to the transportation area, in general. Would you 
like to respond to that?
    Mr. Rosen. I would, Senator. I think there are two aspects. 
One is that the Administration proposal does call for a major 
role of both the Federal and State Governments in a partnership 
for infrastructure development and I think that that would be 
more comparable to what we have done with airports, highways, 
transit. I think we do regard infrastructure development as an 
important underpinning of economic growth. So, I think there's 
an area of concurrence there that transportation infrastructure 
is an important activity, and that's why our proposal moves to 
a model that will enable that.
    As to the question of--I'm sorry, I lost the other part of 
the question.
    Senator Lott. That's all right. I'm sure you were a little 
surprised at my reticence here, but I care a whole lot about 
the transportation area in general, and I really want us to do 
a better job of thinking about the future, and it's more than 
just a budget item, it's about our kids and our future, and I 
get excited about that.
    Mr. Mead, you and others, and again, I appreciate your 
thoughtfulness, but maybe it's because I come from a truly poor 
state, but I don't quite understand--I realize maybe Illinois 
does a lot on its own, in some states they do 100 percent--but 
it feels to me like we're trying to say, ``Well, we can't 
figure it out, so we're going to kick this ball over to you 
guys in the states.'' This is a national rail passenger system. 
This is interstate commerce, we have interstate highways, what 
the heck are we doing here? States can't come up with 50 
percent, in most instances. At the very most, like what you 
proposed, I think something where the states would come up 
with, I think you said 15 and 30, that's what we do--I think--
with highways, 20 percent. But this is an interstate activity, 
the Federal Government should have the principal lead here, and 
not try to say, ``OK, Mississippi, Alabama, Texas--figure this 
thing out.'' What are we supposed to do?
    Mr. Mead. I concur mostly with that view. I do think that 
those three states that you named, they ought to have a major 
decision-making role, if you're going to adopt a corridor in 
those states between population areas, that ought to be a call 
that a state can make, and the states need a robust Federal 
capital contribution. The comments I made, I think a lot of 
thought has gone into the Administration's bill, but I was 
trying to point out in my comments about the funding, that 
funding--let's face it--funding is a key issue in the problem 
we're facing here. It's not the only problem, but what I hear 
in my travels is the states saying, ``Well, this is all very 
nice, that we get this decisionmaking power, and more 
responsibility, but what's in this bag that you're giving us?'' 
And that's why I would urge that the Administration reflect on 
what they're willing to support in the way of Federal funding.
    Senator Lott. Mr. Gunn, I do think we've really got to find 
a way to fund Amtrak adequately or give you access to some 
reliable, steady stream of money, or give it up. But we can't, 
if we're going to continue to appropriate money or provide you 
some other opportunity, like bond authority, we also have to 
expect you to make some tough decisions that involve management 
and labor, you're going to have to take some actions to save 
money, we've got to make sure, we've got to be diligent in 
making sure that people's money is spent well. I realize that a 
route that affects my state could be eliminated, I do think 
we'll have to belly up to the bar and recognize some of these 
long distance routes are just not going to make it. So, that is 
the other side of the equation. And I assume that your proposal 
that you're offering here today, the initiatives, I believe the 
Chairman did point out that you are calling for some belt-
tightening and some changes in the way you conduct business. 
Would you like to respond to that?
    Mr. Gunn. From the management's point of view, what we want 
to try to do is to reduce the deficits as much as possible on 
these trains, and there are a number of proposals that are 
detailed in the reform package as to the types of things that 
we're going to do that we think will improve productivity. We 
obviously want to, I mentioned the Railway Labor Act and the 
need to properly size train crews and to restructure our 
maintenance functions from a craft basis to an industrial 
basis. These are all things that we're fully prepared to try to 
undertake, and that we will undertake to the extent that we 
have the authority to do it, but I would just caution you 
that--and I think the DOT Inspector General talked about this--
there's not a lot of savings eliminating a single train, 
because what happens is, you have to take out large swathes of 
service to get at the overhead, or the shared costs of these 
routes. But, we have already taken off, I think it's three or 
four trains since I've been here, we did the Three Rivers just 
recently, we truncated the Palmetto, we took off the Kentucky 
Cardinal, a series of trains that we've removed, so we think 
that there should be standards applied to these trains, and 
we'd like the opportunity to make them as efficient as 
possible. Because we have actually made progress in the deficit 
per train mile, so we think, we can't make money with these 
trains, but we can make them better, and that makes the 
political decision a lot easier, because you don't have as much 
funding to go into it. But we support--your point of view is 
supported.
    Senator Lott. We'll have another round, I'll come back to 
you, Mr. Laney. Senator Lautenberg?
    Senator Lautenberg. Thank you, Mr. Chairman. And, in answer 
to your question about what happens if the budget goes through 
as the President's proposed it for Amtrak, you asked what would 
be the outcomes--there would be very long waits at the 
platforms, I can tell you that, and it's just outrageous when 
you think about that 25 million people used Amtrak last year. 
Twenty five million people. And everybody knows that we have 
something called essential air service, but there are places 
where we had essential train service, because it's the only 
mode for lots of people, as Mr. Mead suggested.
    Mr. Rosen, the President essentially proposed zero for 
Amtrak in his budget, and now the Administration plan says such 
sums as may be necessary. So, does the Administration feel that 
zero is necessary for Fiscal Year 2006?
    Mr. Rosen. Well, Senator, you're talking about two 
different models. The Administration budget calls for zero 
under the old 1971 model of Amtrak, the ``such sums as 
necessary'' is in the Administration proposal for a new 
approach to intercity passenger rail.
    Senator Lautenberg. And the new approach invites 
competition and we talked about Amtrak's bottom line being so 
disastrous. So, will we have a rush of competitors come in 
there and take over these lines that don't make any money?
    Mr. Rosen. Well, Senator, the Administration proposal 
envisions a 6-year transition period, during which time, 
financial benchmarks would be applied to the trains, the State/
Federal partnership would be established, the opportunity for 
states to participate in the planning of rail, the way they do 
for other transportation would be established, and in that 
period, as we move from a single national provider, Amtrak, to 
a decentralized system, where states have a major role in the 
transportation planning process, and where competition was 
enabled by leveling the playing field on some of the items, I 
think we believe that there will be companies that would be 
interested in competing to be train operators. We have other 
people that are train operators in commuter rail, we know that 
there are people, other people that know how to operate trains, 
how many of them? Will they rush? The question when you 
transition to competition is that markets are dynamic, you 
can't fully----
    Senator Lautenberg. Mr. Rosen, thank you very much for the 
extended answer.
    Mr. Gunn, what do you think about competitors coming in 
there, anxious to take over, and by the way, they'd have to 
maintain some reasonable degree of cost, because there's no way 
to drive people away from transportation opportunities than 
high costs, but what do you think about the possibility of 
competition coming in here and doing it better, especially 
coming from the private side?
    Mr. Gunn. Well, I think, if you look at the Board's reform 
proposal, and this is sort of awkward because Mr. Rosen is on 
our Board, but he's also speaking for the Secretary, but our 
proposal, it says that if you want competition, you need to 
level the playing field, and it's not clear how many people 
will show up to be full service operators, but to do that, you 
need to level the playing field. There are people out there, 
but you'd have to change some of the ground rules for how we 
operate, you'd have to deal with the access to the freight 
railroads.
    I personally think competition, you should also look at 
competition in a different way, as well, and I'm not against 
what you're talking about, but I think that the easiest way to 
get competition going is providing services. Whether it's food 
service, whether it's selling tickets, whether it's certain 
maintenance services--we already contract out, and use 
contracting a lot to try to control costs. But, I think if you 
want to have full-service operators show up on interstate 
services, you're going to have to make some changes in the 
rules, which is, I think the Board's reform package--and the 
Chairman mentioned that in his testimony--that the goal, you 
have to level the playing field. Because we have an advantage, 
right now. We have an advantage on the insurance, the liability 
insurance, we have an advantage on access to the freight 
railroads, we have the advantage of having size on our side, 
the economies of scale, so this is not something you want to do 
casually. I'm not against it, but I think if you're going to 
have other operators show up, it's important that you have, it 
be very well thought out. They won't appear out of the ether to 
run the Southwest cheap.
    Senator Lautenberg. Do we have examples of countries where, 
I'm talking about the more advanced, the more developed 
countries, where they've had private operators come in and do 
it successfully, and do it within budgets and good quality of 
service?
    Mr. Gunn. Well, probably the poster child, or boy for this 
type of organization is Britain. Now, where they've set up 
private--they broke their railroads, they destroyed vertical 
integration, and they set up a separate infrastructure company, 
separate rolling stock company, and separate operating 
companies. And they actually had a lot of private companies 
that have shown up to do it, because the amount of subsidy has 
just skyrocketed. There's a lot of money to be made, if you 
continue to subsidize it. And that's what's happened. The 
quality of service has not improved. The cost of service has 
deteriorated, and they've lost a lot of the control they used 
to have when it was a unified----
    Senator Lautenberg. The quality of the service also has 
deteriorated.
    Mr. Gunn. Yes, it has.
    Senator Lautenberg. Is safety on the British--?
    Mr. Gunn. I don't have the entire history of the British 
railways, but they've certainly have had some unfortunate 
incidences that came about. I think it's more of a factor, 
rather than privatization versus government, it's the function 
of destroying the vertical integration. I mean, I think it's, 
you can have a private company, or you can have a quasi-
government operation like Amtrak, as long as it's vertically 
integrated, you can get a pretty efficient operation. If you 
destroy that, I think you really, it will be very expensive. 
And that's what's happened to Britain. I mean, they're now 
spending like $12 billion a year subsidizing their rail system, 
up from about two.
    Senator Lautenberg. So, that's a highly undesirable 
competitive position. Thank you, Mr. Chairman.
    Senator Lott. Thank you, Senator Lautenberg. Let's see 
here, Senator Pryor.

                 STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Pryor. Thank you, Mr. Chairman, and thank you for 
your leadership and attention to this, along with Senator 
Lautenberg, and certainly Senator Inouye. I'd like to, if I 
could, with the panel's attention, focus your attention on long 
distance service. Arkansas has a long distance line called the 
Texas Eagle, approximately 20,000 people ride it each year, 
services mostly rural towns, also stops in Little Rock, kind of 
cuts right through the state, pretty much northeast through 
southwest. And, a lot of people enjoy that service, certainly 
we don't have nearly the ridership, say, like New Jersey or 
some of the more densely populated states, but we just don't 
have that population density, so I understand the challenge 
that you all have.
    I think I'd like to focus on two things. One is this idea 
of state funding, Mr. Rosen, you were talking about that a few 
moments ago, and others have as well, and also this concept of 
evaluating, somehow coming up with an evaluation of long 
distance service, and you all have referred to that as well. 
So, Mr. Rosen, let me start with you, if I can. You talked 
about a 50/50 matching on infrastructure grants, where the 
states would match 50 percent. The first question I have is, 
let's say that, again with the Texas Eagle, let's just say it 
goes through four or five states, and one of those states is 
Arkansas and let's just say, not to pick on anybody, but the 
State of Missouri decides they're not going to pay, but the 
other four states do, how will that work?
    Mr. Rosen. Well, the way we envision it working is that the 
states would have to find a mechanism to talk to one another, a 
bill enables, as actually the 1997 Reform Act, states to form 
compacts with one another, and they could agree on their own 
ground rules on that, which is to say that if somebody doesn't 
participate, what happens next? Do others have to kick in, what 
happens to the service? But the precise mechanism depends, to a 
great extent, on what the states decided to do about that.
    Senator Pryor. So, in other words, you'd leave it up to the 
states, and I can just see the issues boiling up on that 
already about what factors do you consider for each state's 
contribution, do you consider the number of miles in the state, 
which certainly is something that we can understand, the number 
of passengers that utilize the service, the number of stops 
that are made, I mean, I can see a big fight there, but as I 
understand it, what you're saying is, that's not Amtrak's 
headache? You think the states need to resolve that?
    Mr. Rosen. Yes, sir, that's right, in essence, the 
purchasers, and in this instance the states would be 
functioning as proxies for the consumers, they would have to 
develop a mechanism to resolve that. Now, as is, I think, 
always the case, we at the Department of Transportation would 
assist and enable, and if necessary, perhaps we could 
participate in regulations or guidelines or other mechanisms 
gained from best practices and experience, but I think in the 
first instance, we would look to the states to work that out.
    Senator Pryor. Mr. Laney, do you or others on the panel, do 
you all have any comments on that, and how we should resolve 
this?
    Mr. Laney. Senator, let me add to what Mr. Rosen's comments 
were. First of all, the entire process, start to finish, has 
not been fully designed, but we all are of the mind that the 
process does need to be clear, in terms of understanding, and 
ultimately evaluating and then ranking trains. What you heard 
from Mr. Mead was an interesting proposal, and it's an 
interesting comment, the fact that in about half--it's not 
exactly half--in about half of the states that we provide 
service, the only service we provide is long distance service. 
And, if there is a concentrated investment in a combination of 
Northeast Corridor and other corridor services throughout the 
states, whether it's matched at whatever level, states like 
yours, and a number of other states, are going to say, ``What's 
in it for us?''
    The evaluation process, the establishing a threshold, the 
deciding, ultimately, what trains--if they are not, if there's 
a gap in terms of operating deficit, if it's not close, and 
then not supported by the states--the question becomes, is 
there still a continued role for the Federal Government. And I 
think Mr. Mead was suggesting that there is. So, there may be a 
balance between pure state coverage, and a combined Federal/
State coverage that still fits into that construct.
    Mr. Mead. I'd like to just add to that, I think there are 
two issues that are implicit in the question that you pose. The 
first one is the service you have now. What I was suggesting 
was that at least for the period of the reauthorization, that 
your state, along with the other states that have this long 
distance service, you would get a formula grant--I haven't 
exactly figured out how it would be calculated--but it would be 
for the purpose of paying the operator a percentage of the 
operating loss. And it would be no match required. Because I 
feel that you have to, the states that don't have corridor 
development potential, that they're still states, and they 
still have transportation needs in the rail area.
    Then the second part of the question you posed, I think has 
to do with capital development. Maybe an analogy isn't apt, but 
I think of Chicago O'Hare Airport. Chicago O'Hare Airport would 
not be expanded unilaterally because the Federal Government 
decided that there should be an expansion program at Chicago 
O'Hare. That is directly and immediately a decision for the 
State of Illinois. Then the Federal Government has to provide 
some capital, to assist in the development of that. And I guess 
what I'm trying to say is--and I think all of us are to one 
degree or another--that you also need a capital program to make 
things better than they are now, and that is the one where the 
match issue comes into play. The Administration's proposal 
right now is for a 50 percent match. I think you need a more 
reasonable one of somewhere between 15 and 30 percent, that's 
more compatible with what we've done in aviation, highways, 
transit, for new projects.
    Senator Pryor. Thank you, Mr. Chairman.
    Senator Lott. Senator Dorgan?

