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




 
  DEPARTMENTS OF TRANSPORTATION, TREASURY, THE JUDICIARY, HOUSING AND 
URBAN DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 
                                  2006

                              ----------                              


                         THURSDAY, MAY 12, 2005

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:33 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Christopher S. Bond (chairman) 
presiding.
    Present: Senators Bond, Bennett, Burns, Murray, Byrd, Kohl, 
Durbin, and Dorgan.

                      DEPARTMENT OF TRANSPORTATION

                National Railroad Passenger Corporation

STATEMENT OF DAVID M. LANEY, ESQ., CHAIRMAN, AMTRAK 
            BOARD OF DIRECTORS
ACCOMPANIED BY:
        DAVID GUNN, PRESIDENT, AMTRAK
        JEFFREY M. ROSEN, GENERAL COUNSEL, DEPARTMENT OF TRANSPORTATION
        KENNETH A. MEAD, INSPECTOR GENERAL, DEPARTMENT OF 
            TRANSPORTATION

            OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

    Senator Bond. Good morning. The Senate Appropriations 
Subcommittee on Transportation, Treasury, Judiciary, HUD and 
Related Agencies will come to order.
    Today we welcome a diverse panel: Mr. David Gunn, Amtrak's 
President and CEO; David Laney, Amtrak's Chairman of the Board; 
Jeffrey Rosen, General Counsel for the Department of 
Transportation; and Kenneth Mead, Inspector General for the 
Department of Transportation.
    While I understand that Mr. Gunn will not be presenting 
testimony but is here to answer questions, I look forward to 
each of your views on Amtrak's fiscal year 2006 budget. More 
importantly, I look forward to understanding your views on the 
difficulty that Amtrak is facing and the options that will 
dictate the future or demise of Amtrak as we know it today.
    Unfortunately, the 2006 budgets presents a very bleak and 
dour picture for the future of Amtrak. The OMB request includes 
only $360 million in the Commuter Rail Operations Account, 
intended to facilitate Amtrak's reorganization through 
bankruptcy. This budget request is some $840 million less than 
the $1.2 billion appropriated in the current year for Amtrak 
operations and related needs. Under any circumstances, $360 
million is not enough to meet Amtrak's needs in 2006, whatever 
choice Congress makes about the future of Amtrak.
    As I have told you individually, and I have told the 
Director of the Office of Management and Budget, I think it is 
irresponsible to propose bankrupting Amtrak without having any 
significant plans for reforming it or the money either to fund 
the bankruptcy which would be, in our opinion, far more 
expensive than you have any concept here if you look at the 
obligations of Amtrak, or keeping it alive.
    Amtrak claims it needs $1.82 billion for 2006 and it cannot 
survive in fiscal year 2006 even on flat funding $1.2 billion. 
However, even if I was to agree that $1.82 billion for Amtrak 
is justified, I do not see how this subcommittee will be able 
to provide such a significant increase when we have been given 
such a shortfall across our entire budget by OMB.
    It is not your problem directly. It is Senator Murray's 
problem and mine. But it has implications which are very 
serious for you because we have a number of very difficult 
funding decisions in a tight allocation.
    The overall budget for domestic discretionary funding is 
such that this subcommittee will have trouble reversing many of 
the administration's recommendations that eliminate or reduce 
funding for many other important and necessary programs.
    OMB, for example, has eliminated funding of $51.6 million 
for Essential Air Service, an important and popular program 
that subsidizes air travel from remote rural airports, often 
located in areas with few transportation options. I doubt that 
we would be able to pass this bill on the floor of the Senate 
if those funds were not included.
    The budget request also proposes to dismantle the CDBG 
program as well as 17 other programs, and put them in a block 
grant with the Department of Commerce and take a huge whack at 
them, cutting them by about $2 billion. CDBG, again not your 
problem, it is ours. But CDBG is critical to HUD's mission of 
being both a leader and partner with States and communities in 
the development of housing and economic growth. The program is 
a priority for all States and most communities, and it is also 
a priority for the members of this subcommittee.
    Under the budget request, the subcommittee will have to 
find a way to also absorb a $2.5 billion rescission of excess 
Section 8 funds. Over the last few years, the previous 
committee that I had the pleasure of chairing before it was 
blown up, VA/HUD, made a number of reforms to the Section 8 
program to make it much more efficient and to reduce the 
availability of excess Section 8 funds.
    Having made that change, I have no idea how the 
administration proposes to pay for this rescission. Neither the 
Secretary of HUD nor the Director of OMB have any idea or any 
methodology for determining this rescission of where the funds 
will come from.
    Having given you the bright news, now these are just a few 
of the problems facing the subcommittee and unfortunately will 
severely limit our ability to backfill funding for Amtrak. 
Believe it or not, there is a laundry list of other program 
cuts and shortfalls I will not bother you with, but all have 
strong support and deserve funding. In truth, in a time of 
deficit reduction, a program must not only demonstrate its 
value but an ability to overcome substantial program flaws.
    Unfortunately, Amtrak's problems only seem to get worse. 
Bankruptcy will not solve it. It is too complex, the costs 
potentially too great, and the results too uncertain. I am not 
sure anyone understands the true cost, but I am from the Show 
Me State and I would like to see it before I count on it.
    Amtrak deficits run over $1 billion a year. The Northeast 
corridor has had problems with Acela. Mr. Gunn, your 
predecessor as president, Mr. Warrington, promised Congress 
that Amtrak was on a glide path to profitability. He left 
Amtrak in worse shape than he inherited it, with Amtrak's debt 
increased from $1.7 billion in 1997 to $4.8 billion in 2002. At 
least I would trust you not to make any promises like that 
until we see a little better prospect.
    Trouble is dogging Amtrak. As I mentioned, the Acela 
Express, with 20 percent of the passenger service on the 
Northeast corridor accounting for 11 percent of Amtrak's ticket 
revenues, has been shut down because of the brake problems. 
There has to be a reform plan. There must be structural reform. 
And we cannot keep Amtrak on inadequate life support without a 
light at the end of the tunnel. At this point, that light 
appears to be an oncoming freight train.
    We are looking for a responsible plan and we count on the 
witnesses at the table today and the organizations you 
represent to provide it.
    In fiscal year 2004, the Omnibus Appropriations Bill 
encouraged Amtrak to provide off-peak travel discount for 
veterans and current military personnel. This has been ignored. 
I would trust that you would take that into account and 
consider implementing this positive policy.

                           PREPARED STATEMENT

    Unfortunately, I am going to have to miss the latter part 
of this hearing. I have a small bill on the floor that I have 
to deal with. But we look forward to having your full comments 
in the record and we will ask each of you to make 5-minute 
opening statements and have time for questions. I will review 
the record.
    [The statement follows:]
           Prepared Statement of Senator Christopher S. Bond
    The Senate Appropriations Subcommittee on Transportation, Treasury, 
the Judiciary, HUD and Related Agencies will come to order. I welcome a 
diverse panel of Mr. David Gunn, Amtrak's President and CEO, Mr. David 
Laney, Amtrak's Chairman of the Board, Mr. Jeffrey Rosen, General 
Counsel for the Department of Transportation, and Mr. Kenneth Mead, the 
Inspector General for the Department of Transportation.
    While I understand that Mr. Gunn will not be presenting testimony 
but is here to answer questions, I look forward to each of your views 
on Amtrak's fiscal year 2006 budget. More importantly, I look forward 
to understanding each of your views on the difficulties that Amtrak is 
facing and the options that will dictate the future or demise of Amtrak 
as we know it today.
    Unfortunately, the fiscal year 2006 budget presents a very bleak 
and dour picture for the future of Amtrak. The administration's Budget 
Request includes only $360 million in the Commuter Rail Operations 
account and that funding is intended to facilitate Amtrak's 
reorganization through bankruptcy. This Budget Request is some $840 
million less than the $1.2 billion appropriated in fiscal year 2005 for 
Amtrak operations and related needs. Under any circumstance, $360 
million is not enough to meet Amtrak's needs in fiscal year 2006, 
whatever choice Congress makes about the future of Amtrak.
    On the other hand, Amtrak claims it needs $1.82 billion for fiscal 
year 2006 and that it cannot survive in fiscal year 2006 on flat 
funding of $1.2 billion. However, even if I was to agree that the $1.82 
billion request for Amtrak is justified, I do not know how this 
subcommittee will be able to provide such a significant increase from 
the Budget Request.
    In particular, the subcommittee has a number of very difficult 
funding decisions to make under what is likely to be a very tight 
allocation. Because of the administration's overall budget for domestic 
discretionary funding, this subcommittee will have trouble reversing 
many of the administration's recommendations that eliminate or reduce 
funding for many other important and necessary programs.
    The administration, for example, has eliminated funding of $51.6 
million for Essential Air Service, an important and popular program 
that subsidizes air travel from remote rural airports, often located in 
areas with few transportation options.
    The Budget Request also proposes to dismantle the Community 
Development Block Grant (CDBG) program along with 17 other programs and 
replace these programs with a new block grant in the Department of 
Commerce. The administration is proposing to fund this initiative at 
$3.7 billion which is an overall reduction of almost $2 billion from 
the fiscal year 2005 levels, of which CDBG would be reduced by some 
$1.6 billion. CDBG is critical to HUD's mission of being both a leader 
and partner with States and communities in the development of housing 
and community development initiatives. This program is a priority for 
all States and most communities. CDBG also is a priority for the 
members of this subcommittee.
    Under the Budget Request, this subcommittee will have to find a way 
to absorb a $2.5 billion rescission of ``excess'' section 8 funds. Over 
the last few years, the VA-HUD Appropriations Subcommittee made a 
number of reforms to the section 8 program to make the program more 
efficient as well as reduce the availability of ``excess'' section 8 
funds. I do not know how we pay for this rescission. Neither OMB nor 
HUD can identify the methodology for determining this rescission or 
from where the funds will come.
    These programs are merely illustrative of the problems facing the 
subcommittee and which will limit severely our ability to backfill 
funding for Amtrak. I could provide a laundry list of other program 
cuts and shortfalls within this subcommittee that are troubling and 
deserving of funding for fiscal year 2006--all are programs that have 
strong support and deserve funding. In truth, in a time of deficit 
reduction, a program must demonstrate not only its value but an ability 
to overcome any substantial program flaws and problems.
    Unfortunately, Amtrak's problems only seem to get worse. I do not 
believe that bankruptcy will solve our Nation's problems with Amtrak. 
Amtrak is too complex, the costs potentially too great and the result 
too uncertain to trust bankruptcy as the solution. I am not sure anyone 
understands the true costs of bankruptcy or who will pay for them. I am 
from the Show-Me State and a great believer in certainty.
    To be blunt, Amtrak runs deficits of over $1 billion per year. 
Since 2001, Amtrak's annual operating losses have exceeded $1 billion 
and annual cash losses have exceeded $600 million Amtrak also faces 
some $600 million a year in capital costs, mostly with regard to the 
Northeast Corridor. Amtrak also will have debt service of nearly $300 
million annually for the foreseeable future. In addition, the deferral 
of maintenance has created a significant risk of operational failure.
    And it only gets worse. Mr. Gunn, your predecessor as President, 
Mr. Warrington, promised the Congress that Amtrak was on a glide path 
to profitability. Instead, Mr. Warrington left Amtrak in worse shape 
than he inherited it with Amtrak's debt increased from $1.7 billion in 
1997 to some $4.8 billion in 2002. I credit your integrity with making 
no such promises. I also acknowledge your hard work and commitment to 
making Amtrak work successfully. Unfortunately, it is still not enough. 
In fact, Amtrak does not operate any more successfully than it did in 
2002, or for that matter 1992, 1982 or 1972.
    Trouble seems to dog Amtrak. Just this April, Amtrak was forced to 
shut down its Acela Express Service because of cracked brake rotors on 
most, if not all, of these passenger trains. The Acela Express has been 
one of Amtrak's few success stories, representing some 20 percent of 
its passenger service on the Northeast Corridor. As I understand it, 
Acela trains accounted for some 11 percent of Amtrak's ticket revenues 
for the month of February. Leaving aside Acela's success, how is it 
possible that there are problems with all or almost all of the brakes 
on trains just put in service a few years ago? How does Amtrak recover 
from these losses and who is responsible? Most importantly, how 
indicative is this problem of larger management problems at Amtrak?
    There has to be a reform plan and there has to be reform 
legislation. There must be fundamental structural reform if passenger 
rail service is going to continue in the United States. This 
subcommittee has too many other priority funding needs to keep Amtrak 
on life support without a light at the end of the tunnel. In other 
words, I expect action and a consensus on the future of Amtrak. Without 
that, you do not have my support.
    Finally, a small but important issue. The fiscal year 2004 Omnibus 
Appropriations bill included language encouraging Amtrak to continue 
providing an off-peak travel discount for our veterans and current 
military personnel. It appears Amtrak has ignored this language and has 
not made this service available since December of 2003. This is the 
type of program that engenders goodwill and builds ridership, and I 
urge you to reconsider this policy.
    I am likely to miss much or most of this hearing as I have 
responsibilities for helping to manage the highway bill on the floor. I 
will have a number of questions for the record. Please be assured that 
I will review the hearing record very carefully.
    Thank you, I now turn to my ranking member, Senator Murray.

    Senator Bond. Now I turn to my partner and ranking member, 
Senator Murray.

                   STATEMENT OF SENATOR PATTY MURRAY

    Senator Murray. Thank you very much, Mr. Chairman.
    Today we will take testimony on what promises to be the 
most challenging issue this subcommittee will face this year. 
Amtrak, America's national passenger railroad, served 25 
million passengers last year, the highest number in any year in 
its history. One-point-one million of those passengers were in 
my home State of Washington.
    Even so, there are those in the administration and in 
Congress who want to push Amtrak into financial collapse and 
push 25 million passengers onto our already overcrowded 
highways and runways.
    The benefits provided by Amtrak, as well as costs, have 
been debated in Congress every year since the Federal 
Government established the corporation 35 years ago.
    But make no mistake, this year is different. This year 
Amtrak's detractors smell blood. As we take each step in the 
Federal budget process, they have additional reason to be 
optimistic that this will be the year that Amtrak service 
finally grinds to a halt.
    Up until this year, the path of Amtrak's funding during 
each of the years of the Bush Administration has been largely 
the same. The Bush Administration proposes a funding figure 
that would throw Amtrak into bankruptcy. The Amtrak Board of 
Directors requests a sizable funding increase to truly allow 
the railroad to invest in its infrastructure and modernize. 
Congress has come along each year and generally provided Amtrak 
just enough money to limp along but not enough to invest and 
improve service.
    Over the life of the Bush Administration, actual 
appropriations for Amtrak have been about 141 percent above the 
levels sought by the administration. But have also remained 
some 30 percent below what the Amtrak board has said it needed.
    But as I said, this year is different. After working hard 
to keep Amtrak on a starvation diet over the last 4 years, the 
Bush Administration is now proposing to terminate all subsidies 
for Amtrak. Whether it is for State-supported trains like the 
Cascadia service in my State or the Empire Builder that runs 
from Seattle to Chicago, or for the service in the Northeast 
corridor, the Bush Administration's request is the same--zero 
funding. And zero funding means zero service.
    While the administration seeks $360 million for a special 
rail account in the Surface Transportation Board, that funding, 
by law, can only be used to allow certain local mass transit 
agencies like the Sounder Commuter Rail Service to continue to 
operate over Amtrak property once Amtrak has ceased all 
operations.
    Strangely, at the same time the administration is proposing 
to zero out subsidies and park all Amtrak trains, Secretary 
Mineta is flying around the country saying the Bush 
Administration is supporting Amtrak--they just want reforms.
    In fact, Secretary Mineta has stated publicly that the Bush 
Administration would support between $1.5 billion and $2 
billion in funding for Amtrak per year if his reforms were 
enacted. For me, the fallacy that this administration might 
actually support funding for rail service, reformed or not, was 
made clear during our hearing 3 weeks ago with OMB Director 
Josh Bolten. I specifically asked Director Bolten if the Bush 
Administration would be submitting a new Amtrak budget if 
reforms were adopted. Not once but twice Director Bolten made 
it very clear to us that the committee has received the only 
Amtrak budget from the Bush Administration that we are going to 
get, zero for Amtrak.
    One week after we took testimony from Director Bolten, the 
Congress took another act to help push Amtrak into insolvency. 
It adopted the conference report on the budget resolution. That 
budget set the cap on discretionary spending at the level 
consistent with the President's budget request, a budget 
request that assumes zero funding for Amtrak.
    On March 15 and 16, during Senate debate on the budget 
resolution, Senators Byrd and Specter offered an amendment to 
bring the level of funding for Amtrak up to $1.4 billion to 
provide some certainty and stability to the funding process for 
Amtrak this year. That amendment was defeated by a vote of 52 
to 46.
    So today our subcommittee finds itself in the posture of 
having to cut and cannibalize other programs as we have never 
done before, only to see if we can scrape together enough 
funding from other programs to extend Amtrak for another 12 
months. If the Senate had voted differently back in March, we 
might not be in this predicament.
    Today, we are joined by Amtrak's Board Chairman and 
President, David Laney and David Gunn. Three weeks ago, 
Amtrak's Board finally submitted its grant request to the 
Appropriations Committee. While I was disappointed that this 
request arrived some 2 months late, it is notable that the 
Amtrak Board, made up entirely of Bush Administration 
appointees, is asking this subcommittee to provide $1.82 
billion for Amtrak next year, more than a 50 percent increase 
over current funding.
    Much of the discussion of today's hearing might focus on 
the asserted proposals to reform Amtrak. We have two separate 
comprehensive reform proposals, one from the administration and 
one from the Amtrak Board. While senators might want to discuss 
these proposals, I want to remind my colleagues that these 
reform proposals are the responsibility of the Senate Commerce 
Committee.
    What this subcommittee needs to focus on is how much these 
reform proposals are going to cost. I think my colleagues will 
find as we discuss these reform packages is that neither of 
them, not the administration's proposal or the Amtrak Board's 
proposal, save money in the near term. They all require 
investments over the long-term that will require larger, not 
smaller, annual appropriations in the future.
    In that regard, perhaps the most important testimony we 
will hear this morning is not from the Bush Administration or 
the Amtrak Board. The DOT Inspector General Ken Mead has been a 
consistent monitor of Amtrak's finances. He will testify this 
morning that Amtrak can no longer limp along on $1.2 billion in 
funding it has received in each of the last 2 years. He will 
testify that in order to maintain that status quo at Amtrak 
next year, we will need to appropriate between $1.4 billion and 
$1.5 billion.
    Given the failure of the Byrd-Specter Amendment, finding 
even $1.2 billion will be extraordinarily difficult. Finding 
$1.4 billion or $1.5 billion will be a monumental and painful 
challenge. Unfortunately, the majority of the Senate voted to 
put us in this box. Only time will tell if we can find our way 
out of it.