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

    Senator Dorgan. Mr. Chairman, thank you very much. I think 
that the responsibility for part of the mess that we have here 
is a responsibility that goes to the doorstep of the 
Administration and the Congress. I mean, think about this just 
a little bit, and the message that we've been moving around 
here in recent years, start it up, shut it down, slow it down, 
keep it open, get rid of long distance trains, bring in 
competitors, and by the way, don't adequately fund capital 
investment or infrastructure, and also run it as a business. I 
mean, what a terrible way to run a railroad, what on earth are 
we thinking about? I've always known you need a glossary of 
terms to understand what's being said in this town, but I'm 
reminded of it again this morning, Mr. Rosen, ``zero funding is 
a call to action.'' I come from a small town, but you know, I 
recognize a big hoax here. Zero funding is not a call to 
anything, it's zero funding, it means you want to shut the 
place down. And I agree with my colleague, Senator Lott, I 
think that's an absurd proposition.
    Look, 34 years ago this started because there was nobody 
interested in running passenger service. The railroads had shut 
it down, and so we created passenger service. We created it, 
there was no competition, there was no one interested in doing 
it. And, let me also say, just as I finish the comment, I'd be 
glad to have you respond, we've seen decisions based on bad 
intelligence in this town, in very significant ways, let me 
describe another decision based on bad intelligence.
    Secretary Mineta was in Detroit, this was last month, and 
he was asked about a previous comment he'd made when he said, 
``Amtrak runs routes that nobody wants to ride,'' he said, 
``The problem is,'' now this is quoting the Secretary, ``The 
Empire Builder is going from Seattle to Chicago and it's going 
through, let's say, Montana, but there are only 53 people a day 
using that train service. Can I really justify pouring that 
kind of subsidy into the Empire Builder for that segment of 
service?'' Well, unaccustomed as I am to speak up for Montana, 
let me just say--and they're good neighbors of ours, but my 
colleague speaks up for them daily--in fact, the Empire Builder 
in 2004 handled 437,000 passengers, that's the Empire Builder, 
1,195 per day, one eastbound, one westbound train, and I have 
the boardings and so on for Montana, but if you miss the mark 
by this much, in order to make your case, you don't like long 
distance trains, speaking for the Administration, what's left?
    You all probably want to respond to some of this, except I 
just want to say this: I think it is worthy of this country to 
continue to make investments for a national rail passenger 
service system. No, not Boston to Florida only, because I 
expect that route only can probably justify itself based on 
market conditions. Although you get competitors in there and 
cherry pick and then we wonder, but I think a national rail 
passenger system is worthy, I'm perfectly willing to subsidize 
it, I want it to run well, I want it to invest in capital 
equipment and infrastructure so that we have a rail passenger 
system that works, but Mr. Gunn cannot run a system under these 
conditions, it is impossible to do. This Congress and this 
Administration ought to decide--do we want a national rail 
passenger service, or not? But let's not zero fund it and say 
it's a call to action, that's not a call to action.
    If you want to respond to that, it felt good to say it.
    Mr. Rosen. May I respond to that?
    Senator Dorgan. Yes, of course.
    Mr. Rosen. It is a call to action, and the reason it is, is 
that as the Secretary said repeatedly--if you and the 
Administration wanted to kill Amtrak, the easy way to do that 
would be to do nothing. The very fact that we came forward with 
our own reform proposal, with a different model for passenger 
rail is a demonstration that it's a call to action. It is 
saying we don't want to put money into a failed model, into a 
failed approach, and let's remember--Amtrak is a private 
corporation. It is somewhat unique in terms of how we do 
transportation in this country that it does both infrastructure 
and operations. We don't have, we have Federal support for 
airports and for highways, but we don't provide an annual 
Federal grant or an authorization for trucking companies or 
airlines, and so we have an unusual model there that has 
produced tremendous difficulties as you alluded to, year to 
year and over the long term, $29 billion in the last 34 years, 
and everyone on this panel has agreed that there is a need for 
change. So, I would suggest, respectfully, that the zero budget 
is both a call to action, and a recognition that the old model 
doesn't work.
    Now, with regard to the issue of the subsidies on long 
distance trains, let me just quickly say the Secretary's point 
on that is that the subsidies per rider are extremely high----
    Senator Dorgan. That's not what he was saying, go ahead and 
defend him, but defend him based on what he said.
    Mr. Rosen. Let me make the point. The subsidies in the 
aggregate for a per passenger mile, for passenger rail, exceed 
any other mode of transportation. And that takes me to the 
bottom line point that I want to just get to, in terms of long 
distance. We have to think of our national transportation 
system as a multi-modal system, that we have buses, we have 
cars, we have airplanes, we have rail. And for different 
locations, there's a mix of what are the best solutions, and in 
the end, we have to be looking for what's cost effective for 
different parts of the country.
    Senator Dorgan. Please understand, there's a difference 
between cost and value, and in North Dakota, 90,000 people get 
on and off Amtrak, many of them elderly, it is a very important 
part of our transportation system.
    Mr. Rosen. And I don't minimize that at all, sir, I think 
we want to work with you on those kinds of issues.
    Senator Dorgan. What I'm saying is, though, the Secretary 
of Transportation apparently has an involvement in 
recommendations of what to do with Amtrak, and he certainly has 
a profound misunderstanding about the Empire Builder. That 
train goes from Chicago to Seattle, carries a lot of people 
from Montana and North Dakota, is a wonderful train, and I'm 
just asking you to straighten him out on the numbers, because 
he's profoundly misunderstanding what's happening there.
    And I want to make one final comment. There isn't any 
question that rather than a call to action, you, Mr. Rosen, and 
the Administration want to shut down long distance trains. I 
understand that, but why don't you just say it, rather than use 
words that seem to mean something else. If you don't like long 
distance trains, try to shut them down, we'll have a fight 
about that, but in the end, I think we should keep Amtrak, we 
ought to provide the funding necessary for capital investment, 
the funding necessary for infrastructure, and then ask Mr. Gunn 
to run a railroad based on business principles, but I sure 
think at this point we're moving in the wrong direction, I 
couldn't agree more with my colleague, Senator Lott's comments 
at the start of this, and that may have been surprising to some 
of you, but I know that he's cared a lot about Amtrak for a 
long, long time, as have many of us on this Committee.
    So, I appreciate the contribution, I'm sorry I was a bit 
late to the hearing, but I have read all of the testimony, I 
appreciate the contributions that you've made today.
    Mr. Mead. Senator Dorgan? I just want to make a quick 
comment. I thought you really described well the 
responsibilities on the Congress and the Administration, and 
for each of the last 3 years, on the Appropriations Committee, 
we do this annual Death Dance, and we fight over the 
appropriate funding level. And I have made a point, in each of 
the last 3 years that it is time for a reauthorization, that's 
the only way of government in handling programs. And, what 
we've really been doing is we've been running the authorization 
process through the appropriations process for each of the last 
3 years, and the piecemeal fashion is not a good one.
    Senator Lott. Good point, Senator Burns?

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

    Senator Burns. Thank you very much, Mr. Chairman, thank you 
for this hearing this morning, and I guess I'm with my 
colleague in North Dakota, we have the same concerns that he 
does, and there's a lot of misinformation, I think, that is 
sent out to the public, and why we have a big misunderstanding. 
I, on this particular subject, I learned a long time ago, Mr. 
Rosen, Mr. Mead, and Mr. Laney and Gunn, Top Gunn, that 
anything that's really done to benefit a community is seldom 
done with the blessings of a majority. And later on it's found 
that your worst critics are the biggest fans of the idea 20 
years later. We're dealing in a national transportation system 
here that I think would be awfully hard for it ever to break 
even, under any model. Even with the grant program, and here I 
live in a state that's 148,000 square miles, from up there in 
the northwest corner to the southeast corner is further than 
from Chicago to Washington, D.C., with 900,000 people, and 
we're expected to make the match. That's going to be tough. In 
the airline industry, we're regarded as one of those ``fly 
over'' states. And with Amtrak, it is definitely not a fly 
through, because it's just not passenger. There is cargo. We 
have people along that system that use it daily, in their 
freight business, because that's the only way they can get it 
in there out of Chicago or Minneapolis, or the other way from 
Spokane or Seattle. We are isolated. And the same worry that 
Senator Pryor had for his state, what if some state falls out 
of that thing, and you lose the service because one state does 
not choose to participate in your grant program.
    The Chairman, we're working with the Chairman very hard on 
reauthorization, and to come up with a new plan on how, but I 
don't think the American people should be lulled into the idea 
that this will make money and stand on its own. I don't think 
that you can come up with a model that's going to do that. But, 
anyway, why should we be any different than in any other mode 
of transportation, than to provide the scantiest of rail 
transportation systems here and just call it what it is, we're 
going to have to subsidize it. I don't know of a bus service in 
any city that pays for itself. I don't know of any kind of 
transportation that's intercity or intracity that pays for 
itself. Light rail or anything, that pays for itself. This is 
something that the American people say, ``We need this, and 
it's going to cost some taxpayer dollars in order to make it 
operate.'' And we should face that point, give the true 
figures, and the ridership and all of this, instead of going 
through this thing every year, and we're going to go through 
the appropriations process, and we'll do the right thing, I'm 
sure of that, but let's tell the American people that this is 
an essential service, it is a service that the American people 
have chosen to have, and that a certain amount of taxpayer 
dollars is going take to make it work. And that's all I have to 
say.
    Mr. Rosen. I didn't mean to interrupt you.
    Senator Burns. No, no, you can respond if you'd like.
    Mr. Rosen. Well, what I'd like to say is a couple of 
things, Senator, because I think that you raise some important 
points, and I think they're points that are worth thinking 
through a lot. You have a multi-modal system that's always, for 
me at least, the starting point as to how we're going to get 
people where they need to go, it's never one answer, it's 
never, ``We just need a rail system, or we just need 
something,'' it's what's cost effective, what's going to work. 
Now, we talk about the long distance trains, they perform a 
slightly different function than the corridor trains, the 
corridor trains have a heavy business-type function, a lot of 
people, they are just trying to get from one city to the next, 
much like on the Northeast Corridor. The long distance trains 
are more mixed, there's a lot of people that it's a leisure 
trip. And, you have to think of it a little differently, 
sometimes. And I'm not, myself, persuaded, that it's true to 
say that no long distance train can every operate without a 
subsidy. I mean, you're talking about an area of the country 
where you're from, Senator, very attractive and scenic, and it 
depends whether you could make the trains more attractive, so 
that people that aren't currently using them, and if we're 
separating infrastructure, because your point is, that it's 
hard to make things profitable when you have to cover major 
capital costs, but if you separate out the infrastructure, and 
you say there are matching grants for that, so then we're 
talking about, are you subsidizing the operations, we generally 
in this country don't subsidize operations.
    And, harkening back, then, to the question I think Senator 
Lautenberg had raised on the U.K., the World Bank released a 
study on the U.K. system last September, and what the U.K. has 
done was create 25 operating companies, which was separate from 
who runs the infrastructure, and they had them as franchises. 
Eight of those require no subsidies, and the World Bank 
concluded that the system of competing operating companies in 
the U.K. was actually, produced more traffic, more passengers, 
more than economic growth alone would have called for, and that 
the safety record was better than the old British rail 
monopoly.
    So, all these things, it ultimately comes down to, let's 
take a careful look at what the facts are and try to do 
something that will work for the people in your state and other 
states that will improve intercity passenger rail.
    Senator Burns. I would agree with you on some of those 
assumptions, and some of those are fact, and I look forward to 
working with you on this, but we--I'll tell you what we board, 
we board 140,000 people at White Fish, Montana, now that's 
summertime, that's Glacier Park, that's skiing in the 
wintertime at Big Mountain, you're probably familiar with that 
area up there, and then the rest of that is kind of what we 
call train over, to get to there. But it's very, very important 
in those stops along the way on the Hi-Line, because we 
subsidize a little air for them, but that doesn't take the 
place of that train and people who like to ride that train. So, 
we'll be working very hard on this reauthorization. We have 
some ideas, the Chairman has some ideas, we look forward to 
working with you so that we've got some sort of consistency, 
and a program that we can move forward with, that doesn't just 
scare everybody to death in Montana, or North Dakota, or Idaho 
and Washington every time appropriations or the budget comes 
up, because this just makes it a political football, it makes 
it doubly tough to solve. So we're trying to work right now on 
a plan that would allow us to move forward, knowing what the 
numbers and the figures are, and if there's someplace that we 
can privatize it or whatever, I'm sure we'll explore those 
avenues. I look forward to working with you, but in the 
meantime, it's pretty important to us, and you can see why we 
get very, very nervous about it. But there has to be some sort 
of common sense to the approach of what we do. And I thank you 
for your testimony today.
    Thank you, Mr. Chairman.
    Senator Lott. Senator Sununu?

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

    Senator Sununu. I think I'll take a crack at what zero 
funding really means. I think zero funding means that, and I 
think Mr. Mead alluded to this, the current process of 
allocating funds and to a significant extent, the current use 
of funding, is unacceptable. When you look at the way money is 
being used, and you say, `` This system, this process, this 
allocation is not acceptable,'' then you obviously pull back 
until you can reorganize the way that the funds are being 
allocated. I think more than anything, that's what zero funding 
means, or zero funding is trying to convey, and I think that's 
what the sentiments were when someone said zero funding is 
meant to be a wakeup call. We can argue about exactly what the 
intentions of a given individual is when they say, `` This is a 
wakeup call,'' or ``We need to change the process,'' or `` We 
need to make modifications,'' but my concern is that we're 
going to go through a lot of discussion about authorization and 
rail transportation and people in the economy, and we're going 
to end up in exactly the same place, and I may be alone in the 
opinion that a $200 per person subsidy for a train ride is 
excessive, I may be alone in thinking that $500 million 
operating losses in perpetuity to operate 12 or 14 or 15 routes 
is unacceptable, but I don't think it's a very good use of 
taxpayers money. In New Hampshire, $500 million is a lot of 
money. That isn't to say that every route operated by Amtrak 
needs to show a per passenger profit, but we really do need to 
inject a little bit of fiscal reality into this debate. I won't 
say there's been no such reality in the discussions, but I 
haven't heard a great deal.
    A few specific points. First, a point was made, and I think 
it's worth repeating, because I don't know that it really sank 
in, but the subsidies, per mile, in these endeavors are higher 
than the per mile subsidies in any other form of 
transportation. Even those that we may all support, intercity 
bus or intercity transit, even those involving the subsidies 
that we all know are provided at some level to aviation, and 
even to highways, in the way we collect and levy taxes. But the 
subsidies here are dramatically higher than any other area of 
transportation.
    Second, the suggestion that every bus line in the company 
requires a subsidy isn't the case. There are possibly bus lines 
that are connecting the cities in these long-distance routes 
operating without a subsidy, or to the extent that we might 
define a tax, or the money we put into the highways as a 
subsidy, at a per passenger subsidy that isn't even in the same 
zip code as the ones we're talking about here. And while they 
may have been touched on very briefly at the beginning of this 
hearing, I'd like to get in a little bit of questioning to 
clarify for me what the size of these operating losses are.
    Why don't we begin with Mr. Gunn? What were the operating 
losses on long distance trains in 2004?
    Mr. Gunn. If you use the FRA cost, which is the direct 
cost, long distance trains lose about $300 million a year.
    Senator Sununu. What does FRA stand for?
    Mr. Gunn. That's Federal Railroad Administration. That's 
the amount of money you would save if you eliminated those 
trains.
    Senator Sununu. I would argue that those are really two 
different questions. The operating loss is not the same as a 
cost avoidance, if you eliminate the trains. Because your point 
is, you may be losing $500 million a year in operating losses, 
and you've made this argument before, that because of your 
labor agreements you would have to continue with some payments 
of moneys, even if you terminated the lines, and so, you don't 
want to include that in calculating operating loss. And I would 
argue that's probably not how most corporations would view an 
operating loss.
    Mr. Gunn. If we eliminated all of the long distance trains, 
you would save something in the neighborhood of, but kept 
everything else, you'd save something like $300 million plus 
some capital, say $350 million. But, to save that money, you 
would have to spend over a billion dollars in labor protection, 
that's the point we've made. I'm not----
    Senator Sununu. What was the calculated operating loss in 
2004?
    Mr. Gunn. I said, using the incremental loss, the amount of 
money you would save by eliminating the trains is about $300 
million. And then you'd save some capital.
    Senator Sununu. What was the operating loss in 2003?
    Mr. Gunn. Actually, our operating loss has been constant.
    Senator Sununu. As far as long distance trains.
    Mr. Gunn. I don't, I can't remember, but it's basically 
been constant. Our operating losses have been, since I've been 
here, we've basically been able to control it, and it's been 
constant. But, I don't remember the loss, the specific loss in 
2003.
    Mr. Rosen. Senator, I might be able to just help slightly, 
what I think you're asking, on a fully allocated basis, if all 
costs, both the direct costs and then attributed cost for 
overhead and support are included, in Fiscal Year 2004, the 
subsidy was approximately $214 per trip on the long distance 
trains, and that was up from $158 in Fiscal Year 2000. In the 
aggregate, that would amount to, order of magnitude of a little 
in excess of $600 million a year.
    Mr. Gunn. That's fully allocated, however. The trap we can 
get in here, is if you're talking about, we're going to 
eliminate those trains, what does it do to Amtrak's cash 
requirement, and I think that's the relevant question, it is 
$300-$350 million after you pay C-2.
    Senator Sununu. Well, I would say $350 million is also real 
money.
    Mr. Gunn. I'm not arguing that point, Senator.
    Senator Sununu. I find it somewhat problematic that when 
any Member of Congress or any member of the public tries to get 
a clear assessment of these operating losses, we get 
generalities--`` We would save about $300 million, and it 
depends on how you allocate it,'' and that we get one set of 
numbers for the allocated operating loss, and we talked about 
the opportunity costs of the contract, but I just find it 
problematic that we cannot agree on, and I don't have a 
preferred methodology, but we cannot agree on a methodology for 
giving the public an honest assessment of what the operating 
losses are, and what the magnitude of the subsidy is. I think 
that does a disservice to the Members of the Committee who are 
working very hard to make decisions. We may disagree, Senator 
Lautenberg may say, `` This is important, we should provide a 
subsidy to maintain operation in a particular way,'' and he may 
value that subsidy at a particular level, and I may say, `` 
That's not an acceptable subsidy, but it would be great if we 
could at least agree on the set of facts before us.''
    Mr. Gunn. I don't mean to argue with you, Senator, but 
every month we produce an income statement, a set of financials 
which include an income statement, a performance statement by 
train. Now, for example, I have the February results. I have 
March results, but I don't have the detailed train sheets yet. 
But, we produce, and we use, we show the deficit by different 
costing, in other words, the FRA-defined costs, which are 
really the incremental costs, then we have other overhead costs 
which would go away if you could get at them, which means all 
the trains would go away, but we produce, every month, there's 
no shortage of routine data, and it's according to GAP, it's 
auditable and we've done this since I've been here.
    Senator Sununu. And the aggregate operating loss shown by 
those statements for 2004----
    Mr. Gunn. I have, for example, through February, the long 
distance trains, which is what we're talking about, the FRA-
defined loss was $100 million, and that's for 5 months.
    Senator Lott. Mr. Gunn, I hope you work with Senator 
Sununu, and all of us, to get the data.
    Mr. Gunn. But the data is here, my only point is, we have 
the data----
    Senator Sununu. It's just frustrating to hear different 
ways of presenting the question about the subsidy and the 
operating losses. I know--to be clear--that you have received a 
lot of credit for improving the reporting and for improving the 
accounting, but we're making policy decisions.
    Mr. Gunn. The results, I can't improve.
    Senator Lott. Senator Stevens, the Chairman of the full 
Committee is here and I know he may have some comments and some 
questions.