                           PREPARED STATEMENT

    One thing that is certain is that Amtrak's 25 million 
passengers will be anxiously watching to see if we can succeed.
    Thank you very much, Mr. Chairman.
    [The statement follows:]

               Prepared Statement of Senator Patty Murray

    Today, we will take testimony on what promises to be the most 
challenging issue this subcommittee will face this year. Amtrak, 
America's national passenger railroad, served 25 million passengers 
last year--the highest number in any year in its history. One-point-one 
million of those passengers were in my home State of Washington.
    Even so, there are those in the administration and in Congress who 
want to push Amtrak into financial collapse and push 25 million 
passengers onto our already-crowded highways and runways. The benefits 
provided by Amtrak, as well as costs, have been debated in Congress 
every year since the Federal Government established the corporation 35 
years ago. But, make no mistake, this year is different.
    This year, Amtrak's detractors smell blood. As we take each step in 
the Federal budget process, they have additional reason to be 
optimistic that this will be the year that Amtrak service finally 
grinds to a halt. Up until this year, the path of Amtrak's funding 
during each of the years of the Bush Administration has been largely 
the same. The Bush Administration proposes a funding figure that would 
throw Amtrak into bankruptcy. The Amtrak Board of Directors requests a 
sizable funding increase to truly allow the railroad to invest in its 
infrastructure and modernize. Congress has come along each year and 
generally provided Amtrak with just enough money to limp along, but not 
enough to invest in improved service.
    Over the life of the Bush Administration, actual appropriations for 
Amtrak have been about 141 percent above the levels sought by the 
administration. But they have also remained some 30 percent below what 
the Amtrak Board has said it needed.
    But, as I said, this year is different. After working hard to keep 
Amtrak on a ``starvation diet'' over the last 4 years, the Bush 
Administration is now proposing to terminate all subsidies for Amtrak.
    Whether it is for State-supported trains like the Cascadia Service 
in my State, or for the Empire Builder that runs from Seattle to 
Chicago, or for the service in the Northeast Corridor, the Bush 
Administration's request is the same--zero funding. And zero funding 
means zero service.
    While the administration seeks $360 million for a special rail 
account in the Surface Transportation Board, that funding by law can 
only be used to allow certain local mass transit agencies like the 
Sounder Commuter rail service to continue to operate over Amtrak 
property once Amtrak has ceased all operations.
    Strangely, at the same time the administration is proposing to zero 
out subsidies and park all Amtrak trains, Secretary Mineta is flying 
around the country saying that the Bush Administration is supporting 
Amtrak--they just want reforms.
    In fact, Secretary Mineta has stated publicly that the Bush 
Administration would support between $1.5 and $2 billion in funding for 
Amtrak per year, if his reforms were enacted. For me, the fallacy that 
this administration might actually support funding for rail service--
reformed or not--was made clear during our hearing 3 weeks ago with OMB 
Director Josh Bolten.
    I specifically asked Director Bolten if the Bush Administration 
would be submitting a new Amtrak budget with reforms or without them. 
Not once, but twice, Director Bolten made it very clear to us that the 
committee has received the only Amtrak budget from the Bush 
Administration that we are going to get--zero for Amtrak.
    One week after we took testimony from Director Bolten, the Congress 
took another act to help push Amtrak into insolvency. It adopted the 
conference report on the Budget Resolution. That budget set the cap on 
discretionary spending at the level consistent with the President's 
budget request--a budget request that assumes zero funding for Amtrak.
    On March 15 and 16, during Senate debate on the Budget Resolution, 
Senators Byrd and Specter offered an amendment to bring the level of 
funding for Amtrak up to $1.4 billion to provide some certainty and 
stability to the funding process for Amtrak this year. That amendment 
was defeated by a vote of 52-46.
    So, today, our subcommittee finds itself in the posture of having 
to cut and cannibalize other programs--as we have never done before--
only to see if we can scrape together enough funding from other 
programs to extend Amtrak for another 12 months. If the Senate had 
voted differently back in March, we might not be in this predicament.
    Today, we are joined by Amtrak's Board Chairman and President--
David Laney and David Gunn. Three weeks ago, Amtrak's Board finally 
submitted its grant request of the Appropriations Committee. While I 
was disappointed that this request arrived some 2 months late, it is 
notable that the Amtrak Board--made up entirely of Bush Administration 
appointees--is asking this subcommittee to provide $1.82 billion for 
Amtrak next year--more than a 50 percent increase over current funding.
    Much of the discussion of today's hearing might focus on the 
assorted proposals to reform Amtrak. We have two separate comprehensive 
reform proposals--one from the administration and one from the Amtrak 
Board. While Senators might want to discuss these proposals, I want to 
remind my colleagues that these reforms proposals are the 
responsibility of the Senate Commerce Committee. What this subcommittee 
needs to focus on is how much these reform proposals are going to cost.
    I think my colleagues will find as we discuss these reform packages 
is that neither of them--not the administration's proposal or the 
Amtrak Board's proposal--save money in the near-term. They all require 
investments over the long-term that will require larger, not smaller, 
annual appropriations in the future.
    In that regard, perhaps the most important testimony we will hear 
this morning is not from the Bush Administration or the Amtrak Board. 
The DOT Inspector General, Ken Mead, has been a consistent monitor of 
Amtrak's finances. He will testify this morning that Amtrak can no 
longer limp along on the $1.2 billion in funding it has received in 
each of the last 2 years. Indeed, he will testify that in order to 
maintain that status quo at Amtrak next year, we will need to 
appropriate between $1.4 and $1.5 billion.
    Given the failure of the Byrd/Specter amendment, finding even $1.2 
billion will be extraordinarily difficult. Finding $1.4 or $1.5 billion 
will be a monumental and painful challenge.
    Unfortunately, the majority of the Senate voted to put us in this 
box. Only time will tell if we can find our way out of it. One thing 
that is certain is that Amtrak's 25 million passengers will be 
anxiously watching to see if we succeed.

    Senator Bond. Thank you, Senator Murray. Senator Burns, do 
you have an opening statement?

                   STATEMENT OF SENATOR CONRAD BURNS

    Senator Burns. Mr. Chairman, I have an opening statement 
and I am going to make it part of the record. I think you and 
the ranking member have pretty well summed up our problems over 
here, and we could not add too much to that, other then we all 
have our different little sections of the country that we like 
to take care of.
    I think we have got a sizable mountain to climb here and I 
am looking forward to hearing from our witnesses today. Thank 
you.
    [The statement follows:]

               Prepared Statement of Senator Conrad Burns

    Mr. Chairman, thank you for holding this hearing today. As I am 
sure you know, Amtrak is an issue near and dear to my heart. It is also 
an issue of great importance to Montana. The Empire Builder covers a 
lot of ground in Northern Montana, and is a valuable link in our 
transportation infrastructure.
    The Empire Builder is more than just a popular train for tourism. 
Folks use the train to seek medical services, to travel across the 
State when roads are covered in snow, and as an alternative to air 
service that isn't always easy to come by in rural Montana. Estimates 
indicate that the Empire Builder brings $14 million annually to 
Montana. Amtrak is a vital link in our infrastructure, both in Montana 
and across the country.
    However, clearly some type of reform is needed. Those reform 
proposals should be guided by some basic principles. We need to invest 
in infrastructure. Crumbling tracks, aging equipment, and outdated 
technology risk Amtrak's future. We need a national system. State 
budgets are already incredibly tight, and a national train system can 
not be jeopardized by individual States that may not be able to 
allocate funds to rail service. Reform proposals need to be informed by 
a commitment to public service. While I believe that Amtrak must be 
financially responsible, and get its budgetary house in order, I also 
think that Amtrak serves an important public need that can't be easily 
calculated.
    Amtrak is America's rail system, and I think it will probably 
always need some type of public support. The public is committed to 
passenger rail, so allocating some amount of taxpayer dollars makes 
sense. Those investments need to be made wisely, of course, but they do 
need to be made. Looking at Amtrak only in terms of the bottom line 
fails to account for the public value it provides.
    Mr. Chairman, the Congress faces an important and difficult task 
this year in authorizing Amtrak funding. We will need to be creative, 
but I am ready to roll up my sleeves and get this done. As a member of 
both the authorizing and appropriations committees that oversee Amtrak, 
I am dedicated to preserving passenger rail. I look forward to working 
with you on this challenging task, and I look forward to hearing from 
the witnesses today.

    Senator Bond. Thank you, Senator Burns. I know what a 
champion you have been for Amtrak and I am looking forward to 
learning from you, your experiences, as well as the other 
members of this committee.
    I think on early bird, Senator Bennett was the next one 
here.

                 STATEMENT OF SENATOR ROBERT F. BENNETT

    Senator Bennett. Thank you very much, Mr. Chairman.
    I will repeat now to the board of Amtrak what I have said 
to this committee. I have been a supporter of Amtrak since 
before it was born, because I was in the Nixon Administration 
when the idea was conceived. And it was my responsibility to 
convince the Congress to pass the act. And I have a very nice 
letter from Secretary Volpe commending me on my success in 
bringing that to pass.
    Having said that, I repeat the refrain that I have many 
times before. The debate of whether we are for or against 
Amtrak is the wrong debate. We need passenger service in this 
country. We need a good passenger service in this country. And 
we should be prepared to pay for that passenger service in this 
country. But it should be in places where it makes sense. And 
the present nationwide grid of the Amtrak system does not make 
any sense.
    I got into trouble the last time I said that. I got some 
nasty letters from people in Utah saying how can you say you 
want to give up Utah's service? Utah's service is wonderful and 
we must hang onto it. I have now gotten the exact statistics. I 
may have been a little off in what I said before. The total 
Utah ridership is less than 100 people per day. One airplane 
per day could take care of the entire use of Amtrak. Two buses, 
all right three if you get a small bus, could take care of the 
entire use of Amtrak.
    And what are we spending to run an Amtrak train? It has a 
wonderful name. It is the California Zephyr. And boy, for those 
who love train traffic, the California Zephyr calls up all 
kinds of wonderful, wonderful memories and images. It goes 
through Salt Lake City, arrives at 3:35 in the morning, and 
leaves at 4:06 in the morning. I have watched the terminal for 
Amtrak go from an old train terminal that had great nostalgia 
around it, that has now been turned into a mall, to a smaller 
building, to a smaller building. And now it is a quonset hut 
that handles those less than 100 people a day who show up 
literally in the middle of the night.
    And I wonder if it really is the best use of public funds 
to keep that train running, all the way from Chicago to San 
Francisco, with this kind of service along the way when that 
money should be spent making sure the brakes are working on 
Acela and the Northeast corridor that is absolutely dependent 
on Amtrak is properly funded and properly taken care of.
    I am willing to spend what is necessary to spend to keep 
Amtrak going. But I applaud the Bush Administration in a very 
significant wake-up call that says Amtrak has to be changed to 
face the realities of where the market is.
    We do not have a market for transcontinental train traffic, 
either from the standpoint of those who are willing to pay for 
it. I realize we have to subsidize it. We are subsidizing 
Amtrak riders to the tune of about $200 per trip. I am 
perfectly willing to subsidize it with Federal funds in an area 
where it makes a significant contribution to the reduction in 
pollution and congestion. But I think subsidizing it to the 
point that less than 100 people per day can use it in my State 
does not make any sense.
    So Mr. Chairman, I am perfectly willing to raise the amount 
of money above what the budget calls for from the President. 
But I do think we should recognize that Amtrak remains 
virtually unchanged in its route structure since I helped 
convince the Congress to create it in 1970. That is 35 years 
ago. It is time we brought it up to reality.
    Thank you, Mr. Chairman.
    Senator Bond. Thank you, Senator Bennett, for the 
confession. I know it is good for the soul. I appreciate your 
prospective suggestions, as well.
    Senator Durbin.

                 STATEMENT OF SENATOR RICHARD J. DURBIN

    Senator Durbin. Thank you, Mr. Chairman. It is a pleasure 
to be with you at this new committee alignment. We see some new 
faces but some similar challenges to what we have faced in the 
past.
    I come from a railroad family. My mother, my father, my two 
brothers and I all worked for the New York Central Railroad in 
East St. Louis, Illinois. I have many fond memories of steam 
locomotives and trains and just loved them as a child.
    But I do not come to this hearing motivated by memories. I 
come to this hearing motivated by the economic reality of 
Amtrak in Illinois today. Amtrak in Illinois serves 3 million 
passengers a year. By Senator Bennett's standard, we are in the 
range of 8,000 to 10,000 passengers each day.
    Amtrak is a huge part of our State's economy--2,000 
employees. The thought of those 3 million passengers losing 
Amtrak and then turning to cars on the road is a frightening 
thought. The traffic congestion, the pollution that would 
result from it--how can that be good for us as a Nation? How 
can that possibly be a move in the right direction?
    Many of the passengers, incidentally, happen to be college 
students. We serve a lot of campuses with Amtrak. I have met 
with the presidents and leaders at those universities and 
colleges down-State who say the reason they bring kids in from 
Chicago is because students know the Amtrak service is going to 
be there to Champaign. It is going to be there to Macomb. It is 
going to be there to Quincy and all the other campuses served, 
Bloomington and other places. So it is not easy to replace that 
by saying buy all those kids a car. Let us take care of it that 
way. How can that possibly be the answer to moving people 
efficiently in an environmentally sensible way?
    Let me just add one footnote. It is not as if the State of 
Illinois is just saying give, give, give. The State of Illinois 
is a contributor to Amtrak--a substantial contributor--$12 
million a year from a State budget that is in trouble. About 90 
percent of the operating costs of Amtrak come from our State 
taxpayers who believe it is important. But for the capital 
investment in Amtrak and the rest of the operating costs we 
rely on Amtrak itself.
    I will just say one other thing. How many times are we 
going to go through this debate? How many times are we going to 
fight this battle? It is getting old. Amtrak cannot improve and 
modernize its service to the point where it attracts more 
passengers and more customers unless we are prepared to do for 
Amtrak what every successful company must do, invest in the 
future. We need capital investment in Amtrak so that they have 
better rail bids, faster service, and enough units.
    My wife recently took the train with my daughter from 
Washington to New York. And she said that the entire trip there 
were people standing in the aisles and sitting in the 
restrooms. There just were not enough cars to accommodate all 
of the passengers that were needed. The same thing happened on 
a recent trip from Chicago to Springfield.
    So there is a lot of pent-up demand out there. We need to 
make capital investments in Amtrak to make it work. I cannot 
justify every route in America. I will not even try to. But I 
can tell you in my State of Illinois we stand by Amtrak as an 
important part not of some nostalgic memory but an important 
part of our economic future.
    Thank you, Mr. Chairman.

               PREPARED STATEMENT OF SENATOR THAD COCHRAN

    Senator Bond. Thank you, Senator Durbin. Senator Cochran 
has submitted a statement to be included for the record as 
well.
    [The statement follows:]

               Prepared Statement of Senator Thad Cochran

    Mr. Chairman, thank you for holding this hearing today to discuss 
Amtrak's funding request for fiscal year 2006.
    I want to thank David Gunn for appearing before this subcommittee 
to answer questions and for his good service at Amtrak.
    When Congress received the President's Budget Request, many people 
were surprised to find that funding was not requested for our Nation's 
intercity train system. It is my understanding that the administration 
has still not requested funding for Amtrak, and I look forward to 
hearing from the Department of Transportation's representatives about 
this rationale.
    I hope we will be able to consider legislation that will outline 
the legal authority for a new national passenger rail system. The 
Appropriations Committee can't do it all.

    Senator Bond. Finally, we will get down to the meat of this 
and find out how those of you with responsibility and expertise 
in the area, what your recommendations are. First I call on Mr. 
David Laney, Chairman of the Amtrak Board of Directors. 
Welcome, Mr. Laney.

                   STATEMENT OF DAVID M. LANEY, ESQ.

    Mr. Laney. Thank you, Mr. Chairman, Senators.
    I appreciate the opportunity to appear before you today. My 
name is David Laney. I am Chairman of the Amtrak Board of 
Directors. Joining me is, as you all know, David Gunn, 
President and CEO of Amtrak.
    On April 21, Amtrak transmitted to Congress and the 
administration a series of strategic reform initiatives that 
are aimed at reforming Amtrak and maybe more importantly, 
revitalizing rail passenger service in the United States. Let 
me touch just briefly on our package before detailing our 
fiscal year 2006 budget request.
    Our plan advances four essential objectives. First, 
development of passenger rail corridors throughout the country 
based on an 80/20 Federal/State capital matching program with 
States becoming purchasers of a variety of competitively bid 
corridor services.
    Second, return of the Northeast Corridor infrastructure to 
a state of good repair and operational reliability over the 
next 4 to 5 years with all users of the Northeast Corridor 
gradually assuming increased financial responsibility for their 
share of corridor operating and capital needs.
    Thirdly, preservation of our national long-distance system, 
with gradually restructured routes to address your concern, 
Senator Bennett, that will over time have to meet minimal 
financial performance requirements, in some cases requiring 
State assistance.
    And finally, the opening of the intercity passenger rail 
industry to competition and private commercial participation.
    This plan is the product of a significant amount of work by 
Amtrak's Board of Directors and senior management with 
considerable input from rail experts from outside Amtrak as 
well. Additional details on these reforms are covered in my 
full statement but this is a serious proposal that will 
revitalize the passenger rail industry if it is implemented and 
adequately funded. I believe it also answers the call to reform 
made by the administration and by so many others.
    We have provided you with a full copy of the plan and hope 
you will take it into consideration as we move forward with the 
reauthorization and appropriations process.
    I would also like to add a point and at least emphasize the 
very thoughtful proposals also from the Inspector General of 
DOT, Ken Mead. He will get into those this morning, but there 
is substantial common ground between the Amtrak board's 
presentation and proposals as well as Mr. Mead's and I 
recommend his proposals as well for your review.