                STATEMENT OF HON. TED STEVENS, 
                    U.S. SENATOR FROM ALASKA

    The Chairman. Well, first, Mr. Mead, I know that Amtrak's 
carrying a $3.2 billion debt, the interest rate's about 10 
percent.
    Mr. Mead. Now, on part of that, sir, it is about 9.5 
percent, they mortgaged Penn Station a few years ago to Credit 
Lyonnais, I think.
    The Chairman. Did you ever make the recommendation that it 
be made tax free? Let them issue tax free bonds?
    Mr. Mead. No, we didn't make that recommendation, but we 
are recommending that the reauthorization have the Treasury 
discharge that debt, because you're paying it anyway at a 
higher interest rate, so if you're going to pay it anyway, you 
might as well pay it at a cheaper interest rate.
    The Chairman. That might encourage you to enter more debt, 
if we made it part of the national----
    Mr. Mead. The second thing I'd do, Senator Stevens, is 
freeze their ability to borrow. Their freedom to borrow is what 
got us in this hole, and so that's the second thing I would do.
    The Chairman. For the Amtrak people, when the Alaska 
Railroad got into trouble, we finally worked out an arrangement 
that our state bought the Alaska railroad, and now we have sort 
of a partnership, as the President mentioned in connection with 
this issue when he set up this recommendation. Have you looked 
at that proposal? Why shouldn't these states buy a piece of 
this railroad and let us work together. Our state covers, 
basically, the operating expenses, and the Federal Government 
assists us in capital investment. Why isn't that a model for 
you all, too?
    Mr. Gunn. The problem, Senator, is that the Alaska Railroad 
is an intrastate operation, and with Amtrak, the bulk of our 
service is interstate, and some of our trains go through eight, 
nine states.
    The Chairman. That's where it fails, doesn't it?
    Mr. Gunn. Yes, but I think you get into the situation where 
everybody will hold their money in reserve until they're faced 
with a crisis, and by that time it's too late. I think Alaska 
was very wise with what they did, and even in the Northeast 
Corridor, which is where we run track and run the whole thing, 
we still go through eight states, and it's very difficult.
    The Chairman. Have you suggested a model where there'd be 
some kind of sharing? Why shouldn't the states be part of this?
    Mr. Gunn. Well, actually, in the Board package we do, the 
Reform Package that Amtrak's put forward, the goal is to get 
the states to move to a situation where the states pay the 
operating deficit, similar to the Alaska situation, for their 
corridor services. That's what we're proposing, but to do that, 
you need to give the, you have to have the partnership which 
the Alaska Railroad has on capital.
    The Chairman. Is the Amtrak Board representative of the 
states that have the major part of the riders of Amtrak?
    Mr. Laney. Senator, I'm the Chairman of the Board, and I'm 
delighted you've joined us. We'll want to visit with you 
further about what's going on in Alaska, it's a model we've 
looked at carefully, we're going to look at it a lot more 
carefully, and it makes a lot of sense to the extent we can 
adapt elements of what's being done in Alaska to what we're 
doing.
    But we have four members of the Board, and they, I think, 
represent a variety of states, depending on where they live 
during the year, from the kind of states that have only long 
distance service, the states that are centered right in the 
middle of a group of states that enjoy the benefits of the 
Northeast Corridor, so I think we're fairly well represented, 
as well as you know, one member of the Board is Secretary 
Mineta, and he's designated Mr. Rosen as his representative on 
the Board, so we've got the Department of Transportation and 
it's perspective brought to bear with all of our discussions 
and thinking and planning as well. So, it's a broad 
representation.
    The Chairman. So, have you engaged the states, and the 
Governors and their staffs in conversation of how to save this 
railroad?
    Mr. Laney. Yes, sir, we have, in a number of different 
ways, and they are, they've made it very clear, I think 
virtually all states that enjoy one benefit or another from 
Amtrak, that they are very interested in being heard, and we've 
made it equally clear that we are very interested in hearing 
from them. They've already contributed a lot to what you see in 
our proposal with respect to long distance and corridor 
service.
    The Chairman. How important is long distance service, 
compared to the commuter service on this train?
    Mr. Laney. I don't know that I could compare the two, 
they're apples and oranges, but both are essential elements, we 
believe to the future of intercity passenger rail.
    The Chairman. Well, when I came to the Senate, those of us 
from the West came to the Senate, I went home many times by 
rail. We found it much more convenient and less expensive than 
travel by air. I know you don't understand a necessity for long 
distance, federally supported trains. Tell me, why is there a 
necessity for these long distance trains going west?
    Mr. Gunn. I'll take a crack at that, if I may, I think if 
you look at the ridership on the long distance trains, we've 
got a report that details each of the trains, which you're 
welcome to see, you'll see that the ridership on the bulk of 
these trains, or the bulk of the ridership on these trains is 
not endpoint to endpoint. If you take the Empire Builder, for 
example, that Senator Dorgan was talking about, that train has, 
serves a lot of areas that have no other options, probably a 
lot like the Alaska Railroad in the north. So, people will ride 
from Minneapolis to Rugby, or Minneapolis to Havre, or Shelby, 
and these trains--and they're busy. The trains are not empty, 
they actually carry a lot of people. And, on a number of these 
trains you're providing services where there isn't a good 
option for the people.
    I would submit that if you actually rode the Empire 
Builder, you'd be surprised at the on/off through all of these 
towns that we go through--most of the towns are 2 hours apart, 
but it's a busy train, and it provides, I think, an essential 
service to those communities.
    The Chairman. Respectfully, I don't think that answers the 
long distance thing, but my time's up. I hope you've all read 
that delightful new book, The Christmas Train. If you haven't, 
it would be worthwhile.
    Mr. Mead. I have some numbers here that respond to the 
questions. There are about 4 million riders on the long 
distance trains that you referred to. This is an annual figure 
for 2004, 4 million.
    The Chairman. Are they going the long distance, or are they 
just riding part way on the long distance?
    Mr. Mead. I'm coming to that.
    Senator Sununu. Can I clarify that? 4 million riders, you 
mean, 4 million embarkments.
    Mr. Mead. I'm going to answer, if you let me give out the 
number, there were four million total riders for 2004 that got 
on a long distance train. Of that number, only 527,000 went 
from beginning to the end. Also, there were 400,000 that went 
between city pairs, where you already had the Amtrak corridor 
services, and our analysis showed that the remaining three 
million people rode about between 500 and 700 miles. And that's 
how it broke down.
    The Chairman. More than--?
    Mr. Mead. Three million went between 500 and 700 miles.
    The Chairman. Has that changed since 9/11?
    Mr. Mead. I don't know, sir.
    Senator Lott. Well, we will continue for another round. 
Thank you, Mr. Chairman.
    Looking at the solution here--and that's what I think we 
need to do, rather than just looking back at where we have 
been, but looking forward at where we want to go--I do think we 
have to make a basic decision, Do we want a national rail 
passenger system, or not? If we do, how are we going to pay for 
it? If we don't, this is the year where we need to face up to 
this. But if we do, how we're going to pay for it?
    And I think we've got to do it in three steps. One, I do 
think we need reauthorization with some innovative ideas and 
new options. I want to look very carefully, Mr. Laney, at the 
report you provided that--we've been talking to Mr. Gunn and 
Mr. Mead and a lot of others to try to come up with some ideas 
where this authorization is not just a rehashment of where we 
are. Second, I do think we need to identify what we really are 
going to have to do with annual appropriations. But I don't 
think that's enough. I think we've got to have more.
    And that leads me to the point that Senator Stevens touched 
on, and I wanted to come back, because I've asked most of you 
about this before. I do think we're going to have to have a 
national transportation bonding authority, capital bond 
authority, with the tax incentives that go with it. None of you 
touched on that.
    Now, Mr. Laney, you've worked in this area. You're a leader 
in Texas in the transportation area. What is your reaction to 
that? What's your thought about the bonding-authority 
capability?
    Mr. Laney. Senator, that's a question that ultimately goes 
to the heart of a matter that's much bigger than Amtrak itself 
and goes to the overall issue of infrastructure in the rail 
industry. And most of that infrastructure, as you know, is 
freight-rail infrastructure. Outside of the Northeast Corridor, 
that's the rail we operate on, and, ultimately, as go the 
freights and their infrastructure health, so goes most of 
Amtrak, whether it's corridor service or long-distance service.
    There is--and everyone in the freight-rail industry and in 
our industry and in the highway industry know it--we are 
approaching very significant constriction and bottlenecks and 
congestions throughout our transportation system nationally in 
the infrastructure capacity.
    Senator Lott. So, is this the solution?
    Mr. Laney. Bonding is an enormous step forward, we think, 
in terms of injecting potential capital. And I'm speaking not 
for the board of Amtrak; I'm giving my own----
    Senator Lott. That's what we're looking for.
    Mr. Laney. It's an enormous potential opportunity to 
address--to begin to address the long-term issues and negative 
impacts of capacity constraints on freight rail, just like 
we've done it in the highway capacity. And there's an 
interrelationship, as you know very well, between freight rail 
and freight on highways. And freight cannot absorb the demand 
driven from highways because of highway congestion in the 
direction of freight rails.
    Senator Lott. Thank you, Mr. Laney.
    Mr. Gunn, what's your comment on----
    Mr. Gunn. I agree with my chairman.
    [Laughter.]
    Senator Lott. He's a very smart man.
    Mr. Mead, you and I have talked about this. What's your 
reaction?
    Mr. Mead. Yes. And since that discussion, I've given it 
some thought. And I think the conundrum, the big issue, on 
bonding is, where would the money come from to pay the 
purchaser of the bond the RI, the return on investment, during 
the life of the bond?
    If you look to a model that Amtrak proposed several years 
ago, it worked like this. You buy the bond. Say, I'm Amtrak, 
hypothetically. I get $1,000. I take 20-25 percent of that, and 
I put it in an escrow account. And, over the life of that bond, 
the interest accruals on that 25 percent that I've put aside 
are sufficient to pay off the face value of the bond. But you, 
as the investor, are going to say, `` Well, Mr. Mead, I want a 
return of investment. I don't want to wait 25 years. I want a 
good return on my investment during the life of the bond.'' I 
can't figure out where that money's going to come from. In the 
aviation world, when they float a bond, the airlines, the 
landing fees, all contribute to the repayment of it. In 
Amtrak's situation, I don't know where the money would come 
from. And that's a conundrum that I'm still trying to work 
through, sir.
    Senator Lott. Well, we'll be waiting on your answer, 
because this is what we intend to do, so we've got to have some 
logical answer to that question. And you've touched on one. 
Maybe you touched on both of them. We may have to look at some 
way to get a--some fee, some designated source to make sure 
there's repayment there.
    Mr. Rosen, what would be the Administration's position on 
that?
    Mr. Rosen. Well, Senator, the question of how bonding would 
work often comes down to the particulars. And so, I don't know 
that I want to say, in a definitive way, an Administration 
position, but let me suggest that I think there are at least 
two sets of potential difficulties that we would really need to 
take cognizance of. One set of them relates to the whole 
problem of accountability and repayment. And Inspector General 
Mead was alluding to part of that issue, of, how do you ensure 
that there will be repayment? But, also, how do you ensure that 
the funds will be used in the optimal manner, because, in the 
private-sector financing, the bondholders are going to be 
paying real close care as to whether those debenture agreements 
are being fulfilled and the funds are being used appropriately.
    On the other hand, anytime you talk about Federal-backed or 
subsidized bonds, you have a whole different set of problems, 
which is, is this an efficient way of financing relative to the 
general fund? Because the U.S. Government can borrow money, and 
can do it pretty efficiently and cheaply. And so, the question 
you always have to ask is, if you're going to create something 
that's different than a U.S. Treasury debt instrument, what 
advantages are you gaining from that? And that can be an 
extremely problematic question, and it's one you always have to 
confront.
    But, as I say, it does come down to the specifics, but I 
think it's a mistake for people to just assume that bonding is 
an easy thing that gets us out of the conundrum of, are we 
using taxpayers' dollars? Because the ultimate answer may be 
that we are, and we, ultimately, may not be doing it 
efficiently. And so, those are the kinds of tests that you have 
to look at.
    But the--again, as I say, it does come down to the 
specifics. And I don't want to speak for the Administration in 
any comprehensive way without knowing the details of what we'd 
be talking about.
    Senator Lott. Well, I would urge you, the Administration, 
to look at this. If we're going to have a national rail 
passenger system--and I assume the Administration is for that--
we're going to have to figure out how we're going to pay for 
it. And I don't think what you've come up with is enough. I 
mean, are you just going to rely on us to appropriate the funds 
annually? We've proven we can't do that in an adequate way. So, 
you know, and competition and other things have suggested state 
participation. That's all fine, but I don't think it's enough. 
So, we need a little more innovative thinking from the 
Administration on how we're going to do more, if we want to do 
this in a responsible way. And I urge you to look at that.
    Mr. Rosen. Senator, I hear your general point on that, and 
I think the fundamental problem that I think many people are 
concerned about, and I infer you may be, is the multi-year 
problem, that it's not so much that it's an appropriation, but 
that it's an annual event. And I think we would be interested 
in working with you and this Committee, and perhaps the 
appropriators, as well, to think about how to deal with that 
aspect.
    Senator Lott. Thank you very much.
    Senator Lautenberg?
    Senator Lautenberg. Thank you, Mr. Chairman.
    I wonder, in terms of sources of funds, what do you think 
of the security--our security requirements are, relative to 
rail service? Mr. Rosen, do you think there's any need to have 
a comprehensive rail system throughout the country, in the 
event of attacks by those who would bring us harm?
    Mr. Rosen. Well, I think that's bound up in the larger 
question of--one of our fundamental transportation policies is 
to have mobility--is to have nationwide mobility and, as I've 
alluded to earlier, a multimodal system. So, you don't want the 
system to be entirely susceptible to a weak point anywhere. But 
I don't think you can build one piece of your system entirely 
on the premise that this is because we're concerned about the 
next attack. The way you try to develop a secure system is both 
to have mobility in multiple modes and, as DHS has the lead 
with respect to--thinking about how you provide security 
measures in the modes.
    Senator Lautenberg. We're going to differ on that. I think 
it's an essential part of protecting our society's mobility in 
the event of a disaster such as we saw. And I remember vividly, 
at 9/11, when Amtrak was the only thing that was running in 
the--that area of the country, and we were so glad to have that 
when aviation was shut down. And if it happened before, heaven 
forbid, it could happen again.
    Secretary Mineta--we were talking about subsidies of 
varying types--Secretary Mineta has been quoted as saying that 
if the states won't pay for service, then trains shouldn't open 
their doors whole moving through that state. Well, we have an 
example in the State of New Hampshire, where it doesn't 
contribute anything to the Downeaster service provided by the 
State of Maine. Would the Secretary, therefore, say, eliminate 
all stops in New Hampshire, even though doing so would 
significantly impact the ridership and the financial 
performance of the service?
    Mr. Rosen. Well, again, I think you have to differentiate 
between the status quo 1970 model, where the situation is what 
you describe, but not just in New Hampshire; many places are 
not currently providing state support and--because they're not 
called upon to do so by the existing system of Amtrak.
    Senator Lautenberg. So what would the Secretary's view be, 
based on this? Going back, this is a statement, that if the 
state doesn't pay--doesn't contribute anything, the doors--the 
train, even if it passes through the state, shouldn't stop and 
open them.
    Mr. Rosen. OK, but let me be clear, the Secretary is not 
alluding to what should happen, or should have happened in the 
past, with regard to the status quo.
    Senator Lautenberg. I see. So----
    Mr. Rosen. The Secretary is alluding----
    Senator Lautenberg.--we're going to deal in the realm of--
you'll forgive me----
    Mr. Rosen, you made a statement, in your testimony here, 
that--you say, likewise, the intercity bus industry, no 
comprehensive or dedicated Federal operating system carries as 
many as 350 million passengers annually.
    Mr. Rosen. That's right.
    Senator Lautenberg. The CRS report says that, in fact, 
there is a provision under the--not CRS--what about Section 
5311 intercity bus program--offers a 50-50 Federal/State match 
for intercity bus operations, and an 80-20 for intercity bus 
infrastructure. Well, is there any challenge in those two 
positions?
    Mr. Rosen. No, I don't think there is, Senator, because I 
think what you're alluding to is not a comprehensive Federal 
program. You're talking about a transit program that has a 
small indirect way. And I believe the expenditure on that's 
about $20 million a year. So, I don't think we're talking about 
kind of----
    Senator Lautenberg. Well, we're not talking about amounts, 
we're talking about principle here.
    Mr. Rosen. Well, I think the principle's quite different, 
as well.
    Senator Lautenberg. All right, well, I read your statement, 
``No comprehensive''--you can pick words apart here--
``dedicated''--there are operating subsidies to some intercity 
bus operations.
    Mr. Rosen. Senator, if we were talking about $20 million a 
year for Amtrak, I don't believe we'd be having this hearing. I 
mean, I think we're talking about very different----
    Senator Lautenberg. Thank you for your opinion, Mr. Rosen.
    I want to ask whether or not--Mr. Gunn, for instance, you 
might be interested--knowledgeable about what happened in the 
case of Argentina and Mexico when they eliminated subsidies for 
intercity passenger rail service.
    Mr. Gunn. Actually, I'm not very knowledgeable of those two 
areas. I know the British results better.
    Senator Lautenberg. OK.
    Mr. Gunn. But, basically, the Argentine railroads are gone.
    Senator Lautenberg. They're out of business.
    Mr. Gunn. Yes.
    Senator Lautenberg. And----
    Mr. Gunn. With a few----
    Senator Lautenberg. Yes.
    Mr. Gunn.--of bulk commodities, but--and there are commuter 
services left.
    Senator Lautenberg. The service disappeared, I can tell you 
that----
    Mr. Gunn. Yes.
    Senator Lautenberg.--from CRS.
    Mr. Gunn. That's all I know. I don't----
    Senator Lautenberg. And that's what would happen if we stay 
on this fantasy ride that we want to----
    Mr. Gunn. Well, Senator, you asked me a question earlier 
about privatization. I think the one thing everybody has to 
realize, that no matter who's running it, there's going to be a 
subsidy. This is not----
    Senator Lautenberg. Well----
    Mr. Gunn.--going to be a profit----
    Senator Lautenberg.--I think a good way to invite companies 
or organizations to compete is, tell them there's a subsidy. 
Unless we just outright say, ``If we ever go private, there 
will never be a subsidy by the Federal Government.'' And I 
think that would change the conditions a lot.
    Mr. Rosen. Senator, could I just offer a thought on that? 
The place where perhaps we differed is, the Administration is--
finds it acceptable to have what you could call a subsidy for 
infrastructure. But we're talking about operations. And on the 
train operations--for example, the Alaska railroad is not 
subsidized on operations. It is----
    Senator Lautenberg. You don't want to discuss the Alaska 
railroad. You have to look at how Alaska was skillful enough to 
acquire that railroad and the costs that----
    [Laughter.]
    Senator Lautenberg.--it takes, and then we--New Jersey 
would take that anytime.
    [Laughter.]
    Senator Lautenberg. Mr. Chairman, the one thing that we see 
here--and I think you were very clear in your comments--and 
that is that we've got to step up to the plate with this thing, 
and we can't pretend that there's not a problem here, that, 
frankly, I think, would have a gigantic effect on the way 
people move through our country. We'd have--we've got essential 
air service because it's necessary. That's why it's there. 
Otherwise, you'd never get it through here. And we provide that 
service. It's fairly high cost. Some are a couple of hundred 
dollars a passenger. And that's what government's for. It may 
surprise people here to know that we even pay for border 
protection and lots of other things, and healthcare. Gee, 
that's a surprise. That's what government's about--supplying 
services, my friends, and we've got to continue to supply 
services. And I hope, Mr. Chairman, that when we get to work on 
our bill, we're going to make sure that there is a national 
passenger rail service, and one that has enough investment in 
infrastructure to bring it up to modern times.
    Senator Lott. Thank you, Senator Lautenberg. And I'm 
looking forward to working with you on this. And I do think the 
Federal Government has a role to play. Where people, or cities, 
individuals, can't do things for themselves, the Federal 
Government does have a role. Personally, I don't like operating 
subsidies to intercity--intracity transit systems. And I wonder 
how much of a responsibility the government has to pay for a 
lot of things--a lot of individuals' needs. But in other cases, 
like in transportation, it is interstate. The individual and 
the state, or the city, can't do it by itself. That's why I do 
view this one, and other transportation programs, as different 
from just Federal Government subsidizing everything.
    Senator Sununu?
    Senator Sununu. Thank you, Mr. Chairman.
    Obviously, if you're running intercity rail, and a national 
rail system is going to be intercity, but I would certainly 
draw the Committee's attention to page 3 of Mr. Rosen's 
testimony, which clearly shows the percentage of intercity 
transportation that is rail. I assume this is all rail. Mr. 
Rosen, it is all rail?
    Mr. Rosen. It's all intercity rail. In other words, it 
wouldn't cover trolley cars in the city, for example.
    Senator Sununu. It's a very small portion. It looks like 
it's less than 1 percent, to me. But when the line starts 
hugging the very bottom of the graph, it's hard to tell. And 
so, we get back to the question of, well, to what extent do we 
wish to subsidize this level of ridership and this portion of 
ridership?
    I'm sorry Senator Lautenberg has left, but I'm going to say 
good things about him, in general, in this sense. I don't know 
that I support the idea of New Jersey taking over the Northeast 
Corridor, but I do think that that's the kind of idea that at 
least ought to be explored. Whether it's New Jersey or a 
combination of states in the Northeast Corridor taking 
responsibility for owning, operating, managing, making capital 
resource allocations, creating incentives for riders, 
marketing, and all the rest, I think they would, in all 
likelihood, do a far better job than is being done under the 
current umbrella. That's not a comment on management quality so 
much as it is a commentary on the structure itself and the 
mandate we're putting on this entity to continue to operate 
nationwide. And it does come back to----
    Senator Lott. Could I inquire of the Senator, under those 
circumstances, where a group of states would get together to 
manage and operate and pay--they would also pay for everything; 
there wouldn't be a Federal subsidy under that arrangement, 
right?
    Senator Sununu. Perhaps. But, then again, perhaps they 
would do a better job if they were to negotiate a subsidy. My 
guess is it would be dramatically less than the one we're 
currently providing. But----
    Senator Lott. My point is----
    Senator Sununu. And----
    Senator Lott.--we, in Mississippi, are not going to be 
willing to help pay for that service just up there----
    Senator Sununu. We are not negotiating----
    Senator Lott.--in the Northeast.
    Senator Sununu.--a contract now, but I----
    [Laughter.]
    Senator Sununu.--certainly understand that the----
    Senator Lott. I just want to make sure everybody----
    Senator Sununu.--that the nature and the structure of the 
subsidy may be different, but there still may be a subsidy, 
nonetheless.
    In response to the question about the state's share and the 
Downeaster, in particular, if we went to a system where we had 
state-sharing--I think Mr. Rosen was being very polite to me; 
he didn't want to make an awkward comment about New Hampshire--
but if we went to a system where we had state-sharing, and that 
was the methodology for support and finance of very reasonably 
strong systems like the Northeast Corridor, and a state like 
New Hampshire didn't want to participate, I suppose, in theory, 
it would be appropriate for there not to be stops in that 
state.
    Now, I think that, again, if the states had a sharing 
arrangement, they would look out for their riders, their 
commuters, their travelers, their economic interests, and come 
to an agreement about how best to approach it. But that's not 
the system in which we're operating. The Downeaster, in 
particular, was a route that was instituted with a great deal 
of help from former Senator Mitchell in order to provide 
service to Portland. The contract for operating that was 
negotiated largely under the auspices of the Maine Rail 
Authority. In partnership with New Hampshire, they've 
established a couple of stops in New Hampshire, as well as the 
ones that are in Maine.
    But the problem is, we're not in that situation. And I 
don't think that that's an especially clever way to argue 
against the kind of reforms people have suggested here.
    Mr. Rosen. Senator, could I elaborate on one aspect of 
that? Because I think you make very good points. It's also not 
impossible for a state to determine--and this is where I was 
going when Senator Lautenberg asked me to stop--that even if 
New Hampshire didn't want to participate, that the people in 
Maine and Massachusetts want to be able to stop in New 
Hampshire, and that Maine and Massachusetts would simply decide 
they'll pick up the tab.
    Senator Sununu. It would be very parochial of me to suggest 
that people from Maine and Massachusetts wanted to visit New 
Hampshire, but I think you make a very good point.
    Mr. Mead. One--may I make a point on this--the operating 
issue?
    Senator Sununu. Yes, please.
    Mr. Mead. In our oral testimony, and in our written 
statement, there's a section on capital grants, and there's a 
section on formula grants without a required match. That's 
designed for states, during this reauthorization period, to get 
something when they may not have opportunities for capital 
development--but where the Federal Government would contribute, 
without match required, to that state, a grant. Now, if the 
state's not going to use the grant for rail, they're not going 
to--they shouldn't get it. Now, it would not cover 100 percent 
of the loss, so the State of New Hampshire would have to pay 
more than it's paying now.
    Senator Sununu. Under a state-share program.
    Mr. Mead. There would be--I think it's fair to say----
    Senator Sununu. Well, by definition, since we don't have a 
state-share program now, and we went to a state-share program, 
then states would have to share more than they're sharing now.
    Mr. Mead. Right. I have a----
    Senator Sununu. I don't mean to belittle the point, but 
there's no question, this would be a different form of subsidy, 
but, at the same time, let's not think that taxpayers in New 
Hampshire or California or Oklahoma or Mississippi aren't 
providing some subsidy now. They're just not providing it 
through their state government; they're providing it in the 
form of Federal tax revenues----
    Mr. Mead. That's exactly right.
    Senator Sununu.--that are contributed to Amtrak at a clip 
of roughly $1.2 billion per year.
    Mr. Mead. Right. And I've got in front of me a list of the 
states that actually do make direct operating-loss 
contributions to Amtrak, and also make direct capital 
contributions.
    Senator Sununu. Those contributions, though, are done on 
the basis of agreements in which they have voluntarily entered 
into with Amtrak. Is that correct?
    Mr. Mead. Under the current model, yes, sir, that's 
absolutely correct.
    Senator Sununu. Mr. Gunn, how many long-distance routes are 
being operated now?
    Mr. Gunn. Fifteen.
    Senator Sununu. Fifteen, OK. I have a list of 16. What's--
in my list of 16--I think this is from 2003, early 2004--which 
one did you get rid of?
    Mr. Gunn. The Three Rivers.
    Senator Sununu. Three Rivers. But you're still operating 
the Pennsylvanian and the Cardinal?
    Mr. Gunn. The Pennsylvania and the Cardinal are still 
operated.
    Senator Sununu. What's----
    Mr. Gunn. The Palmetto has been truncated.
    Senator Sununu. What does that mean?
    Mr. Gunn. It doesn't go south of Savannah. It used to go to 
Miami.
    Senator Sununu. And you say, since you've been at Amtrak, 
you've eliminated three. So----
    Mr. Gunn. There was the Kentucky Cardinal, the Three 
Rivers, and then the Palmetto has been shortened.
    Senator Sununu. I'm sorry, I thought the Cardinal was still 
operating.
    Mr. Gunn. Did I say the Cardinal? I didn't mean that. The 
Palmetto----
    Senator Sununu. We probably just scared Senator Mitch 
McConnell. But----
    Mr. Gunn. Yes. Anyway, there are three that I can think of 
right now that we've taken off.
    Senator Sununu. Three Rivers, the truncated Palmetto----
    Mr. Gunn. Yes.
    Senator Sununu.--and a third----
    Mr. Gunn. The Kentucky Cardinal.
    Senator Sununu. Oh, there are two different Cardinals. I 
see. I find that confusing, but--OK.
    The numbers that I've seen show that overall revenues 
declined by 10 percent in 2003, by 8 percent in 2004. What do 
you project overall revenues to be in 2005, relative to----
    Mr. Gunn. I didn't bring my budget for 2005, but they 
would----
    Senator Sununu. Do you expect them to decline again?
    Mr. Gunn. No. They were basically flat.
    Senator Sununu. That's your projection.
    Mr. Gunn. It was what--I can tell you what we've done up to 
now, but I don't know--I didn't bring my budget----
    Senator Sununu. What, in your mind, is the reason for the 
significant decline in revenues over the last two and a half 
years? And why do you think that trend is going to stop in 
2005?
    Mr. Gunn. I think that a couple of things happened; one of 
which was, there was definitely a change in mix from higher-
fare tickets to lower-fare, to coach. The mix changed. And, 
obviously, the endpoint-to-endpoint competition from the low-
fare airlines has hurt us.
    Senator Sununu. And why do you think that----
    Mr. Gunn. Yes, that--and the other thing, just--the 
Chairman just reminded me--I don't know what revenue figures 
you're looking at, but if it includes mail and express, we got 
out of that business. Do your figures include mail and express?
    Senator Sununu. I think, in the Congressional Research 
Service documentation that they put together, those would be 
combined revenues----
    Mr. Gunn. That's the other thing that--if you're looking at 
the total revenue per train, the biggest reason for the drop 
would be getting out of mail and express.
    Senator Sununu. And why did you get out of mail and 
express?
    Mr. Gunn. Because we were losing money on that.
    Senator Sununu. And what is the impact, then, on your 
operating loss? Isn't your operating loss either the same or 
slightly greater?
    Mr. Gunn. Yes--no, the first year, it was basically a wash, 
because we--this is cash, now--it was a wash. I think--because 
there were some things we had to do to get out of the 
business--I think we'll pick up two, three, four million 
dollars a year, cash. We had to write off a lot of assets, 
which gave us a big bookkeeping loss from that in 2004. But we 
were also able to sell--we've been fortunate that we were able 
to sell all of our road rail--or we had two types of--three, 
really--three types of basic equipment, and our road railers--
we were able to sell those to a freight railroad and basically 
get rid of the paper that--because they were all financed. 
We're in the process of trying to reach a deal to sell--or to 
long-term lease a bunch of our--the boxcars, and that will--
we'll recover cash from that. And we've stored about 40 
locomotives that we're in the process of trying to lease to 
other operators. We're close to leasing a batch of them right 
now. So, that will help. That will generate cash. So, there's a 
series of things that, if they happen, will help us, will 
improve--will have a very positive impact on us. And----
    Senator Sununu. The Federal appropriation was $1.2 billion, 
is that correct?
    Mr. Gunn. For the--1.2.
    Senator Sununu. And your request is $1.8 billion this year?
    Mr. Gunn. Yes. But that--let me just say, the difference--
it's 1.8, but if we had a credit facility to take care of our 
working capital, it drops to 1.6, approximately. In other 
words, the difference--the actual difference, in terms of what 
we intend to spend on the railroad, is 400, and it's all 
capital.
    Senator Sununu. Well, that would seem to reflect an 
insignificant change in your operating level.
    Mr. Gunn. Well, our goal is to keep the operating deficit 
from growing, which is fair. You know, given the physical 
conditions we have, that's a pretty ambitious goal, but we've 
been successful over the last couple of years. Because we do 
have inflation. I mean, that--and the price of fuel and a whole 
series of things that are buffeting us. But the growth in the 
request is capital. It's to begin to--it's to repair--on the 
infrastructure side, it's to repair the Northeast Corridor, 
basically, although we have some other small projects and 
facilities we own. On the equipment side, it's to continue the 
overhaul of the existing fleet, which, I might add, we can 
thank the Lord we were doing it, given what happened with these 
sellers.
    Senator Sununu. And you maintain that if you eliminated all 
of the long-distance train routes, you would only cut your 
operating loss in half.
    Mr. Gunn. Yes, basically. That's correct. You'd--but you'd 
cut another 50 million on it out of the capital. Now, maybe 
over an extended period of time, you'd improve that, but 
initially you'd have to pony up the C-2 labor protection, which 
would be over--if you did what we're talking about, would be 
over a billion dollars. And you would have--you would offset 
that with savings, after you took the trains off and you had 
furloughed the people, of about 300.
    Senator Sununu. Anybody know what the discounted value of 
$300 million is, in perpetuity?
    Mr. Gunn. It depends on the--your--the rate you use.
    Senator Sununu. Probably quite a bit.
    I have one more question, Mr. Chairman, if I may.
    Mr. Rosen, you mentioned the subsidy--the overall average 
subsidy level for the long-distance trains. Did you say it was 
$218 per passenger? I think that was the fully allocated----
    Mr. Rosen. That sounds right. I can double-check the number 
I was giving you. It was actually out of my written testimony.
    Mr. Gunn. Can I just make a comment?
    Mr. Rosen. $214.
    Senator Sununu. Yes.
    Mr. Gunn. Just a factual comment. We talk about subsidy per 
passenger. And what happens when we make these calculations is, 
people tend to divide the number of Amtrak passengers into the 
subsidy. In fact, there are hundreds of thousands of other 
daily passengers who are on Amtrak track and under our wire, 
using our signals, that are involved, as well. So, you've got 
to be a little careful with just dividing Amtrak passengers 
into subsidies----
    Senator Sununu. I'm not sure I understand----
    Mr. Gunn.--unless you segregate into----
    Senator Sununu.--that.
    Mr. Gunn. Pardon?
    Senator Sununu. I didn't understand that. We're talking 
about the long-distance trains that----
    Mr. Gunn. Oh, OK.
    Senator Sununu.--the 15----
    Mr. Gunn. You're talking about intercity? I'm just--then 
that's probably a good----
    Senator Sununu. And I wasn't talking about the Northeast 
Corridor.
    Mr. Gunn. I just wanted to point out that there are an 
awful lot of passengers on our facilities that use Amtrak, in 
one way or another, that are not Amtrak passengers. In fact, 
there are probably four times the Amtrak passenger count for 
these other passengers.
    Senator Sununu. So, you're talking about the mass transit, 
say, the----
    Mr. Gunn. I'm talking about----
    Senator Sununu.--MBTA in Massachusetts and----
    Mr. Gunn. No, I'm talking about--the MBTA is the Attleboro 
line. There's a small number. But there's a--there are large 
numbers on Jersey Transit, large numbers on SEPTA, in 
Philadelphia, and large numbers on the MARC service, between 
Baltimore and Washington.
    Senator Sununu. My question, Mr. Rosen, is, is there a 
comparative number, either per mile or per passenger, for the 
Northeast Corridor, relative to the long-distance train?
    Mr. Rosen. There is. And while I don't have it at my 
fingertips, it's roughly a breakeven-type number.
    Senator Sununu. You're saying it's roughly zero.
    Mr. Rosen. Yes.
    Mr. Mead. Yes, but there's a big caveat there. An enormous 
amount of money--billions--have been poured into the Northeast 
Corridor over the years in capital. In your state, that's not 
so. We're talking operating loss----
    Senator Sununu. Well, actually, about 65 million, I think, 
was what was put into the corridor.
    Mr. Gunn. And that was Maine's money.
    Senator Sununu. Well, no, actually it was Federal taxpayer 
money.
    Mr. Mead. My point is that----
    Senator Sununu. I think if the State of Maine had had to 
put the money in, we wouldn't be talking about the----
    Mr. Mead. The only point I was trying to make is, when 
you're looking at this system, you're coming up with these 
losses per passenger. When you look at the Northeast Corridor, 
it is true that, in terms of operating expenses, they are 
roughly breaking even. When you throw in the huge capital 
contribution that the government's made over the years, that 
figure changes fairly dramatically, and you'll find some of 
those Northeast Corridor passengers are riding on the 
taxpayer's back, as well.
    Senator Lott. Senator Sununu----
    Senator Sununu. Thank you, Mr. Chairman. Thank you, you've 
been very generous.
    Senator Lott. Well, thank you very much. I look forward to 
working with this panel and others that are very much 
interested. I hope we can come up with an appropriate solution 
for the needs of the American people.
    Thank you.
    [Whereupon, at 11:58, the hearing was adjourned.]
                            A P P E N D I X

  Prepared Statement of Hon. Olympia J. Snowe, U.S. Senator from Maine
    Thank you, Mr. Chairman for holding this hearing today to help 
Members of the Subcommittee get a handle on the various proposals to 
reform America's passenger rail system, Amtrak.
    While both the House and the Administration have recently put forth 
their ideas for reforming our struggling National Passenger Rail 
Corporation, my colleagues and I here in the Senate continue to discuss 
the very complex issues that confront Amtrak.
    I must admit, I am disappointed that the Administration continues 
to attempt to eliminate Amtrak. Under the guise of reform, it seems 
that the Administration has provided us with a blueprint to break up 
Amtrak and leave the pieces in the hands of the states and private 
corporations. This is not the sort of reform that Amtrak needs. It 
certainly has its flaws, but maintaining a national passenger rail 
system is in America's national interest. It reduces congestion, it 
betters environmental quality, and places fewer automobiles on the 
road. I do not advocate blindly throwing money at Amtrak, but efforts 
must be made to not only maintain the existing assets but deliberately 
and carefully expand this service.
    Obviously, as a Senator from Maine, I have a great deal of interest 
in the viability of the Northeast Corridor. Not only its continued 
operation, but augmenting and improving the Corridor. A significant 
part of the augmentation of the Corridor is having the power to make 
capital improvements. Without this power, the safety of our commuters 
is at risk. According to Amtrak's numbers, the Corridor moved over 14 
million passengers last year, easily the most traveled rail corridor in 
America, including freight lines. I do not feel that we can neglect 
Amtrak's ability to make these safety improvements, and urge my 
colleagues to take this into account as we formulate a comprehensive 
reform package.
    In my state, we have an Amtrak route known as the Downeaster. It 
travels from Boston to Portland, and moves over a quarter of a million 
people annually. This has been a significant success in Maine, but our 
route is not financed through the yearly appropriations fight we 
undertake on behalf of Amtrak. Instead, it uses a Federal Highway 
Program entitled CMAQ ( see-mack ), which is intended to relieve 
congestion and improve air quality. It seems clear to me that passenger 
rail does both of these things as good or better than any other mode of 
surface transportation. One thing I would like the panelists to speak 
to is how to fund passenger rail in non-traditional ways, rather than 
leaning on the General Fund and potentially exacerbate our already 
ballooning national debt.
    Lastly, the security of rail, both passenger and freight, is an 
often overlooked but very real concern in our everyday lives. I took 
the step of requesting that the General Accounting Office examine the 
adequacy of our rail security in relation to international standards 
throughout Europe and Asia. They are due to complete this study in a 
few short months. I look forward to hearing from the panelists to what 
extent rail security has been taken into account in the various ideas 
that have been offered to initiate these reforms.
    The future of passenger rail is important, not only to the 
Northeast but, as gas prices climb and energy costs soar, throughout 
the country. If we can develop a template for successful passenger rail 
here in this Subcommittee, it could provide an avenue to improve our 
Nation's infrastructure and make our economy more efficient. I am 
hopeful we can begin to accomplish that today.
    Thank you, Mr. Chairman.
                                 ______
                                 