                       FISCAL 2006 BUDGET REQUEST

    As to the fiscal 2006 budget request, let me turn to that 
now. As Senator Murray pointed out, typically Congress receives 
our grant request in February. Since we were well into our 
strategic planning effort at that time, we elected to defer 
submitting the request in order to present it in the context of 
our reform package. The last dozen pages of the reform proposal 
detail our fiscal 2006 budget request and our requirements, 
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.
    Let me make a few points about this funding request. First 
of all, the increase over our current funding level of $1.2 
billion is solely attributable to essential capital spending, 
not operating expenses. These investments have very lasting 
value.
    The operating side is slightly lower than previous years 
and reflects the company's ability to keep operating costs 
constant despite inflation, rising insurance costs and the 
considerably higher cost of fuel.
    During the last 3 years we have not borrowed any additional 
funds nor have we assumed any new debt except for the DOT loan 
during the summer of 2002, which is being paid back in annual 
installments.
    We have lowered the head count at Amtrak from 25,000 in 
fiscal year 2001 to 19,500 today. Our deficit per train mile 
has decreased from $22 in fiscal year 2000 to $13 in 2004. 
Ridership, as a couple of you have pointed out, has continued 
to increase. Last year we had just over 25 million passenger 
trips, which was a company record. In fact, during fiscal years 
2000 to 2004, ridership has grown from 22.5 million to 25.1 
million, or 11.6 percent.
    We are very confident that there is additional, significant 
suppressed demand.
    On the capital side, we have made significant early headway 
in addressing the mountain of deferred maintenance in both 
plant and equipment facing us when the new management team 
arrived in 2002. The work that we have completed and plan to do 
is detailed in our budget proposal.
    In fiscal year 2006, we expect to continue this type of 
capital investment, renewal of track, signals, wire, equipment, 
switches, and interlockings. But we also will begin major 
multi-year projects to rebuild structures critical to the 
Northeast Corridor operations. These include replacement of the 
failure-prone movable bridge spans over the Thames and Niantic 
Rivers, replacement of the 1930's era cables in the Baltimore 
tunnels, and major track work on the Harrisburg line. Until we 
complete the bridge and tunnel work, we will continue to court 
the risk of a failure that could sever NEC service.
    These projects involve outside contractors and long lead 
times in ordering of materials as well as multi-year funding 
commitments to support the projects. But when they are 
completed, the repaired and rebuilt structures will last a 
lifetime.

                CANNOT SURVIVE ON CURRENT FUNDING LEVEL

    Finally, it is important to emphasize that Amtrak's board 
and management have concluded that the company cannot continue 
to operate on Amtrak's current funding level of $1.2 billion in 
fiscal year 2006. Moreover, the negative financial impact of 
the recent Acela problems will substantially deplete our 
working capital by year's 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 Northeast Corridor 
infrastructure and its state of good repair. Over time, 
significant savings will be achieved only through aggressive 
and systematic multi-year transitioning with legislative 
assistance.
    It is for this reason that we have brought forward our 
strategic reform initiatives to help inform your decision-
making for fiscal year 2006 and beyond.

                           PREPARED STATEMENT

    In closing, we look forward to working with you. We fully 
understand the difficulties you have in this budget year. We 
also look forward to working with stakeholders in the months 
ahead as we further develop and implement our reform plan and 
move this debate forward. I cannot emphasize enough that 
adequate funding for Amtrak in 2006 will be a critical first 
step in advancing the objectives of our strategic reform 
initiatives plan.
    We look forward to your questions. Thank you, Mr. Chairman.
    [The statement follows:]

               Prepared Statement of David M. Laney, Esq.

    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.
    On April 21, Amtrak transmitted to Congress and the administration 
a series of Strategic Reform Initiatives that we believe will help 
shape the discussion on the future of Amtrak and intercity rail 
passenger service. While the majority of the report was geared toward 
the reauthorization discussion, it did contain Amtrak's fiscal year 
2006 grant request. I will provide an overview of both.
    For the past several months, the Board and senior management at 
Amtrak have worked to produce a set of proposals to reform Amtrak and 
revitalize rail passenger service in the United States. The reform 
initiatives released April 21 are the results of those efforts. The 
reform plan contains a detailed set of initiatives, some of which 
Amtrak will accomplish 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:
  --Development of passenger rail corridors based on an 80-20 Federal-
        State capital matching program, with States becoming 
        ``purchasers'' of a variety of competitively bid corridor 
        services.
  --Return of the Northeast Corridor infrastructure to a state of good 
        repair and operational reliability, with all users gradually 
        assuming increased financial responsibility for their share of 
        corridor operating and capital needs.
  --Preservation of our national long distance system, with gradually 
        restructured routes that will over time have to meet minimum 
        financial performance requirements, in some cases requiring 
        State assistance.
  --Finally, the opening of the intercity passenger rail industry 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.

                         STRUCTURAL INITIATIVES

    As you know, 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 
there is room for further improvement. We will continue to implement 
these types of changes and refine those already in place. To build on 
such improvements, our plan focuses on providing planning, budgeting, 
accounting and reporting of financial activity and performance along 
our distinct business lines--infrastructure management, Northeast 
Corridor rail operations, State corridor operations and long-distance 
operations. This type of change will improve our own planning and 
performance capabilities, and enhance the financial clarity of our 
operations.

                         OPERATING INITIATIVES

    Separately, operating initiatives identified in our plan highlight 
a range of actions intended to improve the performance of each business 
line 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, would create a more fertile environment 
for competition in intercity rail passenger services and operations.

                        LEGISLATIVE INITIATIVES

    The lynchpin of this plan is the establishment of a Federal 
matching program appealing enough to attract and accelerate State 
financial involvement in emerging and existing 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--the role it has 
played for almost half a century with highways, transit and aviation. 
The demand that exists today for high quality intercity passenger rail 
in this country will only grow with the rising congestion in highways 
and airports. A number of States have already begun developing rail 
corridors, largely on their own nickel. They have recognized 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 5 
years.) However, to realize the full potential of intercity passenger 
rail in addressing transportation challenges will require a Federal 
match program comparable with other modes.
    Returning the Northeast Corridor's infrastructure to a state of 
good repair is another 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 Northeast Corridor, is the only end-
to-end user of the Corridor and, in terms of train miles operated, 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 Amtrak 
is the only entity operating trains. Our immediate challenge is to 
restore the infrastructure to a state of good repair, which we are 
doing, as detailed in our proposal. Ridership continues to grow along 
the Northeast Corridor; in the near term we will have to begin planning 
for additional capacity to meet that ridership demand.
    Amtrak operates 15 long-distance trains and for more than half of 
the States we serve, they are the only Amtrak service. Unfortunately, 
long-distance trains have become the flash-point in the debate over 
``reform'' of passenger rail service. That single-minded focus is 
misleading, although our long-distance service presents a variety of 
challenges. To be clear, Amtrak is committed to the preservation of 
national passenger rail service. Many communities served by long-
distance trains lack real transportation choices and rely on these 
services. While we believe the continued operation of these trains is 
important to many communities they serve, they also represent the basis 
for interconnection and future expansion of rail corridors. We are 
confident that we will reduce the operating losses on long distance 
trains through a series of steps outlined in our plan, 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.
    Finally, we believe that there are many opportunities for 
competition in the delivery of rail passenger services. Having a single 
provider such as Amtrak does allow for economies of scale and certain 
cost efficiencies. Yet, Amtrak is not always the most efficient 
provider of rail-related services. There should be alternatives. Key to 
our plan is the development of a competitive supply industry and 
multiple service delivery options. Amtrak can take a few essential 
steps in that direction, but without Federal legislative assistance, we 
will not reach the station. Some of the legislative decisions in this 
area will be difficult and will encounter predictable resistance from 
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.

                     FISCAL YEAR 2006 GRANT REQUEST

    Let me turn to our fiscal year 2006 funding request. Typically, 
Congress receives our grant request in February. Since we were well 
into our strategic planning effort, we elected to defer developing the 
request, in order to present it in the context of our reform package. 
The last dozen pages of the proposal detail 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 have also included a preview of how we would go about 
reporting Amtrak's financial information by business line.
    Let me make a few points about this request.
  --The operating request is slightly lower than previous years and 
        reflects the company's ability to keep operating costs 
        constant, despite inflation, rising insurance costs and the 
        high cost of fuel.
  --During the past 3 years, we have not borrowed any additional funds 
        nor have we assumed any new debt, except for the DOT loan 
        during the summer of 2002, which is being paid back in annual 
        installments.
  --We have lowered headcount from 25,000 in fiscal year 2001 to 
        19,500--its current level--or a reduction of about 20 percent.
  --Our deficit per train mile has decreased from $22 in fiscal year 
        2000 to $13 in fiscal year 2004.
  --Ridership has continued to increase. Last year we had just over 25 
        million passenger trips, a company record. In fact, during the 
        period fiscal year 2000 to fiscal year 2004, ridership has 
        grown from 22.5 million to 25.1 million or 11.6 percent.
    On the capital side, we have made significant early headway in 
addressing the mountain of deferred maintenance in both plant and 
equipment facing us in 2002. The work that we have completed and plan 
to do is detailed in our budget proposal. In fiscal year 2006, we 
expect to continue this type of capital investment--renewal of track, 
signals, wire, equipment, switches and interlockings--but we will also 
begin major, multi-year projects to rebuild structures critical to 
Northeast Corridor operations. These include replacement of the failure 
prone moveable bridge spans over the Thames and Niantic rivers, 
replacement of 1930's era cables in the Baltimore tunnels, and major 
track work on the Harrisburg line. Until we complete the bridge and 
tunnel work, we will continue to court the risk of a failure that could 
shut down NEC service. These projects involve outside contractors and 
long lead time in ordering of materials, as well as multi-year funding 
commitments. But when they are completed, the repaired and rebuilt 
structures will last a lifetime.
    Finally, it is important to emphasize 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 in fiscal year 2006. 
Moreover, the negative financial impact of the recent Acela problems 
will diminish our working capital significantly by 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 fiscal year 2006 and beyond.
    In closing, David Gunn, his management team, my fellow Board 
members and I look forward to working with you and other stakeholders 
in the weeks and months ahead as we further develop and implement our 
plan and move this debate forward. I cannot emphasize to you enough 
that adequate funding for Amtrak in fiscal year 2006 will be a critical 
first step in advancing the objectives of our strategic reform 
initiatives plan.
    We look forward to your questions.

    Senator Bond. Thank you very much, Mr. Laney.
    We are very excited that you are putting forth a workable 
plan. I must tell you that until somebody can talk to the 
Office of Management and Budget, no matter how good a plan is 
put forward, this subcommittee is going to have tremendous 
difficulty funding it. And with your background, experience and 
your ability as a skilled counselor and advocate, we are going 
to have to count on you to help sell that because without the 
dough this subcommittee just cannot go.
    On that bright and cheery note, let me turn now to Mr. 
Rosen for his comments.

                     STATEMENT OF JEFFREY A. ROSEN

    Mr. Rosen. Mr. Chairman, Senator Murray and members of the 
subcommittee, thank you for inviting me here today. You have my 
full written statement, so I am going to limit my oral remarks 
to three primary topics.
    The first item I would like to address is some comments on 
the President's budget submission for Amtrak. Some have asked 
if the administration's budget is serious in seeking reform of 
Amtrak this year, and it is.
    Others have asked if we are serious that if we get real 
reform, we will support funding for a reformed system of 
intercity passenger rail. And the answer is that we are serious 
about that, too.
    Still others have asked well, how much money? But I cannot 
answer that until we get actual reforms. The administration 
will be prepared to talk about the amount of funding when 
Congress itself takes serious steps to fix passenger rail. But 
the reforms have to come first. Otherwise, we know from 
history, we will never see any real reforms.
    The administration is very serious about opposing the 
status quo arrangement. We do not support continuing funding 
for a broken system that has proven itself fatally flawed.
    So the second topic that I want to briefly address is what 
constitutes reform? That is a fair question but the 
administration has submitted its proposals for reform to the 
Congress, both in 2003 and again this year. Those proposals 
would modernize, revitalize and enhance intercity passenger 
rail. The five key principles of those proposals are included 
in my written statement so I will not go through them because 
it would take too long here. But I encourage all to review them 
because they underlie the reforms that we seek.
    By contrast, I should say that the administration does not 
consider a $2 billion a year simple reauthorization to be a 
serious plan and would certainly not be reform. In fact, any 
approach that relies on just funneling more money into 
operating subsidies is not reform.
    And that takes me to the third and final item I would like 
to address for today, that some have already alluded to, and 
that is that the alternative to legislative reform is not the 
status quo. As Amtrak itself has said, the status quo is 
unsustainable. Amtrak continues to spend at a rate far in 
excess of its revenues. And that is why the $360 million that 
the President's budget proposes for protecting commuter train 
service and protecting Northeast corridor trains needs to be 
taken seriously in the budget. But that is also the reason that 
those of us who want to save intercity passenger rail hope to 
work with the Congress to change the system and change where 
the funding goes.

                           PREPARED STATEMENT

    And while we are working with the authorizing committees to 
discuss the reform proposals, and we appreciate that Amtrak 
itself and Mr. Gunn are themselves supporting of the concept of 
reform, ultimately reform may also need some assistance from 
this committee as well as intercity passenger rail goes through 
a necessary transition away from the 1970 model that we have 
been living with for a number of years to something more 
contemporary and workable.
    Thank you, and I will be pleased, of course, to respond to 
any questions.
    [The statement follows:]

                 Prepared Statement of Jeffrey A. Rosen

    Mr. Chairman, Senator Murray, and members of the subcommittee, I 
appreciate the opportunity to appear before you today to address the 
urgent need for reform of intercity passenger rail service before 
further appropriations are provided to Amtrak.
    By now, everyone is of course aware of the President's budget 
proposal for Amtrak. That budget proposal was meant as a call to 
action. 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 appropriate one more taxpayer 
dollar to prop up a fundamentally broken system. As you are aware, the 
administration transmitted its legislative proposal to Congress, the 
Passenger Rail Investment Reform Act (PRIRA), and we hope Congress will 
move quickly to enact needed reforms.
    At this juncture, the only funds this subcommittee should 
appropriate are $360 million to provide for directed service of 
commuter and Northeast corridor trains in the event the current Amtrak 
model cannot deliver that service. Intercity passenger rail needs major 
reform, and it would do more harm than good to simply continue funding 
the status quo without reform.
    Amtrak itself has acknowledged the urgent need for reform, and that 
the 1970's model of passenger rail should not continue. Amtrak recently 
released its own strategic plan, which states ``Business as usual for 
Amtrak and intercity passenger rail is not sustainable as currently 
structured or funded.'' While it is the responsibility of the 
Authorizing Committees to consider the reform legislation, the subsidy 
questions are closely related to the reform issues, so I would like to 
set forth some of the facts and analysis that underlie the 
administration's reform proposal to assist in the appropriations 
process for fiscal year 2006.
    First and foremost, it is essential to recognize that 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 (but with less accountability than a government 
agency would have). 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 
into Amtrak during the last 34 years as it 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 directed change in the 
Amtrak Reform and Accountability Act of 1997, and actually required 
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 as law in the United States Code: 49 U.S.C.  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 
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, simply 
ignoring 49 U.S.C.  24101(d) as well as  204 and 205 of the Amtrak 
Reform and Accountability Act of 1997. 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\ This year again, 
Amtrak indicates that it may have less than $75 million in cash 
remaining at the end of fiscal year 2005.
---------------------------------------------------------------------------
    \1\ These are unaudited numbers.
---------------------------------------------------------------------------
    Things do not have to be this way. It is simply untrue that all 
passenger rail everywhere must have operating subsidies from 
government. It is simply untrue that there is no alternative to 
passenger rail remaining the most heavily subsidized form of 
transportation on a per passenger basis. The administration has made 
clear that there is an important role for intercity passenger rail in 
our transportation system, but only with a new model that will be 
responsive to the needs of the traveling public. We can only get there 
by reforming the failed model of 1970, and committing to a new 
approach. That is the point of the President's budget request.

              RIDING THE RAILS: AMTRAK'S PAST AND PRESENT

    Amtrak was created in 1970 as a private corporation in a 
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. See Appendix A, attached. 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 1 percent share of the total 
intercity passenger transportation market. Airlines alone carry more 
U.S. passengers in 3 weeks than Amtrak does in a year. 



    [Sources.--Rail travel: Association of American Railroads, Yearbook 
of Railroad Facts; Amtrak. Total intercity passenger travel is an FRA 
estimate synthesized from data provided by the Federal Highway 
Administration, Federal Aviation Administration, Bureau of 
Transportation Statistics (including travel behavior characteristics 
the 1995 American Travel Survey), the AAR, and Amtrak. For rail, 
``intercity'' passenger-miles are an approximation as they include all 
passenger-miles generated on intercity trains, regardless of the length 
or purpose of individual trips. All air travel is deemed ``intercity.'' 
For highway modes (privately-owned vehicles and buses), the synthesis 
approximates intercity travel as trips of 100 miles or more one-way.]

    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 greater rate than Amtrak. In fact, 
fiscal year 2005's appropriated subsidy of $1.207 billion represented 
approximately 9 percent of the total discretionary Federal funds for 
the Department--9 percent of Department funds go for one-half of 1 
percent of the market. The argument also passes quickly over another 
important fact: highways, transit and aviation are, unlike rail, funded 
substantially by user fees and also by State investments. 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 to understand that recent 
appropriations to this private company have not been limited to rail 
infrastructure, but also go into actual train operations. Generally, 
Amtrak's business can be grouped into activities relating to (1) rail 
infrastructure, (2) corridor train operations, and (3) long-distance 
train service.