  Prepared Statement of Hon. Gordon H. Smith, U.S. Senator from Oregon
    Thank you Mr. Chairman. I appreciate your holding this hearing and 
I welcome our witnesses from Amtrak and the Department of 
Transportation.
    Although a vast majority of individuals travel by car or plane as 
their primary means of transportation, still each year millions of 
travelers choose, or depend on, intercity passenger rail for such 
purposes.
    Amtrak provides a valuable service for Oregonians who rely on 
passenger rail for traveling across the state and up and down the west 
coast. Amtrak operates one short-distance service in Oregon (The 
Cascades), and two long-distance services, (The Coast Starlight and The 
Empire Builder). Of Amtrak's total annual ridership of 25 million, 
ridership in Oregon is nearly 700,000 passengers per year.
    In addition. the State of Oregon is one of 13 states currently 
providing funds to support and maintain Amtrak's rail service. 
Specifically, the State of Oregon spends $4.5 million per year on The 
Cascades train line that runs from Eugene to Vancouver, BC. These 
annual state expenditures have greatly contributed toward the success 
of operating Amtrak rail service in my State of Oregon. It is my belief 
that in order for Amtrak to be successful, a system needs to be 
developed whereby all states with intercity passenger rail service make 
a fair contribution to support its operations.
    As we all well know, funding for Amtrak has been an issue the 
Congress wrestles with annually and Amtrak has continued to limp along 
year-to-year with just enough funding to maintain its operations.
    In the United States Senate, I have supported funding for Amtrak 
and believe intercity passenger rail can and should continue as a 
viable mode of travel for our citizens.
    However. Amtrak's financial house is in a shambles, now reaching 
losses exceeding $1 billion per year. This can no longer continue. 
Amtrak's operations need to be assessed and reforms implemented in 
order to sustain the long-term viability of intercity passenger train 
service.
    Reform of Amtrak is much needed and I welcome a constructive and 
candid discussion of the issues so that, moving forward, passenger rail 
will be a more efficient mode of providing transportation for our 
citizens.
    I look forward to hearing today's testimony from representatives of 
Amtrak and the Department of Transportation and their proposals to 
address the state of Amtrak's passenger rail service.
    Thank you Mr. Chairman.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                          Hon. Kenneth M. Mead
CMAQ Funding for the Downeaster:
Background:
    I wanted to ask some questions about the Administration funding 
priorities for passenger rail. As a Northeasterner, the operations on 
the Northeast Corridor are vital to high-density passenger rail network 
that operates along the East Coast. In my home State of Maine, our 
route from Portland to Boston, known as the Downeaster, has been a 
hard-earned success. However, unlike traditional Amtrak programs, it is 
not funded through the typical Amtrak revenue streams.
    Through the efforts of the Maine delegation, we have been able to 
achieve funding via the Highway Trust Fund for operation of the 
Downeaster. More precisely, the CMAQ (see-mack) program, which as you 
know is used to alleviate congestion and improve air quality, has been 
used as a funding source for our Amtrak service. As I mentioned in my 
statement, the Downeaster transports over a quarter of a million people 
a year, and it has been a resounding success for commuters traveling to 
and from metropolitan Boston. Yet every couple of years, we have to 
fight the Federal Highway Administration for a two-year waiver.
    Question 1. Rather than constantly fight for a waiver from the 
Federal Highway Administration on an annual basis, I would prefer that 
Maine be permitted to use CMAQ funds to achieve precisely what they 
were intended to do; relieve congestion. What is your feeling regarding 
the utilization of CMAQ funds to operate passenger rail and mass 
transit service?
    Answer. CMAQ is an $8.1 billion program under TEA-21 intended to 
help fund capital investments in new projects and programs located in 
air quality nonattainment and maintenance areas which reduce 
transportation-related emissions. Rail projects qualify for these funds 
as long as funds are used in or in close proximity to air quality 
nonattainment and maintenance areas. We are aware that Maine launched 
its Downeaster service with $51.7 million in CMAQ funds (along with 
state bonds and Taxpayer Relief Act Funds) for capital improvements to 
track and signals and stations. CMAQ funds have been used by other 
states for a variety of freight and passenger rail services. New York 
State has spent $100 million or more in CMAQ funds on rail improvements 
to support passenger service on the Empire Corridor between NYC and 
Schenectady.
    CMAQ funds can be used for up to 3 years to cover operating losses 
during a system startup period, after which other sources of funding 
must be used if the service is to be continued. Thus the program, as 
currently defined, is not intended to provide long-term state support 
for operating losses on passenger rail service. CMAQ annual 
appropriations since FY 2002 averaged $1.4 billion a year. The 
operating subsidy requirements for transit and intercity passenger rail 
far exceed this level of funding, and, if used to fund operating losses 
would leave nothing for capital projects. Operating subsidy 
requirements might better be addressed in new legislation that 
explicitly recognizes Federal and State agreements on funding rail 
operating subsidies, such as we have suggested in our testimony.
Alternative Funding Sources for Retaining Amtrak
Background:
    While no one here looks forward to another fight with the 
Appropriations Committee about funding for Amtrak, it strikes me that 
the most recent proposals to restructure Amtrak revolve around 
continued utilization of the appropriations process, which seems to me 
to be spinning one's wheels. Maine uses a unique but effective way of 
funding its operations for our Amtrak route, and I wonder that 
relegating the survival of Amtrak to congressional appropriators, and 
farther down the line to states, seems to deflect the problem rather 
than attempt to solve it.
    There must be at least a few suggestions to creatively finance the 
passenger rail sector, and Amtrak in particular.
    Question 2. Does the panel have any ideas on using alternative or 
nontraditional sources of funding for passenger rail? Has their been 
any examination of developing financing outside the realm of receiving 
a check from the Federal Government every year?
    Answer. Since 2001, both the House and the Senate have proposed 
legislation that would establish a long-term funding source for 
intercity passenger rail development. Funding recommendations in these 
proposals have centered on the issuance of tax-credit and tax-exempt 
bonds as a long-term funding source for corridor development. These 
proposals have not been enacted primarily because of the resistance to 
increasing U.S. debt financing and the negative impacts on the budget. 
Previous proposals focused on the use of highway trust fund monies and 
a \1/2\-cent gas tax which also failed to generate sufficient support.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                             David L. Gunn
    Question 1. Rather than constantly fight for a waiver from the 
Federal Highway Administration on an annual basis, I would prefer that 
Maine be permitted to use CMAQ funds to achieve precisely what they 
were intended to do: relieve congestion. What is your feeling regarding 
the utilization of CMAQ funds to operate passenger rail and mass 
transit service?
    Answer. Amtrak believes that states should have the flexibility to 
utilize their Federal highway funds for whichever mode of 
transportation, including intercity passenger rail, best meets the 
states' transportation needs and other policy objectives, such as 
congestion mitigation and improving air quality. The Downeaster service 
to Maine--which operates parallel to the congested Maine and New 
Hampshire Turnpikes, and has carried nearly one million passengers 
since its inception in December 2001--illustrates how new state-
initiated intercity passenger rail services can provide modal 
alternatives in congested highway corridors.

    Question 2. Does the panel have any ideas on using alternative or 
non-traditional sources of funding for passenger rail? Has there been 
any examination of developing financing outside the realm of receiving 
a check from the Federal Government every year?
    Answer. While intercity passenger rail service cannot be provided 
without government funding, Amtrak believes that new funding 
mechanisms--including private investment--are necessary if intercity 
passenger rail is to fulfill its potential. Indeed, the lack of a 
reliable, predictable Federal funding source like other modes is a 
major impediment to attracting non-Federal matching funds. Private 
investors, states and local governments are reluctant to commit their 
funds to support intercity passenger rail when the level of Federal 
funding it will receive next year--and, for that matter, whether it 
will continue to exist--is so uncertain. Thus, it is critical that a 
Federal funding program for intercity passenger rail, like the programs 
that fund other modes, provide a long term and predictable level of 
funding.
    Amtrak, and the states who will be the ultimate purchasers of 
intercity passenger rail services under Amtrak's Strategic Reform 
Initiatives, would be open to innovative approaches that could help 
meet some of the funding needs of intercity passenger rail, 
particularly with regard to corridor development and the acquisition of 
new equipment. Such approaches might include bond financing, a multi-
modal user fee, and the creation of a special purpose entity to acquire 
and finance new equipment. Amtrak looks forward to working with 
Congress, the Administration, and the states to advance such 
initiatives.