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

    ----------------------------------------------------------------

    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 in the NEC has 
been left to Amtrak.
    In fiscal year 2005, Amtrak has budgeted $215 million on fixed 
facility infrastructure projects, and a total of $587.2 million for 
capital expenses, most of which will come from the $1.2 billion of 
Federal appropriations made available by this subcommittee. None of 
those funds will be allocated to States, or to infrastructure in 
locations where Amtrak does not presently operate. Federal 
infrastructure dollars are allocated by a private corporation, Amtrak, 
instead of by State, local, and even Federal transportation planning 
officials.

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 track and infrastructure, and services on other State 
corridors, where Amtrak operates on track and infrastructure owned and 
controlled by others.
    Northeast Corridor.--Approximately 20 million people, or 80 percent 
of all Amtrak riders in 2004, traveled on a corridor service. The 
largest portion of Amtrak corridor trips are on the Washington-New York 
City-Boston Northeast Corridor (NEC). 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 15 other States.

    ----------------------------------------------------------------

                  List of States with Corridor Service

    CALIFORNIA: Pacific Surfliner, Capitols, San Joaquins.
    CONNECTICUT/MASSACHUSETTS: Inland Route (New Haven-Springfield).
    ILLINOIS: Chicago-St.Louis, Illini, Illinois Zephyr, Hiawatha (with 
Wisconsin).
    MAINE: The Downeaster.
    MICHIGAN: Wolverines, Blue Water, Pere Marquette.
    MISSOURI: Kansas City-St.Louis.
    NEW YORK: Empire/Maple Leaf, Adirondack.
    NORTH CAROLINA: Carolinian (Extended corridor), Piedmont.
    OKLAHOMA: Heartland Flyer.
    OREGON: Cascades (with Washington).
    PENNSYLVANIA: Keystone Service, Pennsylvanian (Extended corridor).
    WASHINGTON: Cascades (with Oregon).
    WISCONSIN: Hiawathas (with Illinois).
    VERMONT: Ethan Allen Express, Vermonter (Extended corridor).

    Note.--States listed are the primary States served by each 
corridor.

    ----------------------------------------------------------------

    In 2004, a total of approximately 8 million people (i.e., 
approximately one-third of the total Amtrak ridership) traveled on 
these additional corridor routes. In many instances, these corridors 
are subsidized in part by States. State operating subsidies for these 
trains totaled 10 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. In the 
aggregate, on a fully-allocated basis, the non-NEC corridor trains 
(including both corridor and extended corridor service) had an average 
operating subsidy of $28 per passenger in fiscal year 2004.
Long-Distance Services
    Amtrak's 15 long-distance trains have seen declining revenues and 
ridership--and increasing costs--over the last 10 years. DOT refers to 
these services as Transcontinental (more than 1 night), Overnight (1 
night) or extended corridor (greater than 500 miles, but with no 
sleeping accommodations). Amtrak presently operates 15 such trains.\2\ 
Amtrak has continued to lose long-distance trip customers to an airline 
industry that is offering a low cost, high quality service, and to 
automobile drivers who choose to use 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 fiscal year 2004, the average passenger on a long-distance 
train received a subsidy of approximately $214 per trip on a fully-
allocated basis,\3\ up from $158 in the year 2000--a 35 percent 
increase quintupling the 7 percent inflation over the same period.
---------------------------------------------------------------------------
    \2\ 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, 
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.
    \3\ Fully allocated costs include depreciation and interest.

                                     FULLY ALLOCATED LOSSES OF LONG-DISTANCE PASSENGER TRAINS, FISCAL YEAR 2004 \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Subsidy Status               Fully Allocated
                                                              ----------------------------------------    Loss (Fully          Fully           Fully
                                                                                                          Loaded with        Allocated       Allocated
         Service Type/Route                  Route No.          Unsubsidized by a    Subsidized by a     Depreciation,      (Loss) Per      (Loss) Per
                                                                      State               State        Interest, and All     Passenger    Passenger-Mile
                                                                                                           Overheads)
--------------------------------------------------------------------------------------------------------------------------------------------------------
EXTENDED CORRIDORS:
    Pennsylvanian...................  RT57...................  x                    .................      ($11,911,500)           ($69)        ($0.337)
    Vermonter.......................  RT04...................  ...................  x                      ($11,793,249)           ($47)        ($0.254)
    Carolinian......................  RT66...................  ...................  x                      ($16,723,244)           ($55)        ($0.197)
OVERNIGHT:
    Silver Service..................  RT16A..................  x                    .................     ($173,078,522)          ($234)        ($0.374)
    Three Rivers (discontinued).....  RT17...................  x                    .................      ($75,173,377)          ($492)        ($0.990)
    Cardinal........................  RT18...................  x                    .................      ($18,602,874)          ($209)        ($0.497)
    Capitol Limited.................  RT26...................  x                    .................      ($43,784,083)          ($242)        ($0.486)
    City of New Orleans.............  RT30...................  x                    .................      ($30,429,407)          ($160)        ($0.335)
    Texas Eagle.....................  RT32...................  x                    .................      ($42,914,712)          ($183)        ($0.282)
    Coast Starlight.................  RT34...................  x                    .................      ($63,002,725)          ($152)        ($0.271)
    Lake Shore Limited..............  RT45...................  x                    .................      ($63,803,165)          ($228)        ($0.387)
    Crescent........................  RT52...................  x                    .................      ($64,761,043)          ($252)        ($0.445)
TRANSCONTINENTAL:
    Empire Builder..................  RT25...................  x                    .................      ($75,338,574)          ($172)        ($0.223)
    California Zephyr...............  RT27...................  x                    .................      ($89,696,739)          ($267)        ($0.320)
    Southwest Chief.................  RT28...................  x                    .................     ($121,849,944)          ($420)        ($0.390)
    Sunset Limited..................  RT33...................  x                    .................      ($44,953,841)          ($466)        ($0.406)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Source.--Amtrak Route Profitability System.
See Appendix A for a more detailed account.

    Moreover, these long-distance trains have had considerable 
difficulty with regard to on-time departures and arrivals:

                          ON-TIME PERFORMANCE OF LONG-DISTANCE TRAINS, FISCAL YEAR 2004
----------------------------------------------------------------------------------------------------------------
                                                                                                Average
                                                                                                Minutes  Average
                                                                                    Percent On-   Late   Minutes
          Train Name             Service Type         Between           --And       Time (Zero    per      Late
                                                                                    Tolerance)   Train     per
                                                                                                  (All     Late
                                                                                                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          New York........  Charlotte......       26.9        38       51
                                Corridor.
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          New York........  Pittsburgh.....       17.2        32       39
                                Corridor.
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          Washington......  St. Albans VT..       32.1        21       30
                                Corridor.
----------------------------------------------------------------------------------------------------------------

    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. In short, while service and ridership erode, Amtrak continues to 
require extraordinary and ever-increasing subsidies from the Federal 
taxpayer despite the original model's intent and Congress' clear call 
for an end to operating subsidies by 2002 in the 1997 Amtrak Reform 
Act.
    Commuter Rail.--In addition, Amtrak has contracts to operate trains 
for certain transit agencies and State governments. These are: 
Connecticut Department of Transportation Shore Line East (SLE/CONNDOT), 
Long Island Rail Road (LIRR), New Jersey Transit (NJT), Southeastern 
Pennsylvania Transportation Authority (SEPTA), Delaware Transit 
Corporation (DELDOT), Maryland Transit Administration (MARC), Virginia 
Railway Express (VRE), Northeast Illinois Regional Commuter Railroad 
Corporation (METRA), Southern California Regional Rail Authority 
(SCRRA) Metrolink, North San Diego County Transit District Coaster 
Commuter Rail Service, Peninsula Corridor Joint Powers Board 
(CALTRAIN), Central Puget Sound Regional Transit Authority (Sound 
Transit), and Altamont Commuter Express Authority (ACE). In the event 
of a business failure by Amtrak, the President's budget calls for $360 
million to be appropriated to fund directed service of these trains (as 
well as those of the NEC). Such funding would protect commuter service 
affecting approximately 2,342 trains and 1,187,860 passengers each 
weekday for the relevant transit agencies, so that they would not be 
impacted by Amtrak's problems involving intercity service.

                 RECENT HISTORY AND THE CALL TO CHANGE

    During the 1990's, 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 it 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 2 weeks unless 
the 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 2 weeks and would 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 
fiscal year 2002 to close their audit of Amtrak's fiscal year 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 3 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. Happily, Amtrak operates in a more efficient 
and better way than it did 3 years ago, and the new requirements 
imposed by recent appropriations bills have produced significant 
improvements, and need to remain in place.
    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 has estimated that by the end of 
fiscal year 2005 it will have less than $75 million 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 (with $3.8 billion non-defeased), 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 fiscal year 2005 (up from $111 million in 1997). Amtrak has 
recently suggested that the company be absolved from this $3.8 billion 
debt by the Federal taxpayers' assumption of all of it, as compared 
with the Federal appropriation covering approximately 40 percent of all 
Amtrak expenses the last 2 fiscal years. Amtrak would give the Federal 
Government nothing in return. That is unacceptable to the 
administration.
    The fiscal year 2005 appropriation for Amtrak of $1.2 billion 
itself represents a 134 percent increase over the appropriation for 
fiscal year 2001. Amtrak's President has said that as presently 
configured, Amtrak cannot successfully operate through fiscal year 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. (Although not comprehensive or directed, FTA, 
under 49 U.S.C.  5311(f) provides for grants supporting rural 
intercity bus service. This grant program amounted to approximately $22 
million in fiscal year 2004, which is a minor amount relative to the 
taxpayer burden for Amtrak each year.) 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.
    The administration's budget request reflects the importance of 
reform for America's intercity passenger rail system, which Amtrak has 
been operating at a loss for 34 years. As noted above, Amtrak has 
received more than $29 billion in taxpayer subsidies, including more 
than $1 billion in each of the last 2 years, despite the contradicting 
requirements of the 1997 Amtrak Reform Act. In 2003 and again this 
year, the administration sent to Congress, the President's Passenger 
Rail Investment Reform Act. This proposal would align passenger rail 
programs with other transportation modes, under which States work in 
partnership with the Federal Government in owning, operating, and 
maintaining transportation facilities and services.
    Deteriorating infrastructure and declining service further the case 
that, without congressional action on the administration's reform 
proposals, continued taxpayer subsidies cannot be justified. 
Consequently, no funding is included in the 2006 budget for Amtrak. 
Rather, $360 million is budgeted to allow the Surface Transportation 
Board to support existing commuter rail service along the NEC and 
elsewhere should Amtrak cease commuter rail operations in the absence 
of Federal subsidies. The President's budget is a serious call to 
action: The time for reform is now. If the administration's management 
and financial reforms are enacted, the administration is prepared to 
commit additional resources for Amtrak--but if, and only if, reforms 
are underway. Today is too soon to know if funding will be appropriate, 
or what the right amounts should be under a new model of intercity 
passenger rail service.

  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, DC. 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 high subsidies, such as the $466 
        per passenger subsidy in fiscal year 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 market place. 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.
    As noted, the administration's Passenger Rail Investment Reform Act 
was transmitted to Congress last month. It sets out and details the 
administration's proposals on specific ways to achieve these 
objectives. After a generous transition period, intercity passenger 
rail would become an economically viable and strategically effective 
mode of transportation, supporting numerous successful rail corridors 
nationwide. As set out in Secretary Mineta's transmittal letter 
accompanying our legislative proposal, we look forward to working with 
Congress to discuss and fashion the specifics of legislation in ways 
that will successfully reform intercity passenger rail for the future.
    In addition, Amtrak itself released its plan of 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. But 
Amtrak's plan would not accomplish everything needed, and legislation 
will be needed that achieves all of the objectives set out by Secretary 
Mineta and the administration.
    From an appropriations perspective, it is worth noting that the 
administration's reform proposals would authorize funding for rail 
infrastructure to States rather than to Amtrak (except during a 
transition period). Conversely, some have asked whether it would be 
sensible to authorize some form of Federal bonds to support Amtrak. 
That would be a serious error, from multiple perspectives. It is not 
appropriate to issue government-sponsored or supported debt for a 
private corporation like Amtrak in this circumstance. Amtrak has no 
real ability or revenue to repay any bonds. While Amtrak can issue 
bonds on its own, no one would currently buy them because it lacks the 
incentives that discipline private issuers. In addition, Federal 
financing of Amtrak through any non-Treasury debt would be more costly 
than a General Fund appropriation supported by U.S. Treasury debt. 
Whatever one thinks about particular forms of bonding for 
transportation needs, Amtrak is a poor candidate for any such approach.

                               CONCLUSION

    My own experience with Amtrak's Board persuades me that Amtrak 
itself recognizes the necessity for reform and that time is critical. 
It is essential that others come to recognize this, too. 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.
    Some people appear to assume that reform necessarily means that 
many areas will lose intercity rail service, but that is not 
necessarily so. There are other ways to run intercity passenger service 
and, given the chance, States are likely to try some of them and 
succeed at improving service and eliminating operating subsidies. The 
experience of the Alaska Railroad, which has done just that since the 
State of Alaska bought it from the government 20 years ago, is 
instructive. It did not change routes; it got creative about providing 
service based on the markets it serves. Today, the Alaska Railroad gets 
capital grants, but no operating assistance. It makes a profit ``above 
the rails.'' One of the Alaska Railroad's innovations is to supplement 
its basic, year-round passenger service by seasonally hauling special 
first-class cars belonging to the cruise ship companies. This is the 
kind of creative adaptation the administration's bill envisions, but 
making such improvements depends upon freeing intercity passenger rail 
from the frozen mold of 1970. It should not surprise anyone that 
continuing to do the same thing that failed before 1970 has failed 
again.
    The administration has been clear that it cannot support the failed 
model of the past, nor pouring 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. Although this complicates the appropriations process, we do not 
believe there is a basis for arriving at any ``baseline level of 
support'' for Amtrak until Congress has sent significant reform 
legislation to the President and it is enacted with his signature. In 
this regard, while the administration maintains that no funds should be 
appropriated for Amtrak's use in the absence of meaningful reform, any 
future appropriations should be subject to a variety of necessary and 
stringent grant conditions to ensure an improved intercity passenger 
rail system is achieved.
    Secretary Mineta and his team look forward to working with the 
Congress to resolve the recurrent crisis that plagues the old model of 
intercity passenger rail. Thank you for the opportunity to share our 
perspective on Amtrak and intercity passenger rail service. I would be 
pleased to respond to any questions you may have.

    Senator Bond. Thank you, Mr. Rosen. Mr. Mead.

                      STATEMENT OF KENNETH M. MEAD

    Mr. Mead. Thank you, Mr. Chairman.
    You know, the appropriations committees have been doing the 
heavy lift for passenger rail since Amtrak's reauthorization 
expired in 2002. We have testified several times since then on 
Amtrak's high debt of nearly $4 billion, large operating 
losses, poor on-time performance and deferred capital 
investment in the billions. Amtrak seems perpetually on the 
edge of collapse.
    We are testified again today on the same subject, but with 
greater urgency. As time goes by, the limp along status quo 
system of today comes closer to a major failure but no one 
knows when or where that failure will occur.
    The current model is indeed broken and the reasons why go 
beyond just budgetary shortfalls and extend to matters like who 
decides on the type and amount of service. Also, other than 
budget cuts, the current model provides few if any incentives 
for cost control.
    Amtrak is quite literally coming to the end of its rope, 
now projecting cash on hand of about $30 million at the end of 
this fiscal year. That will cover less than 2 weeks of Amtrak's 
operating expenses. And that does not take into account at all 
the loss off Acela services.
    I have heard some discussion of the bankruptcy option, but 
think that would be a complex and risky undertaking. Rather, a 
comprehensive reauthorization that provides new direction and 
adequate funding is needed and is needed soon.
    Reauthorization, in our opinion, ought to focus on 
improving mobility in short distance corridors around the 
country, not just in the Northeast, and in restructuring long-
distance service to complement corridor service. That is going 
to require new relationships between the Federal Government and 
the States, among the States, Amtrak and the freight railroads, 
and also give the States greater authority over passenger rail 
decisions.
    But in order for that to work, Mr. Chairman, a considerably 
more robust Federal funding program for capital with a 
reasonable State match is going to be required.
    The administration proposal confronts several key issues 
straightforwardly while leaving others unanswered. We concur 
with the emphasis on corridor development within and outside 
the Northeast corridor. These are the places where the demand 
actually is. And we concur also with the greater decision-
making power vested in the States.
    Also, reauthorization should leave open the door to 
competition. Amtrak is the sole provider and has few incentives 
other than the threat of budget cuts to operate efficiently. 
But we are not in a position to really say whether or how many 
potential competitors there might be, but there should at the 
very least be an even playing field for competition.
    Freight railroads own the track outside of the Northeast 
and they, too, have very legitimate interests.
    But a central issue left unanswered by the administration's 
proposal is the level of Federal funding it supports. This has 
fostered, in our judgment, a perception that while the States 
would be given more responsibility and authority, the funding 
burden would fall largely on them with no corresponding 
commitment to significantly expand Federal funding.
    To be sure, the current model's problems extend well beyond 
just funding matters but you are going to have to tackle the 
funding issue to secure anything approaching consensus.
    I would like to give you our own take, Mr. Chairman, on the 
funding situation. For 2005, Amtrak's appropriation was $1.2 
billion. In addition, Amtrak anticipates another several 
hundred million dollars this year in State contributions. If 
Amtrak receives only $1.2 billion in Federal funds in 2006, 
service will need to be cut almost certainly in significant 
ways. For 2006, passenger rail needs Federal funding between 
$1.4 billion and $1.5 billion plus the existing State 
contributions in order to move the system forward towards a 
state of good repair and better performance.
    For 2070 and beyond, Federal funding levels between $1.7 
billion and $2 billion should put you on the road to bringing 
the system to a state of good repair and better position the 
States to invest in rail corridors. That assumes the States 
would provide a reasonable match of 15 to 30 percent for 
capital grants, would cover a larger portion of operating 
subsidies, and that cost-saving measures in such areas as food 
service would be implemented.
    The committee may wish to consider the following, as well. 
First, a perspective on long-distance trains. It is important 
to appreciate that while they are highly subsidized and often 
inefficient, their total elimination will not come close to 
making ends meet. Savings ultimately would be in the 
neighborhood of around $300 million and the savings would not 
be immediate due to the need for labor severance payments. 
Also, 23 States have only long-distance service today. And of 
these, 16 have little potential for corridor development in the 
near term.
    Second, formula grants with no match required to go 
primarily to those States who have only long-distance service 
today and no real potential for corridor development in the 
near term and hence, would not see a capital grant program as 
particularly advantageous to them. Formula grants could be used 
to help offset the cost of service. Today we send the checks 
directly to Amtrak.
    Third, the Federal Government brings fleet and capital 
infrastructure to a state of good repair in the Northeast and 
outside the Northeast with no match required. But thereafter, 
once it is in a state of good repair, the States must share in 
the cost of keeping it in a state of good repair.
    And finally, Amtrak's high debt. Portions of this debt, 
which approach about $4 billion, are financed at very high 
interest rates. One example is 9.5 percent at Penn Station, 
much higher than the Treasury borrowing rate. But we currently 
pay the full tab anyway through the appropriations process. 
Consider discharging portions of that debt where it is 
financially advantageous to do so and, in return, take title to 
the Northeast corridor.