    Question 3. Who determines the extent of the inspections of the 
Acela Trains, and the Amtrak fleet in general? Do you feel that the 
inspections are lacking in thoroughness? Is this part of a pattern of 
overlooking or simply missing mechanical problems in Amtrak's fleet? 
How can you reassure the public that these oversights will not 
continue?
    Answer. Every maintenance inspection performed on all equipment 
owned by Amtrak including the Acela is developed to comply with the 
Federal Railroad Administration's regulations in Volume 49 of the Code 
of Federal Regulation. The Consortium of Bombardier Transportation of 
Canada and Alstom of France through a subsidiary company--the Northeast 
Corridor Maintenance Services Company (NECMSC)--are responsible for 
inspecting and maintaining the Acela trainsets in accordance with 
Federal Regulations and the original equipment manufacturer's 
recommended practices. The Federal regulation is quite extensive in 
encompassing every major component on both passenger cars and 
locomotives to ensure the highest degree of safety for the traveling 
public. Amtrak's philosophy has always been where possible to increase 
the safety margin in our inspection process above that which is 
outlined by regulatory requirements.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Gordon H. Smith to 
                             David L. Gunn
    Question 1. What steps are you taking in order to improve 
operational efficiencies at Amtrak?
    Answer. Amtrak is undertaking and has initiated a number of efforts 
to improve operational efficiencies. We have taken advantage of 
technological improvements in our reservations system, closed down one 
of our reservation call centers, exited the mail and express business 
and as a result eliminated or truncated four routes. In addition, we 
are streamlining procurement of long lead time material for our fleets, 
outsourcing component renewal and remanufacture where practical, 
increasing utilization of employee resources as well as eliminating 
unnecessary fleet configurations. We are also continuing our current 
initiative to standardize our maintenance inspection procedures across 
fleet types. This effort will reduce our out of service time for 
planned maintenance activities while increasing system reliability and 
overall fleet availability.

    Question 2. What are your plans for the routes that are the biggest 
financial drain on your organization? Would you consider reintroducing 
routes, such as the Pioneer Line, that have been previously 
discontinued if these routes are deemed to provide more benefit to 
consumers and businesses than existing routes?
    Answer. The proposals and planned actions in Amtrak's Strategic 
Reform Initiatives include:

   requiring all users of the Amtrak-owned Northeast Corridor, 
        whose infrastructure requirements are the largest component of 
        Amtrak's capital budget request, to pay their full 
        proportionate share of the Corridor's operating and capital 
        costs;

   establishing performance thresholds for long distance 
        trains, and discontinuing trains not meeting these thresholds 
        absent state (or additional Federal) support; and

   a variety of actions to improve the financial performance of 
        all routes, including changes in food service, selective 
        outsourcing, and limited changes in certain statutory 
        provisions that impose higher costs on Amtrak than on its 
        competitors.

    The initiation of new routes is a major corporate decision that 
requires action by Amtrak's Board and approval by the Secretary of 
Transportation. This issue is addressed in Mr. Laney's response to the 
similar question you have posed to him.

    Question 3. Budgets at both the Federal and State levels are being 
stretched in all directions. Are you supportive of having all states 
with Amtrak service shoulder a fair and equitable share of their 
operational and capital costs?
    Answer. As indicated in its Strategic Reform Initiatives, Amtrak 
believes that all states should provide a fair and comparable share of 
the operating and capital costs associated with the short distance 
corridor trains that serve them. Amtrak plans to transition all 
corridor routes to state coverage of fully allocated operating losses 
(excluding interest and depreciation), and equitable charges for usage 
of Amtrak-owned equipment, over a four year period beginning in FY 
2008. Critical to accomplishing this transition, however, is the 
enactment, prior to the start of that transition, of a Federal matching 
grant program under which all states will be able to leverage their 
capital investments in intercity passenger rail on a basis comparable 
to the Federal match that is provided for other modes.

    Question 4. In 2010, the Olympics will be held in Vancouver, BC. 
The Olympics will draw scores of people to the region during that time. 
As a result, I anticipate this will cause much traffic congestion, 
especially on I-5. Are you willing to make the Cascades a priority so 
that adequate rail infrastructure exists in anticipation of the 2010 
Olympics?
    Answer. The Cascades service to Vancouver, BC is supported by the 
State of Washington, and Oregon provides funding for the portion of the 
Cascades route between Eugene and Portland. The rail infrastructure 
over which it operates is owned by private freight railroads.
    Decisions about infrastructure investments on state supported 
corridor routes are made by the states involved. Currently, the states 
are also the primary--and in many cases exclusive--funding source for 
investments in corridor infrastructure.
    Because there is no Federal matching program in place to match 
state capital investments in intercity passenger rail, the States of 
Oregon and Washington have funded the vast majority of the expenditures 
to date to upgrade the Cascades corridor and extend service to Eugene 
and Vancouver, BC. In its 2004 Strategic Plan, Amtrak designated the 
Cascades corridor as a ``Tier I'' corridor based upon the readiness of 
the states of Oregon and Washington to make additional investments in 
corridor development as soon as a Federal matching program for 
intercity passenger rail is enacted. An important underpinning of 
Amtrak's plan to transition states to full operational cost 
responsibility for and control of all corridor services is the 
enactment of such a program prior to FY 2008.
    That said, we have been contacted by some local communities in the 
Pacific Northwest who would like to work with us to provide adequate 
mobility to and from the Olympics. We intend to work with these groups 
and are open to their suggestions and ideas on how we can improve and 
expand service during the Olympics.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Gordon H. Smith to 
                          David M. Laney, ESQ.
    Question. My understanding is that under Amtrak's proposal, states 
will be responsible for filling funding gaps for long distance routes 
such as the Empire Builder that operates in Oregon. How will each 
state's financial obligation be calculated? Will you consider and 
analyze the possibility of reintroducing previously discontinued routes 
such as the Pioneer Line if they prove to have a more favorable 
revenue-to-cost ratio than some existing intercity passenger rail 
lines?
    Answer. Under Amtrak's proposal, states will be required to provide 
operating funding for long distance trains only if a particular train 
fails to meet the minimum performance thresholds that Amtrak is in the 
process of establishing. In that case, state funding would be required 
to cover the ``gap'' between the minimum performance threshold and the 
train's actual operating losses. Whether to provide funding, and how 
much of the required funding would be provided by each participating 
state, would be up to the individual states involved.
    Amtrak intends to operate a long distance train network that 
optimizes cost efficiency and public benefits within the limits of 
available Federal funding and equipment. Consistent with these 
objectives and applicable law, Amtrak would consider operating long 
distance trains on new or different routes if:

        (i) a market analysis indicates that a new route would meet 
        minimum performance thresholds (with state financial support if 
        necessary), in which case a more detailed study of comparative 
        revenues and operating costs, route termination/start up costs 
        and availability of equipment, would be the next step in the 
        analysis; and

        (ii) the new route has adequate infrastructure--particularly 
        rail line capacity--to enable Amtrak to provide reliable 
        service (or a state or group of states is prepared to fund the 
        necessary infrastructure improvements, utilizing the available 
        Federal match if appropriate).
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                             David L. Gunn
    Question 1. Do you fully support the plan developed by the Board? 
Are there areas that need further improvement or refinement?
    Answer. I fully support the Board's plan.
    The Strategic Reform Initiatives that Amtrak has laid out are 
merely the first step in a multi-year planning and implementation 
process. A large number of refinements will be required as we develop 
the more comprehensive strategic plan that we expect to issue in early 
Fall, and as we begin to take actions to implement the initiatives we 
have proposed. The involvement of other stakeholders is particularly 
critical as the proposals that we have sketched out in the Strategic 
Reform Initiatives are refined, fleshed out and revised.
    Amtrak management and the Board put a lot of work into the plan and 
we believe it is a serious proposal and answers the call from the 
Administration and others about what shape reform of Amtrak should 
take.

    Question 2. What is the single most important tool Amtrak needs to 
be successful in the future?
    Answer. Adequate, predictable funding. Funding of state of good 
repair needs can no longer be deferred, and a Federal match, comparable 
to that for other modes, of state funded corridor development projects 
is essential for intercity rail passenger service to begin to fulfill 
its potential.

    Question 3. Do you believe outsourcing certain functions will 
significantly lower operating costs? What have been your experiences 
with outsourcing so far?
    Answer. To an extent outsourcing can reduce our costs and where 
applicable we will explore those opportunities. Amtrak has outsourced 
selected activities on many occasions with mixed results. While cost is 
certainly an important consideration care must be taken to acknowledge 
the other aspects associated with an outsourcing venture; 
specifications, oversight, Federal procurement requirements and the 
like which restrict and occasionally eliminate the most viable 
candidate leaving you with an alternative less capable than existing 
internal resources.

    Question 4. Is Amtrak's security funding needs incorporated into 
the Board's proposal? Does the $1.8 billion requested for this year 
include any significant funding for security?
    Answer. Security funding in the amount of $13.3 million is included 
in Amtrak's $1.8 billion requested for FY06. In addition, the Police & 
Security Department's FY06 operating budget is projected at about $35 
million.

    Question 5. Amtrak is facing significant on-time performance 
challenges, especially for long distance trains. What is the major 
cause of delay for these trains? How do we address this delay? For long 
distance trains to become better performers economically, as the 
Board's plan suggests it hopes to accomplish, won't service reliability 
and on-time performance have to be improved?
    Answer. Amtrak long distance trains operate beyond the Amtrak-owned 
Northeast Corridor using tracks owned by other, ``host'' railroads. 
Most delays to Amtrak trains operating off Amtrak-owned tracks are 
attributable to host railroads. Each minute of delay to an Amtrak train 
is assigned a cause, and each cause is the responsibility of either 
Amtrak, the host railroad, or third parties. On non-Amtrak owned lines 
during the first half of Fiscal Year 2005, host railroad-responsible 
delays accounted for 78 percent of all delays, followed by Amtrak-
responsible delays at 16 percent and third party delays at 6 percent. 
Of delays caused by host railroads, Freight Train Interference 
accounted for 29 percent of total delays to Amtrak trains; temporary 
speed restrictions (``Slow Orders'') accounted for 16 percent; Signal-
related Delays 11 percent; Passenger Train Interference 10 percent; 
Routing 6 percent; Maintenance of Way 3 percent; Commuter Train 
Interference 3 percent.
    Amtrak is addressing these delays using several approaches: (1) 
Amtrak operating personnel work continuously on a real-time basis with 
host railroads to keep trains moving; (2) Amtrak funds personnel 
located in the dispatching centers of major host railroads to monitor 
and improve Amtrak train performance; (3) Amtrak offers the host 
railroads financial incentives for good performance and penalties for 
poor performance; and (4) Amtrak is offering a new program of funds to 
match host railroad and state investments in small, targeted 
infrastructure projects to remove bottlenecks and improve performance. 
Amtrak also supports Federal efforts to fund rail infrastructure. The 
primary requirement for improving on-time performance is capital 
investment in rail infrastructure to match rail capacity with demand 
for freight and passenger traffic.
    On time performance is one of the primary drivers of Amtrak 
customer satisfaction. Therefore, improvements in service reliability 
and on-time performance are key contributors to revenue growth and 
improved economic performance.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                          David M. Laney, ESQ.
    Question 1. What are the main differences between your plan and the 
Administration's plan?
    Answer. The Administration's plan would terminate Federal operating 
funding for Amtrak's 15 long distance trains. Amtrak's plan proposes to 
establish performance thresholds that each long distance train would 
have to meet by the end of a transition period, during which time 
various actions would be taken to improve financial performance. At the 
end of this period, long distance trains that fall short of these 
performance thresholds would be discontinued unless states or Congress 
decided to fund the ``gap'' between individual trains' operating losses 
and the minimum performance threshold.
    The Administration's plan proposes to turn over the Northeast 
Corridor (``NEC'') infrastructure to a compact of eight states and the 
District of Columbia. Amtrak's plan would not, at least at this point, 
separate NEC assets from NEC operations. (We do propose--and have 
already begun--to separate NEC infrastructure management and NEC 
operations for planning, accounting, and financial reporting and 
analysis purposes.)
    The Administration's plan contemplates that the Federal match for 
state capital investments in intercity passenger rail would be no 
greater than 50 percent. Amtrak's plan contemplates a Federal matching 
program for state investments that provide a stimulus comparable to 
that provided for other transportation modes at this stage in their 
development (e.g., 80/20).
    The Administration's plan is silent in its proposal as to what 
level of funding would be provided for continued intercity passenger 
rail operations and capital needs or for bringing the Northeast 
Corridor to a state of good repair, authorizing only ``such sums as may 
be necessary.'' Amtrak's plan spells out in detail the level of funding 
that Amtrak believes is required for these purposes.
    Both the Administration's and Amtrak's plans contemplate 
competition in the provision of intercity passenger rail services to 
reduce costs and improve service quality. However, the Administration's 
plan does not address fundamental issues necessary to position Amtrak 
on an equal footing with all other operators/service providers in 
certain respects, or provide intercity passenger rail operators with 
the labor flexibility that other industries have. To address these 
issues, Amtrak has proposed that all new intercity passenger rail 
employees be covered by Social Security rather than by the Railroad 
Retirement system, and that labor agreements terminate when they 
expire.