                           PREPARED STATEMENT

    Also, I would place very heavy restrictions on Amtrak's 
ability to incur debt in the future.
    Thank you.
    [The statement follows:]

                 Prepared Statement of Kenneth M. Mead

    Mr. Chairman and members of the subcommittee, we appreciate the 
opportunity to testify on 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. Amtrak's 
most recent cash flow analysis forecasts cash on hand of about $32 
million by the end of fiscal year 2005, excluding the impact from the 
loss of Acela service. This amounts to less than 2 weeks of Amtrak's 
average cash requirements. For several reasons, a 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.
    A 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 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 
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 totaling about $1.5 billion. 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 fiscal 
year 2006, even combined with expected State operating and capital 
contributions, it will likely continue to defer needed capital 
investment and will need to cut services. Intercity passenger rail 
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 long-distance 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 fiscal year 2000 is primarily 
        attributable to rising interest expense.

        
        
  --Amtrak is carrying a large debt burden. Its total debt grew 178 
        percent between fiscal year 1997 and fiscal year 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 fiscal year 2004, 
        passenger revenues were $1,304 million, below the $1,341 
        million achieved in 2002, due primarily to fare pressures. For 
        the first 6 months of fiscal year 2005, passenger revenues were 
        $7.4 million lower than the same period in fiscal year 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 fiscal year 
        2003 to 71 percent in fiscal year 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 miles per hour and long-distance 
trains average only 46 miles per hour. 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, which 
        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 long-distance riders do not really travel 
long distances. That is, long-distance trains carry only a small number 
of end-to-end riders. Of the 3.9 million long-distance riders in fiscal 
year 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. This amount was supplemented by operating and 
capital contributions from State and local sources--in fiscal year 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 for 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. There are at least 16 States with 
        only long distance service and little potential for any 
        corridor development. These States are unable to take advantage 
        of the matching capital grants for 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 
        fiscal year 2003, it dropped to about 80 percent. For fiscal 
        year 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 $550 million annually for an extended 
        period on infrastructure and rolling stock to eliminate the 
        backlog of capital investment in the Northeast Corridor.
      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 the States' reluctance to 
        inherit a legacy system they did not create. We suggest that 
        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 as follows.
  --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 fiscal year 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 fiscal year 
        2005 through fiscal year 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 $550 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, formula grants, and 
        debt service are met.

                                      CONSTRUCT FOR REAUTHORIZATION FUNDING
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                  Fiscal     Fiscal     Fiscal     Fiscal     Fiscal     Fiscal
             Federal Contributions              Year 2005  Year 2006  Year 2007  Year 2008  Year 2009  Year 2010
----------------------------------------------------------------------------------------------------------------
Formula Grants (Capital and/or Operating              570        570        510        460        410        370
 Subsidy).....................................
Debt Service..................................        276        278        358        306        308        375
Capital to Restore System State of Good Re-           355        655        755        800        800        800
 pair.........................................
NEC Infrastructure + Fleet\1\.................        300        525        550        550        550        550
Non-NEC Infrastructure + Fleet................         55        130        205        250        250        250
                                               -----------------------------------------------------------------
      Subtotal................................      1,201      1,503      1,623      1,566      1,518      1,545
Available Capital for Match...................  .........  .........         27        234        432        455
                                               -----------------------------------------------------------------
      Total Federal Contributions.............      1,201      1,503      1,650      1,800      1,950     2,000
----------------------------------------------------------------------------------------------------------------
\1\ NEC: Northeast Corridor.

    New Federal capital available for State match does not become 
available until annual Federal funding levels reach $1.65 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 $455 million 
to be available to States to match for use in new and/or improved 
corridor development.

      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. Amtrak's balance sheet shows $845 million in escrowed 
proceeds to defease a portion of this debt, leaving close to $3 billion 
in unfunded long-term debt or lease obligations. 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 long-term 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. In return for discharging Amtrak's debt, title to 
Amtrak's assets would transfer to the U.S. Government.
    Mr. Chairman, that concludes my statement. I would be happy to 
answer any questions at this time.

    Senator Bond. Thank you very much, Mr. Mead.
    I apologize for being jumpy but I am going to have to get 
back to the Highway Bill and I want to ask essentially two 
broad questions and then turn it over to my colleagues to run 
this.
    First, let me say that when I was governor of Missouri, I 
started the process of subsidizing Amtrak, convinced by the 
silver tongue of now Senator Bennett. And Missouri now 
subsidizes Amtrak at $6.2 million a year, which is behind 
Illinois, Washington and several other States. And we have a 
very modest $32 loss per passenger, which it is certainly not 
quite the best looking one in the whole ugly bunch but it is up 
there.
    Let me ask Mr. Laney and Mr. Mead and others to comment. 
While we are waiting for the Commerce Committee to act, and I 
gather your reorganization and restructure has go through the 
Commerce Committee, we cannot reauthorize in this committee. 
You are going to have to get it through there.
    If Congress does what Congress sometimes does, and that is 
nothing, would you go bankrupt this year? What would be the 
prospects of trying to restructure Amtrak in bankruptcy? Mr. 
Laney?

                               BANKRUPTCY

    Mr. Laney. Bankruptcy presents an enormous set of 
challenges and complexities that we have not worked through 
from start to finish and it is much less flexible in the 
railroad context than it is in a normal business context.
    Nonetheless, we have considered it because of the proposed 
zero budget from the administration, and DOT.
    Senator Byrd. I am having difficulty hearing Mr. Laney. 
Could we have some way of making it louder?
    Senator Bond. Can you pull that up a little closer?
    Mr. Laney. I thought I had run out of funds and you turned 
off the electricity.
    It is an enormous challenge and really limits our 
flexibility. We have considered it. We do know that without any 
action by Congress that sometime, my guess is in the first 
quarter to the first half of fiscal year 2006--and Mr. Gunn may 
disagree with me and may think it is earlier--depending to some 
extent on the ultimate impact of the Acela problems right now, 
that we will in effect run out of cash.
    Senator Bond. Can you restructure in bankruptcy or do you 
have too many costs?
    Mr. Laney. It is totally out of our control in bankruptcy. 
It is a different structure. There is a U.S. trustee appointed 
and he, with proposals from DOT, selects someone, in effect, to 
run Amtrak in bankruptcy.
    Senator Bond. Mr. Mead.
    Mr. Mead. Pursuing the bankruptcy approach, in my opinion, 
is like taking a round peg and trying to pop it through a 
square hole. The reason why is most people, when you go through 
this type of bankruptcy, you want to emerge with something that 
is better or more rational. But you are going to need cash to 
do it.
    The short answer, as I said in my statement, you are going 
to have $32 million at the end of this year. That is 2 weeks. 
You are not going to have much cash.
    The second, big reason, very unlike the airlines. In 
bankruptcy for railroads, the labor issues, labor contracts 
which comprise over 40 percent of Amtrak's budget, they are 
handled on a totally separate track. They do not go to the 
Bankruptcy Court, they go to special labor boards.
    I do not know if that separate track is going to work very 
well.
    Senator Bond. Do you have a comment on that, Mr. Rosen or 
Mr. Gunn?
    Mr. Gunn. I will agree with my chairman.
    Senator Bond. Always a good idea.
    Mr. Gunn. But I do think the problem of the threat of 
bankruptcy is very imminent, given the Acela problem.
    Mr. Rosen. Senator, the only thing I would like to say 
about that is the preferred course of reform is clearly 
legislative through the Commerce Committee and in other ways, 
as well as board actions. I think it would be a mistake for 
anybody to believe that any approach should be off the table, 
depending on how events unfold, and that there are airlines 
that are operating in bankruptcy as we speak today.
    And clearly, one of the questions in a bankruptcy that 
anybody would be interested in is what would the service look 
like? How would it continue?
    And so I do not mean to have this misconstrued to saying 
that is the preferred option, but I think the complexities of 
bankruptcy are things that there is some experience with.
    Senator Bond. Mr. Rosen, excuse me. I want to ask one big 
question. Mr. Mead finally referred to what I believe is the 
900 pound gorilla in the room. When I talk to my colleagues, 
the one thing they ask about are what some perceive to be 
unreasonable labor costs. People talk about 3- and 4-hour 
workdays, work weeks that are significantly less than 40 hours. 
What are the impacts? Are the labor costs of Amtrak out of line 
with other transportation companies and organizations?
    I would ask Mr. Mead, Mr. Rosen, Mr. Laney and Mr. Gunn to 
comment on it. Mr. Gunn.

                              LABOR ISSUES

    Mr. Gunn. I will start. I think if you look at Amtrak's 
labor situation, first of all, we have made a lot of progress 
tightening up the operation. As Mr. Laney said, we have dropped 
our head count from 24,800 to about 19,500. And at the same 
time we are running more trains and handling more passengers 
and doing a lot more maintenance work.
    The basic problem we have, I think, revolves around some of 
the work rule issues that we have. I think that if you look at 
our rates of pay on, for example, locomotive engineer or 
machinist, the rates of pay are not the problem for those 
groups of people. The problem is work rules.
    To give you a sense of what it means to us, these are 
probably between 700 and 1,000 people on the payroll that would 
not be there if you had control over crew consist and if you 
did not have the shops organized around crafts.
    Senator Bond. Is it true that traveling from St. Louis to 
Kansas City they have to change crews in Sedalia?
    Mr. Gunn. I do not know the crew change point on that train 
right now but----
    Senator Bond. It is a 4-hour trip and at one point there 
was a crew change.
    Mr. Gunn. On the Northeast Corridor we get a full day's 
work out of a crew. I think what they are doing on that is the 
crew probably takes the train and goes back home. In other 
words, they swap trains.
    To give you a sense of this, an engineer in the Northeast 
Corridor, a day's work, they come to work in Washington, they 
go to New York, they have a break, they get back on a train and 
bring it back to Washington. That is a fairly full day's work.
    If we have the frequencies and so forth, we get a day's 
work out of our train crews. The problem is we may have more 
people on the train than we need. That is the problem. It is 
not the basis of pay. That is my opinion.
    Mr. Mead. I think the labor rates are not out of line with 
what rail people would normally get. But I do agree with Mr. 
Gunn, that the work rules really do inspire a lot of 
inefficiencies. Plus, any organization where your ticket sales 
are exceeding--where your labor costs are exceeding your ticket 
sales is a prescription for problems. That is the case we have 
here.
    Mr. Rosen. The only thing I would add is that the 
difficulties that Amtrak faces go well beyond their labor 
difficulties.
    Senator Bond. Mr. Laney, any comment on that?
    Mr. Laney. No, Senator.
    Senator Bond. Thank you very much, gentlemen. I would have 
to say that to gain support on the floor, I think that the 
reorganization and restructuring plan may have to address the 
work rule question because there are a number of people who are 
reluctant to support anything for Amtrak until that is done.
    With that, I turn now to Senator Murray.
    Senator Murray. Mr. Chairman, I intend to be here for the 
duration of the committee and Senator Byrd wanted a chance to 
do a statement and he had another obligation. So I will let him 
go ahead of me on this round.

                  STATEMENT OF SENATOR ROBERT C. BYRD

    Senator Byrd. Senator Murray, I thank you. You are very 
gracious.
    Mr. Chairman, I thank you for holding this hearing.
    I will speak today about the millions of Amtrak passengers 
who board in stations like Montgomery, West Virginia; 
Greenwood, Mississippi; Winslow, Arizona; and Cut Bank, 
Montana.
    I recognize that Amtrak has problems. Amtrak provides 
crucial transportation services, not just for our major cities, 
but for millions of people across rural America. They pay the 
taxes that fund infrastructure in Iraq. They help to supply the 
men and the women from whose veins flow the blood that is shed 
in the deserts of Iraq. They need service. They are Americans, 
too.
    It is perhaps those citizens who have the most at risk in 
losing rail service as a result of the Bush Administration's 
budget. Once those towns fall off the national rail map, they 
are not coming back.
    Mr. Mead points out that many riders of Amtrak's so-called 
long-distance trains do not really travel long distances. We 
are talking about passengers who might be riding from 
Martinsburg, West Virginia, to Pittsburgh, Pennsylvania, on 
Amtrak's Capitol Limited, or passengers who may be traveling 
from Hinton, West Virginia, to Maysville, Kentucky, on The 
Cardinal.
    For residents of those communities, Amtrak provides an 
essential transportation option. Not every grandmother can just 
get behind the wheel and drive to see her grandchildren. Not 
every college student has the option of driving home from 
school for the Easter recess. There are over 120 communities 
across the Nation that receive regularly scheduled Amtrak 
service but have no commercial air service whatsoever. Several 
of these communities have also seen their bus service 
eliminated as a result of the shrinking of the national 
Greyhound network.
    The administration does not seem to grasp the 
transportation needs of rural America. Not only does its budget 
propose to eliminate all subsidies to Amtrak, the 
administration's budget also proposes to cut in half funding 
for the Essential Air Service program, causing dozens of 
communities across the Nation to lose their guaranteed air 
service.
    These budget proposals appear to be consistent with many 
other provisions in the President's budget that do real harm to 
the quality of life in rural American communities.
    The President's budget includes deep cuts for rural housing 
loans, and for water and sewer grants that help rural 
communities have clean water. The President's budget eliminates 
funding for vocational education grants that help students in 
rural America who are not going on to college but who need 
training to get a job that pays a livable salary.
    When it comes to the President's budget for Amtrak, we are 
not talking about just another proposal to cut a program by 10, 
20, or 30 percent. We are talking about a proposal to eliminate 
all of Amtrak's Federal funding and all of Amtrak's available 
services.
    I should point out that, just 2 months ago, I tried to 
rectify this situation when the Senate debated the budget 
resolution for the coming fiscal year. On March 15, I offered a 
bipartisan amendment, with Senator Specter and several other 
Senators, which sought to boost Amtrak funding to $1.4 billion 
for 2006. I did not take that funding figure out of thin air. 
When President Bush submitted his budget request last year for 
Amtrak, $1.4 billion was the level that he, himself, included 
in his budget for 2006.
    As I stated on the floor during debate on that amendment, 
the elimination of Amtrak's subsidy, as called for under the 
President's budget, is not a recipe for a streamlined railroad. 
It is not a recipe for a more efficient railroad. It is a 
recipe for a dead railroad.
    My amendment sought to bring that railroad back to life as 
part of the budget for the coming fiscal year. Unfortunately, 
that amendment failed on a vote of 52 to 46. So, unfortunately, 
a dead railroad may very well be what we get from the coming 
fiscal year.
    I have been fighting for Amtrak for a long time, Mr. Gunn, 
Mr. Rosen, for a long time. I was hopeful of landing a rail 
passenger route in southern West Virginia 30 years ago. In 
1974, I had proposed to the Appropriations Committee, 
Subcommittee on Transportation, that we add money to Amtrak's 
budget to help bring this about. On April 11, 1974, in a 
hearing conducted by the Transportation subcommittee, which I 
chaired at the time, Roger Lewis, then-president of the 
National Rail Passenger Corporation, Amtrak, told me that $4 
million would provide adequate funding to begin a route through 
southern West Virginia. The route that I had been trying to 
secure would run from Norfolk, Virginia, to Cincinnati, Ohio, 
with stops in West Virginia at Bluefield, Welch, Williamson, 
Fort Gay, and Kenova. I told Mr. Lewis that I would add the $4 
million by offering an amendment to the Transportation 
Appropriations bill.
    In answer to my questions, Mr. Lewis said that he 
anticipated no problem in securing the cooperation of the 
railroad. He also said that this amount of money would provide 
adequate funding to initiate capital improvements and initial 
operating costs for the operation of Amtrak on a new route from 
Norfolk to Cincinnati.
    According to Mr. Lewis, N&W tracks could be used all the 
way; or, as an alternative, both N&W and C&O tracks could be 
used. In any event, repairing tracks and rebuilding passenger 
facilities along the route, Mr. Lewis explained, could be 
accomplished within 6 months if the railroad labor forces were 
available and if the N&W Railroad was willing to undertake that 
program.
    On April 24 of that year, 1974, the Transportation 
Appropriations Subcommittee accepted my amendment, adding $4 
million to the Transportation Appropriations bill to provide 
Amtrak rail service between Norfolk, Virginia, and Cincinnati, 
Ohio, and on April 30, the full Appropriations Committee 
approved my amendment.
    Then, on March 24, 1975, 30 years ago, the Mountaineer, a 
new Amtrak passenger train, made its inaugural run in southern 
West Virginia.
    Mr. Gunn, the Amtrak president at that time was Paul 
Reistrup. He and I were among the passengers on the maiden run. 
On its daily runs from Norfolk, Virginia, to Chicago, Illinois, 
the train would stop, as I have already indicated, at 
Bluefield, Welch, and Williamson in West Virginia, and would be 
made up of two coaches, a snack/diner, a sleeper, and a baggage 
car. A guaranteed operation of 2 years for the new route 
through southern West Virginia had been made by Amtrak.
    Mr. Reistrup said that the Mountaineer would habitually 
lose money and that the run would lose $4.5 million in each of 
the first 2 years of operation, while taking in only $900,000 
in the first year.
    I had been instrumental in making the Mountaineer a reality 
by securing an appropriation of $4.6 million, which was reduced 
to $2 million in the Senate/House conference. That was an 
experimental run, and its continuance beyond the 2-year 
experimental run would depend upon the ridership achieved.
    The Mountaineer did not last all that long. I was also 
instrumental in getting The Cardinal. Amtrak still serves West 
Virginia, the only State among the 13 in Appalachia that is 
wholly in the Appalachian regional system.
    Unfortunately, a dead railroad may very well be what we get 
for the coming fiscal year. That would all depend, perhaps, on 
whether this subcommittee can find the resources to meet 
Amtrak's needs next year.
    Mr. Chairman, I thank you for being a good chairman. I hope 
that we can come to the aid of Amtrak. We have people down 
there, people who pay taxes, whose sons and daughters die in 
the unnecessary war in Iraq, and who pay taxes to build the 
infrastructure in Iraq. Perhaps, we ought to have Amtrak in 
Iraq. Maybe we could get more money for it, even though it 
would lose money. That would not be a question over there, I 
suppose.
    I recognize the problems. I want to help. I, for one, plan 
to work with my colleagues as best as we can to accomplish that 
goal.
    In closing, I thank my leader on this issue, Senator Patty 
Murray, for her diligence and dedication to her work in 
providing the rail passenger service to people like those who 
have sent me to Washington for eight terms. I fought for them 
before, and I am going to fight for them now.
    Thank you, Mr. Gunn, for your services. Thank you very 
much. You are trying hard, and I want to work with you.
    Senator Murray, the challenge will be considerably greater 
due to the failure of the Senate to adopt my amendment a while 
back.
    Now, when Cicero spoke, the people said he makes a good 
speech. But, when Demosthenes spoke, they said let us go 
against Philip. So, Mr. Chairman, let us go against Philip. Let 
us go against Philip, Mr. Gunn. Do not lose heart. It is going 
to be a problem. It is going to be hard work. I will tell you 
this, people in the rural areas of this country vote, too. 
Thank you very much.
    Senator Burns [presiding]. Thank you, Senator Byrd. I think 
I am next on the list here, and I will kind of open up this 
morning.
    I also serve on the Commerce Committee. We have looked at 
this Amtrak thing for the last couple of years and we have 
drawn some conclusions from the testimony of Mr. Mead and Mr. 
Rosen, and then a short visit over here with my good friend 
from Utah.
    We are going to have to be very imaginative if we make this 
thing work. But we cannot be imaginative if we are not a part 
of the overall transportation plan of this country and it does 
not sound like that has been the case.
    I am going to be very critical of the Department of 
Transportation now. You say reforms but I have not seen anybody 
knocking on my door up here, saying we have got these reforms 
that we think would work for Amtrak or a national 
transportation plan. We have not heard that. I have had no 
request for an appointment to come up and say we should look at 
this because we think it is a vital part of the overall plan of 
this country.
    And I aim to take this to the Secretary. We cannot expect 
any kind of imagination to flow unless we get some cooperation 
down there. Or, if it is not on the radar screen, tell us it is 
not on the radar screen and we will do something else. We will 
put it over in another department. Let's put it over in the 
Department of Defense because we might want to move some troops 
one of these days. Who knows?
    We can sure get it out of here if it is not a priority.
    Mr. Rosen, am I incorrect in that statement? What is your 
take on that?
    Mr. Rosen. Senator, let me first say I would be more than 
happy to be with you at any time or your staff, of course. So 
let me put that to the side.
    But we have been working with the committee staff and have 
had a number of consultations. And as you know, I did testify 
before the Commerce Committee on April 21, both written 
testimony and oral testimony. The administration's bill was 
transmitted by the Secretary, I want to say the first week of 
April. It is substantially similar to a bill that was submitted 
previously, in 2003. My predecessors, as the Secretary's 
designee to the Amtrak board, each testified about that bill, 
Michael Jackson and Alan Rutter.
    So I think there has been consistent efforts by the 
Department to explain, lay out, discuss the administration's 
reform concepts. But I hear you and we can certainly do more 
and better. And I would like to work with you.
    Senator Burns. It is going to take that kind of a 
situation. All of the questions have pretty much been covered. 
In my case across Montana, for a transcon, we are a flyover 
State or we are a ride-through State. We do fairly well up 
there in the State of Montana in the support of Amtrak.
    But you put it through the most desolate part of the State. 
If you run it down through Billings--and I know I am going to 
get telephone calls from my people that live in Havre and Wolf 
Point and Shelby and Whitefish, I will get a letter from them. 
But we used to have Amtrak service down on the southern part, 
too. And that connected all of the schools down there. In fact, 
that is where most of your population is.
    Right now we have got about 129,000 people who ride that 
train in Montana and into some areas that are mostly 
recreation: over at Whitefish, skiing in the summer, vacation 
in Flathead. But it is also used by others because we have no 
bus service. There is no bus service. We cannot make that work.
    And I am kind of like Senator Byrd. Those folks up there in 
those Hi-Line counties vote, too.
    So I am going to go back to Senator Murray. I just do not 
think that we can make it work unless we have got an advocate 
down at the Department of Transportation. Everybody got all 
excited the other day when United made their announcement that 
they are going to forego and abandon their pension programs. 
And pension programs do not carry people but we sure got 
excited about it. And now with this, you are touching real 
people in areas where we have no other alternatives.
    You made the statement that you want to go intercity. How 
many options do people have to get from point A to point B in 
the inner city? You have your competition bus service You can 
also go out here from 6 o'clock in the morning until 9 o'clock 
in the morning on 395, and it is the world's largest parking 
lot. You can go there and watch. But there are still options. 
And then there is the Metro. There are options there.
    We have no other options. And that is the point I want to 
make.