    Question 2. An essential element of your plan is dedicated, multi-
year federal capital match program. Is the Board's plan possible 
without this capital match program?
    Answer. No. The vision of intercity passenger rail's future 
underlying Amtrak's plan--and in the proposals advanced by the 
Administration and various members of Congress--requires an adequate 
federal capital match program. Many of the critical elements in the 
Amtrak's plan--state assumption of the full operating losses of all 
corridor trains by 2011, corridor development, and increasing the 
public benefits from (and therefore public support for) intercity 
passenger rail--depend upon the availability to states of federal 
matched funding by which they can leverage their investment in 
intercity passenger rail as they do with other modes. A match program 
would also allow a leveraging of federal investment in intercity 
passenger rail with new state funds.

    Question 3. Will the metrics established to judge long distance 
trains include both economic and societal and mobility benefits?
    Answer. The metrics for long distance trains that the Board will 
establish have not yet been finalized. Based on the Board's discussions 
to date, I anticipate that financial performance will be the primary 
criterion, but that other factors relating to public and transportation 
benefits will also be taken into account.

    Question 4. What sort of state operating support do you anticipate 
the long distance trains will require? Are you proposing that Amtrak 
should cover some maximum loss per train and that the states will have 
to pick up the rest for operations that lose more than that maximum 
amount?
    Answer. Amtrak proposes that the Federal Government continue to 
cover the operating losses of long distance trains that meet 
performance metric thresholds. For trains that do not meet these 
thresholds, states (or Congress, if it chooses) would have the option 
of covering the ``gap'' between the minimum performance threshold and 
actual operating losses. If such coverage is not provided, the trains 
will be discontinued.

    Question 5. Can the Corporation survive on a funding level of $1.2 
billion?
    Answer. As stated in the Amtrak Strategic Reform Initiatives and 
FY06 Grant Request, ``Amtrak cannot continue to operate at the current 
funding level of $1.2 billion in FY06.'' From a $1.2 billion funding 
level, Amtrak would first need to reserve $278 million for debt service 
on its legacy debt. Second, $560 million is needed as operating support 
for the current base of operations. This leaves a balance of $362 
million for all capital programs. The FY06 requirement for capital 
needs which represent ongoing state-of-good-repair primarily for 
equipment and infrastructure totals $959 million. Of this $172 million 
is planned to be supported by non-Federal funding including from states 
and transit agencies with the balance of $787 million required from 
federal funding. It is not possible to keep both equipment and 
infrastructure in a state of good repair with less than half the 
funding required, $362 million.

    Question 6. You mentioned a desire to change the laws governing 
contract negotiations and retirement plans for Amtrak employees. What 
types of changes are you looking for? Are you suggesting that these 
laws should be changed for the entire railroad industry or just Amtrak? 
If just for Amtrak, why should Amtrak be treated differently than other 
freight or commuter railroads?
    Answer. With regard to contract negotiations, the change we are 
looking for is to amend the Railway Labor Act (``RLA'') to provide that 
the termination date of an agreement is the date that Amtrak can impose 
new agreement terms or the union may engage in self-help. Without this 
the terms of an agreement without a negotiated change continue in 
effect ``forever.'' We are also seeking to make new intercity passenger 
rail employees subject to Social Security rather than the Railroad 
Retirement Tax Act (``RRTA''); current employees would continue to be 
covered by the RRTA.
    These changes should be limited to intercity passenger rail 
operators and their labor unions only. The Alaska Railroad--the other 
current operator of intercity passenger rail service in the United 
States--is not subject to the RLA or the RRTA, and new passenger rail 
operators who compete for contracts to operate intrastate corridor 
services currently operated by Amtrak would likely not be subject to 
these statutes either. Commuter railroads are governed by provisions of 
the RLA regarding the contract negotiating process. These differ from 
the provisions applicable to freight railroads that also currently 
apply to Amtrak.
    There is no reason why Amtrak, which is subject to statutory, 
congressional and administration mandates to reform its operations and 
reduce its costs, should be subject to all of the statutory provisions 
applicable to privately owned freight railroads. Amtrak's proposals 
would create a ``level playing field'' in which all operators of 
intercity passenger rail service operators would be subject to the same 
laws.

    Question 7. The Board is advocating very robust competition for the 
services it now solely provides. I can't think of many other private 
companies that are asking for competition in their marketplace. Does 
this call for competition conflict with your fiduciary responsibilities 
to the Corporation?
    Answer. Amtrak is not sustainable as currently funded. The company 
cannot continue to operate the way it does today with the current level 
of Federal financial support, which in FY 2005 is approximately $200 
million less than projected losses (a gap we are closing with working 
capital that will soon be depleted). For Amtrak to avoid insolvency, 
support for Amtrak's funding needs must be obtained from those who have 
advocated significant reforms in the provision of intercity passenger 
rail services, including the Administration and many Members of 
Congress. The Board believes that the introduction and development of 
competition is one of the steps necessary to achieve this objective. 
Competition introduces market incentives for operating efficiencies and 
service quality that are not as pronounced as long as Amtrak is the 
sole provider. Competition should enhance Amtrak's performance at 
virtually all levels. It also represents an essential component of 
proposals from Congress and the Administration and a key to funding 
levels that will enable Amtrak to continue its operations.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to 
                          David M. Laney, ESQ.
    Question 1. Has the Board considered taking any actions to cut 
routes to save money immediately? If so, how much money could be saved?
    Answer. The Board continues to evaluate many cost saving actions 
including cutting routes. In fact, for FY05 the Board approved the shut 
down of the Three Rivers route and the truncation of the Palmetto 
route. However, meaningful reductions in operating expense would 
require widespread route and service actions related to long distance 
service requiring notice, an orderly shut down and supplemental funding 
for the significant restructuring costs. Restructuring costs include 
those related to contractual labor and financing agreements. Instead 
the Board supports a longer term evaluation process with a set of 
benefit performance metrics to be used to evaluate and determine the 
future of each long distance train. This process includes working to 
improve performance including state contribution where required to 
achieve performance thresholds or termination beginning in FY08 for 
routes that continue to fall short.

    Question 2. How do you believe that proposing additional 
competition will aid the bottom line of the company to which you owe a 
fiduciary duty as Board Chairman?
    Answer. Amtrak is not sustainable as currently funded. The company 
cannot continue to operate the way it does today with the current level 
of Federal financial support, which in FY 2005 is approximately $200 
million less than projected losses (a gap we are closing with working 
capital that will soon be depleted). For Amtrak to avoid insolvency, 
support for Amtrak's funding needs must be obtained from those who have 
advocated significant reforms in the provision of intercity passenger 
rail services, including the Administration and many Members of 
Congress. The Board believes that the introduction and development of 
competition is one of the steps necessary to achieve this objective. 
Competition introduces market incentives for operating efficiencies and 
service quality that are not as pronounced as long as Amtrak is the 
sole provider. Competition should enhance Amtrak's performance at 
virtually all levels. It also represents an essential component of 
proposals from Congress and the Administration and a key to funding 
levels that will enable Amtrak to continue its operations.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to 
                             David L. Gunn
    Question. Has the Board considered taking any actions to cut routes 
to save money immediately? If so, how much money could be saved?
    Answer. The Board continues to evaluate many cost saving actions 
including cutting routes. In fact, for FY05 the Board approved the shut 
down of the Three Rivers route and the truncation of the Palmetto 
route. However, meaningful reductions in operating expense would 
require widespread route and service actions related to long distance 
service requiring notice, an orderly shut down and supplemental funding 
for the significant restructuring costs. Restructuring costs include 
those related to contractual labor and financing agreements. Instead 
the Board supports a longer term evaluation process with a set of 
benefit performance metrics to be used to evaluate and determine the 
future of each long distance train. This process includes working to 
improve performance including state contribution where required to 
achieve performance thresholds or termination beginning in FY08 for 
routes that continue to fall short.
                                 ______
                                 
Responses to the remaining questions were not available at the time 
        this hearing went to press.
  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                          Hon. Kenneth M. Mead
    Question 1. In your testimony, you note that the freight railroads 
have expressed considerable concerns about the concept of extending 
Amtrak's statutory access to other railroads and to new operators. Have 
you considered any alternative approaches such as having Amtrak manage 
the operations with the freight railroads and provide operating 
employees to other service providers on a contract basis, similar to 
what Amtrak currently provides for private trains or the service that 
the Alaska Railroad provides for some of the cruise operations in that 
state?

    Question 2. Your testimony suggests crating non-matching formula 
grants to serve as baseline Federal support for the states to cover 
long distance and corridor train operating losses and capital costs. If 
passenger rail funding needs exceed any state's apportionment of 
formula funds, as it likely would be the funding levels decrease over 
time per your recommendation, then a state would have to pay for the 
difference.
    Do you support allowing states to use some of their other Federal 
transportation funds, perhaps provided through the Congestions 
Mitigation and Air Quality program (CMAQ), the surface transportation 
program, or the 5311(f) intercity bus program to help cover those 
additional costs?

    Question 3. Can you discuss some of the costs that might be 
associated with trying to restructure Amtrak through bankruptcy?

    Question 4. Do you have examples of other Federal transportation 
programs that require states to collectively provide matching funds to 
cover operating costs? What are the challenges associated with this 
approach?
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                         Hon. Jeffrey L. Rosen
    Question 1. Does the Administration still support restructuring 
Amtrak through bankruptcy?

    Question 2. You've said that the Administration will only support 
Amtrak funding if it's accompanied by ``significant'' reform. Given the 
busy schedule for this year, it is possible, even likely, that final 
passage of an Amtrak reauthorization bill could occur after we have to 
approve funding for Amtrak for FY 2006.
    Will the Administration support funding to maintain Amtrak while 
Congress completes its work on Amtrak reauthorization?

    Question 3. Greyhound has recently withdrawn significant services 
in the West and Southwest, while many airlines have cut or eliminated 
service to many smaller cities and airports. Some of these regions and 
communities are served by our long distance trains, which Secretary 
Mineta has described as ``trains nobody rides between cities nobody 
wants to travel between.''
    If we eliminate the train in these areas, what are people with 
mobility needs to do in these communities who can't or don't drive?

    Question 4. Do you generally agree with the DOT IG's assessment of 
Amtrak's condition and financial needs?

    Question 5. How many Amtrak Board meetings has the Secretary 
attended during his tenure?

    Question 6. In your testimony, you say that Federal funds don't 
support transit operations, but that is incorrect. The Federal transit 
program does support operating costs for smaller transit properties and 
other programs including intercity buses. Why is providing operational 
support for transit acceptable, but not passenger rail?

    Question 7. Do you believe that we should measure the success of 
transit operations and intercity passenger rail by the same yardstick? 
Does Amtrak's fare box recovery figures compare favorably with the 
average rail transit property figures? Is Amtrak not public transit?

    Question 8. The Administration, through its SAFETEA proposal 
supports and has actually proposed strengthening the 5311(f) program, 
which provides both operating and capital support for intercity bus 
operations? Why has the Administration not proposed a similar program 
for passenger rail?

    Question 9. I understand that under the 5311(f) program, many 
states can't even come up with the 50 percent match required to 
subsidize intercity bus service. Isn't it likely that very few states 
could then provide a 100 percent match as you propose, requiring for 
intercity rail operations?

    Question 10. Every major Federal capital grant transportation 
program features some sort of dedicated, multi-year nature of capital 
projects. Why doesn't the Administration support this approach for 
passenger rail?

    Question 11. In your testimony, you note that Amtrak consumes 9 
percent of discretionary transportation spending. But, isn't most of 
our Federal transportation spending non-discretionary? What percentage 
of all transportation funding does the Federal Government spend on 
Amtrak annually?

    Question 12. Is it true that the Department of Transportation's FY 
2006 budget proposal to the Office of Management and Budget for Amtrak 
was $1.4 billion?

    Question 13. Secretary Mineta has been quoted as saying that if 
states won't pay for service, then trains shouldn't open their doors 
while traveling though that state. We currently have an example of this 
with the State of New Hampshire, where it doesn't contribute to the 
successful Downeaster Service provided by the State of Maine. Does the 
Secretary support eliminating all stops in New Hampshire even though 
doing so would be significantly impact the ridership and financial 
performance of the service?

    Question 14. The Administration has proposed no funding for the 
Next Generation High Speed Rail program. Does the Administration 
believe that highspeed rail projects are no longer viable?
                                 ______
                                 
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to 
                         Hon. Jeffrey A. Rosen
    Question 1. You stated you believe it is not inconsistent for the 
Administration to provide Federal operating assistance for intercity 
buses because smaller amounts (than Amtrak's Federal operating 
assistance grant) are involved. Why does the Administration believe in 
principle that federal operating assistance for intercity 
transportation is warranted in some cases and not others?

    Question 2. Has the Administration examined the safety impacts of 
separating infrastructure responsibility from operations over a major 
corridor? What analysis did the Department perform? Did the Department 
consult America's freight railroads before making such a proposal? What 
advice did they provide?

    Question 3. Did the Administration study the effect of not having 
intercity passenger rail service in congested areas like New Jersey 
before the President proposed the potential bankruptcy of Amtrak?

    Question 4. You serve as the Secretary's representative to the 
Amtrak board. Has the Board considered taking any actions to cut routes 
to save money immediately? If so, how much money could be saved?
                                 ______
                                 
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to 
                          Hon. Kenneth M. Mead
    Question 1. You testified before this Committee in the last 
Congress that a very similar proposal to the Administration's would 
cost around a billion and a half dollars a year. Is this still 
accurate?
    Question 2. Would the President's proposal likely lead to the 
reduction of Federal spending on intercity passenger rail service?

                                  
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