                     ADMINISTRATION BUDGET REQUEST

    Senator Murray.
    Senator Murray. Mr. Rosen, last year, when the Bush 
Administration sent up its budget request for Amtrak, you 
proposed to cut Amtrak funding by $300 million. But you said 
that you would support as much as $1.4 billion each year if 
your reform proposals for Amtrak were enacted.
    When we reviewed OMB's multi-year budget documents, the 
administration was true to its word. You budgeted $1.4 billion 
for Amtrak for 2006 and every year thereafter. That was last 
year.
    This year, when you look at the President's budget, he is 
requesting zero for 2006 and anticipates requesting zero for 
every year after that.
    If that is the case, why is Secretary Mineta publicly 
stating that the Bush Administration would support $1.5 billion 
to $2 billion for Amtrak if your reforms are enacted?
    Mr. Rosen. Two things, Senator, let me to clarify. The 
original proposal that you are alluding to, when the 
administration proposal was $900 million, contemplated that 
there would be an increase if the administration's reform 
proposals were adopted.
    As you will recall, they were not adopted to date. And when 
this year's budget came out and the Secretary made clear that 
the President's current budget was a call to action. It was 
clear that the earlier budget proposals, if they were a call to 
action, they did not work.
    So the President's budget this year, as a call to action, 
has at least had the effect of being more effective at calling 
attention to the need for reform. That is point No. 1.
    I indicated in my opening remarks to the effect that we 
know from history that the reforms have to come first, the 
money to follow.
    The second part is with respect, Senator, I think you are 
mistaken what you said that Secretary Mineta has said. 
Secretary Mineta has not said that the administration would 
support $1.5 billion to $2 billion a year.
    What he said was he was asked, I believe, a question about 
what it would cost to bring the Northeast corridor up to a 
state of good repair. And he referenced what is a multi-year 
number, 5 or 6 years I believe, that there are estimates--I 
think Amtrak itself is estimated approximately $1.5 billion to 
$2 billion to do that. Although I would add the caveat that 
Amtrak has begun the process of spending to bring the Northeast 
corridor to a state of good repair. So some of that money has 
actually been spent last year and this year.
    So I think there may be some confusion or a mistake as to 
what numbers are being referenced. I do not think the Secretary 
has said what the numbers associated with a true reform package 
would be.
    Senator Murray. Mr. Rosen, let me just share with you that 
on March 4, 2005, I believe it was on NPR, Secretary Mineta was 
asked, ``The budget says zero dollars. What is the real figure 
that the administration is willing to spend on Amtrak?'' And 
Secretary Mineta said very clearly, probably in the area of 
$1.5 billion to $2 billion.
    So he has stated that.
    Mr. Rosen. Again, with respect, I think you need to look at 
the full context of those remarks. I do not think that was a 
question that--I think it was a question that related to the 
Northeast corridor.
    Senator Murray. No, I disagree. Actually, I will read you 
the whole question. He was asked: ``Democrats in Congress who 
have criticized your proposal have said well, this thing that 
Secretary Mineta is talking about is not what the budget says. 
The budget says zero dollars. What is the real figure that the 
administration is willing to spend on Amtrak?''
    To that, Secretary Mineta answered probably in the area of 
about $1.5 billion to $2 billion. So he has said very clearly.
    Mr. Rosen. Again, I have a different interpretation, that 
that figure relates to a multi-year capital item.
    Senator Murray. I do not see any reference to multi-year 
capital. But I will tell you this, when OMB Director Bolten 
testified before our subcommittee, it was 3 weeks ago now, I 
asked him whether the administration would ever consider 
sending us a revised budget for Amtrak. And Director Bolten was 
really clear. He said that this committee has received the only 
budget we should expect to get from Amtrak under any 
circumstance.
    I would like to know what conversation you or Secretary 
Mineta have had with the White House that makes you think that 
the administration might request Amtrak funding if a reform 
bill is enacted?
    Mr. Rosen. I am not sure if I fully understand the 
question, so let me try this. In formulating the 
administration's reform proposals, there have been regular 
discussions with the Office of Management and Budget. And 
indeed, the reform proposals had to be approved by the Office 
of Management and Budget when they were transmitted to the 
Congress, both in 2003 and 2005.
    I think the earlier budget proposals that you referenced in 
the administration proposal for fiscal year 2005 came out, did 
contain both a number for that fiscal year and a number with 
regard to what reform funding would look like. This year, a 
different approach was taken and you have that before you.
    Senator Murray. Mr. Rosen, you said you did not understand 
my question. Let me make it very clear.
    The administration is saying that zero funding for Amtrak 
unless a reform is enacted. Director Bolten made it very clear 
to us that the administration was not going to request 
additional funding. So where do we get the idea that if 
Congress does enact reform, that the administration will then 
request the $1.5 billion to $2 billion that Secretary Mineta is 
talking about? Are we going to get a request or not?
    Mr. Rosen. So far we do not have reform legislation that 
has been enacted. I think perhaps that is the key point to 
start with.
    Senator Murray. Say we pass reform. Is the administration 
going to request the $1.5 billion to $2 billion? Or are they 
just going to say they support it?
    Mr. Rosen. Well, first of all I have told you that I do not 
think you are accurate with regard to the $1.5 billion to $2 
billion figure. But putting that aside----
    Senator Murray. I am quoting--I will submit this to the 
record, the statement from Secretary Mineta.
    [The information follows:]

      [From Morning Edition, National Public Radio, March 4, 1005]

  Secretary Norman Mineta Comments on the President's Proposal to Cut 
                           Funding for Amtrak

    Mr. STEVE INSKEEP [host]. The Bush Administration says it is not 
trying to bankrupt Amtrak. In the budget the President sent to 
Congress, there is no money for the passenger rail system and that 
prompted an angry response from Amtrak supporters. But the President's 
top transportation official says the administration is willing to 
subsidize Amtrak if it's restructured. Norman Mineta is a former 
Democratic congressman who's now Transportation Secretary.
    Secretary Norman Mineta [Transportation Department]. The reason 
that the President has put no funding for Amtrak subsidy this year is 
that we submitted our reform legislation in 2004. There's been no 
action on it, and so finally we decided in order to get people's 
attention, we would just put no money in for the subsidization of 
Amtrak.
    Mr. Inskeep. The President called a lot of attention to this. He 
said he was cutting more than 150 Federal programs. Amtrak was 
described by the administration as one of them.
    You're saying the administration didn't really mean that.
    Secretary Mineta. If we get the reform that we're looking for, then 
we will be asking for the funds to fund a national inner-city passenger 
rail system. And that's why in our reform legislation, what we do is to 
make Amtrak an operating company. Right now we subsidize Amtrak, and so 
they put money into their capital investment program as well as the 
operational side of their program. And the problem is that much of 
their money goes into the operation of lines that nobody uses. At the 
same time capital improvements are being starved. So what we're saying 
is, let Amtrak be an operating company and the Federal Government will 
do the financing of capital infrastructure.
    Mr. Inskeep. Democrats in Congress who have criticized your 
proposal have said, ``Well, this thing that Secretary Mineta is talking 
about is not what the budget says. The budget says zero dollars.'' 
What's the real figure that the administration is willing to spend on 
Amtrak?
    Secretary Mineta. Probably in the area of about $1.5 billion to $2 
billion. Right now the state of the tunnels and all those things are 
woefully neglected and we would bring those up to good standards and 
then turn it over to the States. And then we would participate on a 
local match on the continued improvement of any capital investment 
that's made into the system.
    Mr. Inskeep. You're proposing that the Federal Government would 
continue to pay for upkeep of track or new trains, Amtrak would run 
them and would be expected to run trains that at least broke even or 
made a profit?
    Secretary Mineta. The lines would be determined by States and not 
by Amtrak itself. As an example, we have now some 12 States that are 
spending something like $345 million a year for passenger rail service; 
$140 million of that is for capital improvements. If our bill had been 
in place then those States would be getting a 50:50 match on the $140 
million on capital investment, whereas right now they're making all of 
that investment with their own State money. By our taking over the 
capital investment part of it and let the operations of the railroad be 
done by Amtrak or other operating agencies, they then can concentrate 
on delivering the service that people deserve. We're treating Amtrak 
inner-city passenger rail no differently than we treat highways, 
airport improvements or transit right now.
    Mr. Inskeep. Although, forgive me, you can improve part of an 
interstate highway and leave the rest of it unimproved for later. But 
if you've got a rail line that goes across seven States and just one of 
them doesn't want to contribute, that rail line goes away. It can't 
run.
    Secretary Mineta. No. No. The rail line will still run but we won't 
stop in that State or open its doors.
    Mr. Inskeep. Do you really think that this system could maintain 
political support if a number of States stopped having service there?
    Secretary Mineta. We have spent over $29 billion in subsidies to 
this rail system. I don't think we should continue pouring money into a 
flawed system. If the President and I really were out to kill Amtrak, 
we wouldn't do anything.
    Mr. Inskeep. Secretary Mineta, thanks very much.
    Secretary Mineta. Not at all. It's great to be with you, Steve.

    Mr. Rosen. Rather than debate that, I will put that to the 
side and say what I said in my opening remarks, that if the 
Congress itself takes the serious steps to reform and fix 
intercity passenger rail, then the administration is serious 
that if we get real reform we will support funding for reformed 
system.
    Senator Murray. What does support mean? Does that mean 
request or you will just say it on the radio?
    Mr. Rosen. It does not mean that we will say it on the 
radio, but as I have said here and I have said previously, I 
think it is premature to talk about what exact steps and what 
exact amounts the administration will take or propose until we 
have the reforms.
    Senator Murray. I take it your answer is----
    Mr. Rosen. We know where that leads.
    Senator Murray [continuing]. We should not expect a request 
from the administration on the exact dollar amount? They will 
just say that they support money once reform is enacted.
    Mr. Rosen. I am sorry, Senator, I do not understand the 
question.
    Senator Murray. It is a statement. It sounds to me like 
your response to us is that we cannot expect a request from the 
administration whether or not we do pass any kind of reform.
    I believe my time is up.
    Mr. Rosen. I think what I can say is that if there is no 
reform, you have the administration's request. But that is not 
necessarily the end of the story.
    Senator Burns. Senator Bennett.
    Senator Bennett. If I could just pick up on what Senator 
Murray is saying, and give you a little advice, and I am fully 
supportive of what you are trying to do. I am fully supportive 
of reform. And I think the Congress needs a jolt and we 
certainly have had one.
    But I would advise you to define the carrot instead of just 
saying we will support something. It would be nice to say if 
you really do come through with the reform, this is what we 
will do. And I think it is reasonable that Senator Murray is 
asking for some more concrete definition of what the carrot 
looks like.
    You are saying there is a carrot out there for us. You have 
hit us with a 2 by 4 between the eyes and got our attention to 
the fact that something serious has to be done. And I am 
supportive of that. But having used the stick, I think a little 
bit clearer carrot would probably be a good idea.
    I think that is what Senator Murray is asking for.
    With that, let me go back to the subject I have raised. I 
have here the Amtrak strategic reform initiatives and fiscal 
year 2006 grant request, provided by Amtrak. I think it is a 
pretty good piece of work. We keep hearing yes, we are going to 
reform. In 1997, we were assured by Amtrak's management, Amtrak 
is absolutely going to be self-sustaining and profitable by 
2005. And we heard right up through--pardon me, 2002. And we 
heard right up through 2001 that they were on track to 
profitability. And then on 2002, it was well, by the way, we 
are nowhere near it and the CEO resigned.
    We have got to be serious. So let me ask Mr. Laney and Mr. 
Gunn, if you were kings and had a completely free hand, and you 
did not have to worry about past contract obligations that you 
feel now bind your hands, you could have any kind of work rules 
you wanted, you had access to whatever funds you needed for 
capital improvements, all of the rest of it. In other words 
clean sheet of paper time.
    Could you design an intercity passenger system on rails 
that made sense and was sustainable over time? With the 
assumption that there would be some degree of Federal subsidy? 
Because I think we probably would have to have a degree of 
Federal subsidy. I do not think you could expect it all to come 
out of the fare box. But one would hope it would be a degree of 
Federal subsidy substantially less than we are doing now.
    Is that a possibility? Forget where you are, in terms of 
the straitjackets of the past that are put upon you. Clean 
sheet of paper time, you are king. You can devise whatever you 
want. Could you, in fact, envision a passenger system that 
worked?

                   REDUCED FEDERAL OPERATING SUBSIDY

    Mr. Laney. Senator, let me first say I want to hear from 
Mr. Gunn on this, as well, because his perspective may differ 
slightly but I do not think much. But let me be king first.
    Yes, absolutely. And I think, to a great extent, what we 
presented in terms of our strategic reform package does just 
that. We have erased the blackboard and started writing on it 
again. We have been constrained by some prior decisions by 
earlier boards and earlier managements and we bear the burden 
of those decisions and they are difficult. There is no question 
about it. Whether it is issues with respect to the Acela, 
whether it is issues with respect to long-distance trains, 
whether it is issues with respect to debt.
    But absolutely, there would be different answers and 
different responses for our different lines of service. Whether 
it is the corridor service, Northeast Corridor, or other State 
service corridors, not only could we, we absolutely should, 
from a transportation policy standpoint, begin to address in a 
serious way State corridor issues. There been references to 
congestion, when it is aviation or whether it is highways. 
There is a very complementary role for passenger rail service 
to play.
    You project it 25 years, 50 years, 75 years forward, we 
will have made a serious mistake if we do not begin taking 
incremental small steps now.
    There is also a role for long-distance service.
    Senator Bennett. That is where the argument was going to 
come.
    Mr. Laney. There is also a role, but it would be a 
reconfigured long-distance service. And to address some of your 
issues, I think we have presented, in effect, a systematic 
approach by which we reevaluate and address current routes, 
ultimately eliminate some, and may begin to add others over 
time. But it cannot happen overnight and it needs to be managed 
carefully. But I think long-distance still plays a role. It 
just needs to be reconfigured slightly, or significantly.
    Mr. Gunn. I basically support what the chairman said, not 
just because he is my chairman. I actually agree with him. I 
think that the way that you look at this is that in the future 
there is no way you get around the fact that the capital is 
going to have to come from the government, either a combination 
of State and Federal.
    I think the operating deficits can be managed and they can 
be controlled and reduced, particularly if we have the kind of 
freedoms that you mentioned. They cannot be totally eliminated. 
And I do not think they will be eliminated except in some very 
dense corridors such as the Northeast Corridor. But you have to 
have volume.
    I think the long-distance trains, the deficits can be--
there is a lot of things we can do if we have freedom to 
control those deficits. And I think if you look at our plan, 
which you have, we actually give you sort of a vision of what 
would happen over 5 years, in terms of the Federal requirement. 
You see the operating subsidy dropping--or not going up 
certainly--but the capital is absolutely a governmental 
responsibility and you cannot avoid that. This is not a 
profitable business.
    Senator Bennett. I understand that. And if I may, Mr. 
Chairman, one last quick question in the spirit of Senator 
Murray's question, assume that we do everything you are talking 
about here, that Congress gives you the authority you want. We 
put in the capital to make the necessary improvements.
    Can you give us a ball park as to what the operating 
subsidy then would be? Would we still be talking about $1 
billion year out of the Congress? Or would it come down? You 
talk about long-distance and we can argue about that. That is 
$300 million and that is not inconsequential in this situation.
    Mr. Laney. You are just talking about an operating subsidy, 
Senator, not capital?
    Senator Bennett. That is right.
    Mr. Gunn. We made a stab at projecting if our reforms were 
enacted what the Federal needs would be in fiscal year 2011 
which is what, 5 years out. And basically we showed the Amtrak 
requirement dropping to about $800 million for the whole 
system. And if you look at this, that is capital and operating. 
Operating is $220 million.
    Right now our operating deficit is about $570 million and 
we show that dropping to about $220 million. There is a 
combination of things. It is efficiencies brought about by work 
rule change, changes in the retirement package and some other 
things, but also a shift to the States of responsibility for 
their corridor development if they get the Federal capital.
    But you can see the Federal piece certainly not rising. It 
would drop. We are estimating you can get it as low as $800 
million, both capital and operating, if you got the reforms, 
the real reforms we are talking about. And those are tough. It 
is the Railway Labor Act piece.
    Senator Bennett. As I say, I think you ought to stress that 
to the Commerce Committee because $800 million is a much easier 
pill for the Congress to swallow, particularly in 2015 when it 
is an even smaller percentage of the Gross Domestic Product 
than it is today, than the amount we are currently paying 
today.
    Thank you, Mr. Chairman.
    Senator Burns. Senator Kohl.
    Senator Kohl. Thank you very much, Mr. Chairman and Senator 
Murray.
    While I share the sentiments of our colleagues regarding 
the President's draconian approach to reform, I prefer to use 
my time to assess the merits and viability of passenger rail 
outside of the Northeast corridor.
    Whenever we hear talk of passenger rail, we hear about the 
Northeast corridor. Indeed, the administration's fiscal year 
2006 budget is no exception, providing funding only to operate 
this corridor should Amtrak be forced to cease operations.
    As a Senator from the Midwest and Wisconsin, I have to say 
I find this approach to be shortsighted and potentially harmful 
to our Nation's intermodal transportation system.
    In the Midwest, as in many parts of our country, passenger 
rail provides, as you know, a critical link for thousands of 
travelers. While I understand that increased ridership does not 
necessarily equal success for Amtrak, I agree that reform is in 
order. However, I would argue that forcing the more than 
545,000 Wisconsin riders who used Amtrak last year to find 
another means of transportation does not certainly by itself 
equal reform.
    I do not think that anyone here would argue that shutting 
down Amtrak in the Midwest will result in reaching agreement on 
plans to reform the system. Putting more cars on congested 
roadways and more travelers in overcrowded airports cannot 
possibly be the solution and I hope that we can arrive at 
better suggestions.
    Mr. Gunn, we have heard the administration talk about the 
need for reform at Amtrak, and as part of that reform the need 
for greater State investment in passenger rail. As you know, 
Wisconsin has been a leader in this effort, providing 75 
percent of the necessary funding for the highly popular 
Hiawatha service between Chicago and Milwaukee. This line has 
continued to break all-time ridership records over the past 
years. Without the funding that Amtrak is requesting today, 
will this line be forced to shut down? And if so, when?
    Mr. Mead, I would appreciate a comment from you.
    Mr. Gunn. If the administration proposal went through and 
it was bankruptcy, the line would cease to operate.
    Senator Kohl. It will cease to operate.
    Mr. Gunn. It would still run freight and Metra but Amtrak 
would cease to operate.
    Senator Kohl. Mr. Mead.
    Mr. Mead. I would not going to go so far as to say that 
Amtrak would totally cease to operate. I would say that there 
would be almost certainly very significant cuts in service, 
including the route that you mentioned.
    Senator Kohl. That Chicago to Milwaukee----
    Mr. Gunn. I was referring to if the administration's budget 
proposal went through, zero, we would cease to operate.
    Mr. Mead. I am sorry, I misspoke. Certainly, $360 million 
is just not going to--you are going to have to have a shut 
down. I was referring to $1.2 billion, which is the current 
year's appropriation. If you just reenacted the 2005 
appropriation for 2006, that would give you $1.2 billion, you 
are going to have very significant cutbacks in service.
    Mr. Gunn. You will have a cash crisis. If you have $1.2 
billion, you will have a cash crisis and we will be right back 
where we are today very quickly.
    Senator Kohl. I think we all recognize, and I am sure you 
know, that that particular line is really, really successful 
and serves an important purpose.
    Mr. Gunn. Since the airport station opened, we have had 
ridership growth of 30 percent, 25 percent in the last few 
months.
    Senator Kohl. Increase.
    Mr. Gunn. Yes, because of the airport station, which is 
just south of Milwaukee. It has just taken off.

                          HIGH-SPEED CORRIDORS

    Senator Kohl. I worked to get funding for that so I am very 
much aware of what you are saying and I cannot imagine a 
decision that, in effect, would close down that route.
    Yesterday, I met with a group of constituents from La 
Crosse, Wisconsin. Currently, La Crosse is only served by the 
Empire Builder line with one round-trip stop in the city each 
day. My constituents shared with me the potential economic 
impact of bringing high-speed rail to the western side of 
Wisconsin.
    Due in part to the heavy debate over Amtrak's funding 
needs, the debate over the merits of high-speed rail seems to 
have quieted. I did note, however, that the administration 
zeros out funding for the next-generation high-speed rail 
program which funds the research needed to determine the 
viability of high-speed rail in America.
    Mr. Mead, can you provide some insights as to why the 
administration would zero out funding for this relatively 
modest program? Do you believe that there is any merit in 
having high-speed rail outside of the Northeast corridor? And 
Mr. Gunn, I would appreciate your view.
    Mr. Mead. I think it depends on what your definition of 
high-speed rail is. I think the average speeds of some of these 
long-distance trains that we have today is around 46 or 48 
miles per hour, and that is scheduled. That does not count 
whether there is going to be delays. So if you go up to about 
80 miles an hour, I think for those people that ride those 
trains that are doing 46 miles an hour, that would be 
relatively high speed.
    Actually, I would just like to, if I might, just take a 
moment to point out something that is in the administration's 
bill that I think is very important. The administration's bill 
proposes capital grants to develop rail corridors such as those 
that you are describing. The problem is that the States are 
saying well, this is nice. It is a capital grant program. But 
how much funding is the Federal Government going to put into 
it?
    And it becomes a chicken or egg issue, in my judgment, that 
the States are not going to buy into a capital grant program 
and take on more decisions and take on more responsibility and 
authority for making rail decisions that affect their corridors 
and agreeing to a capital grant program until such time as they 
understand the financial consequences of that.
    And I think that is a core element of the debate here, is 
the uncertainty over what the funding conundrum is going to 
look like. That certainly is what Senator Murray's line of 
inquiry was after.
    Senator Kohl. Mr. Gunn.
    Mr. Gunn. I would only comment that Amtrak's management 
position has been that there are a number of corridors outside 
the Northeast that should be developed and we worked with the 
States for them. For example, the Milwaukee and perhaps onto 
Madison, Chicago to Madison, is one of those corridors where 
there is real potential. There are also corridors in California 
and in the Northwest.
    Our view is that they should be done incrementally. In 
other words, when you go into these, do not go in trying to go 
to 150 to 200 mile an hour trains. What you want is to get up 
to the 90 or 100 mile an hour trains, which we can do with 
conventional equipment, and have frequent service. That is the 
key, good, solid and reliable service. But it does not have to 
go 150. And you can do it on a relatively modest budget if you 
use existing technology.
    But, I think, we have about eight corridors that we think 
are really ripe for development if the States get this new 
State/Federal partnership where there is capital money 
available. But they have to know what that is. But there are 
corridors, definitely.
    Senator Kohl. Thank you. Thank you, Mr. Chairman.

                     REDUCING THE OPERATING SUBSIDY

    Senator Murray [presiding]. Mr. Laney, let me go back to 
you again.
    You submitted a grant request seeking $1.82 billion for 
next year. That is more than 50 percent above your current 
funding level. And you also, of course, submitted a 
comprehensive set of reform proposals. As part of that grant 
request you said--and I want to read it to you--we believe that 
these initiatives will, in time, dramatically reduce the 
requirement for ongoing Federal financial support for Amtrak 
and reinvigorate intercity passenger rail.
    How soon would your subsidy needs dip below the current 
level of $1.2 billion if that reform package is enacted?
    Mr. Laney. Certainly not during fiscal year 2006. There is 
no question about that. Fiscal year 2006 we would stay at the 
same level, if not higher. But let me make clear what I said 
earlier, and that is the increase from $1.2 billion to $1.85 
billion is capital only, our capital investments as well as 
working capital. It is not an increase in operating expenses. 
The operating expenses are basically flat.
    Largely in 2006, it would be an increase, as I mentioned, 
in capital. And my guess is that capital expense would stay 
flat but higher for the next 4 or 5 years as we rebuild, in 
effect, the Northeast Corridor infrastructure and rehabilitate 
a bunch of very old and tired equipment. And there is enormous 
demand, I think, growing demand for equipment beyond just the 
Northeast Corridor.
    But I believe perhaps as early--but I do not know, this is 
conjecture--as 2007 we will see----
    Mr. Gunn. It depends on when the reforms are enacted. In 
other words, the ability to start winding down or trending down 
some of the cash demands for Amtrak depend upon when you enact 
a proper capital grant program for the States, an 80/20 
program. And then how long you give the States to adopt, to get 
into that program and to begin to assume full responsibility 
for the operating deficits for the corridors.
    Senator Murray. So the costs of Amtrak are not going to be 
reduced. It is just going to be the States who are going to 
have to come up with that?
    Mr. Gunn. No, actually Senator, there are two pieces to 
this. If the reforms that we have in there--if we got our work 
rule reform and we got the Social Security reforms and some 
other things, there is probably $200 million or $300 million 
which we could ultimately, over time, reduce.
    Senator Murray. Over time when? From my understanding, at 
this point----
    Mr. Gunn. We assume, for example, if we got work rule 
reform, we would implement it through attrition rather than 
just laying people off. That has been our position with our 
unions. And so, once you got the reform, it would take a number 
of years, 2 or 3 years or 4 years, to attrit out the people 
that were surplus.
    Senator Murray. To get to the point where you are saving 
$200 million to $300 million?
    Mr. Gunn. One hundred million dollars on the labor. There 
are some internal reforms that we are going to do, or changes 
that we want to make in terms of food service and some other 
things, that will take place gradually over the next 2 or 3 
years.
    Senator Murray. But the vast majority of this is just 
putting money to the States. It is not like these costs 
disappear?
    Mr. Gunn. A big part. I would not say vast. It is very 
important, if we can get the changes that we are suggesting, if 
we can move from railroad retirement to Social Security, if we 
can get either through reform of the Railway Labor Act or 
through negotiation and get the work rule reform and make the 
others, it is probably $200 million or $300 million of 
operating subsidy that we can deal with.
    But it is also--I do not want to be argumentative. It is 
that there is a significant portion of improving the efficiency 
of Amtrak.
    Senator Murray. Mr. Mead, you are familiar with both of the 
reform proposals. Can you tell us whether you think either of 
these proposals save any money in the short-term, Federal tax 
dollars?
    Mr. Mead. Well, they save money in the sense that--some of 
them, they save money in the sense that they would avoid cost 
that you would other otherwise incur. But the bottom line in 
terms of how much money you would need, because of a backlog in 
capital inside and outside the Northeast corridor, you are 
going to need some money to put the system in a reasonable 
state of good repair and to improve performance.
    So you are not going to--in my opinion, it is a myth I 
think that you are going to save your way somehow out of this. 
There are savings. There is no question. This food service one, 
for example. I do not mean to get emotional about it, but it is 
something that they could have been doing for some time. And it 
is about $80 million, $90 million, $100 million. There is no 
need to wait for 3 or 4 years to do that.
    But I am telling you, I would take the $100 million and I 
would pump it into capital. That is what we need to do. We are 
talking about several billion dollars in capital.
    The other area that I think that we get some savings on is 
in this debt service. I think the loan they took out or the 
mortgage they took out on Penn Station was about $300 million 
at 9.5 percent. Your committee is paying for that at 9.5 
percent. And that means the Treasury Department is, too. So I 
think there are some savings there.
    Senator Murray. Can you tell us what your estimate is of 
what the President's reform bill, if it was passed, would cost 
us in 2006?
    Mr. Mead. I would put it in at about $1.4 billion or $1.5 
billion.
    Senator Murray. Mr. Gunn, do you have an estimate of what 
it would cost to implement?
    Mr. Gunn. I approach it a little differently, if I may. If 
you look at the administration's reform package, it basically 
is internal to Amtrak, restructuring the corporate structure. 
And I think it will be a disaster because it is impractical. 
And it does not deal with some of the real issues that need to 
be addressed that I think the board's reform package deals 
with.
    Senator Murray. Can you explain that?
    Mr. Gunn. If you look at the administration proposal, what 
it does, it is based on the assumption that the services we 
operate can be privatized and contracted out, which they 
cannot. They are not profitable. You can contract them out, but 
you have to subsidize them.
    Also, the basic proposal is to create three Amtraks instead 
of one. You have a residual Amtrak, you have an Amtrak 
passenger service operating company, you have an infrastructure 
company. And it all has to happen on a fairly tight time frame. 
That will be extremely disruptive and expensive. It also has 
some operating problems associated with it.
    But you will end up with--overhead departments will have to 
be replicated. In other words, the way we function now you have 
one law department. Well, if you have three separate companies, 
you are going to need three. You have one personnel department, 
you will have to have three.
    And it is all being done in an environment where it is not 
clear how it is going to be funded. I think it does not address 
any of the real cost issues that are associated with Amtrak. 
And what will happen is you will end up with a lot of the 
service coming off and you will have an enormous C(2) bill, the 
labor protection.
    Senator Murray. This committee will not decide the reform 
package, the Commerce Committee will.
    Mr. Gunn. I am just saying it will cost you money.
    Senator Murray. But you are saying to us that if we pass a 
reform proposal, we are not going to save money in 2006, which 
is what this committee is currently looking at?
    Mr. Rosen. Senator, could I suggest that I do not think Mr. 
Gunn is actually the best expert you are going to find on the 
administration's proposal. And I would say I think his 
characterization of it was totally wrong.

               AMTRAK FUNDING NEEDS FOR FISCAL YEAR 2006

    Senator Murray. Mr. Rosen, again, this committee is not 
here to debate the different reform proposals. What this 
committee has to do is provide the funds for the expenses for 
next year.
    So what I am hearing is that zero funding is not going to 
do it and, in fact, it is going to cost more no matter which 
proposal is put in place in the short term. I think that is 
what this committee is concerned with.
    Mr. Mead, I do want to ask you, for the last 2 fiscal 
years, the subcommittee funded Amtrak at about $1.2 billion. In 
fact, the funding level for the current fiscal year is actually 
somewhat smaller than the assistance provided last year because 
of the across-the-board cut and the fact that Amtrak is now 
required to pay back part of its Federal loan.
    Even though Amtrak was able to make it through a funding 
freeze for 2005, you are now testifying to this committee that 
they need a $200 million to $300 million boost simply to 
maintain the status quo in fiscal year 2006. Can you explain 
why that is the case?
    Mr. Mead. It does sound a bit inconsistent, but I can 
explain it, I think.
    Actually, for this year, Amtrak has $1.4 billion already in 
Federal money. And that is because they closed out the last 
fiscal year flush with cash. They had $200 million extra, which 
they are going to spend this year. And that puts you at $1.4 
billion, not withstanding the fact that the appropriated level 
is $1.2 billion.
    Now, we are not going to end this fiscal year like we did 
last fiscal year. I have pointed out in my statement that we 
are going to have about $30 million or $32 million in cash as 
you roll into the new fiscal year. So it kind of makes the time 
pressures on the appropriation process more of a priority.
    Senator Murray. Are you certain that Amtrak services would 
have to be reduced if we froze Amtrak funding at $1.2 billion?
    Mr. Mead. Am I certain?
    Senator Murray. That Amtrak services would have to be 
reduced if we did $1.2 billion?
    Mr. Mead. Senator, I think that--I am concerned about the 
capital condition in the Northeast corridor. I do not want to 
analogize the situation to the kid at the dike where he is 
putting his fingers in the different cracks in the dike. But I 
am concerned about the number of go slow orders in the 
Northeast corridor. And I think Amtrak would have no choice but 
to cut back service in some significant ways.
    Senator Murray. Mr. Gunn, what are your views?
    Mr. Gunn. To build on what the Inspector General said, I 
think that he has explained why the $1.2 billion does not work 
because we are spending this year at the rate of $1.4 billion. 
But what makes the problem even worse is that we have a number 
of very serious infrastructure issues that have to be dealt 
with which add up to about $100 million that are not in this 
year's budget. So that gets you up to like $1.5 billion.
    If you were to drop back to $1.2 million, what would happen 
is you would basically have--you would have $350 million 
available for capital instead of the $650 million that we are 
saying we need.
    The problem is that we have already--with the lead times on 
materials, the $350 million would be--probably $100 million of 
it would be for material which would sit because you would not 
have the money to install it. So your actual capital available 
for the railroad would be about $200 million or $250 million.
    And if you look at our budget right now, just the car 
budget for the Northeast Corridor would be $100 million of 
that, to repair the Amfleets, to rebuild the Amfleets. You 
would have almost no money for infrastructure work. You would 
have $100 million for infrastructure.
    That is not sufficient to maintain a high-speed railroad. 
What will happen, the Inspector General is correct, you 
immediately will have slow orders show up. But more 
importantly, the operating budget will go through the roof 
because you will have emergency repairs all over the place. It 
will quickly come unglued.
    Senator Murray. To that point, you were required to suspend 
all service of Acela, high-speed Acelas, a few weeks ago 
because of the brakes. My understanding is that the loss of 
revenue from that is requiring you to eat up a lot of your 
available cash right now.
    Mr. Gunn. Yes.
    Senator Murray. What confidence do you have that Amtrak 
will be able to finish this year, knowing that, with a cash 
positive situation?
    Mr. Gunn. I think we will probably limp into next year.
    Senator Murray. What is limp?
    Mr. Gunn. By limp, I mean we will have like $20 million 
left in the bank, something in that neighborhood.
    Senator Murray. That takes into account the Acela?
    Mr. Gunn. Yes, I think that will be the case. But I 
really--the problem we are having is that the ridership is 
still moving around. In other words, we have got replacement 
service in effect and the riders appear to be coming back. But 
we are definitely going to be hurt to the tune of $5 million a 
month net. That is an optimistic number. It depends on what 
that number actually turns out to be.
    Senator Murray. Mr. Rosen, are you and other members of the 
Amtrak board monitoring the situation?
    Mr. Rosen. Absolutely, and I think that one of the things 
that the company is going to need to do is look for ways to 
reduce expense and conserve cash.
    Mr. Gunn. The reality is at this point we do not have a lot 
of options left to conserve cash.
    Senator Murray. Mr. Rosen, if it looks like Amtrak is going 
to sink into bankruptcy before the end of this current fiscal 
year, is the administration looking at a supplemental 
appropriation request for Amtrak to keep it out of bankruptcy?
    Mr. Rosen. I think that the board is looking carefully, as 
is DOT, at what the cash situation is, and that it will be 
incumbent on any responsible management to look for ways to 
make that situation work. I cannot speak for all of the board 
members but I have some confidence that all of the board 
members will, in fact, want the company to do that.
    Senator Murray. So it is possible that we could see a 
supplemental appropriation if we see a bankruptcy occurring?
    Mr. Rosen. Senator, I was referring to monitoring the cash 
situation and the company taking appropriate steps to ensure 
that it is satisfactory.
    Senator Murray. Mr. Gunn, let me go back to you. You have 
been required to operate a railroad in the midst of all this 
debate over proposals by the administration to put Amtrak into 
bankruptcy. I am concerned about how the railroad's day-to-day 
finances have been impacted by the language in the President's 
budget stating the administration's intention to put the 
railroad into bankruptcy. And I am curious how that and the 
Senate vote that failed to reinstate your subsidies may have 
impacted your daily finances?
    Have any of railroad's costs, be they borrowing costs or 
insurance costs or expense costs been negatively impacted by 
the discussions of bankruptcy or the failed vote in the Senate 
to restore your subsidy?
    Mr. Gunn. Yes.
    Senator Murray. Can you be specific?
    Mr. Gunn. A number of things have happened. One, on 
insurance, we did have an insurance policy that was up for 
renewal. And it was an important policy. And I think we 
probably ended up spending $500,000 to $1 million more than we 
would have. We had our bond rating downgraded. We are beginning 
to get from certain--and I do not want to be specific--but we 
are beginning to get from certain suppliers requirements for 
changes in payment terms. We are pretty current. We pay on a 
current basis. We try to be a good neighbor in that sense. But 
we have a number of fairly large accounts that are talking 
about our escrowing cash or giving them cash in advance.
    We have been unable to close our books, and that means the 
meter is still running on our accountants. There is nothing 
wrong with the books; the issue is the management letter. So 
there has been a number of real impacts, and the biggest impact 
which could happen, of course, is on the payable side, 
commercial payables.
    Senator Murray. We are going to have a vote in just a few 
minutes so I will end shortly. But Mr. Rosen, I just want to 
say that the only funding for passenger rail included in the 
President's budget is the $360 million for the Surface 
Transportation Board. As a matter of law, those funds can only 
be used to continue the operation of commuter rail services 
that operate over Amtrak property or by Amtrak employees once 
Amtrak ceases to operate. That is what the law says. The funds 
can be used once Amtrak ceases operations.
    Your formal statement kind of glossed over that fact and 
you seemed to imply that this funding provided to the Surface 
Transportation Board could actually be used to continue 
operations of Amtrak trains on the Northeast corridor.
    So Mr. Gunn, I want to ask you to clarify this question. If 
this committee adopted the President's budget of providing zero 
to Amtrak and $360 million to the Surface Transportation Board, 
do you think that the Northeast corridor trains will be able to 
operate next year?
    Mr. Gunn. Absolutely not. I can give you a real simple 
reason why. If you look at the engineering department's 
operating budget and capital budget for fiscal 2004, for 
example, it was $550 million, $150 million operating and $400 
million capital. And basically that is all corridor, 90 percent 
of it is corridor.
    But on top of that, in order to run the corridor, you have 
to have a payroll department, an accounting department, a law 
department. You have to have the support. You have to have 
procurement.
    We gave the IG--actually the FRA Administrator but it was 
also to the IG--a report a year or so ago where we calculated 
the cost of a stand-alone corridor and it is $1 billion a year 
plus.
    Senator Murray. So would it be even safe to operate the 
commuter trains under these conditions?
    Mr. Gunn. I cannot answer that. I do not know how they are 
going to spend the money without an organization to spend it. 
That is the problem. We are the ones that spend the money, that 
know how to fix the wire, the signals, the track. If we are 
gone and have been liquidated, I do not know who spends the 
money.
    Senator Murray. Mr. Mead, do you want to add anything else 
before we recess?
    Mr. Mead. Just that I do not think anybody really thinks 
that the $360 million is the best way to go. It is a road we 
have never been down before. I do not think anybody really 
wants to go there.
    Senator Murray. Thank you very much. Mr. Rosen, you look 
very anxious to clarify.
    Mr. Rosen. I would like to add a couple comments to that, 
if you give me 1 last minute here.
    The question as to whether the STB's funding could be used 
for Northeast corridor trains would require a legal 
determination as to whether those trains, particularly the ones 
that make multiple stops, could be deemed to constitute 
commuter service. So I think there is a legal question there 
that it would have to be resolved. And it is not a given that 
it would only be the trains operated by say New Jersey Transit 
or SEPTA and others.
    Second, one should not forget that the Northeast corridor 
trains, on the operating side, operate at something 
approximating break even. They do generate cash. It is not a 
given that those would need to stop if Amtrak was otherwise in 
a problematic financial situation.
    Senator Murray. Unfortunately, we have a vote. I have to 
say that Mr. Gunn, let me just ask you, how many years have you 
spent working in the railroad and transit industry?
    Mr. Gunn. Forty-one.
    Senator Murray. Mr. Rosen, how many years?
    Mr. Rosen. How many years working in the railroad industry?
    Senator Murray. I am sure you are a great lawyer but I just 
wonder how much time you have spent working in the railroad and 
transit industry?
    Mr. Rosen. Given that I have been a lawyer my whole career 
and have not been a train operator, I think you know the answer 
to that.
    Senator Murray. I appreciate that. So you cannot blame me 
for considering Mr. Gunn's views to be authoritative on this.
    Mr. Rosen. I hope you will take my views as the 
authoritative ones on the administration's reform proposals, 
rather Mr. Gunn's, too.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Murray. Any additional questions submitted to your 
department should be answered in a timely manner and will be 
included in the record.
    [The following questions were not asked at the hearing, but 
were submitted to the agency for response subsequent to the 
hearing:]

          Questions Submitted to the Amtrak Board of Directors
              Questions Submitted by Senator Conrad Burns

    Question. Your proposal for long-distance trains requires the 
performance of trains to be measured against a set of undetermined 
performance criteria, which would seem to be mostly--if not entirely--
financial. Under such a system, how would the public service value of 
Amtrak be measured?
    For example, if folks are riding the Empire Builder to go to a 
doctor, or to receive long-term medical care, the cost of that service 
might not pencil out, but it is certainly valuable. How would that be 
considered, under your proposal?
    Answer. The clear signal we have received from Congress and the 
administration is that financial performance must improve. The Board 
agrees with that message. Nonetheless, I anticipate that the criteria 
for evaluating the performance of long distance trains will attempt to 
factor into account public benefits and not just financial performance. 
For example, the route performance criteria might include a measure 
that reflects the number or percentage of passengers on a long distance 
route traveling to/from communities where alternate public 
transportation services are limited or non-existent.
    Question. Your proposal also relies heavily on the development of 
corridor trains. Do you have a sense of what the real potential for 
such service is?
    Answer. Despite the absence of a Federal corridor rail program, 13 
States are currently partnering with Amtrak to fund the operation of 
corridor services in shorter distance markets (less than 500 miles). 
Many of these States have also made capital investments with their own 
funds. The growth in ridership and service that has resulted from these 
investments--on the Amtrak Cascades route in Washington and Oregon, the 
Capitol Corridor in California and the Hiawathas route in Wisconsin to 
name just three--demonstrates the potential for corridor rail 
development in densely populated corridors throughout the country.
    Due to the lack of a Federal capital program for States, there is 
no data source to indicate the potential for development of corridor 
rail service. Knowing this, over the past 2 years, Amtrak has surveyed 
States to get an indication as to their plans for existing or future 
corridor development. In 2004, 29 States responded to the survey and 
provided details about their plans. Many of them also indicated that 
lack of a Federal funding match program is a major impediment to 
corridor development, and that enactment of such a program would act as 
an incentive to more aggressively develop existing passenger rail 
corridors or begin developing new ones.
    Based upon the information States provided in the 2004 survey, the 
Corridor Appendix to Amtrak's fiscal year 2005-2009 Strategic Plan 
(transmitted to Congress and available at www.amtrak.com) identified 
eight ``Tier I Corridors'' and four ``Tier II Corridors''. These are 
corridors where States have ``ready to go'' plans--including capital 
investment plans and funding commitments for State matching funds--for 
corridor development projects that could provide significant near-term 
benefits if Federal dollars were made available to match State 
investments.
    Question. Can you discuss the recommendation to shift new workers 
away from the Railroad Retirement system into Social Security?
    Answer. Amtrak's Strategic Reform Initiatives propose that the 
provision of intercity passenger rail services be opened to 
competition, and that intercity passenger rail be placed on an equal 
footing with other transportation modes. Requiring Amtrak and many 
potential new operators of interstate passenger rail service to pay 
Railroad Retirement taxes places interstate passenger rail at a 
disadvantage with respect to other transportation modes. For example, 
the airline industry is subject only to Social Security, and a large 
portion of its retirement obligations to its employees has been assumed 
by the Federal Government as a result of airline bankruptcies. The fact 
that some potential operators of intercity passenger rail might not be 
subject to Railroad Retirement taxes under existing law also creates 
inequities that ultimately must be eliminated to create a truly 
competitive market. Conversely, potential interstate passenger 
operators are unlikely to attempt to enter the Amtrak market as 
competitors if the cost of doing so includes Railroad Retirement taxes.
    Amtrak believes that placing all new intercity passenger rail 
employees under Social Security is the best way to transition to a 
level playing field and reduce Federal subsidy requirements without 
impacting the retirement planning or benefits of current Amtrak 
employees and retirees.
                                 ______
                                 
                     Questions Submitted to Amtrak
             Questions Submitted by Senator Byron L. Dorgan

                           VETERANS ADVANTAGE

    Question. Thousands of North Dakotans depend on Amtrak each year 
for their transportation needs. However, long distance trains, 
including the Empire Builder that serves my State, are under attack by 
the Bush Administration. The administration provides no Federal subsidy 
in its fiscal year 2006 budget for Amtrak's long distance rail service. 
I understand that Amtrak has submitted a sizable request for funding 
for next year, and I will do what I can to support it as a member of 
this subcommittee.
    On a related note, I would like to talk to you about a program to 
provide discounted train service to America's veterans. For more than 2 
years, Amtrak offered a 50 percent discount for veterans in off peak 
periods. I am told that this was a very successful program.
    You may recall that this committee included language in the 2004 
conference report strongly urging Amtrak to continue the 50 percent 
discount for veterans. Would you please let this committee know what 
Amtrak intends to do in the future about this program?
    Answer. As you know, Veterans Advantage (VA) is a paid membership 
program, and the discount associated with this program is only 
available to their subscribers. Amtrak currently offers VA members a 15 
percent discount.
    The 50 percent discount that you refer to was initiated as a 
promotional offer, and the promotion had a mutually agreed upon end 
date of December 2003. This deep discount offer was never intended as a 
permanent fare program. VA was aware of the terms and conditions of the 
promotional discount and knew that it would expire in 2003. No other 
business partner with Amtrak received as generous an offer as what was 
given to VA for this promotion.
    Last year, in an effort to work cooperatively with VA, Amtrak 
offered a buy one get one free promotion that was rejected by VA. 
Amtrak then offered a limited 50 percent off promotional program to VA 
members for the fall of 2004 that too was rejected by VA. The Amtrak 
offer was from September 14, 2004 through February 8, 2005. VA sent a 
letter dated September 16, 2004, declining the Amtrak 50 percent 
discount offer. Since then, Amtrak has tried to work reasonably with VA 
in the hopes of reaching a mutually beneficial arrangement for 
additional temporary promotional offers for its members, yet our offers 
have been turned down.
    I want to be clear that for the past year we have worked sincerely 
to find a mutually beneficial solution to this matter. In fact, Amtrak 
not only continues to offer a 15 percent discount to VA members, but 
the program is also promoted on Amtrak's website, system timetables and 
other marketing materials. In addition, to provide the program with an 
incentive to attract new members, Amtrak is also offering 500 free 
points in its Guest Rewards program to new Veterans Advantage members. 
Amtrak remains committed to continuing to work with VA and its members.

                  AMTRAK'S IMPACT ON RURAL COMMUNITIES

    Question. Do you believe long distance passenger rail routes will 
be able to survive if States are left held responsible for making up 
the funding? Has any State indicated to you that they would have the 
resources to make up such shortfalls?
    Is it your expectation that some of the long distance routes would 
cease to exist?
    Answer. Under Amtrak's Strategic Reform Initiatives, States would 
be required to provide operating funding for long distance trains only 
if, after efforts to improve performance, a particular train still 
fails to meet minimum performance thresholds, and then only to cover 
the ``gap'' between the threshold amount and the train's actual 
operating losses. While no State has indicated that it is in a position 
to bear the full operating losses of multi-State long distance trains, 
we believe that it is possible that some States might provide some 
``gap closing'' amounts required under this proposal.
    Amtrak does not anticipate that long distance routes would survive 
if States were responsible for covering all operating losses. 
Significant impediments to States assuming such responsibility include 
the large number of States (generally 6-12) served by each long 
distance route; differences in relative benefits received by individual 
States; and variations in States' financial resources, transportation 
policies, and constitutional statutory frameworks governing 
transportation funding. It bears noting that on no occasion in Amtrak's 
34-year history has a group of States offered to provide operating 
funds to retain long distance routes slated for discontinuance.
    Whether some trains are ultimately added to or subtracted from the 
long distance system will depend upon the performance of individual 
routes and, for any routes that do not meet minimum performance 
thresholds, States' willingness to fund a portion of operating losses 
so that those thresholds are met.

                         AMTRAK AND COMPETITION

    Question. Part of the Amtrak reform plan is aimed at promoting 
competition. Have other rail operators indicated to you that they wish 
to provide passenger rail service for the long distance routes, such as 
in my State of North Dakota?
    Answer. No other railroad has indicated to Amtrak that it is 
interested in operating long distance trains. Some private companies 
have expressed very preliminary interest in providing on-board services 
(food and beverage/sleeping car) on long distance trains. Amtrak 
remains open to other providers assuming additional services, or 
ultimately operating entire routes, if legal and contractual 
impediments are addressed.

                         CONCLUSION OF HEARINGS

    Senator Murray. The subcommittee stands in recess, subject 
to the call of the Chair.
    [Whereupon, at 11:32 a.m., Thursday, May 12, the hearings 
were concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]
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